In the upcoming month i.e October, India will be going to become the first country to adopt and deploy the Artifical Intelligence and Machine Learning in the faceless tax assessment process.
Nirmala Sitharaman, the Union Finance Minister has announced this week India will be using Artificial Intelligence and Machine Learning in the tax assessment process system from October 2019.
The Steering Committee on Fintech related issues constituted by the Ministry of Finance, Department of Economic Affairs, submitted their Final Report to Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman in her office in New Delhi.
After the implementation of this system the data in the income tax return, statement of financial transactions and from other sources will be analyzed as per the pre-defined risk criteria.
For example, Alpesh’s (a fictional character) employer has deducted his TDS as Rs 1 lakh but he doesn’t show equivalent income in ITR, then AI will pick it up for deeper scrutiny.
This scrutiny will be done using e-verification where a structured questionnaire will be sent to Alpesh using ML. If the answer is okay, the case will get closed.
If not, AI will send the case to the officer for further investigation, which will proceed using the faceless electronic portal. Traditionally, the tax officer asks for docs and follows a line of investigation.
Sitharaman in June had said that the existing system of scrutiny assessments in the IT Department involves a high level of personal interaction between the taxpayer and the Department, which leads to certain undesirable practices on the part of tax officials.
To eliminate such instances, a scheme of faceless assessment in electronic mode involving no human interface is being launched this year in a phased manner.
To start with, such e-assessments shall be carried out in cases requiring verification of certain specified transactions or discrepancies, she added.
“The whole objective of the faceless assessment is based on the premise that tax officers are corrupt and harass taxpayers. This is not only a biased notion but also undermines the genuine work of the tax department,” a senior government official said.
Assessees have been complaining about harassment due to two main reasons for years now – refund delay and unnecessary demands/litigation raised in scrutiny.
According to the sources within the I-T Department, “unachievable budget targets” are the culprits which force the department to delay refund, fearing action from ministry.
The sources within the tax department suggest that the use of AI may lead to a situation similar to that was seen after the shoddy implementation of GST, as the government has been “hastily pushing for the move”.
“It is not clear how these advanced technologies will help solve these two issues. In fact, they pose a greater risk of high-pitched assessment because tax officer will not be interested in hearing out the assessee and will instead rely on computer data,” sources said, adding that it is a nightmare for complex cases.
The Committee has recommended that the RBI may consider the development of a cash-flow based financing for the Micro, Small and Medium Enterprises (MSMEs).
The development of an open-API MSME stack based on TReDS data validated by GSTN and a standardized and trusted e-invoice infrastructure is designed around TREDS-GSTN integration.
It has also recommended that Insurance companies and lending agencies to be encouraged to use drone and remote sensing technology for crop area, damage and location assessments to support risk reduction in insurance/lending business.
The Committee also recommends the Department of Financial Services(DFS) to work with PSU banks to bring in more efficiency to their work and reduce fraud and security risks.
Significant opportunities can be explored to increase the levels of automation using Artificial Intelligence (AI), cognitive analytics & machine learning in their back-end processes.
According to official sources, the government is very particular about the deadline of the implementation.
In this regard, the revenue secretary Ajay Bhushan Panday on last Saturday held a meeting of officials of the Ministry of Corporate Affairs (MCA) and various tax agencies.
The government has set the deadline of the next month October 8, for the implementation of Artifical Intelligence and Machine Learning for the faceless tax assessment system.
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