Over the last few years, there has been an increased use of
technology by the tax authorities and taxpayers alike. This article
points to the impact that technology will have on the Indian tax
environment and how Indian taxpayers can use it to simplify their
Moving towards electronic scrutiny assessments (revenue
Filing of tax returns, receiving queries from tax authorities
and submitting responses have now moved towards the electronic mode
of communication. The use of technology will further increase in
the years to come, making almost the entire interaction through the
electronic means. For instance, queries raised by the Tax
Authorities and the submissions made during a scrutiny assessment
(revenue audit) proceedings may soon be carried out online. The
pilot project on electronic scrutiny assessments launched by the
government is a step in this regard.
Specific and to-the-point discussions between taxpayer and Tax
Data-linkages between different arms of the government and the
institutions in the financial system are enabling the Tax
Authorities to capture better information about a taxpayer. In the
times to come, we expect seamless assimilation of different aspects
of taxpayer information such as bank accounts, incomes, expenses
and investments through the key field of Permanent Account Number
(PAN) and Aadhaar. This will result in particulars of a transaction
and tax event becoming readily available to the Tax
Data-linkages are expected to increase the tax compliance base,
identify defaulters and make enquiries more specific and
'to-the-point'. Under the Annual Information Return,
considerable information about a taxpayer's activities is being
provided to the Tax Authorities. Using such streams of information,
the government systems could have certain automatic triggers to
capture transactions having values disproportionate to a
taxpayer's reported income and/or scale of operations.
Suspicious transactions could be caught on time. Furthermore,
enquiries from Tax Authorities would become more specific to the
taxpayer thereby saving time and effort at both ends and bringing
the enquiry to a logical conclusion.
In a recently launched 'Operation Clean Money' to deal
with cash deposits during the demonetisation period, the government
has expressly discussed the use of data analytics to identify
potential tax evaders.
Opportunities for an in-house tax function
From a taxpayer's perspective, the electronic form of data
submission throws up significant possibilities for automation and
reducing human effort to improve the efficiency of tax compliance
and reporting functions. A number of routine tax compliances can be
largely automated by linking compliance forms with the
taxpayer's accounting system. Interfaces could be developed
where the compliance forms are auto-filled the moment an accounting
entry is made. This could save the need for separate data
compilation and collation for meeting compliance requirements.
Tax logic can also be built into the accounting system under a
decision tree model. Presently, there are certain ERP packages
where such functionality is available on a customisation basis.
With the increased use of technology coupled with greater
standardisation of tax matters, the tax logic can be built into
virtually any accounting software and can be made available to
taxpayers in a timely manner and at lower costs.
Even simplistic technology solutions can significantly aid an
in-house tax function. An in-house tax team can develop a web-based
portal to document the tax positions being taken in the past. This
could significantly curtail the time and effort of subordinate
staff in applying for a tax position and could also assist in
training new employees. Furthermore, formula-based templates with
adequate security checks could be developed for preparing
computation of taxable income, advance tax workings, VAT payable
positions net of input credit, to name a few.
Technology will play a significant role in bringing in more
transparency in the Indian tax environment and will be a strong
deterrent to unfair practices on the part of any stakeholder in the
tax environment. It will also encourage voluntary compliance by
making tax compliance and reporting an easy activity.
While it is certain that the tax world will use technology to
greater extent, the pace of its implementation as compared to
changes in the tax policies and procedures need to be gauged so
that the taxpayer as well as Tax Authorities are equipped with
appropriate technology at the appropriate time.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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On January 24, 2017, the Central Board for Direct Taxes issued a circular enumerating the Guidelines for Determining the Place of Effective Management (hereinafter referred to as "POEM Guidelines") of a company.
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