Income Tax

Faceless E-Assessment Scheme: Role of Technology

The central government introduced the Faceless E-Assessment Scheme with a view to provide increased transparency, efficiency, and accountability. It is as per the Income Tax Act^[1] and the Income Tax Rules. This scheme seeks to eliminate human interface between a taxpayer and the Income tax Department. In this article, we shall have a brief overview of this scheme and also discover how technology is gonna have a greater say.

What is Faceless E-Assessment Scheme?

This means carrying out income tax assessment procedure without a human interface and with the use of technology where the medium of communication will be a centralized National Electronic Assessment Centre. The communication will be between the assesses and the department through AI (Artificial Intelligence), algorithms, etc.

Now we shall look at some of the main features of this scheme:

• Selecting a taxpayer through the system using AI and data analytics;
• Abolition of territorial jurisdiction.
• Automated random allocation of cases, which means cases will be assigned to the department through an automated allocation system.
• Central issuance of notices.
• No need to visit Income Tax Office and no physical interface.
• Team-based assessments and review.
• Draft assessment order in one city, review in another, and finalization in another city.

An overview on technological aspect in this scheme and how will it benefit?

“Cutting edge technologies should not just be created but also used in practice to make the lives of people better”

In the past few months or since the last one year or so, there has been a complete overhaul in the way official transactions are conducted across the world. Connecting through digital means has become the new normal across the globe, and Indian regulators didn’t want to be left behind.

Therefore they have inducted digital and technological means in this scheme. This scheme is slightly different in which the scrutiny of tax returns filed by taxpayers is conducted, and interactions between the taxpayers and revenue department will be fully digitalized.

Historically such proceedings have been done sitting across the table with the tax officer and providing clarifications and details from time to time. This scheme is set to change this tradition, thereby eliminating the need for a human interface.

Artificial Intelligence and data analytical tools, Machine learning, Automated Examination tool, Hash Function, and the list goes on as far as technological usage is concerned. As per one of the experts in this field, technologies of such calibre can offer scalability and better accuracy without any personal bias, thereby enabling the administration to function more efficiently.

The use of Artificial Intelligence and Machine learning against the vices of tax fraud is common in European countries like Denmark, France, and Norway. With the use of these cutting-edge tools these countries were able to catch those involved in tax fraud.   

AI can provide visibility into transactional data and help in managing risks and also provide critical business insight. AI will be loaded with information like tax codes, administrative guidelines, etc., thereby making decisions on this basis.

Utility of technology in Faceless E-Assessment Scheme

The beginning of digital communications with taxpayers was seen five years ago when the Indian revenue authority started using emails in order to interact with taxpayers. Gradually, the revenue authorities and taxpayers adapted to this change, and finally, a full-fledged Faceless E-Assessment Scheme was launched.

In September 2019, close to 58000 cases were selected on pilot basis for assessments to be conducted in a manner where the taxpayer is not required to visit the tax office. Now this has been expanded to cover all new and pending assessments.

Now this implies that all communications and flow of information among taxpayers and the revenue department would be digitally transmitted during the faceless assessment proceedings. The revenue officer who conducts such assessment won’t have any direct interaction with the taxpayer. However, in exceptional circumstances there is a scope for personal hearing to be granted to the taxpayer.

Is there a need for more AI-trained personnel?

 A recent study has researched extensively on digitalization and AI in the taxation field. This brings a question to our mind that what about the tax advisors. Do they need to worry about their job with increased automation? And the answer is NO. Machine Learning and data analytics works well for certain types of data and menial tasks have to be undertaken by a tax advisor.

As per the report of Business Standard, more than 4200 officers have been moved to faceless assessment unit that’s adopting these cutting edge technologies to make the journey of taxpayers more transparent.

While the use of AI and Machine Learning into the tax reform assessment would bring transparency and accuracy, the success of this depends upon a sound and strong technological ecosystem.

Key Takeaways from the role of technology in Faceless E-Assessment Scheme

Some of the key takeaways are as follows:

• This is a critical initiative which can help in addressing age old issues plaguing tax administration in India by deploying technology.
• However, one of the crucial aspects that cannot be ignored is the streamlined IT infrastructure in which the IT department should invest heavily.
• In the overall role of technology in this scheme, there is a definite need for a robust IT infrastructure.
• Additionally, the data security and confidentiality of taxpayer data should be the topmost priority going forward with the use of new systems where documents are submitted and maintained online. It will be vital to retain the trust of taxpayers in the system.  

Read our article: How to save Income Tax through Tax Planning in India?