Income Tax Department Uses AI to Monitor High-Value Financial Transactions

The Income Tax Department is rapidly upgrading its surveillance and compliance ecosystem, powered by Artificial Intelligence (AI) and advanced data analytics. According to leading tax experts, the department's intensified focus on high-value transactions and digital footprints marks a significant shift in India's tax administration strategy.

Tax officials are now leveraging AI tools to monitor large investments, property purchases, and credit card spending that appear inconsistent with a taxpayer's reported income. Financial institutions - including banks, mutual fund companies, and registrars - are mandated to file a Statement of Financial Transactions (SFT) annually, revealing high-value financial behaviour. This data is now being cross-referenced with Income Tax Returns (ITR), TDS filings, GST data and foreign remittances to identify mismatches and possible tax evasion.

Automated Risk Analysis & Faceless Assessments

AI-powered systems now conduct real-time risk assessments and identify discrepancies, allowing the department to quickly zero in on suspect cases. The new system eliminates manual intervention in most cases and supports the government's push for 'faceless' assessments, where taxpayers no longer interact physically with tax officers.

New Tax Bill to Expand Surveillance in the Digital Realm

The new Income Tax Bill, expected to take effect in 2026, will further extend the department's surveillance capabilities into digital platforms. Under Section 247, authorities will be empowered to access data from a taxpayer's social media accounts, digital wallets, trading apps, cloud storage, and email servers - even bypassing passwords if necessary.

The bill introduces the concept of "virtual digital space," bringing all forms of online activity under the purview of tax monitoring. This is aimed at curbing evasion through digital means and bringing fintech activities into the tax net.

Caution is Now the New Compliance

Experts caution that this shift demands heightened vigilance from taxpayers. The Indian tax system, once reactive, is now becoming predictive, preventive and precision-based, setting a new benchmark for compliance. As the digital economy grows, so too does the department's ability to match every rupee earned or spent to reported income.