AI in Compliance: Busting Myths and Unlocking Opportunities for CAs

Introduction: A New Era of Accountability

In India, compliance is no longer about ticking boxes or submitting forms on time. It's becoming deeper, broader - and far more difficult to manage. What was once confined to laws like the Income Tax Act or GST now includes KYC norms, digital lending rules, cybersecurity obligations, ESG reporting, and even internal governance standards.

Regulators have raised the bar. It's no longer enough to mechanically follow what's printed in a circular - companies are expected to understand the spirit of the law, catch problems proactively, and address root causes.

Recent examples underscore this shift:

• RBI fined IIFL Finance for significant lapses in how it handled gold loans. This wasn't just a paperwork issue - it pointed to operational and governance failures.
• SEBI imposed penalties on Gensol Engineering and its promoters for fund diversion and falsification of records, highlighting the importance of financial accuracy and accountability.

These are not isolated events - they've made CXOs, compliance heads, and audit committees rethink their current systems. In today's regulatory environment, the real question isn't "Did we file the return?" but "Can we explain and justify our actions when it matters?"

What's Broken in Today's Compliance Stack?

Even with several dashboards and digital tools, compliance often feels like chasing a moving target. The intent to comply exists, but the infrastructure - both technical and interpretive - isn't built for the complexity India now faces.

Let's explore the gaps through real-world examples:

• Too Many Moving Parts: In just the Income Tax Act, there are dozens of sections - each with its own thresholds, conditions, and exceptions. GST brings in its own maze: rate slabs, state-wise differences, e-invoicing timelines. Now add FEMA's foreign capital rules, SEBI's LODR norms, the Companies Act's registers, and industry-specific regulations. Each operates in silos - yet compliance teams are expected to integrate and interpret them in real-time.
• Fast Rules, Slow Systems: Regulations change fast. A CBDT circular one day, an RBI notification the next, followed by a key High Court ruling. Most teams depend on informal WhatsApp groups or Telegram channels to keep up - which is neither reliable nor auditable.Take Section 194N, for instance. A minor change in the threshold impacts lakhs of bank transactions. If the system isn't updated quickly, non-compliance can go unnoticed for weeks.
• Too Much Excel, Too Little Structure: Excel is still the backbone of compliance in many firms - including large corporates. Teams use spreadsheets for deadlines, tracking circulars, threshold notes, audit queries, etc. While flexible, Excel isn't scalable. Errors creep in. Versions break. Filters fail. One missed entry can result in late filings or wrongful disclosures - both of which attract penalties.
• Return Filing ≠ Risk Awareness: Most compliance tools today focus on calculations and e-filing. They don't answer foundational questions like: "Which section applies?""Has an exception been triggered?""What's the penalty if I miss this condition?"

For example, a marketing payment could fall under Section 194C or 194J. Most systems flag both - but don't explain which applies and why. That's not compliance intelligence - that's ambiguity.

No Support in Grey Areas: These are the areas that keep compliance teams up at night.

Real example: A startup pays ₹1 lakh to an influencer. Is it professional service under 194J? Is it contract-based under 194C? What if the influencer is overseas? What about GST place of supply?

These are not edge cases - they're everyday scenarios. Yet, no tool today helps navigate these grey zones with confidence and context.

Bringing AI Into the Picture: Compliance as Logic, Not Guesswork

Compliance is not intuition - it's structured logic. Each section in the law is a puzzle: a set of rules, exceptions, thresholds, and timelines. If we treat legal logic like code, we can build systems that understand and apply it reliably.

That's where AI steps in - not to replace professionals, but to support them like a well-trained analyst who has read every rule, tracked every update, and never forgets.

Smart Flagging, Not Just Keyword Alerts

Tools today flag transactions just because they "look big" - but size doesn't always mean risk.

Example: A ₹50,000 cash payment might look suspicious. But under Section 269ST, it could be completely valid if it's a hospital bill or certain government payments. A smart system understands the context - not just the number.

Understand Procedural Context

It's not just about what happened - it's about why.

Example: A TDS wasn't deducted. But what if the deductee submitted Form 15G? Or if the amount was under the limit? These are not raw data issues - they're procedural ones.

