The Income Tax Department is now using artificial intelligence to track taxpayer behavior, from online visits to high-value transactions, to improve compliance and identify potential issues.
AI: A Game-Changer for Tax Compliance
India’s Income Tax Department is embracing artificial intelligence (AI) to transform how it monitors tax compliance. This advanced technology helps track users’ online activity on the tax portal, flag suspicious high-value transactions, and filter out Permanent Account Numbers (PANs) involved in incorrect claims.
The goal is to build a comprehensive, 360-degree profile of taxpayer transactions. This allows the department to identify patterns and subtle nuances in tax filing behavior, ensuring better adherence to tax laws.
Spotting Trends: The AIS Connection
One key area AI focuses on is tracking visits to the Annual Information Statement (AIS). The AIS is a detailed summary used for pre-filling Income Tax Returns. Repeated access to the AIS by a user could indicate they need to file a return, or are struggling to do so correctly.
The I-T Department can then use this insight to proactively intervene and assist taxpayers. With over 40 crore AIS generated from an estimated 650 crore financial transactions last year, AI helps uncover potential gaps in the total number of returns filed.
The “Nudge” Strategy in Action
AI also helps raise “red flags” on high-value transactions where no returns are filed, or when taxpayers consistently make filing mistakes. This allows the department to consider if a “harder nudge” is required to ensure compliance.
For example, if AI spots patterns of incorrect deductions or exemptions, it prompts a closer look. While the department trusts taxpayers, it emphasizes that incorrect claims are unacceptable.
Cracking Down on Fraudulent Claims
Based on AI-driven insights, the department recently conducted a large-scale verification operation across 150 locations. This initiative targeted individuals and entities facilitating fraudulent claims of deductions and exemptions.
This exercise led to the identification of over 1.5 lakh PANs involved in such activities. CBDT Chairman Ravi Agrawal clarified that these actions are aimed at misguiding intermediaries and professionals, not primarily at the taxpayers themselves.
Successful Outcomes of Data-Driven Nudging
The AI-powered nudging strategy has yielded significant results. For instance, 19,501 taxpayers were nudged based on international data exchange, leading to 62 percent revising their returns.
This led to 30,161 taxpayers declaring foreign assets worth Rs 29,208 crore and foreign income of Rs 1,089 crore. Overall, nudging through SMS and emails has resulted in a reduction of Rs 963 crore in incorrect deductions and the payment of an additional Rs 409.50 crore in taxes.
Furthermore, around 89 lakh updated ITRs have been filed, generating Rs 9,577.06 crore in additional taxes.
The Challenge of Direct Communication
Despite these advancements, the department faces a challenge: many email addresses provided by taxpayers belong to intermediaries or are temporary. This makes direct communication and effective nudging difficult.
- AI is used by the Income Tax Department to track taxpayer behavior and identify patterns.
- Tracking AIS portal visits helps identify potential unfiled or incorrectly filed returns.
- AI flags high-value transactions and repeated errors, prompting targeted interventions.
- Operations against fraudulent claims target intermediaries, identifying over 1.5 lakh PANs.
- Nudging taxpayers based on AI insights has resulted in significant additional tax collection and improved compliance.
The department continues to evolve its digital approach, highlighting the importance of taxpayers providing accurate contact information for effective communication and compliance.
