UPSC MAINS 2019 : Faceless tax scrutiny assessment

Faceless tax scrutiny assessment

Topic : Faceless tax scrutiny assessment

Topic in Syllabus: General Studies Paper 3: Indian Economy



Faceless tax scrutiny assessment

An important announcement in the finance minister’s budget speech pertains to the introduction of a system of faceless tax scrutiny assessment..

What is faceless tax scrutiny assessment?

  • “Faceless Assessment”, which means that there will be no human intervention while scrutinising the tax return.
  • Faceless assessment or scrutiny means that the assessing officer will not know the identity of the tax payer and would use technology to scrutinise details of the tax payer.
  • The aim of a faceless assessment is to cut down the interaction between taxpayer and income tax officer.
  • This step aims to eliminate corruption in the tax department


Why Faceless e-assement?

  • The existing system of scrutiny assessments in the IT Department involves a high level of personal interaction between the taxpayer and the Department, which leads to certain undesirable practices on the part of tax officials.
  • To eliminate such instances a scheme of faceless assessment in electronic mode involving no human interface is being launched this year in a phased manner.


Concerns over faceless tax scrutiny 

  • For faceless tax scrutiny to be successful in all respects, the most important rule is that tax rules ought to be drafted with utmost clarity.
  • Unfortunately, in our Indian tax system, legal disputes ensue because tax laws are not drafted with clarity and are hence misused by tax officers.
  • Such litigation adds to cases in the country’s already overburdened courts.

In the past, section 80HHC was the best example of misinterpretation of tax provisions by tax officers. It meant that almost every taxpayer who availed benefits under the section had to undergo litigation on various grounds. Such cases took years to settle.

  • It is, therefore, more important to draft tax rules with clarity before embarking on faceless tax scrutiny.
  • Last year, the CBDT issued a circular stating that the commissioners of appeal will be rewarded for issuing more orders in favour of the department than those in favour of the taxpayers. This was totally uncalled for.
  • It is important to fix accountability of tax officers and ensure that they pass assessment orders according to the tax statutes.


Case study of an Archaic provision

  • It is not easy for NRIs to sell their property in India.
  • After finding the buyer, they have to get a tax clearance under section 195 or 197 for each sale transaction before registering the sale deed. Such deals often fall through due to delay in securing tax clearance.”
  • To avoid harassment of NRI taxpayers, a circular was issued setting a time limit of 30 days to issue a clearance certificate.
  • But that has not been of much help, because of the corruption in the department and the unfriendly attitudes of tax officers. Taxpayers are issued online notices to submit affidavits or papers, which are not relevant to the determination of the tax or the TDS amount.
  • A person registering a sale deed without obtaining a tax clearance certificate — by accepting a token amount — can be subject to harassment.


Difficult Taxing procedure

  • At present, tax scrutiny assessments are done online.
  • Tax payers receive notices asking them to submit irrelevant details and papers.
  • They are issued notices stating that the required details have not been submitted in time.
  • Tax payers could be subject to penalty, prosecution or an income tax survey.Even senior citizens are not spared.
  • Facing the threat of a survey, the tax payer approaches the tax officer personally to manage the assessment.


Way ahead:

  • The tax department should be more taxpayer friendly.
  • The department’s object should not be to maximise tax revenue by making unlawful additions to the taxable income of tax payers or by denying them timely tax refunds
  • Even though we follow the online tax assessment system, tax payers are not issued large refunds in time.
  • One receives an assessment order or an order giving effect to tax appeals but refunds are issued at end of the financial year — that too without interest from the date of the order to the date of the issue of refund.
  • So before resorting to faceless scrutiny, it would be desirable to make the current online assessment more taxpayer friendly.


Sample Question

For faceless tax scrutiny to be successful, tax rules ought to be drafted with clarity. Elucidate.



Faceless tax scrutiny assessment infograph