I saw what you did, says the taxman

Project Insight can detect cases of tax evasion using data analytics

 I saw what you did and I know who you are!’ Do you think it’s karma? No, the taxman. The Income Tax department which possesses abundant data on tax payers — current and potential — can, now, with the help of data analytics detect tax evasion cases. This drive is named Project Insight.

This project will mine data, collate and process information gathered from various sources and aims at analysing spending patterns and income declared.

For example, as per available data, if a person purchased a high value property but hasn’t filed the income tax returns (ITR), his/her case could be selected for scrutiny by the tax department.

The department will also, reportedly, use the information from public e-forums such as social media to assess the risk of tax evasion.

Let us take a look at the kind of information that would be available with the Insight project and some sources from which it could gather the details.

Based on unique number

Apart from the details that we submit directly in the form of filing returns, the IT department would possess the database created by tapping the individual’s unique numbers such as PAN (permanent account number), Aadhaar, date of birth, credit card, passport, mobile and the vehicle number.

The Income-Tax Act making PAN mandatory for most high-value financial transactions makes this unique number a significant source for most data.

For instance, the department knows if you pay insurance premium or invest a large sum in a mutual fund or bonds/debentures issued by any company, because one has to submit the PAN if such payment or investment exceeds ₹50,000.

Likewise, any transaction involving purchase or sale of goods and services valued above ₹2 lakh (₹10 lakh in case of immovable property) requires submission of PAN. Not just that, when you purchase a four-wheeler, apply for a credit/debit card or open a demat account, providing PAN is mandatory.

Details of most of your cash payments are also taken into account.

Deposits in a bank or post office, purchase of bank draft, hotel or restaurant bills or expenses in connection with any foreign exchange or foreign trip, requires PAN, if cash involved is more than ₹50,000.

The party selling the goods or providing the services also informs the department (through AIR — annual information return) about our transactions if the amount involved is ₹10 lakh or more. For example, the mutual fund house and the company issuing bonds/debentures are obliged to inform the department when the aggregate investment during a financial year is ₹10 lakh or more. The ₹10-lakh (aggregate in a financial year) cut-off also applies to credit-card bills.

Transactions in the share market too are captured as you pay STT (Securities Transaction Tax). Transactions made with the aadhaar number would go into the database of the Insight.

360-degree profiling

Using the data from various sources, Project Insight uses different functionalities to create a 360-degree profile of taxpayers — current, new and non-filers — to gauge their tax liability.

So, before you think of any evasive tax planning using someone else’s PAN or transacting in the name of spouse or children or any other relative, beware of the Project Insight; it is capable of detecting them, as it can identify the relationship between the family members.

On the issue of department sourcing the information from social media platforms, Naveen Wadhwa, Deputy General Manager at Taxmann.com, says, it is believed that the department may peep into posts of taxpayers on social networking sites to assess if their lifestyles do not match with the income disclosed in the returns.

‘‘However, the information collated from the social networking sites may not constitute sufficient evidence to initiate an enquiry against a person’’, he added.

The analysis under Project Insight would be a standard procedure to investigate tax evasion cases.

So, better be clean with your income and beware of artificial intelligence.

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