AI and technology in tax: How it is transforming Enterprise Tax Functions?

Technology in tax administration

India’s tax administration has embraced a new era of technology-led governance. The Central Board of Indirect Taxes & Customs (CBIC) and the Income Tax Department (CBDT) are leveraging Artificial Intelligence (AI), Data Analytics and other technologies to transform how taxes are monitored, collected, and enforced.

ADVAIT – CBIC’s Analytics Suite for Indirect Taxes and CBDT’s Project Insight are flagship initiatives designed to give a 360-degree view of taxpayers. While Project Insight focuses on individuals and direct tax compliance, ADVAIT is designed to track business transactions, supply chains, and trade flows. Their common building blocks include:

Data integration from banks, businesses, and trade bodies.

AI/ML algorithms for anomaly detection and risk scoring.

Visualization and dashboards for tax officers with actionable insights.

Automation and tools for taxpayers to improve voluntary compliance.

India’s tax authorities are no longer merely collectors of revenue – they are becoming data-driven agencies powered by AI. With Project Insight and ADVAIT, the government is building a future where tax evasion is harder, compliance is easier, and enforcement is fairer.

Use of AI and technology by tax functions for tax compliance and litigation in India

Indian businesses are responding by enhancing compliance processes, embedding technology, and preparing for data driven scrutiny. In addition, digitalization is transforming tax departments from a compliance function into a value-driven, insight-focused business partner.

Some of the representative areas where digitalization is being adopted by the industry are:

Using technology to strengthen Tax Governance & Transparency

Businesses are aligning ERPs and their financial reporting systems with tax authorities’ digital platforms such as GSTN to reduce mismatches by performing real-time validations/ reconciliations, improving tax relevant data quality in the ERPs and capturing digital audit trails for responding to scrutiny.

Automated supplier/vendor risk checks are integrated into compliance processes; these steps can help proactively identify non-compliant vendors rather than waiting for getting caught during the scrutiny.

Using AI and technology in Tax compliance to manage tax risks and improving efficiency

Increasingly, enterprises are deploying Data Analytics technologies for tax reconciliations, tax anomaly detection, and tax compliance status dashboards

AI enabled programs and tax automation simulate potential red flags and tax compliance risks that may be identified by tax authorities. For example;

In case of Taxes to be deducted at Source (TDS), AI embedded automation classifies payments, predict correct deduction rates, and flags invalid/missing PAN details.

In GST, automations are embedded for updating IMS Portal and subsequently reconciling purchase invoices with GSTR-2B to prevent ITC mismatches.

AI enabled OCR technologies are digitizing PDF/scanned invoices and process automation tools are calling various API’s for automating numerus controls prior to booking/posting the invoice in the books of accounts such as verifying against E-GAM data.

Enterprises are integrating such technologies with ERP systems to ensure accurate tax calculation and reporting in real time.

Generative AI technologies are being used by tax functions to analyze contracts, invoices, and tax filings. Tax professionals in enterprises have also started to derive significant personal productivity by using Generative AI in drafting initial responses to tax notices, summarizing lengthy case laws and tax notifications
AI-enabled tax and legal research platforms can support:

Research on tax case laws and statutory provisions.

Drafting of tax submissions.

Potential tax and regulatory risks can be highlighted in advance from financial statements through automated review of financial statements.

Agentic AI in Tax

Agentic AI represents the immediate next stage of adoption. Unlike traditional analytics, agentic AI can plan, reason, and act autonomously within defined parameters.

In transfer pricing, it could run benchmarking and generate draft reports aligned with OECD and Indian guidelines.

It can create a workflow with a combination of AI automation and human intervention for detailed responses to tax notices, pulling relevant statutory provisions, case laws, and relevant transaction data.

In international taxation, it could simulate cross-verification of withholding tax requirements against treaty provisions.

This evolution points to a future where tax teams shift from manual preparation to AI-supervised review and strategic decision-making.

AI and technology are fast changing the tax function

The integration of AI, Automation and Data Analytics in tax administration is transforming the landscape of tax functions and tax compliance in India. In response, businesses are leveraging advanced analytics, AI-powered legal solutions, and AI-enabled automation technologies. As Agentic AI continues to evolve in accuracy and adoption, tax functions are expected to become more value-driven and capable of efficiently managing various tax filings, audits, and assessment obligations.

A version of this article was published on September 25, 2025 by ETedge Insight.com. The same can be read here