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Data analytics for Tax authorities

Rajdeep Saini

| Updated: Nov 13, 2020 | Category: Income Tax

data analytics for tax

Data is the groundwork, upon which this brand new digital tax world is being set up, and the quality of that result will depend on the superiority of the data that goes in. To keep up with what governments are performing and stay one step ahead of them, tax departments must look at the function of tax through the eyes of data analytics and big data.

Data analytics for Tax

The Central Government body, ‘Central Board of Direct Taxes’, is recognizing individuals through a non-filers monitoring system by the way of analytics of data and using it to measure their liability of tax and ordering them to file their income tax returns or submit online response within 21 days. The system of monitoring non-filers will be able to monitor and identify individuals who enter into multi-value transactions and have probable tax liabilities but have still not filed their returns of tax. The scrutiny was approved out to identify non-filers about whom explicit information was available in the database of the Income Tax Department[1].

How data analytics for tax used by income tax authorities

There are number of tax authorities who pull together data from a variety of sources to develop a more absolute picture of companies’ profiles on taxation. Companies are more and more being requested to submit client bills, customs declarations, statements of accounts, bank records, and vendor invoices.  All these documents are required to be in prescribed formats as per the Government of India — and on an increased speed schedule often in real time.

Furthermore, the arrangement in which these data is presented may differ from how companies collect and track the data themselves. The Income Tax Authorities are using real-time data analytics engines to authenticate invoices and lag inconsistency, purchase declarations and verify sales, verify payroll, and compare data across jurisdictions. Based on this scrutiny, Income tax authorities make determinations, including audit and tax assessments.

Implication on companies by data analytics for tax

The Income tax authorities’ improved use of data analytics suggest that companies — and their finance and tax departments — need a mindset shift around how they accumulate, analyze and store financial and tax data. The documents must be stored in different places, such as personal hard drives, network shared drives, external providers’ systems, emails and document management systems.

Adding to this particular challenge, the demanded information may be multiplied across different functions and geographic locations. This can make it rigid to find data when it’s required and know when that data has been delivered or collected. These disputes can be mitigated through the expansion of a vigorous analytics system and data management.

The magnitude of short response time and requests for compliance means that companies require advanced analytic capabilities and data management that exceed or meet those used by the authorities of Income Tax. They also required people known with these improved data requirements to maintain and develop those systems.

Further, they must be proactive in taking steps to create files that are “audit ready” when presented information requested to Income tax authorities — mainly in these surroundings of amplified information exchange and transparency.

Benefits of Government for using data analytics for tax

The Department of Revenue held a high-level meeting to boost proceeds and hit the Rs 1.10 lakh crores target of GST for the period next two months, Rs 1.25 lakh crores in December, and the target of direct tax collection of Rs 13.35 lakh crores. Dr. Ajay Bhushan Pandey, the Revenue Secretary of the state, and senior officials of the Central Board of Direct Taxes (CBDT) had met to plan and rationalize the functions with the help of data analytics and to also allocate precise responsibilities for the tax officers.

One of the significant steps is weekly updates on steps taken for ways to boost revenue and attain goals that were determined in the meeting, according to sources mentioned in the report. Also with respect to pains towards curbing tax evasion, huge ITC or fake claims, the disparity in returns filed etc, it was determined that field configuration under the Principal Chief Commissioners, Commissioners and Members of boards would have to split updates either in on video conferencing or physical meetings every week.

Conclusion


As the Indian tax authorities depend more on data to make audit determinations and compliance, sharing this data with the authorities of Tax in different jurisdictions. It would become hard for tax authorities to follow regular compliance through this system. The department of Income-tax has an instance to deliver value in this new era of digital tax by implementation initiatives of the enterprise and transformations that smooth the progress of enhanced data management. Now corporates can realize this worth by harnessing data analytics to control costs, administer risk, and business decisions, and inform communications.

Read our article:Data Analytics in Banking: Application, Challenges & Opportunities

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Rajdeep Saini

Rajdeep is a law graduate from Guru Gobind Singh Indraprastha University. During his law school he gained vast experience in corporate and commercial law. He likes traveling and performing stand-up comedy.

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