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Monday, April 12, 2021

India announces major tax reforms: Here’s all you need to know

Here comes another major announcement from the Centre. And this is definitely a piece of good news for the country’s honest taxpayers. Prime Minister Narendra Modi has launched a new tax scheme to resolve the key issue that plagues this sector – lack of transparency and honesty. So what is the new tax reform? And how will it function? In this article, we shall discuss every detail concerning this subject.

Here’s the Centre’s new tax reform plan explained in 5 points

1. What did PM Modi announce on the tax reform front?

The PM launched faceless tax scrutiny and appealed to people to pay their due taxes in time and contribute to the process of nation-building. While announcing the new plan, Modi spoke of a platform for “Transparent Taxation – Honoring the Honest”. As a report by HT stated, the platform will offer major reforms in the sector, such as faceless assessment, faceless appeal and taxpayers charter. Needless to say, the new tax reforms will completely change the way taxes are paid and calculated in India. Modi claimed that the government is making full efforts to make the tax system an easy, hassle-free and faceless process.

“Faceless assessment and taxpayers charter come in force from today, whereas faceless appeal service will be available from September 25. Faceless teams across India will be checking IT returns and will redress grievances,” Modi said during his virtual address on Thursday. The Centre said that the Income Tax department will adopt a “taxpayer charter”, describing the rights and responsibilities of tax officers and taxpayers to clarify all their doubts and queries.

2. So what it is this faceless tax assessment?

If we explain it in simple terms, faceless assessment of tax is nothing but a sensible and required initiative to remove human involvement from the whole process of tax payment. The new system will include just the taxpayer and the Income Tax (I-T) Department and nobody else. Union finance minister Nirmala Sitharaman said that the process of faceless tax assessment and appeal will reduce the unnecessary burden from taxpayers and ensure fairness and transparency to the entire system.

3. Features of the faceless tax assessment plan

Under the new system, genuine taxpayers will be selected by using data analytics and AI only. No human interface will be allowed to this process. Abolition of territorial jurisdiction and automated random allocation of cases are two other features of this new system. The next major feature is the central issuance of notices with Document Identification No. (DIN).

If you wonder what DIN is, it stands for Document Identification Number. It is a 20-digit unique number which is generated digitally. With the Central Board of Indirect Taxes and Customs (CBIC) launching an initiative to secure all communication sent by tax officials to registered taxpayers through digitised communication,  DIN will be used to streamline all communications.

The new tax plan calls for no physical interface and no need to visit the income tax office. The entire process will function electronically. The new system will follow team-based tax assessments and team-based review. In order to maintain fairness and transparency in the process, draft assessment order will be conducted in one city, while review will be done in another city and the ultimate stage, finalisation, will be processed in third city.

4. What comes under the exceptions to this?

Well, the Centre announced that not all cases will be considered under the purview of this new tax system. Cases like serious frauds, major tax evasion, sensitive and search matters are an exception here. You can assume strict surveillance and assessment procedures are required to handle such matters. Similarly, exceptions will follow for cases related to international tax, black money and benami or unclaimed property.

5. How do tax experts react to this new development?

According to a report, the new taxpayers’ charter evoked a positive response from experts. Tax and legal consultants among others believe that the Central Board of Direct Taxes’ (CBDT) order to restrict the power to authorise tax surveys is a good step. The experts have opined that the government should implement the plan properly so that honest taxpayers are not burdened with arbitrary assessment and harassment.

India tax reforms
Photo: CBDT

We, the taxpayers, know very well that an honest taxpayer will trust in the government only when he/she is treated with fairness. It can be accomplished via quick issuance of refunds after the filing of tax returns and electronic assessments supported by the standardisation of tax positions and the introduction of faster resolution of tax disputes through the negotiated settlement process.

The dark side of India’s tax sector

We all know the names of Vijay Mallya, Nirav Modi and Mehul Choksi. We also know why are their names are notorious. According to a report, altogether 31 individuals from India accused of fraud and economic crimes are taking shelters abroad, the ministry of external affairs said. These people, probed by the Enforcement Directorate and CBI in 15 different cases, collectively owe Rs40,000 crore to banks and public institutions in the country.

Our simple question is: will these tax reforms curb such money frauds and ensure proper payment of tax? Also, bringing back black money to the country was one of the primary promises made by the ruling party in their pre-poll manifesto. Do these reforms resolve that matter too?


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