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Leveraging Artificial Intelligence to Enhance Tax Compliance in India

Strategic Insights

— 2 min read

The Income Tax Department in India is leveraging artificial intelligence to identify patterns in taxpayer behavior, improve tax compliance, and flag potential discrepancies. With an estimated 40 crore Annual Information Statements (AIS) generated from 650 crore financial transactions in the last financial year, the department is creating a 360-degree profile of taxpayers' transactions. The use of AI has helped identify areas for improvement in the total number of returns being filed and raised "red flags" in high-value transactions.

Key Takeaways:

  • The Income Tax Department is leveraging artificial intelligence to create a 360-degree profile of taxpayers' transactions and identify patterns in taxpayer behavior.
  • The department generated 40 crore AIS from 650 crore financial transactions in the last financial year.
  • The use of AI has helped identify areas for improvement in the total number of returns being filed, with 9 crore returns filed by taxpayers last year and 7.42 crore taxpayers viewing their AIS, returning 3.5 times on average to see their statements.
  • AI has raised "red flags" in high-value transactions, prompting the Department to consider whether the taxpayer requires a "harder nudge."
  • The Department has identified over 1.5 lakh PANs involved in wrongful claims of deductions and exemptions in ITRs.
  • Automatic exchange of information has led to 62% of taxpayers revising their returns and declaring foreign assets worth Rs 29,208 crore and foreign income of Rs 1,089 crore.
  • Nudging taxpayers through SMS and emails has led to a reduction of Rs 963 crore in deductions and payment of Rs 409.50 crore in additional taxes as of June 18.
  • Around 89 lakh updated ITRs have been filed, generating Rs 9,577.06 crore in additional taxes as of June 18.
  • The Department is facing a roadblock due to email addresses that are turning out to be those of intermediaries or temporary, making it difficult for the department to correspond with taxpayers.

Statistics:

  • 40 crore AIS generated from 650 crore financial transactions in the last financial year.
  • 9 crore returns filed by taxpayers last year.
  • 7.42 crore taxpayers viewing their AIS, returning 3.5 times on average to see their statements.
  • Rs 29,208 crore worth of foreign assets declared.
  • Rs 1,089 crore worth of foreign income declared.
  • Rs 963 crore reduced in deductions.
  • Rs 409.50 crore paid in additional taxes.
  • 89 lakh updated ITRs filed.
  • Rs 9,577.06 crore in additional taxes generated as of June 18.

Sources:

  • Central Board of Direct Taxes (CBDT) Chairman Ravi Agrawal in an interview to The Indian Express.
  • The Indian Express, "CBDT to use AI to flag patterns in taxpayer behavior" (no date).
  • Contify.com, "Income Tax Department to use AI to flag patterns in taxpayer behavior" (no date).

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