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Union Budget 2026 comes at a critical juncture for India’s tax administration. With the Income-tax Act, 2025 (the “New Act”) set to kick in soon, this Budget might be the last real chance to recalibrate the Faceless Assessment Scheme before it gets locked into the new legal setup.
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The faceless assessment reform, which stems from the Prime Minister’s 2017 vision shared at Rajasva Gyaan Sangam, was conceived to enhance transparency, reduce discretion, and eliminate physical interface between taxpayers and tax officers. Section 144B of the Income-tax Act, 1961, introduced with effect from April 1, 2021, institutionalised this vision through a multi-unit, technology-driven mechanism. The same architecture is now carried forward almost unchanged in Section 273 of the New Income-tax Act.
Yet, after nearly five years of putting this into practice, the experience suggests that structural over-engineering, duplication of functions, and severe time compression are undermining the very goals the scheme aimed for. So, Budget 2026 really needs to go beyond cosmetic adjustments and push for structural reforms, before the New Act takes effect.
An over-layered faceless architecture
Section 273 mandates faceless assessments through a complex institutional framework comprising:
- National Faceless Assessment Centre (NFAC)
- Assessment Units (AUs)
- Verification Units (VUs)
- Technical Units (TUs)
- Review Units (RUs)
All communications are routed electronically through the NFAC, ensuring anonymity and standardisation. While the concept is sound, in practice the multiplicity of units has diffused responsibility, slowed decision-making, and encouraged mechanical assessments—outcomes inconsistent with the stated objectives of the scheme.
Key structural issues that Budget 2026 must address
1. Technical units: An institutional contradiction
Assessment units are headed by officers of the rank of Joint Commissioner or Additional Commissioner, supported by Assistant / Deputy Commissioners and Income-tax Officers. Technical Units are staffed by officers of the same ranks, same service, same seniority, and governed by the same recruitment and training standards, with no separate eligibility or expertise criteria for posting.
This raises a fundamental institutional question:
If assessment units lack technical competence, how can they be entrusted with adjudicatory powers at all—and how are technical units inherently more competent?
In practice:
- Routine and non-complex issues are frequently referred to technical units
- Technical opinions are often generic and detached from the factual context
- Decision-making becomes fragmented, while accountability is diluted
Where there is no demonstrable difference in technical capability, a separate technical unit serves little purpose other than adding procedural delay.
2. Review Units and the Rise of Defensive Assessments
Review Units mirror the same staffing pattern as assessment units—same ranks, same service, same competence parameters. Their role substantially overlaps with existing statutory safeguards, including:
- Internal audit mechanisms
- Comptroller & Auditor General (C&AG) audits
- CBDT instructions on remedial action through rectification, reassessment, and revision (currently under Sections 154, 147, and 263, and likely to continue under corresponding provisions of the New Act)
Instead of improving assessment quality, review units often promote revenue-protective or audit-driven additions, irrespective of legal sustainability. This has contributed significantly to the problem of high-pitched assessments, pushing the burden of correction onto appellate authorities.
3. Time compression and dilution of natural justice
While statutory limitation periods for assessments and reassessments remain unchanged, routing functions through multiple units drastically reduces the effective time available to the assessment unit to examine records, evidence, and submissions.
As deadlines approach:
- Taxpayer submissions are inadequately examined
- Hearing opportunities become procedural formalities
- Additions are made mechanically to “protect revenue”
This leads to assessments that may appear strong in numbers but may be legally fragile getting routinely overturned in appeal.
Budget 2026: A powerful reform window
With the Income-tax Act, 2025 poised to replace the existing law, Budget 2026 offers a timely and strategic opportunity to reset the faceless assessment framework before it is hard-coded into the new legislation. If missed, today’s inefficiencies risk being institutionalised for decades.
The Way Forward: A simple, accountable design
Budget 2026 should consider a decisive structural correction:
- ● Abolish technical units and review units
- Make the assessment unit fully responsible for factual, legal, and technical appreciation
- Redeploy manpower from technical and review units to create additional assessment units, reducing workload per unit and improving assessment quality
- This would restore clarity of responsibility, improve quality of assessments , and reinforce the quasi-judicial character of assessments.
Conclusion
Faceless assessment was envisioned as a trust-building reform, not a compliance-generation machine. Budget 2026 must therefore act as the course-correction Budget, ensuring that the transition to the Income-tax Act, 2025 is accompanied by a simpler, accountable, and justice-oriented faceless regime.
Technology can eliminate physical interfaces. But only sound institutional design can deliver fairness. If Budget 2026 rises to this moment, faceless assessment can still fulfil its original promise.
O.P. Yadav, Former Principal Commissioner of Income Tax & Tax Evangelist, Propsper.io. The author O.P. Yadav is a former IRS officer with over 36 years of experience in tax administration, education, and training. The views expressed are personal.
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