Tax Technology - Data Analytics in India

Detection of tax evaders in India using data analytics

Tax evasion has always been a problem in India, one of the fastest growing economies in Asia.

In the end of 2017, the Union Finance Ministry of India has announced “Project Insight” – an integrated technology platform that helps identifying tax evaders in a non-intrusive manner. It uses big data analytics, including data from social media platforms and India’s Aadhaar (Biometric database), to identify mismatches between a person’s spending pattern and income declaration. In case of any discrepancies, automated notices are sent via email and letters.

Project Insight has been initiated by the income tax department for data and web mining, collection, collation, and processing of such information for effective risk management. This project is developed with a view to widen and deepen the tax base as well as to improve tax compliance in India.

In the first phase of this project, financial data such as credit card bills, investment portfolios, bank statements and property details was migrated to a centralized digital system. This system helps to keep the citizens responsible for filing their tax returns through mail or email.

In the second phase, launched December 2017, the aforementioned data was processed using data analytics to create ‘individual spending profiles’ of all Indian citizens. Any mismatches then lead to notices being issued.

In the last phase, which went live in May 2018, advanced systems are used to predict income sources, spending, future defaults and flag risks of every individual and business establishments.

According to experts, tax compliance is expected to rise by around 30% - 40% due to implementation of this innovative technology platform.

Project Insight inspired by UK’s Connect?

In 2010, the UK implemented a system to discover tax evaders under the powerful “Connect” system. As per a report from the London-based Institute of Financial Accountants, the Connect system has been able to prevent income tax loss of GBP 4.1 billion and the number of criminal prosecutions has increased to 1,165 per year from 165 per year before. For detailed information, please refer to TPA Global's article on Data Analytics in the UK.

The expected increase in income tax filers due to Project Insight

India’s Central Board of Direct Taxes (CBDT) expects nearly 13 million new income tax filers to be added during the current financial year 2018-2019. A senior income tax official said: “Project Insight helps to analyze mismatches in the income declared by the taxpayer and spending patterns. For instance, in several smaller cities in North India, purchases of luxury cars helped detect cases of under-reporting of tax or even non-filing of income tax returns. Data obtained through Goods & Services tax reporting will also be correlated with income tax filings".

CBDT intends to create awareness and encourage voluntary compliance through meetings and other communication sources. The Principal Chief Commissioner is required to develop regional strategies. CBDT intends to monitor the targets achieved on a quarterly basis.

Additional publication: The Times Of India

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