The Income Tax Department has stepped up its monitoring and compliance efforts by harnessing the power of artificial intelligence (AI) to track online taxpayer behaviour and identify inconsistencies in returns, reports Indian Express. According to Central Board of Direct Taxes (CBDT) Chairman Ravi Agrawal, the department is analysing online activity, financial transactions, and return-filing patterns to nudge taxpayers towards better compliance.
AIS portal
One of the key behavioural insights comes from how often users access the Annual Information Statement (AIS) online. On average, taxpayers visited the portal 3.5 times, amounting to 24 crore visits in total. However, only 9 crore tax returns were filed last year, despite 40 crore AIS documents being generated from over 650 crore financial transactions.
Frequent access to the AIS without return filing often signals a taxpayer’s intent or struggle to file. This information allows the department to intervene, either to offer assistance or to prompt action through email or SMS.
AI flags high-value transactions and errors
The department is using AI-powered data analytics to raise red flags for high-value transactions where returns have not been filed or where taxpayers make repeated errors in their returns. The system also identifies incorrect claims of exemptions and deductions, a problem that led to the nationwide verification drive launched on 14 July 2025 across 150 locations.
This operation targeted fraudulent deductions and has already identified over 1.5 lakh PANs linked to such practices. The department maintains that these cases are primarily the result of misguidance by intermediaries, not taxpayers themselves.
Data-driven nudges
The department has adopted a strategy of “nudging” taxpayers towards voluntary compliance. In one such instance, 19,501 taxpayers were contacted based on foreign asset data received under the automatic exchange of information. As a result, 62% updated their returns, revealing foreign assets worth Rs 29,208 crore and foreign income of Rs 1,089 crore.
Additionally, excess claims under Section 80GGC to the tune of Rs 9,000 crore were identified. Through digital nudges via SMS and email, the department reduced claims by Rs 963 crore and facilitated additional tax payments amounting to Rs 409.5 crore.
As of 18 June 2025, around 89 lakh updated returns have been filed, generating Rs 9,577.06 crore in additional tax revenue.
While digital engagement is at the core of the department’s compliance model, a major challenge remains: incorrect or temporary contact details provided by taxpayers. Many email addresses are those of agents or intermediaries, limiting the department’s ability to communicate directly with taxpayers.
Chairman Agrawal stressed the importance of providing accurate email and mobile contact details to ensure seamless communication and improve the effectiveness of taxpayer nudges.
The CBDT emphasises that these initiatives are not punitive but intended to create awareness and encourage correct filing. With AI providing a 360-degree view of taxpayer transactions, the department aims to expand return filings, close compliance gaps, and ensure the integrity of the tax system.
As Agrawal puts it, “We trust the taxpayer, but incorrect claims of exemptions and deductions are not acceptable.”
