The Central Board of Direct Taxes (CBDT) is transforming the scrutiny process of Income Tax Returns (ITRs) by leveraging Artificial Intelligence (AI) and Machine Learning (ML). This update, effective from upcoming assessment years, aims to improve accuracy, speed, and transparency in the Indian tax system.
As Chartered Accountants (CAs), understanding this change is essential to help clients avoid potential scrutiny and ensure accurate filings.
What Is AI-Based ITR Scrutiny?
Earlier, tax officers selected returns manually based on guidelines or random sampling. While functional, this system had flaws like delays and inconsistencies. With AI, massive datasets can now be analyzed automatically—including income reports, GST returns, property purchases, and bank transactions—to identify anomalies quickly.
How Does the AI Scrutiny System Work?
- Data Collection: AI pulls data from PAN records, AIS/TIS, GST portals, property registries, bank reports, and past tax filings.
- Risk Scoring: Returns are assigned scores based on mismatches, unexplained income, or excessive deductions.
- Flagging: High-risk scores lead to automatic flagging for further review.
- Automated Notices: In some cases, notices may be auto-generated, though human officers will still give final approval.
Why This Matters for CAs and Taxpayers
Small errors, mismatches, or omissions can now be flagged instantly. Common issues that may trigger AI scrutiny include:
- Salary discrepancies between ITR and Form 16/26AS/AIS
- Unexplained large cash deposits
- High deductions (under Sections 80C, 80D, etc.) inconsistent with income
- Property purchases or travel expenses not matching declared income
- Non-disclosure of foreign income or assets
How CAs Should Prepare
To reduce the risk of client scrutiny under the AI system, follow these best practices:
- Reconcile client data from AIS and TIS before filing
- Ensure proper documentation for all deductions and claims
- Encourage full and honest income disclosure—even for small amounts
- Use smart tax tools that detect inconsistencies early
- Stay informed on new risk indicators published by the Income Tax Department
Conclusion
CBDT’s move toward AI-driven tax scrutiny is a major leap forward in making the Indian tax system smarter and more reliable. However, it also increases the responsibility of taxpayers and Chartered Accountants to file accurate, transparent, and well-documented returns. The key to navigating this new era is diligence, preparation, and staying updated.
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Tags: #IncomeTax #CBDT #AIinTax #MachineLearning #TaxCompliance #CharteredAccountants #AIS #TIS #ITRScrutiny #TaxFilingIndia