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Tax Alert: India’s Prime Minister unveils Transparent Taxation – Honouring the Honest

14 August 2020

In 2014, the Indian Government had announced minimum government, maximum governance. Since then the government has been endeavouring various measures to achieve this objective. On the tax front, this has been attempted by introducing various initiatives to revamp the functioning of the Indian Tax Authorities from governance, transparency and simplification perspective. In this direction, in September 2019, the Central Board of Direct Taxes (CBDT) notified e-assessment scheme 2019 - a steppingstone towards faceless assessment. Besides, a new section – section 119A of the Income tax Act, 1961 (IT Act), was introduced for Taxpayer’s Charter. Few days before India’s 74th Independence Day, the Hon’ble Prime Minister (PM) of India Shri Narendra Modi unveiled a platform for Transparent Taxation – Honouring the Honest to bring about structural reforms. The three main pillars of this platform are: faceless assessment, faceless appeal and taxpayer’s charter. The Hon’ble PM said that the focus of the government in the last six years has been “Banking the Unbanked, Securing the Unsecured and Funding the Unfunded” and that the platform of “Honouring the Honest” is in the similar direction. We, at BDO in India, have summarised noteworthy aspects from his speech hereunder:

Key Highlights of PM’s speech

  • The platform launched is a part of the government’s resolve to provide maximum governance with minimum government.
  • Every rule, law and policy are made with an emphasis of them being people centric, public friendly rather than power centric.
  • When the life of an honest taxpayer of the country becomes easy, he moves forward and develops, then the country also develops and leaps forward.
  • The country’s tax structure needed fundamental reforms as the earlier structure was developed from the one created during pre-independent times. The complexity of the earlier system made it difficult to conform.
  • Simplified laws and procedures make it easy to comply. One such example is the GST, which has replaced dozens of taxes.
  • India is one of the countries with lowest Corporate Tax in the World.
  • The latest laws reduced the legal burden in the tax system where now the limit of filing cases in the High Court has been fixed at up to INR 10mn and up to INR 20mn for filing in the Supreme Court. Initiatives like the 'Vivaad Se Vishwas' Scheme can pave the way for most of the cases to be settled out of court.
  • Reduction in total number of cases selected for audit by the revenue authorities from 0.94% in 2012-13 to 0.26% in 2018-19.
  • Ongoing reforms aim at making the tax system seamless, painless and faceless.
  • Seamless system works to resolve the problems of a taxpayer instead of entangling him further.
  • By being painless, everything from technology to rules should be simple.
  • Under a faceless system, there is no need for a direct contact between the taxpayer and the tax officer in all matters of scrutiny, notice, survey or assessment.
  • With the launch of the taxpayers charter, the taxpayer is now assured of fair, courteous and rational behaviour.
  • Besides, the Hon’ble PM also urged people to introspect and come forward to pay taxes.
  • Decreased complexity, decrease taxes, decrease litigation, increase transparency, increase tax compliance, increase trust on taxpayer.

Key highlights of Faceless assessments / faceless appeals

  • Faceless assessment will be effective from 13 August 2020.
  • Faceless income tax appeal will be effective from 25 September 2020.
  • Scrutiny assessment will be allocated randomly to any officer in any state. The review of the order is to be undertaken by another unit located in a different State.
  • Faceless team selection to be done by computer on random basis.
  • No interaction between the taxpayer and the tax officer.
  • Relief from transfer/posting of tax officers.

Key highlights of Taxpayers’ Charter

The taxpayers’ charter takes care of maintaining the dignity and sensitivity of the taxpayer and that is based on a trust factor and that the taxpayer cannot be merely doubted without a basis. The taxpayer has right:

  • To be treated with fairness and impartiality
  • To be treated as honest and tax compliant unless there is evidence to the contrary
  • For certainty
  • For assistance and information from the revenue authorities
  • To pay no more than the correct amount of tax
  • Not to be subject to retrospective taxation
  • To minimise compliance costs
  • To be advised and represented by any person on taxation matters
  • To appeal
  • To privacy and confidentiality of information Revenue Department hold about the taxpayer
  • To know what information income revenue authorities hold about the taxpayer
  • For the licit arrangement of your tax affairs that minimise the tax liability
  • To request a payment plan
  • To complain about the Revenue Department’s service, behaviour and actions

