AI and algorithms are the new paradigms in Indian taxation

A quiet transformation is redefining India’s tax landscape, overhauled by artificial intelligence (AI), data analytics, and the increasing role of digital platforms. The sweeping change is fostering a more transparent and efficient system, as it is strengthening compliance and broadening the tax base in the country, Pritin Kumar, Partner at Deloitte India told TechCircle in an interview.

These reforms are being spearheaded by Project Insight, Income-Tax (I-T) Department’s flagship AI-powered initiative that is designed to detect anomalies. The system sifts through vast data — from Goods and Services Tax (GST) filings to bank transactions — to flag inconsistencies and nudge taxpayers toward accuracy, as it promotes voluntary compliance.

On the income-tax side, it started with replacing filing of paper returns (first Tax Deducted at Source or TDS and thereafter corporate and personal tax returns) with electronic returns, he said.

The digitalisation of tax processes was marked by the introduction of the I-T e-filing portal, which allows taxpayers to file returns, track refunds, and respond to notices online. To enhance transparency and reduce human involvement in tax assessments, the government introduced faceless assessments and appeals, which also utilise AI and data analytics for evaluations.

The introduction of GST, which replaced multiple indirect taxes with a unified system, simplified compliance and improved transparency, using technology.

According to Kumar, taxpayers are feeling the difference. E-filing and online payments have drastically reduced the time and effort required for compliance. Pre-filled forms, real-time tracking, and automated acknowledgements have made the process more intuitive.

It is pertinent to note that the tax administration has acted as a catalyst for the adoption of technology in tax by taxpayers. "While earlier taxpayers were using technology to meet their statutory compliance requirements, they are now evaluating how technology and automation can help them in their internal tax processes. This transformation in the tax departments of companies can be said to be an outcome of the digital initiatives of the tax administration,” Kumar said.

Taxpayers’ satisfaction

Digital initiatives have played a vital role in improving taxpayer satisfaction, as e-filing and online tax payment systems have made it easier to meet compliance requirements. These platforms also provide real-time tracking and automated acknowledgements, giving citizens better visibility into the status of their filings and payments, he added.

Digital systems have expedited the processing of returns and refunds, ensuring quicker resolutions. Improved user interfaces and pre-filled forms have further reduced errors and made the filing process more intuitive and user-friendly.

Looking ahead

Indeed, corporates are now investing in automation and AI tools to comply with regulations and also to optimise internal tax functions. The ripple effect of government’s digitalisation is reshaping corporate tax departments, making them more agile and data-driven.

Looking ahead, the next frontier is Standard Audit File for Tax (SAF-T) — a global OECD standard that could enable near real-time compliance monitoring. Businesses are also eyeing the potential of Generative AI and Agentic AI in tax research, summarization, and drafting responses—technologies that could redefine how tax departments operate.

Yet, challenges remain. Grievance redressal and appeals processing are still a pain.

There is an increasing demand from taxpayers for the usage of technology to centralise the grievance portal and setting defined timelines for officers to resolve taxpayer queries, believes Kumar. Similarly, another ask from taxpayers is to provide visibility and enable tracking of the progress of appeals and actions taken by the authorities on the e-filing portal, including giving effect to appellate orders.

"India’s tax evolution is no longer just about policy—it’s about platforms, protocols, and predictive analytics. And in this new paradigm, the code that matters most may not be the tax code, but the lines of AI code quietly reshaping it," he opined.