Risk Based Assessments in India - Challenges ahead!

January 05,2016
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H. Padamchand Khincha (Chartered Accountant)
S. Krishnan (International Tax Consultant)

Full copy of Occasional Paper No. 2 is available at ITRAF website. Click here to download the same.

                                                         Executive Summary

Modern tax administrations seek to optimize tax collections while minimizing administration costs and taxpayer compliance costs. Experience shows that voluntary compliance is best achieved through a system of self–assessment. Many tax administrations have introduced self– assessment principles in the income tax law but the legal authority is not being consistently applied. They continue to rely heavily on “desk” auditing a majority of tax returns, while risk management practices remain largely underdeveloped and/or underutilized. There is also plenty of opportunity in many countries to enhance the design and delivery of client–focused taxpayer service programs, and better engage with the private sector and other stakeholders.[1]

Most modern tax authorities now subscribe to the view that using risk assessment for tax audits is the correct approach, and many have developed audit strategies focusing on taxpayer non– compliance risks, with “risk” defined as the likelihood of yielding large amounts of audit adjustments and penalties.

This Occasional Paper examines the evolution of the risk management process followed by the income tax authority in India, the approach to the process, the outcome of the process followed so far and the adequacy of the process under various parameters.

One of the objectives of risk management is to achieve equal treatment of the taxpayers by focusing the burden of audit on non–compliant taxpayers and increasing the level of voluntary compliance of taxpayers.

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