Income Tax Department Uses AI to Track Unreported Financial Transactions

The Income Tax Department has launched a nationwide campaign to find and penalise reporting entities that did not submit Statements of Financial Transactions (SFT) or Significant Financial Transactions (SRA) for the financial years 2023-24 and 2024-25. These statements include details of large financial transactions that must be reported under the law.

Officials said that the Directorate of Systems identified several entities that either failed to file these reports or provided incomplete details. The list of such entities was shared with field offices by September 30.

The department has now started sending notices and imposing penalties on these entities. Field officers have been directed to complete the entire process by the end of November.

One of the seniors said, “The department has recommended a hefty penalty applicable under the law, and the process has to be completed by the end of November.”

The unreported transactions include cash deposits, vehicle purchases made in the names of minor children, gold purchases, and luxury hotel stays with bills above Rs. 50,000.

The Statement of Financial Transactions (SFT) acts as a reporting tool that requires certain entities to provide details of high-value transactions. These include both cash and digital payments, as well as income from interest and dividends.

I-T Department is currently using artificial intelligence (AI) to watch taxpayer activity. The system can track visits to tax websites, spot large transactions, and identify PANs (Permanent Account Numbers) linked to suspicious claims.

However, CBDT Chairman Ravi Agrawal said the department can only access a taxpayer’s digital records in cases where the taxpayer refuses to share them voluntarily, like during a search or seizure.

The department has also added a feature on its e-filing portal that lets taxpayers see the exact date and time when a tax officer looks at their submissions. This makes the process more transparent, reduces disputes, and enhances trust in the faceless assessment system.

In May, the government extended the deadline for filing income tax returns (ITRs) for the 2024-25 financial year from July 31 to September 15. This extension was due to updates in the ITR forms announced earlier in April and May.