By Pritin Kumar & Dishank Lotia
At a time when data is seen as the new currency, Revenue authorities have proven more agile by embracing Artificial Intelligence (AI) and analytics to redefine tax administration. Powering their functions by integrating AI, data analytics and digital platforms, the tax department has ushered in a digital revolution that seeks to leverage technology to improve upon legacy methods. The increasing complexity of financial transactions and the rise of digital platforms have rendered traditional methods of tax scrutiny inadequate, triggering the use of AI in enhancing efficiency, accuracy, and building fairness in tax administration.
Project Insight, a flagship AI and analytics initiative of the Income Tax Department, was launched with three objectives: (a) promoting voluntary compliance and deterring non-compliance; (b) imparting confidence to ensure appropriate tax is paid; and (c) promoting fair and judicious tax administration. An integrated data warehousing and business intelligence platform has been rolled out to leverage data analytics in tax administration, coupled with efforts for voluntary compliance and resolution of related issues, and in utilising the reporting portal to collate information from multiple sources.
There has been activity on the indirect tax front as well. Project ADVAIT (Advanced Analytics in Indirect Taxes) uses capabilities of big data and AI with the three-fold objective of enhancing indirect tax revenue, increasing the taxpayer base and supporting a data-driven tax policy. Data analytics is being tapped to identify fiscal risks, spot suspicious trends and uncover risky entities in Customs and GST by leveraging big data.
Fraud detection has vastly improved through the use of pattern recognition to analyse vast datasets, including tax filings, financial transactions and third-party information from banks, stock exchanges and government departments, to identify suspicious trends, including discrepancies between declared income and actual spending. Machine learning models help in flagging irregularities such as high-value purchases (e.g., luxury cars, real estate) that don’t match declared income, or large cash deposits inconsistent with income statements, and patterns that suggest potential evasion. This enables early detection of suspicious patterns and potential tax evasion, especially in high-risk sectors.
Interestingly, the definition of computer systems in the Income-tax Act, 2025, includes a ‘virtual digital space’ which is broad enough to include social media accounts, digital application platforms, email servers, etc. This implies significant ramifications for taxpayers, especially in search cases. There have also been newspaper reports indicating the launch of Project Satya for investigating digital footprints to combat tax evasion.
Advanced analytic models can also help Revenue authorities to forecast and predict tax revenues, a feature that will be relevant from a GST perspective, where analysis of trends can provide sharp insights.
The administration’s digital framework has enabled an ecosystem where all tax compliance processes are digitised, from filing TDS returns, tax returns for corporates and individuals, to faceless assessments and appeals. The GST process too is digitised, enabling seamless compliance and reporting for taxpayers.
From a taxpayer’s perspective, the Income-tax portal 2.0 has significantly enhanced the user experience. Individual taxpayers have been getting speedier refunds – within 24 hours in some cases! The pre-filled income-tax return has been a boon for individuals who want to file their tax returns suo moto. The Non-Intrusive Usage of Data to Guide and Enable (NUDGE) intelligently prompts taxpayers towards compliance. The TAXASSIST chatbot available on the e-filing portal guides taxpayers through the tax filing process. These measures build trust and boost the confidence of taxpayers.
For corporate taxpayers, AI-powered scrutiny selection has streamlined cases picked up for assessment, while Big Data Analytics helps in the detection of mismatches. Similarly, measures such as the introduction of PAN 2.0, enhanced Annual Information Statement (AIS), the Taxpayer Information Summary (TIS) and the revamped Tax Information Network (TIN 2.0) for tax payments, are pitching in to redefine the tax processes and boost the ease of doing business in India.
The digitisation efforts of the tax administration have been the catalyst for the adoption of technology by tax teams in corporates. Tax departments in organisations are now increasingly adopting technology internally for accuracy and efficiency, including the usage of AI for more value-added work, while cutting their time spent on routine compliance matters.
As governments grapple with increasing demands for efficiency, transparency, and service quality, AI is emerging as a mission-critical tool in modern tax administration. AI is no longer just a support tool—it is becoming central to India’s tax compliance ecosystem. For taxpayers and tax professionals, embracing AI tools and solutions and staying updated with legislative changes is key to navigating this evolving landscape.
(Kumar is a Partner and Lotia is the Associate Director at Deloitte Touche Tohmatsu India LLP)
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