DH Deciphers | New income tax reforms and what they mean for taxpayers

Two days before the 74th Independence Day, Prime Minister Narendra Modi announced three structural reforms related to income tax: faceless assessment, faceless appeals and a taxpayers' charter. While the faceless assessment and the taxpayers' charter came into force the same day (August 13), the faceless appeals scheme will be applicable from September 25 onwards.

These reforms are part of the 'Transparent Taxation-Honouring the Honest' platform that seeks to boost the "confidence of the taxpayer and make him/her fearless". While the reforms are significant in the wake of allegations of tax terrorism, their real test will be in implementation. Let us understand them one by one and what they mean for taxpayers:

Why is the faceless assessment and appeals mechanism a big deal?

Under the faceless assessment and appeals mechanism, there will be no personal interaction between the taxpayer and the income tax assessing officer. Until now, each taxpayer was being assessed by an assessing officer, who had a fixed jurisdiction, in which he/she was liable for all actions — the processing and scrutiny of returns, collecting demand, filing appeals in the high courts or the Supreme Court, etc. In a way, he/she was doing all the work for an assessee. But now, tax assessment and appeal can go to any officer anywhere in India. Personal relationship and any other considerations will not come into the picture. Tax assessment and appeals will be decided by an anonymous team. Communication between the taxpayer and the assessee team will be done from a centralised place. Any verification, too, shall be carried out by a central unit.

How will this help the taxpayers?

Since no particular field tax officer will have discretionary powers concentrated in him/her, the automated assessment and the anonymity of assessment will reduce coercion on taxpayers.

Will faceless assessment include serious tax frauds, too?

Serious frauds, major tax evasion, sensitive and search matters will be excluded from faceless assessment and appeals, so will be international taxation, the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act and Benami properties.

What is a taxpayers' charter?

It is a document that sets out the rights and obligations of a taxpayer. It seeks to strengthen the legitimacy of taxes and recognises the goodwill of the taxpayer in fulfilling their financial liabilities. It also promises to safeguard the rights of taxpayers and foster a relationship of mutual trust, respect and responsibility between them and the state. According to the charter, the taxman shall treat every taxpayer as honest unless there is a reason to believe otherwise.

What does the charter aim to achieve?

By codifying the rights of taxpayers and the duties of the tax administration, the charter seeks to increase voluntary compliance, reduce the compliance cost and treat all taxpayers equally, without any bias or preference. It aims at reducing both tax evasion and avoidance.

What are the rights of taxpayers?

The right to be informed about tax laws, the right to be assisted by the tax administration about tax liabilities, tax data, etc. Taxpayers also have the right to the confidentiality of their personal tax and financial data, the right to be represented in tax cases, the right to ask for evidence from the tax administration, the right to a reasonable inspection and the right to be heard and complain.

Is the taxpayer charter unique to India? Does it have legislative backing?

Many countries such as the US, Australia, Canada, Ireland, New Zealand, Singapore and South Africa have such a charter but only in the US, Canada and Australia is it backed by the statute. India will be the fourth country to enshrine the charter in the income tax law.

But there's already a citizens' charter in India. Why bring in the taxpayers' charter?

The citizens' charter had no legislative backing. As a result, it failed to safeguard the interests of taxpayers. The taxpayers' charter is expected to replace that.