“In the all-encompassing role of technology in the overall scheme of faceless assessment, there is an imperative need for a robust IT infrastructure,” said analysts in a report on faceless interface, a paradigm shift in income tax law.
At present, the income tax e-filing portal allows a maximum of 10 attachments at a time and each attachment can be of maximum 5 MB. In the case of certain taxpayers, backup documents for certain transactions may run into several hundred pages, which is a constraining factor under the existing facility.
The new system will have to continue ensuring data security and confidentiality of taxpayer data since most or all documents will be submitted and maintained online, experts added.
India’s faceless taxation regime that has been brought into effect from this year is set to bring in substantial changes to standard procedures adopted by the tax department and taxpayers during assessments and appeals.
Experts added that the tax department should clarify several elements which will be helpful in smooth execution of assessment and appeals digitally. To begin with, details of risk management parameters that tax department will base its selection of taxpayers for assessment should be made available.
Provisions should be made to accept a taxpayer’s request for a virtual hearing, not necessarily after issuance of an internal draft assessment order, so as to reduce detailed explanations at the later stages which may lead to delays, they said.
“The Central Board of Direct Taxes (CBDT) is yet to notify standard procedures for personal hearings through video conferencing or video telephony. Further, this will require significant enhancement of infrastructure, connectivity (and its availability),” experts added.
Scope of review under Section 263 of the Act will also require a relook since the team-based assessment may not lead to invoking of the provision which was introduced to arm Income-tax Commissioners with the power of revising the orders of tax officers if found erroneous and prejudicial to the interest of the department.
Further, guidelines for digital signing of all submission by the managing director or direction should be provided, along with the circumstances in which assessment proceedings will be transferred to jurisdictional income-tax officers.
On the taxpayer side, experts suggested some best practices that companies can follow which can lead to fewer issues and improve compliance.
“It is essential for taxpayers to be assessment-ready and have clarity on their facts to support the legal positions they have taken,” they said, noting that taxpayers would have to regularly to check for updates and notices issued so that there are no lapses and appropriate responses can be filed in time.
Further, robust documentation should be maintained for positions taken in income-tax returns, as well as appropriate documentation substantiating claims of expenditure and disallowances made in earlier years by the income-tax department.
“Data submitted during the course of assessment proceedings will need to be aligned with that submitted to other statutory or non-statutory authorities,” they said, adding that accounting entries should be self-explanatory so that appropriate submissions and explanations can be furnished by taxpayers when these are required.
Importantly, taxpayers will need to increasingly adopt technology to maintain, reconcile and present data, which will in turn mean investing in IT infrastructure, including appropriate ERP systems and video conferencing facilities.
Updating email IDs and contact numbers on the income tax e-filing portal, valid bank account details, maintaining robust documentation for every transaction, synchronising information submitted with income tax department and other authorities, such as GST, SEBI and RBI, besides timely response to notices or queries from tax department, will be critical.
“Taxpayers will need to maintain a ratio analysis on their large expense heads as well as comparisons from the previous year’s numbers… back-ups to support disclosures including comprehensive calculations for forex conversion, bond stripping, allocation of costs and valuation of stock will need to be maintained,” they added.