AI systems can be trained to read these logics - the "if this, then that" structure - just like a junior associate learning on the job.

Recommend Actions - Not Just Errors

Real value lies in the next steps, not just red flags.

Example: Missed filing of Form 15CA/CB? A smart system should:• Notify the breach• Estimate penalty risk• Suggest rectification: revised filing, voluntary disclosure, or preparation for scrutiny

Now you're not just alerted - you're empowered.

Real-World Use Cases AI Can Simplify

1. TDS Classification for Agencies: Is a creative agency under 194J or 194C? AI can trace section logic, apply tests, and cite relevant circulars - reducing disputes and disallowances.
2. Foreign Investment Reporting under FEMA: Received funds - is it FDI or FVCI? What forms apply? AI can track fund origin, tag sector, and map the correct reporting path - making compliance smoother.
3. Zero-Rated GST on Export Services: Design services to a US client - does it qualify as export? AI can check place of supply, payment conditions, and export proofs - reducing confusion.

Debunking Common Myths About AI in Compliance

Despite all the noise around AI, many professionals are still hesitant - largely due to a few persistent myths.

One common concern is that AI functions like a black box - that we can't trust how it reaches decisions. But in reality, when AI is built on structured legal rules and decision trees, each recommendation it makes is fully auditable and traceable. Think of it more as a junior associate who can always explain how they reached their conclusion.

Another misconception is that AI is only for large enterprises. That may have been true in the past. But today's compliance tools are built on modular, API-first architectures. That means even smaller or mid-sized firms can plug in intelligent rule engines without huge infrastructure spend.

And perhaps the biggest myth? That AI will replace Chartered Accountants. The truth is just the opposite. AI is here to take over the repetitive, rule-based grunt work - freeing CAs to focus on what they do best: apply judgment, manage stakeholder trust, and advise on strategic risks.

How Chartered Accountants Can Lead the Change

CAs aren't new to regulation - they've always been at the forefront. But the tools and expectations have changed. To lead, CAs must evolve from practitioners to platform thinkers.

Here's how:

• Modularize Legal Logic: Understand how each rule can be broken down into structured logic: thresholds, conditions, exceptions. This is the foundation for AI systems to learn from.
• Build with Developers: CAs must co-create tools with developers and data scientists - not wait for software vendors. They know the nuance, and they know the risk.
• Guide Clients to Real-Time Thinking: Clients need to move from "Let's check at year-end" to "Let's fix this before it becomes a problem." That means alerts, not emails. Dashboards, not Excel sheets.

Opportunities Beyond Income Tax or GST

When most people think about automation in compliance, they picture tax return filings or GST reconciliations. But the opportunity is much larger than that.

Once an AI-first compliance engine is in place - one that understands legal rules as structured logic - it can scale across the entire regulatory spectrum.

Imagine SEBI regulations like LODR or IPO disclosure checklists being validated automatically based on real-time filings. Or FEMA compliance that doesn't just track forms, but tags each deal based on fund source, sectoral limits, and timelines - then triggers alerts before you miss a deadline.

Even softer, governance-heavy areas like CSR and ESG reporting can benefit. AI can help match your disclosures to the applicable rule sets and even prompt you when documentation gaps are detected.

Then there's internal compliance - where AI can scan company policies, automate register upkeep, track board resolution triggers, or validate employee reimbursements against internal thresholds.

This isn't about building a tool for just one act. It's about laying the foundation for a universal compliance layer that's dynamic, adaptable, and deeply integrated. And Chartered Accountants, with their domain knowledge and structural thinking, are best positioned to help build and scale it.

Conclusion: Compliance Is Becoming a Thinking Game

Compliance is no longer just about ticking off requirements - it's about building systems that understand nuance, evolve with regulation, and scale with business complexity.

AI isn't about replacing professionals. It's about giving them leverage - to be faster, clearer, and more consistent in how they apply rules.

The Chartered Accountant of tomorrow isn't a passive filer - they're a compliance architect, helping organisations think through their governance fabric.

To lead this shift, we must:

• Think in logic, not lists
• Build explainable, traceable tools
• Push for automation that's intelligent, not cosmetic
• Become the bridge between law and technology