Technology and Tax in India: Navigating the Digital Transformation

India, one of the fastest-growing economies in the world, is undergoing a significant digital transformation. This transformation is profoundly affecting various sectors, including compliance and taxation. The integration of technology into the tax system has been a game-changer, streamlining processes, enhancing compliance, and increasing transparency. This article delves into the impact of technology on India's tax landscape, the initiatives undertaken, the challenges faced, and the problems associated with them.

India's journey towards digitizing its tax system took a giant leap with the introduction of the Goods and Services Tax (GST) in July 2017. GST subsumed numerous indirect taxes, creating a unified tax structure across the country. Technology played a crucial role in this transition, with the Goods and Services Tax Network (GSTN) providing the technological backbone for GST implementation. GSTN is a comprehensive IT infrastructure that enables taxpayers to register, file returns, make payments and reply to notices online. This system has significantly reduced the paperwork and administrative burden on businesses.

The Income Tax Department of India has also embraced technology with the implementation of e-filing of income tax returns. The e-filing portal, introduced over a decade ago, has continuously evolved to provide a user-friendly interface, making it easier for taxpayers to file their returns from the comfort of their homes. Additionally, the department has launched various online services such as e-verification of returns, e-assessment, high value transaction details in AIS, pre-filled returns and a faster processing of refunds, enhancing the efficiency and speed of the entire process.

The Ministry of Corporate Affairs (MCA) portal is another crucial component of India's digital compliance ecosystem. The MCA portal, launched as part of the government’s e-Governance initiative, facilitates e-filing and management of company-related documentation. It serves as a one-stop solution for corporate compliance, making it easier for businesses to interact with the government. The MCA portal is integrated with other government systems, such as the GSTN and the Income Tax Department, facilitating seamless data sharing and improving overall compliance.

A revolutionary step in India's tax administration has been the introduction of faceless assessments and appeals. This initiative aims to eliminate human interface between taxpayers and tax authorities, thereby reducing corruption and ensuring a fairer and standardised assessment process. Under this system, all communication is conducted electronically via the tax filing protal. This not only ensures transparency but also reduces engagement time and speeds up the resolution of cases.

Challenges

While tax portals have made significant strides in streamlining processes, they are not without their problems:

1. Technical Glitches and Downtime: Frequent technical issues and server downtime can disrupt the filing process, especially during peak times close to deadlines. Such issues can cause frustration among taxpayers and lead to delays in compliance.
2. Complex User Interface: Despite improvements, certain taxpayers still find the user interfaces of these portals complex and not user-friendly. This can be particularly challenging for individuals who are not tech-savvy or know the subject.
3. Slow Processing: At times, the processing speed of the portals can be slow, especially when handling large volumes of data. This can lead to delays in the issuance of refunds and other time-sensitive transactions.
4. Inconsistent Functionality: Users often report inconsistent functionality, where certain features may not work as intended. This can lead to errors in filings and increased time spent on troubleshooting.
5. Integration Issues: Integration between different tax systems (like MCA, GST and Income Tax) is not always seamless. Discrepancies can arise due to mismatches in data, leading to complications for taxpayers who need to reconcile their records.
6. Customer Support: Access to timely and effective customer support is a common problem. Taxpayers may face difficulties in getting their issues resolved promptly, leading to compliance challenges and unnecessary stress.
7. Privacy and Confidentiality: With the increasing amount of sensitive information being handled online, the risk of cyber-attacks and data breaches becomes a critical concern. Ensuring robust cybersecurity measures and safeguarding taxpayer data is paramount.

Use of Data Analytics and Artificial Intelligence

The MCA, Income Tax Department and GSTN are increasingly leveraging data analytics and artificial intelligence (AI) to improve compliance and detect tax evasion. These technologies enable the authorities to analyze vast amounts of data to identify patterns and discrepancies that might indicate fraudulent activities or tax evasion by purpose or omission. By using predictive analytics, the tax authorities can focus their efforts on high-risk areas and high value transactions, thereby improving the effectiveness of audits and investigations.

Future Prospects

The future of technology in India's tax system looks promising. The government is continuously working on enhancing the digital infrastructure and expanding the scope of e-services. Initiatives such as the expansion of the e-invoicing and e-way bill system under GST, the introduction of blockchain technology for securing transactions, and the development of a robust AI-driven compliance framework are on the horizon.

Furthermore, the use of mobile technology and apps is expected to rise, making tax compliance even more accessible to the masses. The income tax department has already introduced a mobile app to verify one's high value transactions carried out during the year. The government's vision of a more inclusive digital economy hinges on bringing the benefits of technology to every corner of the country.

In conclusion, the integration of technology into India’s tax system has marked a significant shift towards a more efficient, transparent, and taxpayer-friendly environment. While challenges and problems with tax portals remain, ongoing efforts to bridge the digital divide, enhance cybersecurity, and improve user experiences are steps in the right direction. As technology continues to evolve, it will undoubtedly play a crucial role in shaping the future of taxation in India, driving economic growth, and fostering greater compliance.

Disclaimer: The above information is intended for academic guidance and is to be used for informative purpose only. The said information is not to be considered as an opinion or advice. It is advisable to check with a subject matter expert before concluding on applicability or non-applicability of any compliance under any legislature. The views expressed are strictly personal and we do not assume any responsibility or liability, financial or otherwise, in respect of the same.

?About the Author:

Shravan Suratwala is a Partner at S.M. Suratwala & Co., Chartered Accountants. Shravan has 9+ years of post-qualification professional experience in advisory, litigation and compliance areas of Corporate and International taxation along with three plus years of experience in the field of Internal and Process Audit while pursuing chartered accountancy course.

The author can be reached at [email protected] or [email protected]