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How India is Using AI/ML against Tax Evaders and Frauds

India’s Income Tax Department has been dependent on human tax assessment officers to assess tax returns filed by individuals, which leaves scope for inefficiencies and tax evasion on a large scale. This has magnified the compliance workload for businesses and the tax department. Last week, the India government’s official announcement of a ‘Transparent Taxation Platform’ that aims to ease the compliance burden and reward honest taxpayers, can be seen as a major step towards the progress of a digital economy. The platform will use data analytics, artificial intelligence and machine learning (AI/ML) against tax fraud and tax evaders

Tax officials have detected Rs 37,946 crore worth of tax fraud in 2018-19 and Rs 6,520 crore in the April-June period of 2019-20. FY 2018-19 reports 1,620 cases of fake invoicing involving Rs 11,251.23 crore that led to the arrest of 154 people. These figures are expected to grow, which means taxpayers are likely to face high tax rates, ultimately leading to more statistics around tax evasion. Hence having an automated system and stringent protocol was the need of the hour.

“Technologies such as Data Analytics and AI offer scalability and better accuracy without any personal bias for the Government to function more effectively and efficiently,” says S Sriram, Chief Strategy Officer at iValue InfoSolutions.

The use of AI/ML against tax fraud is already a popular norm among European countries, including Denmark, France and Norway. By using AI tools, Denmark was able to catch around 60 of every 100 cases involving tax fraud. Norway and France have also made use of AI tools as preventive measures against tax fraud and evasion.

Shibu Paul, Vice President- International Sales at Array Networks, mentions, “Introducing Data Analytics and AI to replace the barrier of superfluous and harsh processes with transparent, tech-friendly and public friendly platform is a very bold step for the country.” 

“Using AI/ML in taxations can offer a number of benefits,” says Paul. He believes while there is a lot of disruption in the taxation front due to various reasons, AI can offer new era of visibility into transactional data and unlock value, help manage risk, improve efficiency and provide critical business insight. AI will be loaded with information such as tax codes, case law and administrative guidelines, and will be able to make certain decisions on this basis.”

With the aim of making the tax system seamless, painless and faceless, a major step in this regard was the introduction of Document Identification Number (DIN) wherein every communication of the department would carry a computer generated unique document identification number.

Prashanth GJ, CEO at TechnoBind says that the promise of faceless assessment is clearly the first step towards making taxation in India a truly transparent one in which the honest tax payer is not harassed. It will help a long way in bringing in increased tax compliance and hence larger funds being accessible to the government- thereby aiding the growth of the nation.

He stresses that the use of Data Analytics and AI reflects well on India recognizing the fact that India is not only leading in development of cutting edge technology but also using it in practice thereby making their citizens life better.

Gurpreet Singh, Managing Director at Arrow PC Network agrees, “Leveraging the power of Data Analytics and AI to do faceless assessments is a great idea, which will improve the quality of assessment, even if there will be litigation at various levels due to difference of opinion of tax payers and the department.”

The need for more trained AI personnel

A study by the German Research Centre for Artificial Intelligence (DFKI)) looked at the potential of digitization and artificial intelligence in the field of taxation. One frequently asked question is – do tax advisors need to worry about their jobs with such increased automation? The simple answer is no. Experts believe that this type of machine learning and analysis works incredibly well for certain types of data and the more menial tasks that would traditionally have to be undertaken by a tax advisor. 

A significant restructuring is already underway at the Income Tax Department to facilitate the implementation of the recently launched faceless tax assessment scheme. According to a Business Standard Report, over 4,200 officers have now been moved to the faceless assessment unit that is adopting AI/ML to make the taxpayer journey and experience more transparent and ardent. 

The report indicates that a huge training and enablement session is already underway, as Sunayana Hazarika, Marketing Manager at Aten India says, “While the use of cutting edge technology like Data Analytics and AI into the tax reform assessment will bring the much needed transparency and accuracy in the process by eliminating the scope of human influences, the success of this initiative will depend on a strong and secured technological ecosystem.”

In the near future therefore, like most other industries, the tax departments would possibly be on the hunt for AI experts, or have the expectation that those within their organization go through training to learn new technologies.

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Sohini Bagchi
Sohini Bagchi is Editor at CXOToday, a published author and a storyteller. She can be reached at