In today's Finshots, we talk about all the cool stuff happening in the Income Tax (IT) department.


The Story

The basic tenets of taxation remain simple. Get more people to pay their taxes. Get them to do it honestly. And make sure they are consistent with it.

If you are the government here, you're trying to optimize this process. The government could simplify the tax code. Fewer laws equal better compliance. The government could also make it easy to file returns. Online websites help on this front. Or you could try and do something entirely different. Eliminate fear.

Every individual who earns income beyond a certain threshold must file a statement that includes details of her income and a few additional notes. Once you furnish these details (the Income Tax Return- ITR), the IT department will process it and see if anything funny comes up. If something does come up, the department will authorize one of its officers to conduct an independent assessment. The objective here is to see if you’ve been honest in revealing details of your income and expense. If the officer suspects something, you might be asked to turn in additional information to support your own assessment. In some cases, you might have to meet your local income tax officer to explain your position in more detail. These meetings could turn unsavoury and most people shudder at the thought of meeting tax officers in general.

So perhaps if you could inspire confidence here, people would be more forthcoming in filing their returns. Enter — Faceless Assessment.

In the new system, a central computer will pick up tax returns for scrutiny based on risk parameters and mismatches, and then it will allot them randomly to a team of officers in any city. The scrutiny by these officers will be reviewed by officers at another randomly selected location.

Notices, if any, will be sent only by a centralised computer system, and the taxpayer can respond to them electronically without the requirement of visiting a tax office or meeting any official.

As the Chairman of the Central Board of Direct Taxes (CBDT) Pramod Chandra Mody noted —

“Earlier the assessment was linked to a territory to which an assessee (tax payer) is linked. In a way, the taxpayer was bound by that. A lot of things would depend on the discretion of an assessing officer. We have completely revamped it.”

Meaning no one individual can harass you unless your case is deemed extremely suspect. And depending on who you ask, this could either be a total game-changer or a logistical nightmare. But hopefully, this prods taxpayers to be more honest about their dealings.

But that wasn’t the only tax story last week. Oh no, there was another announcement that’s probably going to make a few people jittery.

The faceless assessment can be a booster of sorts. But it will never be able to solve the most fundamental issue plaguing this country — its tax base. Very few people in India file their income tax returns and only about 1.5 Cr people actually pay any tax. This number is a bit suspect by all accounts. Ideally, if the tax department had more information at its disposal maybe it could get more individuals to pay their dues. So in a bid to expand the country’s tax base, the IT department will now mandate reporting certain high-value transactions that could offer a sneak peek into your actual income levels.

Education fee and donations above ₹1 lakh/annum, domestic or foreign business class air travel, a deposit of over ₹50 lakh in your current account, purchase of jewellery, white goods, paintings above ₹1 lakh, health insurance premium above ₹20,000, and a few other high-value transactions will all have to be reported by the agency receiving payment. The IT department might then use these items to estimate your tax liability when you file your ITR. And hopefully, this should get more people to pay their dues in full.

Until then…

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