All about faceless assessments under Income Tax Act

You may be familiar with the evaluation process for class X or XII Board examination answer sheets. Answer books will be updated with fictitious roll numbers and these will be evaluated by the approved examiners. Neither the students nor the examiners will get to know each other’s identity.

Faceless Assessment under Income Tax Act follows a somewhat similar process by doing away with the human interface between the Taxpayer and the Tax Officers and therefore, a taxpayer (or his representative) whose tax return is under Scrutiny Assessment can’t meet the Officer in person, submit the documents physically or provide an explanation, exchange pleasantries or share their difficulties!

What is Scrutiny Assessment?

Over 5.65 Crore people file Income Tax Returns in India. Of which, 99% of the Returns are processed and accepted by the tax department as they are being filed by the taxpayer (no questions are asked). Less than 1%, say, 5 Lakh Returns are selected on a random basis for further verification by the Tax Officers and this is known as Scrutiny Assessments.

Hitherto how was it done?

The taxpayers whose returns were selected for assessments were getting Scrutiny Notices from the Jurisdictional Tax Officer.

The responses to the Notice should have been done electronically and if required, the assessee had the option of meeting the concerned officer, submitting the information and offering clarifications, if any.

What has changed?

First, the identity of the Officer is not revealed, hence called Faceless! Secondly, the assessment can be done anywhere in India, called Jurisdiction free. In short, there is no way, the assessee can physically reach out to the Tax Officer. The whole assessment process is digitised and will be done electronically.

How is it done?

The Notices shall be served at the registered email address of the taxpayers, from a Centralise National e-Assessment Centre (NeAC), Delhi, without revealing the identity of the Officer conducting the assessment. (Note: No physical notices will be sent. Remember the brown envelope? It is history now)

In response to the Notice, the taxpayer has to submit the relevant information and documents online, in the income tax portal. NeAC shall assign the case to the Assessment Units (AU) through an automated allocation system. They will process the documents and in case they need further support, they can approach Technical Units (TU). Further, they can also seek the help of the Verification Unit (VU) to ascertain the facts of the case, such as cross verification, the examination of books, recording of statements, etc. This apart, the Review Unit (RU) will review the draft Assessment Orders passed by the Assessment Unit.

The NeAC shall, after receiving the concurrence of the Review Unit, finalise the draft assessment order or provide an opportunity of being heard to the assessee if any tax additions are to be done. After the assessment is done to recover taxes, if any, the electronic records are sent to the Jurisdictional Assessing Officer.

All communication between the NeAC and the taxpayer and all internal communication with the tax department will be electronic mode only.

What if the taxpayer disagrees with the additional demand?

In case the taxpayer finds it difficult to convey his part of the story, he can request a hearing and if the department is of the opinion to grant the permission, they can provide a video conferencing facility with the assessment unit.

Despite this appeal, if the tax liability is levied, the aggrieved taxpayer can appeal through National Faceless Appeal Centre (NFAC). They are the nodal point of contact to conduct e-appeal proceedings.

How will it impact the taxpayer?

Records and documents are elementary backbones of Tax Returns. Its importance can’t be overlooked in the changing dynamics as documents should speak for the taxpayer. It is absolutely necessary to store, preserve, and manage the records, preferably in a digital platform, so that they can be retrieved with ease. This is all the more important now, as the taxpayer will get only 15 days window to respond to the Tax Notice.

Here are some guidelines on essential documentation

Irrespective of the nature of income, Bank Statements for the full year must be available. This apart, Investment proofs, rental agreement & receipts, documents relating to property transactions, stock trading statements, if any, may be required.

Similarly, a Gift deed in case of receipt of gifts, an Interest certificate from the bank towards housing loan, Loan agreements, etc., will form part of smart and efficient record management.

This is a good initiative to impart greater efficiency, transparency and accountability in the tax system. It should be good for those who maintain impeccable documentation. Those who have weak documentation, not declared all of their income, or wrongfully filed the returns are the ones who will find the going tough. By prioritising and organising documents, one can save time and taxes.

(The writer is Chartered Accountant and Registered Valuer)