Filing Income Tax Return? Here's Why You Should Be More Careful This Time As I-T Department Goes High-Tech

Starting this year, the income tax department will conduct the strictest scrutiny of tax returns.

July 31 is the last date for filing the Income Tax returns without any penalty for AY 2023-24. By July 11, over 2 crore ITRs were filed for AY 2023-24 as compared to 2 crore ITRs filed till the 20th of July last year. This means, more taxpayers have filed returns before time this year. India has around 6 crore taxpayers. Sharing the taxpayer's latest data, the Income Tax department said that taxpayers have helped it reach the 2 crore milestone 9 days early this year, compared to the corresponding period in the preceding year. The Income Tax Department advised people to file their ITR for AY 2023-24 at the earliest to avoid last minute spurt. With the advancement of technology, the Income Tax Department has also gone high-tech and is using Artificial Intelligence to track and match data even from sources you cannot imagine. 

Use Of AI In ITR Scrutiny

Starting this year, the income tax department will conduct the strictest scrutiny of tax returns. To facilitate this process, they have implemented a specially designed, automated and enhanced artificial intelligence software program (AI) for scrutinizing income tax returns (ITR). This program will begin by gathering data associated with your PAN card and subsequently navigating through the connected information linked to your Aadhar card.

According to reports, the AI will cross-reference the transactions associated with your Aadhaar and PAN with the bank accounts you have linked. It will then compile comprehensive information regarding fixed deposits, quarterly interest credits, share dividends, share transactions, mutual fund investments, as well as long-term and short-term gains from all the bank accounts that you have declared and attached to your income tax ITR returns. Moreover, the AI system will commence the process of matching undeclared bank accounts registered under your name, including joint bank accounts where you are listed as the second or third holder.

The reports also said that the AI system will conduct searches for postal accounts and bank accounts held with cooperative banks, and local credit institutions, as well as postal fixed deposits, interests, recurring deposits (RDs), Monthly Income Schemes (MIS), and senior citizen saving schemes. Furthermore, the PAN card details will be verified against the government registry office to identify any transactions related to land and immovable properties within the current year and the preceding three years. 

Following this comprehensive analysis, the AI program will scrutinize debit card and credit card transactions, as well as examine passport and visa details, including records of travel. It will also review information about the purchase or sale of two-wheelers and four-wheelers. It will also be cross-referenced with Tax Deducted at Source (TDS) data in AS26. Based on this analysis, the declared and undeclared factual income tax will be automatically calculated. 

Fake Donations To Be Deducted Easily

Earlier, many taxpayers used to input fake donation details to claim tax rebates and since the department doesn't have data to verify those claims, the taxpayers used to get away easily. Not anymore. The deployment of a full-proof automated AI-ITR program has made it easier for the tax department to cross-verify claims made by taxpayers. Due to this, the tax department issued hundreds of notices this year between March 20 and June 10 to the taxpayers who claimed fake donations. This shows the effectiveness of the new AI-powered system.

The income tax department now possesses the tools to distinguish between genuine and fraudulent donation claims. By computerizing tax returns, they can compare the data provided by charitable trusts or political parties in their tax returns with the donation details declared by individuals. In the Union Budget of February 2019, it was mandated for charitable trusts to acquire a unique identification number. So, as per new provisions, donations made only to trusts with these identification numbers are eligible for Section 80G deduction with effect from April 1, 2020. After all of these scrutiny processes, if necessary, a demand notice will be sent to the taxpayer under Section 143(i) or Section 148 (A) in case of discrepancies.

What Should You Do?

It's better to say no to fake claims while filing the ITR. Also, if you are finding it difficult to file the ITR yourself, it's necessary that you take help from experts like CAs. Also, if you have filed the ITR and have received a notice from the department, then you will have to respond to that. According to experts, if the taxpayers have the proof of the donation, then they will have to produce the same in response to the notice or else, they will have to pay the tax amount as demanded by the I-T department along with the penalty mentioned in the notice.

Aadhaar-Pan Linking Deadline Extended?

Also, you will have to check the status of your PAN if you have not linked it to Aadhaar. After extending the Aadhaar-PAN linking deadline multiple times, the Income Tax department finally refused to extend the deadline beyond June 30. So, if you have not linked these two documents, then your PAN might have become inoperative and you will have to get it activated once again. 

How To Reactivate PAN Card For Aadhaar Linkage?

So, if your PAN has become inoperative, then you will have to inform the designated tax authority about your Aadhaar linkage and pay a fee of Rs 1,000 to reactivate the PAN card. The reactivation process may take as long as 30 days from the date of linking PAN with Aadhaar.