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2020

A Brief Note on “Transparent Taxation: Honoring the Honest”

Transparent Taxation Honoring the Honest

Prime Minister Narendra Modi on August 13 launched the ‘Transparent Taxation, Honoring the Honest’ platform to further its initiative to reform direct taxes in India.

Launching the Transparent Taxation platform, PM Narendra Modi said the ongoing structural reforms have "reached new heights today" and that the 'Transparent Taxation - Honoring the Honest' platform will "have faceless assessments, faceless appeal and taxpayer charter". The motive behind the new policy are: Policy-driven governance, belief in people’s honesty, use of advanced technology, efficiency in bureaucracy.

Key Highlights:

  • Tax system aims to be Seamless, Painless and Faceless.
  • The platform has major reforms like Faceless Assessment, Faceless Appeal & Taxpayers Charter.
  • Faceless Assessment & Taxpayers Charter have come into force from today while the facility of faceless appeal to be available from 25th September 2020.
  • Number of taxpayers is significantly low with only 1.5 Crore paying taxes out of 130 Crore people.
  • Prime Minister urges people to introspect & come forward to pay Income taxes to build an Atma Nirbhar Bharat.
  • With the launch of Tax Charter, taxpayer is assured of fair, courteous and rational behavior.
  • Focus of the Government is on “Banking the Unbanked, Securing the Unsecured, Funding the Unfunded & Honoring the Honest”.
  • Emphasis is on making every law & policy People Centric & Public Friendly rather than Power Centric.
  • Initiatives like ‘Vivaad Se Vishwas’ Scheme pave the way for most of the cases to be settled out of court.
  • Scrutiny of the cases reduced by at least 4 times in last 6 years, from 0.94% in 2012-13 to 0.26% in 2018-19.
  • Number of people filing income tax returns increased by about 2.5 crores in last 6-7 years.

Key Features:

  • Document Identification Number (DIN): Every communication of the department issued from 1st Oct, 2019 mandatory to have computer-generated unique DIN.
  • Pre-Filing of Income-Tax Returns: ITR form now contains pre-filled details of certain incomes.
  • Simplification of compliance norms for Start-ups: Hassle-free assessment procedure, exemptions from Angel-tax, constitution of dedicated start-up cell.
  • Simplification of compliance:
    • Threshold for launching prosecution increased.
    • System of collegium of senior officers for sanction of prosecution introduced.
    • Norm for compounding relaxed.

Faceless Assessment:

Objective: Imparting greater efficiency, transparency and accountability Eliminating physical interface between the taxpayer and tax officers.

Features:

  • Selection only through system using data analytics and AI.
  • Abolition of territorial jurisdiction.
  • Automated random allocation of cases.
  • Central Issuance of notices with Document Identification Number (DIN).
  • No physical interface, No need to visit income tax office.
  • Team-based assessments and team-based review.
  • Draft Assessment order in one city, review in another city and finalization in third city.
  • Objective fair and just order.
  • 2/3rd of the manpower is utilized for faceless and balance for other functions.

Exceptions:

Cases relating to:

  • Serious fraud, Major Tax Evasion, Sensitive & search matters.
  • International tax.
  • Black money & Benami Property.

Faceless Appeal:

  • Appeals to be randomly allotted to any officer in the country.
  • The identity of officers deciding appeal will remain unknown.
  • The appellate decision will be Team based & reviewed.

Exceptions:

  • Serious frauds, Major tax evasion, Sensitive & Search matters.
  • International tax.
  • Black money & Benami Property.

PREVIOUSLY IMPLEMENTED REFORMS:

Corporate Tax: Taxation Laws (Amendment) Act, 2019:

  • Corporates to pay tax at concessional rate of 22%.
  • Corporate tax for new manufacturing companies (set up after Oct. 2019) reduced to 15%.
  • No MAT applicable to such companies.

Personal Income Tax: Finance Act, 2020:

  • Individual taxpayers to pay income-tax at lower slab rates if they do not avail specified exemption & incentive.
  • Co-operatives to pay taxes at concessional rates without claiming any specified deduction or incentive.

Abolition of Dividend Distribution Tax (DDT):

  • Finance Act, 2020 removed DDT with effect from 01.04.2020.
  • Dividend income to be taxed only in the hands of the recipients.

PROPOSED MEASURES FOR WIDENING OF TAX BASE:

Following measures are proposed to be implemented in future.

Expansion of scope of Reporting of Transactions (SFT):

  • Payment of educational fee /donations above Rs. 1. lakh p.a.
  • Electricity consumption above lakh Rs. 1. lakh p.a.
  • Domestic business class air travel/foreign travel.
  • Payment to hotels above Rs. 20,000.
  • Purchase of jewellery, white goods, painting, marble, etc. above Rs. 1 lakh.
  • Deposit/Credits in current account above Rs. 50 lakh.
  • Deposit/credits in non-current account above Rs. 25 lakh.
  • Payment of property tax above Rs. 20,000 p.a.
  • Life Insurance premium above Rs. 50,000.
  • Health insurance premium above Rs. 20,000.
  • Share transactions / D-MAT accounts/Bank lockers.
  • Deduction/collection of tax at higher rates for non-filers of return.
  • Compulsory riling of return by the person having bank transactions above Rs. 30 lakh, all professionals, businesses having turnover above Rs. 50 lakh, payment of rent above Rs. 40,000.
  • Deduction/Collection of tax at higher rates for non-filers of return.
  • Compulsory Filing of return by:
    • The person having bank transactions above Rs. 30 lakh;
    • All professionals, businesses having turnover above Rs. 50 lakh;
    • Payment of rent above Rs. 40,000.

Deduction/collection of tax (TDS/TCS) on new transactions:

  • TDS on Cash withdrawal above Rs. 1 crore (20 lakh for Non-filers).
  • TCS on motor vehicle above Rs. 10 Lakh.
  • TCS on Foreign remittance under LRS above Rs. 7.5 lakh/ overseas tour packages.
  • TDS on e-commerce suppliers & TCS on purchase of goods above Rs.50 Lakh.


Expansion of scope of Reporting of transactions (SFT):

  • Cash deposit/withdrawal of Rs. 50 lakh or more in current account.
  • Cash Deposit of 10 lakh or more in non­-current account.
  • Sale of foreign exchange above Rs. 10 lakh.
  • The reporting of transactions of mutual funds, credit card transactions, immovable property, etc. rationalized.
  • Compulsory Filing of return: Deposit above Rs.1 crore in current account, Expenditure of Rs. 2 lakh on foreign travel & electricity consumption above Rs. 1 lakh.

Taxpayer’s Chapter:

  • To provide fair, courteous and reasonable treatment.
  • Treat taxpayers as honest.
  • To provide mechanism for appeal and review.
  • To provide complete and accurate information.
  • To provide timely decisions.
  • To collect the correct amount of tax.
  • To respect privacy of tax payers.
  • To maintain confidentiality.
  • To hold its authorities accountable.
  • To ensure representative of choice.;
  • To provide mechanism to lodge complaints.
  • To provide a fair and just system.
  • To publish service standards & report periodically.
  • To reduce cost of compliance.

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