Early last week, Gopalam & I, visited Praful, a former colleague who was unwell. Praful was a couple of years senior to me during my "articleship training," the mandatory three-year practical training for aspiring Chartered Accountants. Gopalam, another senior colleague had recently retired at 58.
As we reminisced about the "good old days," our conversation covered various topics, with a significant focus on professional matters. One point we all agreed on was the drastic transformation of tax assessment procedures in recent years.
Since Praful and Gopalam hadn't been involved in these matters towards the end of their careers, I had the opportunity to explain the "faceless" aspect of tax assessments. During our discussion, I realized that many outside the profession are unaware of how this process works, hence this post.
Income Tax Scrutiny under Faceless Assessments
Income tax scrutiny is a detailed examination of a taxpayer's return by the Income Tax Department to verify its accuracy and ensure compliance with tax laws. With the introduction of faceless assessments in India, the scrutiny process has undergone a transformative shift, becoming more transparent, efficient, and objective.
Faceless assessments, introduced as part of the Taxpayers’ Charter, aim to eliminate physical interface between taxpayers and tax officials, ensuring impartiality. The process leverages technology and data analytics to streamline the scrutiny process while maintaining confidentiality and reducing human intervention. The system operates through the National Faceless Assessment Centre (NaFAC).
Steps in Income Tax Scrutiny under Faceless Assessments
Selection for Scrutiny:
Returns are selected for scrutiny normally using risk-based parameters or random allocation. Notices are issued under relevant section of the Income Tax Act, and delivered electronically to the taxpayer’s registered account or email.
Issuance of Questionnaire:
The assessing officer sends a detailed questionnaire and requests specific documents or information to address discrepancies or issues identified in the return.
Submission of Response:
Taxpayers are required to upload the requested documents and explanations on the e-filing portal within the stipulated time frame. Non-compliance or delay may result in an adverse order.
Processing of Information:
The submitted information is reviewed by designated assessment units. These units analyze the data and may seek additional clarifications or documents, if necessary. Complex matters may involve verification or technical units for further evaluation.
Draft Assessment Order:
Based on the findings, the assessing officer prepares a draft order, which is reviewed by a review unit. Recommendations for modifications, if any, are incorporated to ensure accuracy and fairness.
Communication of Final Order:
After the review, the final assessment order is issued electronically to the taxpayer. If additional tax liabilities are determined, the taxpayer is notified and must settle the amount within the prescribed timeline.
Advantages of Faceless Assessments
Impartial assessments, Efficient Online assessments, Transparency, data driven accurate scrutiny.
Challenges for Taxpayers
Digital literacy required, complex documentation is burdensome, lack direct taxpayer-officer interaction.
To sum up, faceless assessments represent a paradigm shift in India’s tax administration and fosters a taxpayer-friendly ecosystem. While the process demands precision and timely compliance, it offers convenience and fairness. Proactive record-keeping and professional help are crucial for navigating faceless tax assessments, a step towards a modern tax regime.
The content made available in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and completeness of the content, it should not be considered as a substitute for professional consultation.
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