19/06/23

FINTECH: AI Is Catching Tax Evaders Now

As published on: analyticsindiamag.com, Monday 19 June, 2023. 

The Income Tax department has deployed AI solutions to find tax evaders.

The Indian government is looking at AI with renewed fervour after this year’s Budget, and it seems that the Income Tax department has taken it to heart. The government department has already deployed AI solutions to find tax evaders, detecting fake donations to reassess tax returns filed in the financial year 2019. 

Under Section 80G of the Income Tax law, a citizen can claim deductions of up to 100% for donations to political parties and charitable trusts. Unfortunately, this is used as a tax evasion vehicle. To combat this, the income tax department checked income against donations to detect skewed donation-income ratios, focusing on tax deductions gained by making donations to charitable trusts.

The department sent ‘hundreds’ of notices to various salaried individuals informing them of the same. According to a chartered accountant with knowledge of insider information, most of these notices were sent to residents of Gujarat who had donated to political parties. “Using artificial intelligence, the Income Tax Department has identified people whose ratio of donation against income earned is skewed for the financial year 2018-19,” said Paras Savla, a partner at KPB & Associates, a chartered accountancy firm.

According to law, the income tax department can reassess tax returns within 10 years of filing. This means that the FY19 records can be reassessed until March 2029, giving the IT department plenty of leeway as well as a strong data bank to feed their AI algorithms with. 

Using AI in governance is something that the Indian government has been going big on. With the tagline Make AI In India and Make AI Work for India, regulators have been pushing for the greater adoption of AI among both public and private sectors. Under the Union Budget 2023-24, Finance Minister Nirmala Sitaraman announced the government’s renewed push towards AI localisation. Towards this end, she announced the creation of three centres of excellence for AI and a national data governance policy for better access to anonymised data.

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Fintech AI Tax Evasion