Revolutionizing Taxation: How India Uses AI & ML to Improve the Tax Process 

Indian Government Set to Revolutionize Taxation Using Data Analytics

The evolution of technology has proven to be beneficial for the finance industry. Predicting the future using Artificial Intelligence (AI), data analytics, and machine learning (ML). The Government of India is thus utilizing this technology in a complex process like taxation to make tax filing more effective, free of official discretion, and business- and taxpayers-friendly. Here’s how artificial intelligence, machine learning, and data analytics are used in taxation in India.

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Data Analytics in Taxation Process

Using data analytics to identify fiscal risks, suspicious trends and patterns, and risky entities in Customs and GST by leveraging big data. The government uses AI, machine learning, and data analytics to identify cases with a high risk of tax evasion and a high likelihood of income addition for further scrutiny. They are also identifying taxpayers to send reminders for advance tax payments and prompting specific taxpayers about apparent mismatches in Income Tax Returns (ITR) and transactions made so that taxpayers may revise their returns.

Advanced Analytics in Indirect Taxes (ADVAIT)

In 2021, the government of India rolled out a project – ADVAIT (Advanced Analytics in Indirect Taxes), which also uses the capabilities of big data and artificial intelligence and will revolutionize the taxation system. ADVAIT has been envisaged with a threefold objective of enhancing Indirect Tax revenue, increasing the taxpayer base, and supporting data-driven tax policy. ADVAIT aids and assists officers in their daily operations, ranging from reporting and ensuring tax compliance to detecting tax evasion. Companies can use these trends to predict future outcomes. Developers designed and developed it in a knowledge-driven data ecosystem using advanced data warehousing business intelligence solutions, keeping in view the 3 I’s: Information, Insights, and Intelligence.

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Using Big Data Techniques for Taxation System

The Indian government is also using big data techniques to store and effectively search information by income tax officers. Using data analytics over networks of taxpayers, they can visualize the taxpayer’s relationships and flag potential high-risk transactions. Using data analytics techniques for the segmentation of taxpayers to focus the campaign on high-risk cases from a tax evasion perspective. All these techniques will make the taxation process easier for its users.

AI for Tax Forecasting

Artificial intelligence can improve the method of tax forecasting from rudimentary modeling techniques to advanced predictive analytics. AI algorithms can analyze corporate or seasonal data to help identify trends within various tax filing cycles. One can use these trends as the basis for predicting what is bound to happen next.

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Benefits of Using AI, Machine Learning, and Data Analytics in the Taxation Process

Using AI, machine learning, and data analytics in taxation has several benefits.

1. Identification of High-Risk Cases: AI and data analytics can help identify taxpayers who are at a high risk of tax evasion. This allows tax officials to scrutinize these cases further.
2. Reduced Discretion of Officials: The use of technology helps reduce officials’ discretion, making the taxation process fairer and more transparent.
3. Increased Taxpayer Base: AI and data analytics can help expand the taxpayer base. Identifying high-risk cases and increasing tax compliance can be done.
4. Enhanced Revenue: By detecting tax evasion and improving compliance, AI and data analytics can help increase revenue for the Indian government.
5. Improved Tax Forecasting: AI algorithms can analyze corporate or seasonal data to help identify trends within various tax filing cycles. AI algorithms can use these trends as the basis for predicting what will happen next, improving tax forecasting.
6. More Effective Tax Filing Process: Using technology, the tax filing process becomes more efficient, effective, and business- and taxpayers-friendly.

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Our Say

The use of AI, machine learning, and data analytics in the taxation process is a game-changer for India. With ADVAIT, officers can ensure tax compliance, detect tax evasion, and enhance indirect tax revenue. Using big data techniques, data analytics, and AI algorithms, they can identify high-risk cases and visualize the taxpayer’s relationships to flag potential high-risk transactions. These techniques help reduce officials’ discretion and increase the taxpayer base. The use of technology makes the tax filing process more effective and business- and taxpayers-friendly.

Yana Khare

A 23-year-old, pursuing her Master's in English, an avid reader, and a melophile. My all-time favorite quote is by Albus Dumbledore - "Happiness can be found even in the darkest of times if one remembers to turn on the light."