Be prudent: CBDT chief Ravi Agarwal’s advice to income tax department

Be Prudent. That’s the advice of the new chairman of the Central Board of Direct Taxes Ravi Agarwal to income tax officials and is also a key priority for him. The other priority for him is the review of the Income Tax Act, 1961, which was announced by Finance Minister Nirmala Sitharaman in the Union Budget 2024-25.

Agarwal, who is just completing a month as the CBDT chief, advised officers to follow a PRUDENT approach at the recent Income Tax Day celebrations. “At the Income Tax Day, I have suggested to the officers that we should have a PRUDENT approach, and I have defined prudent,” he told BT.

Elaborating on the acronym PRUDENT, he explained that P stands for being professional and having a professional approach. “This means there should be a lot of capacity building, let’s cut through red tape, let’s be sensitive and let’s be outcome oriented,” he explained.

R is for being responsive and responsible, while U stands for understanding laws, transactions and business. “As revenue officers, we should take all initiatives to actually understand the economics of a business. We see the transactions that are involved, the law underlying that. Basically, once we understand that, then we become more professional and more effective,” Agarwal said when asked about his priority areas.

He further explained that D stands for data and making data-based decisions. “Surmises, conjectures, estimations should be replaced by data driven decision making,” he said.

The CBDT chief also underlined that E is enforcement with empathy. “As revenue officers, if some intrusive action is taken, at the end of it, the taxpayer is also a human being. We should have some empathy. That's how we should do enforcement,” he said.

The letter N stands for non-intrusive tax administration. “We are doing it a lot. We have shifted our approach to being taxpayer centric and providing taxpayer services. The taxpayer base has also gone up. And therefore this need of non intrusive tax administration is important. How do you nudge people towards compliance,” he said.

Lastly, T is for technology, which is already an integral part of tax administration. “We should imbibe it more and this will also improve our systems and lead to better tax administration,” he said.

Agrawal, who was previously Member CBDT, was appointed as CBDT Chairman for a one-year period until June 30, 2025. He took charge on July 1.

In an interaction with BT, he also highlighted that the review of the Income Tax Act, 1961, is another key priority for him. While an internal committee of officers would undertake the review, he explained that the first step would be to go through the existing provisions and assess how it can be presented in a manner to the taxpayer that is easy to read and understand.

“Taxpayers don’t go through the Income Tax Act because it’s complicated,” he said. The review would also cut down redundancies and also simplify the language and possibly look at presenting it in a format that is easy for the taxpayer to read. The next step would be to go into the granular details, he said.

The Finance Minister had said the review would be done over the next six months.