The Income Tax Department is using artificial intelligence and data analytics to detect suspicious deduction claims under Sections 80C and 10(14), according to an tax expert.
Section 80C covers deductions for life insurance premiums, ELSS, PPF, tuition fees, and home loan principal payments. Section 10(14) includes allowances such as children’s education, which require valid proof.
He said the department now cross-verifies taxpayer claims with third-party data from banks, mutual funds, and employers. This is done using the Annual Information Statement (AIS), Statement of Financial Transactions (SFT), and other digital records.
Cases with mismatches or missing documents are flagged automatically.
Taxpayers must respond with proper documentation or face potential tax consequences and penalties.
He noted, “Even if a return is processed without immediate queries, reassessment can still happen later. Diligent documentation and compliance are now essential.”
High-value transactions also under lens
Beyond deductions, the tax department is monitoring high-value transactions reported by third parties. These include:
- Cash deposits above ₹10 lakh
- Credit card bills exceeding ₹1 lakh (in cash) or ₹10 lakh (by other modes)
- Property purchases over ₹30 lakh
- Mutual fund or bond investments above ₹10 lakh
- Large foreign exchange transactions or insurance premium payments
These transactions are reported through SFT filings by financial institutions and cross-checked with taxpayer filings.
Mismatches can prompt scrutiny even if the taxpayer has no intent to evade tax.
What taxpayers should do?
- Taxpayers should review their Annual Information Statement (AIS) and Taxpayer Information Summary (TIS) before filing returns.
- Claims under Sections 80C and 10(14) must be backed by proper records, including receipts or employer certificates.
- Quick response with valid documents can help avoid penalties.
- For high-value financial activity or large deductions, tax professionals can help ensure accuracy.
