I-T Dept Uses AI To Detect Tax Evasion And Enhance Compliance Through Data Analytics

The Income Tax (IT) department has begun using Artificial Intelligence (AI) to monitor financial transaction data, comparing past and current Income Tax Returns (ITR) filings to detect irregularities of income disclosures for tax compliances.

The use of AI and data analytics to monitor high value transactions, investments in properties and credit card spends to match income disclosures with financial behaviour to detect tax evasions gives the taxmen risk based assessment efficient and transparent.

The integration of AI into tax administration allows for real-time monitoring, efficient resource allocation and a more transparent tax system which ultimately reduces manual interventions and encourages voluntary compliance.

According to senior tax officials, AI is used to analyse vast data sets, detect anomalies, flag potential cases of tax evasion, scrutinise GST registrations and prevent fraudulent claims for input tax credits.

“AI-driven systems are now strengthening tax administration and helping prevent fraud. AI helps the tax departments differentiate between legitimate taxpayers and fraudulent entities more effectively,” claimed a senior tax official adding that AI tools are used to perform comparative analysis of a taxpayer’s current and previous years’ Income Tax Returns for mismatch and flag irregularities.

The tax department is also leveraging machine learning models for assessment of tax filings , predict potential non-compliance and automated risk-based audits to reduce manual interventions. The machine learning tools used for analysis and identify patterns to detect significant deviations or inconsistencies in income disclosures, deductions claimed or sources of income flags potential cases of under-reporting or tax evasion.

The use of AI to scrutinise ‘Statement of Financial Transaction (SFT)’ report generated by banks, mutual funds, registrars and other financial institutions for high value transactions is matched with ITR, TDS, GST and foreign transactions data to detect irregularities and tax evasions.

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