I-T Department Uses AI To Crack Down on Tax Fraud By Salaried Employees

From fake rent receipts in the name of relatives, false donations, exaggerated claims against loans, and many more methods to evade tax, the IT department has flagged all such claims

I-T department has also asked taxpayers to provide full details of the chartered accountant, lawyer, or I-T professional responsible for preparing and filing the returns.

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The Income Tax (I-T) department has been cracking down on salaried individuals lately for submitting false or incorrect income tax returns (ITRs). From submitting fake rent receipts in the name of relatives, false donations, exaggerated claims against loans, and many more unethical methods to evade tax, the IT department has flagged all such returns, as per a recent report.

While it was relatively easier to dodge the I-T department earlier, now it is using a new AI software to help catch these lies in the process,  as reported by Economic Times on Saturday. 

The I-T department has recently served notices to many salaried professionals, demanding an explanation and evidence for such claims. These notices have been served for exemptions under house rent allowance under section 10 (13A) for salaried employees, deduction under section 24 (b) of the I-T Act for interest paid on home loans, and allowance under section 10 (14) for hiring a helper to perform official duties, the report stated quoting unspecified sources. 

Individuals with a salary bracket of more than Rs 50 lakh can be reassessed within a decade, while for those with a bracket of less than Rs 50 lakh, reassessment can be done for eight years.

“This is the use of technology in the right direction to trace tax evasion … many individuals in smaller tax brackets think, who would look at smaller value cases? Accordingly, they end up making deduction claims without having made actual payments”, said Siddharth Banwat, partner with a large CA firm, as reported by MoneyControl. 

Additionally, the I-T department has also asked taxpayers to provide full details of the chartered accountant, lawyer, or I-T professional responsible for preparing and filing the returns. 

The revenue department has been recently also focused on claims made on charity and political donations during the fiscal year 2018-19 (FY19). After Budget 2019, charitable trusts were required to maintain a unique identification number, and only donations made to trusts with these unique ids were allowed for Section 80 G deducting FY20 onwards. 

“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,” noted Paras Savla, a partner at KPB & Associates, a chartered accountancy firm.

Computerisation of records helps the revenue department to match the tax returns filed by charities or political parties with the return details from individuals and determine the validity of a donation claim.