Navigating Clause 263–389
The Indian tax system continues its shift towards digitization and transparency with Faceless Assessments 2.0, proposed in Clause 263 to 389 of the New Income-Tax Bill introduced in Budget 2025. These clauses aim to expand, restructure, and legally formalize the faceless assessment regime.
For founders, CFOs, and tax professionals, this isn’t just a procedural change—it impacts how you respond to scrutiny, defend your filings, and maintain documentation.
Here’s what you must know about the next phase of faceless assessments.
Legal Reference
- Clause 263 to 389, Draft Income-Tax Bill, 2025
- Replaces existing Section 143(3A) to 143(3C) of the Income Tax Act, 1961
- Consolidates faceless assessments, appeals, and penalty proceedings under one digital framework
Key Features of Faceless Assessment 2.0
Centralized Authority for All Proceedings
All assessment-related communication will be routed through the National Faceless Assessment Centre (NFAC).
No physical interface. All notices, responses, and queries will be online.
PAN-Based Risk Profiling
The new bill proposes dynamic PAN-based risk analysis for selecting cases.
Parameters include:
- Mismatch in GSTR and ITR filings
- High-value transactions reported in AIS/TIS
- Sudden spikes in expenses, losses, or capital gains
Draft & Final Assessment by Separate Units
- Assessment Unit prepares the draft
- Review Unit checks the legal and factual accuracy
- Verification Unit conducts third-party verification
- Technical Unit provides support (transfer pricing, valuation, etc.)
This ensures independent review and checks against arbitrary tax demands.
e-Proceedings for Penalty & Rectification Too
Clause 374–389 extends faceless mode to:
- Penalty under new clauses
- Rectification of mistakes
- Recovery proceedings
- Revision applications
Impact on Businesses & Startups
- No local AO (Assessing Officer) pressure—decisions come from a central pool
- Faster resolution, but only if records are strong and digital
- Requires real-time response capability for notice handling
- High-risk if documentation (e.g., purchase invoices, valuation reports, GSTR-1/3B matches) is incomplete
Practical Tips to Navigate the New System
- Create a central tax document archive (digitally accessible by your CA or CFO)
- File ITR-GST-TDS with perfect consistency
- Use AIS/TIS to reconcile third-party reporting
- Prepare transfer pricing documentation early (if applicable)
- Watch for e-Proceedings notices via email/SMS—response window is often 7–15 days
- Avoid standard copy-paste replies—each case requires tailored explanations
Conclusion
Faceless Assessments 2.0 brings both relief and risk. While it reduces local tax authority interference, it increases the need for digital precision, timely responses, and full documentary control. Founders, finance heads, and consultants should proactively prepare their compliance workflow before Clause 263–389 becomes enforceable.
Call to Action and Disclaimer
Need help preparing your company for the new faceless assessment regime?
Schedule a meeting with our Chartered Accountant, Anshul Goyal, by visiting:
Disclaimer: I am Anshul Goyal, a Chartered Accountant licensed with ICAI, India. This blog is for general awareness and should not be treated as legal advice.
Frequently Asked Questions
1. Is the new faceless assessment law in force?
Not yet. It’s part of the draft Income-Tax Bill, expected to replace the current Act soon.
2. What happens if I ignore a faceless assessment notice?
Your return may be processed with additions and penalties in absence of explanation.
3. Will I get a chance to appeal under the new regime?
Yes. A faceless appeals system is proposed separately under the same bill.
4. Can I attend a hearing if needed?
Only through video conferencing, and only if granted by NFAC in exceptional cases.
5. How should startups prepare for this?
Start by aligning GST and ITR disclosures, maintain contracts, and digitize all tax documentation.