The Income Tax Department has continuously been expanding the scope of monitoring tax evasion. Tax officials have scaled up the use of Artificial Intelligence (AI) and data analytics to enhance tax compliance and detect discrepancies in financial behaviour.
Now if you invest a large amount, buy property, or spend more than you spend on credit card, all these transactions are being monitored by the tax department, say tax experts.
Banks, mutual fund companies, registrars and other financial institutions give the ‘Statement of Financial Transaction (SFT)’ report to the department every year, which contains information about your high value transactions, according to an tax expert. Now this data is being combined with Income Tax Return (ITR), TDS, GST, and foreign transactions — and this is how it is being decided whether there is any irregularity in your income and expenses, she adds.
Use of AI for trend analysis and discrepancy detection
AI tools are used to perform comparative analysis of a taxpayer’s current and previous years’ Income Tax Returns (ITRs), he noted. By identifying patterns and detecting significant deviations or inconsistencies in income disclosures, deductions claimed, or sources of income, the system is capable of flagging potential cases of under-reporting or tax evasion, Surana further said adding this data-driven approach enhances the department’s ability to carry out risk-based assessments and ensures greater transparency and consistency in taxpayer behaviour over time.
AI is now analysing your old and new tax filings
The Income Tax Department has now made tax scrutiny data-based and risk-focused. AI tools are now able to check how well your ITR of this year matches with the previous years. Have you shown less income or claimed more deductions? All these area now being analysed automatically. With this, the tax department can decide in less time which case should be selected for investigation.
Along with this, now most of the assessments are becoming ‘faceless’ i.e. taxpayers do not need to meet officers face to face – the entire work is being done online and through the system. In this, with the help of AI, the selection process of cases is becoming more fair and transparent.
Now the tax department will also enter the digital world
The department will get even more power in the new Income Tax Bill to be implemented from 2026. Now, if the authorities suspect that you have evaded tax through some digital means, they can check your social media accounts, emails, banking apps, trading platforms, and even online investment platforms.
According to Section 247 of the new bill, if needed, the authorities can access the data even by breaking the password. A new legal term called “virtual digital space” has also been added, which will include cloud storage, digital wallets, email servers and other platforms.
Now caution is the biggest wisdom
After these changes, taxpayers will now have to be very cautious about their every financial transactions and digital presence. Keeping transparent records and following tax rules is no longer just an option, it has become a necessity.
With the advent of AI, the tax system has now become predictive, fraud-preventive and extremely accurate – that is, ‘predictive’, ‘preventive’ and ‘precision-based’. In such a situation, now even the smallest mistake will not be able to escape the eyes of the tax department.
Source from: https://www.financialexpress.com/money/income-tax-department-monitoring-your-financial-transactions-with-ai-3811484/
