India's new tax charter promises 'faceless' scrutiny — Here's what that means

• Tax assessment and appeals will now be ‘faceless’ in India.
• This means that the identity of the taxpayer and of the tax officer should have no bearing on issues of tax scrutiny.
• Faceless assessment will be rolled out starting today and faceless appeals will be active starting September 25.

Prime Minister Modi has pushed for reforms with a new tax charter that aims to reward honest taxpayers, improve transparency and efficiency in the bureaucracy.

The new platfom has three parts to it — faceless assessment, faceless appeal and the taxpayer charter. Faceless assessment and the taxpayer charter will be live starting today. The system for faceless appeal will roll out on September 25. The integration of ‘faceless’ tax scrutiny will make many existing taxpayer-tax officer relationships long distance.

Until now, if you were issued a notice or wanted to address an issue in your tax returns, you would have to go to your local tax office. In some cases, the tax office and the tax payers have locked horns often enough to have a relationship between them, which can be both good and bad, but does influence the narrative on cases.

However, India’s new taxation platform will abolish the geographical boundaries within India. “With the help of technology, matters of scrutiny can now be looked at by a tax officer anywhere in India, in any city and at any branch,” said India’s Prime Minister Narendra Modi during the launch.

According to Modi, the objective of making the process faceless is that the identity of the taxpayer and the tax officer should have no bearing on the outcome of any case.

How does a ‘faceless’ tax system work?
Any concerns with respect to tax will be assigned on a random basis. An appeal by a taxpayer in Mumbai will no longer end up with a tax officer in Mumbai. Instead, the case could end up anywhere from Ranchi to Guwahati.

Once the first tax officer has passed his verdict, the file will randomly be assigned once again to another officer to review the assessment.

Not only will all the movement be random, but the randomisation process will also be altered from time to time.

“This eliminates the possibility for there to be a relationship between a tax officer and a taxpayer as well as the opportunity for there to be pressure or bribery of any kind will come down to zero,” said Modi.

According to Modi, in addition to reducing corruption, making the taxation scrutiny faceless also means fewer cases ending up in court. Interference in officers getting transferred should also subside.

What is tax scrutiny?
Tax scrutiny is when the Income Tax department suspects that there may be an issue of non-compliance with a certain account. To begin with, the taxpayer will receive a notice issued by the department.

They will have a certain number of days to file a reply, thereafter the assessing officer will conduct further inquiries as deemed necessary.

Common reasons for tax scrutiny include when someone fails to file a tax return, a sudden increase or decrease in income, high-value transactions, any mismatches between less and TDS.

Tax scrutiny does not mean that a person is not tax compliant. It just means that the income tax department needs more information in order to determine that everything is by the book.

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India’s ‘Transparent Taxation’ charter — Highlights of Prime Minister Narendra Modi’s speech