The tax system in India has seen major reforms lately with the aim of simplifying the tax structure, bringing in ease of compliance and reducing litigation.
On August 13, 2020, the Prime Minister launched a platform for ‘Transparent Taxation- Honouring the Honest.’ The platform comprises three reforms: faceless assessment, faceless appeals and the Taxpayers’ Charter. While faceless assessment and taxpayers’ charter are effective from August 13, 2020, the faceless appeal services will come into effect from September 25, 2020.
Faceless assessments and appeals
Faceless assessment and faceless appeals aim to eliminate physical interface between taxpayers and the tax authorities, thereby imparting greater efficiency and transparency to the assessment and appeal process.
The Central Board of Direct Taxes (CBDT) had notified the E-assessment Scheme, 2019 on September 12, 2019, in line with the notification of the National e-Assessment Centre (NeAC) at Delhi and various Regional e-Assessment Centres (ReAC) across 20 cities in the country, for the implementation of faceless assessment. Detailed guidelines for the implementation of faceless assessment have now been released.
In this scheme, the selection of cases for assessment will be through data analytics and artificial intelligence. Though tax officers and staff will perform functions relating to assessments and verification, all communication to the taxpayer from the tax department will be issued in the name of NeAC and no communication will be made by ReACs. This is a welcome step to ensure transparency. The taxpayer will no longer be required to visit the income tax office for assessment and appeals.
During the Budget 2020 speech, the Finance Minister proposed to amend the provisions of the Income Tax Act, 1961 to authorise the CBDT to adopt a Taxpayers’ Charter with the objective of creating a tax system which will build trust between the taxpayer and the tax authorities.
The Ministry of Finance released some pointers on the contents of the Taxpayers’ Charter that comprised of commitment to taxpayers and obligations of a taxpayer towards the tax system.
The Taxpayers’ Charter aims to treat taxpayers as honest individuals / entities and to provide them with fair and courteous treatment. It proposes to resolve issues in a time-bound manner and provide timely decisions to help taxpayers settle disputes without having to go through a long-drawn litigation process.
Further, holding tax authorities accountable and publishing service standards and reports periodically will help to raise the level of service and responsiveness of the tax officials and promote ease of dealing with tax authorities for taxpayers.
The Taxpayers’ Charter also aims to provide complete and accurate information for tax compliance and endeavours to reduce the cost of compliance. Taxpayers sometimes inadvertently miss reporting income by oversight, leading to litigation and levy of interest and penalties. Providing them with information they should consider while filing their tax returns, will certainly make compliance easier for the taxpayer.
On the other hand, the Taxpayers’ Charter expects the taxpayer to be honest and compliant in reporting all details to tax authorities. As a good citizen, it will be the responsibility of the taxpayer to maintain accurate records, provide timely response and make tax payments on time.
If implemented in letter and spirit, this will instil confidence and trust in taxpayers and encourage a wider population to pay their taxes and file their returns.
Other Amendments pronounced via Tweets
The government has proposed to widen the scope of reporting in the Statement of Financial Transactions (SFT) to include various transactions carried out by individuals in their day-to-day activities via a tweet issued on August 13, 2020. SFT is a statement filed by specified persons with the government to report certain transactions over specified thresholds that they have had with individuals.
The tweet indicated a proposal to cover expenditures such as payment to hotels above Rs 20,000, life insurance premium above Rs 50,000, payment of education fee above Rs 1 lakh per annum, domestic business class air travel/foreign travel, payment of property tax above Rs 20,000 per annum, etc., to be included within the ambit of SFT. The tweet further states that it will be mandatory to file a return for a person with bank transactions above Rs 30 lakh, by all professionals/businesses having turnover above Rs 50 lakh and on payment of rent above Rs 40,000. Also, the government has proposed to deduct tax at a higher rate for non-filers of income tax returns.
While these measures are aimed at ensuring transparency and better compliance, thereby broadening the tax base, an official notification in this regard is awaited.(Homi Mistry is a Partner with Deloitte India. Mousami Nagarsenkar, Director and Prachi Phansikar, Deputy Manager, with Deloitte Haskins & Sells LLP, also contributed)