The Income Tax Department has ramped up its monitoring efforts by deploying AI to scrutinize taxpayer behavior and identify discrepancies in income tax returns. According to CBDT Chairman Ravi Agrawal, AI-powered systems are now analyzing online activity, financial transactions and return-filing patterns to proactively engage with taxpayers and improve voluntary compliance.
AIS Portal Sees Spike in User Activity
One of the key digital tools being used is the Annual Information Statement (AIS) portal, which records taxpayer financial data from various sources. The department observed that the portal was accessed around 24 crore times last year-an average of 3.5 times per user-despite only 9 crore returns being filed. Over 40 crore AIS documents were generated from more than 650 crore financial transactions.
Frequent AIS visits without corresponding return filings are being treated as behavioral signals, either of intent or confusion. These insights are helping the department send timely nudges via SMS and email to assist or prompt taxpayers to file their returns.
AI Identifies High-Value Transactions and Claim Errors
The Income Tax Department's AI systems are also flagging high-value transactions where returns have not been filed, as well as identifying repeated errors and incorrect claims in filed returns. A major focus area has been fraudulent claims related to exemptions and deductions.
To tackle this, the department launched a nationwide verification drive on July 14, 2025, across 150 locations, which has already unearthed over 1.5 lakh PANs associated with suspicious deduction claims. Officials noted that many of these cases stem from misinformation provided by intermediaries rather than intentional fraud by taxpayers.
Nudging Towards Compliance Through Data
CBDT has adopted a behavioral science-based strategy to "nudge" taxpayers into compliance. For instance, 19,501 individuals were contacted after the department received foreign asset data through the Automatic Exchange of Information (AEOI). This led to 62% of those contacted updating their returns, disclosing foreign assets worth Rs 29,208 crore and foreign income amounting to Rs 1,089 crore.
In another example, digital interventions helped reduce excessive claims under Section 80GGC by Rs 963 crore, resulting in additional tax payments of Rs 409.5 crore.
As of June 18, 2025, approximately 89 lakh updated returns have been filed, generating Rs 9,577.06 crore in additional tax revenue.
Communication Barriers Remain
Despite the success of digital nudges, the department faces challenges in reaching taxpayers directly due to incorrect or proxy contact information. Many individuals list the email addresses or phone numbers of agents, making it difficult for authorities to establish direct communication.
CBDT Chairman Ravi Agrawal emphasized the importance of taxpayers providing accurate personal contact details to ensure smoother interactions and faster resolutions. "We trust the taxpayer," Agrawal said, "but incorrect claims of exemptions and deductions are not acceptable."
A Data-Driven Future for Tax Administration
By leveraging AI and data analytics, the Income Tax Department aims to close compliance gaps, encourage accurate return filing, and increase overall tax transparency. The department maintains that these efforts are not punitive but are designed to assist taxpayers in meeting their obligations more efficiently.
With over 650 crore financial transactions now under digital scrutiny and a 360-degree view of taxpayer activity becoming possible, the future of tax enforcement in India is clearly leaning towards proactive, AI-enabled governance.
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