Income tax department plans deep dive into big data this year

New Delhi: The income tax department will go full throttle on its use of big data in 2019-20 to book tax evaders as its IT infrastructure for profiling assessees becomes fully operational.

The department’s ‘project insight’, which uses data analytics to identify individuals who present a high risk of tax evasion to nudge them with text messages, phone calls and emails to ‘voluntarily’ comply with the tax laws, will be fully rolled out in the new financial year. Some functionalities of the project are already activated, a government official said on condition of anonymity.

“Project insight seeks to capture information that assesses ought to have declared but have not. It will help tax officials in various tasks, including nudging assessees to file returns where a default is noticed,” said the official.

The government resorting to exhaustive profiling of assessees to improve tax compliance is significant, considering that it now has massive amounts of data in its possession about transactions in the economy after the rollout of the goods and service tax in 2017. Manufacturers with annual sales above ₹20 lakh were originally required to register for GST, down from the ₹1.5 crore sales limit that existed until then for them to take a central excise registration. Although the GST registration threshold has being raised in most states to ₹40 lakh from April, the indirect tax reform has established a strong paper trail for transactions across the business value chain.

This, and information about Indians’ foreign bank accounts obtained from overseas tax authorities, details about property transactions, rental income, motor vehicle purchases and spending pattern of individuals incompatible with their reported income will increasingly be processed to figure out how much tax evasion risk an assessee poses. It also means a smaller part of the total number of taxpayers will be subject to scrutiny every year.

The project is transformational in the way the tax department works. Prior to using data analytics, the department had to ask assessees wide-ranging questions and ask for numerous documents, which raised the concern that the taxman was on a fishing expedition. This is no longer the case. “Now the tables have turned. The tax department knows precisely what it wants explained,” said Frank D’souza, partner and leader, corporate and international tax, PwC India. This makes investigation very effective and will help in improving the tax to GDP ratio, said Dsouza.

Rahul Patni, partner and tax digital leader, EY India, said tax authorities the world over are using technology to ensure better compliance, higher tax collection and a better experience for taxpayers. “Use of information available in several government databases, as well as public e-forums such as social media, is an effective and non-intrusive way of finding relevant information before a taxpayer can be formally approached. Information across various government databases such as records of the Registrar of Companies, immigration data, GST Network databases, RBI records and annual information return filings are a goldmine of ‘big data’ for Indian tax authorities. “If ‘project insight’ is successful in mining all of these, it would certainly be one of the big contributors to the policy and administrative goals of the Central Board of Direct Taxes,” said Patni.

The sectors prone to unaccounted wealth generation in the country include real estate, mining, pan masala and gutka trade, film industry and educational institutes, according to official estimates. Estimates of unaccounted wealth in the country vary between 7% and 120% of gross domestic product.

According to Archit Gupta, founder and chief executive of cleartax.com, a taxpayer services firm, the tax department has encountered success in 360 degree profiling of assessees, but tracking taxpayers on social media may not translate to higher tax collection. Heightened monitoring of assessees also raises concerns over privacy.

Patni said that utmost caution and the highest levels of legal and governance standards must be employed while dealing with personal information. Government officials say they have already looked into this. “This system (use of big data) helps in 360 degree profiling of taxpayers’ compliance behavior. It, however, is not meant to spook people. There are adequate checks and balances built into the system, considering concerns around privacy and data theft,” said the first official quoted above.