Key Points
- AI-powered tax enforcement system to be incorporated into new Income Tax Act, with bill expected in Parliament’s monsoon session
- ₹6.5 billion worth of digital transaction data accessible to Income Tax Department for fraud detection
- 11 million updated ITRs filed since April 2022, generating over ₹11,000 crore in additional tax revenue
- Digital access limited to search and seizure cases only, not for general surveillance of taxpayers
- Recent enforcement campaigns resulted in ₹963 crore in withdrawn exemption claims and ₹409.50 crore in additional tax deposits
New Delhi: The Income Tax Department is set to significantly enhance its fraud detection capabilities through artificial intelligence and advanced data analytics, according to Central Board of Direct Taxes (CBDT) Chairman Ravi Agarwal. The new system will be integrated into the upcoming Income Tax Act, with the related bill scheduled for passage during Parliament’s monsoon session.
AI-Powered Fraud Detection System
The Income Tax Department now has access to digital transaction data worth over $6.5 billion, combined with information received from international sources. This comprehensive database enables tax authorities to identify discrepancies between reported income and actual financial activities with unprecedented accuracy.
CBDT Chairman Agarwal emphasized that the next generation of AI will be even faster and more precise, with reporting agencies providing increasingly accurate data. This technological advancement will streamline the identification of tax evasion cases and enable swift enforcement action across the country.
Privacy Safeguards and Limited Access
Addressing concerns about digital privacy, Chairman Agarwal clarified that access to digital records is strictly limited to search and seizure operations. This access is only granted when taxpayers:
- Hide income information
- Refuse to provide accurate financial details
- Are suspected of tax evasion
“The purpose of this facility is not to spy on common people,” Agarwal stated, emphasizing that the system targets only cases of suspected fraud rather than conducting blanket surveillance.
Impressive Results from Data-Driven Enforcement
Voluntary Compliance Surge
Since April 1, 2022, the department’s data-sharing initiative has prompted significant voluntary compliance:
- 11 million updated Income Tax Returns (ITRs) filed
- Over ₹11,000 crore in additional tax discovered and collected
Recent Enforcement Campaign Results
A targeted campaign by the Income Tax Department yielded substantial results:
| Period | Achievement | Amount |
|---|---|---|
| Recent Campaign | Tax exemption claims withdrawn | ₹963 crore |
| April 1, 2023 – June 18, 2025 | Additional tax deposited | ₹409.50 crore |
| November 2024 – March 31, 2025 | Foreign assets declared | ₹29,208 crore |
| November 2024 – March 31, 2025 | Foreign income declared | ₹1,089 crore |
Foreign Asset Declarations
Between November 2024 and March 31, 2025, 30,161 taxpayers came forward to declare previously undisclosed foreign assets and income, highlighting the effectiveness of the data-driven approach.
Technology-Driven Tax Administration
The success of these initiatives demonstrates the power of combining big data analytics with artificial intelligence in tax administration. Chairman Agarwal noted that data analysis enabled simultaneous enforcement action across India, making the department’s operations more efficient and effective.
The integration of AI into the new Income Tax Act represents a significant step toward modernizing India’s tax collection system, promising to make tax evasion increasingly difficult while encouraging voluntary compliance through transparent data-sharing practices.
What’s Next?
With the bill set to be introduced in Parliament’s monsoon session, taxpayers can expect:
- Enhanced fraud detection capabilities
- Faster identification of income discrepancies
- More targeted enforcement actions
- Continued emphasis on voluntary compliance through data transparency
The new system aims to create a more equitable tax environment where honest taxpayers benefit from improved compliance rates, while those attempting to evade taxes face increasingly sophisticated detection mechanisms.
