AI tools enabled ₹11,000-crore of additional tax revenue in last 4 years: CBDT Chairman

Through the use of various artificial intelligence (AI) tools, the Income Tax Department has over the last four years encouraged more than one crore taxpayers to voluntarily update tax returns leading to ₹11,000 crore of additional tax revenue for the government, Central Board of Direct Taxes Chairman Ravi Agarwal said in an interview. 

Mr. Agarwal added that these tools also helped reveal Rs 29,000 crore worth of previously undisclosed foreign assets and Rs 1,000 crore of foreign income related to cryptocurrencies, or virtual digital assets (VDAs), in 2024-25.

“The AI analysis comprises two parts: the AI tool itself, and the database that the tool has to analyse,” Mr. Agarwal explained. “We have engaged vendors for the tools themselves. There are various tools depending on the stage and the platform where the AI is being used. For example, in the Centralized Processing Centre for Income Tax returns in Bengaluru one component of AI is being used.”

He explained that, while the tax department generates Annual Information Statements (AIS) for about 40 crore unique taxpayers, nine crore of those actually file returns. The first step for the AI tool is to analyse whether any of the remaining 31 crore should be filing returns. 

“The second component is people who have filed their return, and whether they have filed the right return or not,” Mr. Agarwal said. “That analysis is also through AI, where you analyse the patterns of past history and find out. And the third is to determine who are the habitual defaulters.”

The Income Tax Department then employs a system called NUDGE (Non-intrusive Usage of Data to Guide and Enable) to send letters to taxpayers. On the basis of these letters, the taxpayers either revise or update their returns or inform the Department that they stand by them. 

“As a result of this exercise, in the last 4 years since 2021-22, more than 1 crore updated returns have been filed wherein ₹11,000 crore of additional tax revenues have come in,” Mr. Agarwal said. 

Encouraged by this, the I-T Department last year tweaked its rules to say that returns could be updated up to four years later, instead of the earlier two-year limit. 

“The point was that, if the Income Tax Department is flagging the issue, the taxpayers should have an opportunity within the statute wherein they can correct the mistake,” Mr. Agarwal explained. 

Apart from the additional foreign assets worth ₹29,000 crore and foreign income worth more than ₹1,000 crore related to VDAs that were disclosed in updated returns last year, the Income Tax Department in January to March this year also conducted a similar NUDGE campaign for political donations. 

Taxpayers claiming deductions under Section 80GGC of the Income Tax Act, which pertains to political donations, were ‘nudged’ through SMSs and emails. According to the Department, due care was taken to exclude genuine donors whose names or details  appeared in the contribution reports filed by the political parties on the Election Commission website. 

Through this campaign, 6.25 lakh taxpayers received ‘nudges’ for the claims they made for the financial years 2022-23, 2023-24, and 2024-25. Of these, 35,260 taxpayers amended their returns, and ₹404.2 crore of additional tax was paid.