Budget 2025: Finance Bill likely to upgrade income tax application with AI for efficient audits, flagging of frauds and enhanced capacity

The current income tax system handles 8 crore taxpayers

Budget 2025 is likely to come with the next generation of the income tax core application for audits and investigation, complete with AI enablement for assessing returns, flagging frauds and to enhance capacity, a senior government official said.

The Finance Bill is likely to introduce ITBA 2.0, an advanced version of the Income Tax Business Application (ITBA), with AI-enabled capabilities to upgrade the system making faceless assessments, return filings and compliance faster and more efficient, he said.

“The ITBA 2.0 upgrade will significantly enhance the system’s functionality, scalability and speed. It will integrate artificial intelligence to assess returns, flag discrepancies and reduce fraudulent activities. The current system handles 8 crore taxpayers, and the upgraded version will cater to a much higher capacity while improving document upload speeds and response times. Interministerial discussions on the cabinet note for this initiative have already been completed,” the official told Moneycontrol.

The proposal, under active consideration of the cabinet, is likely to be part of Budget 2025, he added.

ITBA is the core platform used by income tax officers for audits, investigations, penalties, appeals, compliance management and HR operations. The overhaul aims to adopt a modern technology stack, creating a scalable and future-ready application.

Impact on taxpayers

AI-driven automation: The system will employ AI for efficient assessment, faster detection of anomalies and automated communication, including reminders and notices.

Scalability and speed: The platform will be equipped to handle a larger taxpayer base with reduced response times, improving the overall taxpayer experience.

Real-time updates: Taxpayers will benefit from real-time status tracking of returns, refunds and assessments, fostering greater transparency.

Fraud reduction: Enhanced data validation and security features will minimise errors and fraudulent activities.

Apart from faster processing of returns and refunds, the automated updates and notifications will simplify interactions between taxpayers and authorities, reducing delays and confusion, the official said.

“With ITBA 2.0, faceless assessments will become more efficient, saving time for both taxpayers and tax officials,” he added. “The new system will also ensure swifter implementation of fiscal policy changes announced in the budget.”

“ITBA 2.0 is a good initiative that aims to increase the efficiency and transparency of India's tax system by automating real-time updates. However, there are some issues that need to be fixed, such as the fact that sometimes the tax has been paid but doesn't appear in ITBA, or that the refund issued by the jurisdictional officer does appear in the CPC (centralised processing centre). Therefore, a discrepancy between the ITBA and CPC data reconciliation needs to be addressed,” Gaurav Padhan, partner at chartered accountancy firm KPSG & Co, told Moneycontrol.