Income Tax Department to Scrutinise Suspect Deductions with AI Analysis

Due to the income tax department's adoption of artificial intelligence (AI) for the analysis of tax returns, deductions for home rent and mortgage interest that may be questionable are now being scrutinized more closely. Taxpayers have allegedly been interrogated on instances of displaying rental houses owned by close relatives and filing false claims for mortgage loan interest. In order to shed light on the department's use of AI to find patterns and anomalies, this essay investigates the problem and the motivations behind such actions.

Income Tax

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Suspect Deductions for House Rent: Taxpayers frequently claim house rent deductions while claiming to live in a rented home that is actually owned by close family members. This calls into question the veracity of such assertions and the receiver's reporting of rental income.

Dubious Housing Loan Interest Deductions: Some taxpayers attempt to secure housing loan interest deductions through false claims. The income tax department now seeks detailed information about such claims to verify their authenticity.

Motives Behind Unscrupulous Tax-Saving Measures: With the cost of living and education soaring and limited deductions available, some salaried taxpayers resort to dubious means to save on taxes. This has caught the attention of tax authorities, prompting them to investigate such cases.

AI and Analysis of Tax Returns: The income tax department utilises AI to analyse tax returns effectively. By leveraging AI technology, patterns and discrepancies in income heads, especially house rent allowance (HRA) and home loan repayments, can be detected more efficiently. Other areas where tax rebates are claimed will also come under scrutiny.

To assess the authenticity of claims made by taxpayers over the years, the income tax department will review their income profiles. This comprehensive examination will help identify any inconsistencies in the deductions sought.

Income Tax

Expert Opinion:

- Jainik Vakil, Chairman of GCCI Direct Tax Committee and a chartered accountant warns against unqualified advice leading to erroneous rent deductions. He emphasises the importance of adhering to the rules, requiring proper documentation such as rent agreements and receipts for claiming HRA deductions.

- Karim Lakhani, another chartered accountant, points out that salaried employees can claim deductions under Section 80C for various expenses without the need for documentary evidence. He suggests raising the basic exemption limit or standard deductions for individuals with salaries up to Rs 10 lakh per annum to alleviate tax burdens.

- An anonymous chartered accountant highlights the inflation-driven financial constraints faced by salaried individuals, compelling some to resort to questionable tax-saving practices.