Similarly, the taxpayer has following obligations towards the Revenue Department:

The taxpayer is expected to:

  • Be honest
  • Be compliant, and cooperate when they deal with the Revenue Department
  • Keep proper records in accordance with the law
  • File proper and complete tax documents and effect payments by the statutory due dates
  • Inform the Revenue Department about changes in circumstances
  • Know their tax responsibilities and the consequences of noncompliance

BDO Comments

Post the speech by the Hon’ble Finance Minister, the Central Board of Direct Taxes (CBDT) issued the following communications to give effect to the PM’s speech:

  • CBDT issued an order[1] to direct that the officers posted in Directorate of Investigation( Investigation Wing) and Commissionerates of TDS can only undertake survey.
  • Order[2] to provide that the officers are directed that from 13 August 2020 all tax orders shall be passed by National e-Assessment Centre (NeAC) through the Faceless Assessment Scheme 2019 barring following:
    • Tax matters which are assigned to Central Charges
    • Tax matters assigned to international tax charges
  • Notifications[3] to amend e-Assessment Scheme 2019

Under the Faceless Assessment Scheme, the assessment will be carried out by the tax officer who may not be situated in the taxpayer’s location. All the communication between the assessment unit (i.e. tax officer) and taxpayer is routed through NeAC and thereby maintaining the transparency.

The e-Assessment Scheme 2019 (now renamed as Faceless Assessment Scheme 2019) has been amended. One of the amendments is to provide that all the pending assessment where the notice is issued under section 143(2) of the IT Act will be transferred to NeAC and then the order will be passed by the NeAC. This could result into dual work as the new tax officer will be looking at the details filed by another set of tax officer(s). Further, the taxpayer may also be required to re-explain his case to the new tax officer. It is pertinent to note that in fiscal year (FY) 2020-21 there are three assessments which are getting time barred – FY 2016-17 (i.e. where the matter is referred to transfer pricing audit), FY 2017-18 and FY 2018-19. With such a short time available, there could be chaotic situation.

Before Taxpayers’ Charter, in 2014 the CBDT had amended ‘Citizen Charter’ which was issued in 2010. While the current Taxpayers’ Charter lists down rights and obligations of taxpayers in detail, the Citizen Charter listed down the expectations from the taxpayer, contained service delivery standards and the grievance mechanism. Some of the key features of the Taxpayers’ Charter are:

  1. Revenue Department to respect taxpayers’ EU Freedoms.
  2. Tax Department to presume that majority of people act honestly unless there is an evidence to the contrary.
  3. In case of discrepancies tax department to take follow-up actions.
  4. Taxpayers can seek guidance on how the law applies to a specific transaction. However, such guidance not to extend to tax planning advice.
  5. Where taxpayer contacts Revenue Department through:
    1. Phone – Revenue Department’s staff to identify themselves and reply to the taxpayer’s query or tell the taxpayer by when they can give full reply if they are unable to do so there and then.
    2. Written Communication – Revenue Department to reply within a reasonable period. The reply will include the full name and telephone number of the officer concerned.
    3. Personal visit – attend to the taxpayer immediately (where there is an appointment) and respond to the query and if it is not possible, inform the taxpayer about the expected timeline for response.
  6. Taxpayer not to subject with retrospective taxation when there is change in law.
  7. Stakeholders to be consulted on new initiatives proposed by the tax department.
  8. Information collected by the tax department to be kept confidential.
  9. Taxpayer can make an application to Data Controller to access the data held by the tax department, barring certain exceptions.
  10. Taxpayer is obliged to keep and retain proper, sufficient and updated records, and to issue tax invoices and fiscal receipts as required by law.

[1] F.No. 187/3/2020-ITA-1

[2] F.No. 187/3/2020-ITA-1 dated 13 August 2020

[3] Notification No. 60/2020/F.No. 370149/154/2019-TPL and Notification No. 61/2020/F.No. 370149/154/2019-TPL dated 13 August 2020