Inviting proposals for firms interested in the mandate, income tax department said that it plans to select two entities for data analytics and one for business process management

The income tax (I-T) department plans to hire external entities to analyse large volumes of demonetisation-related data at its disposal and cross-match it with the corresponding taxpayer returns to check for tax evasion.

The I-T department is also hoping that will also lead to voluntary filing under the second income disclosure scheme —the Pradhan Mantri Garib Kalyan Yojana (PMGKY)—that closes on 31 March.

The plan comes at a time when a substantial portion of the Rs15.4 trillion of cancelled banknotes is estimated to have returned to the banking system, stoking fears that tax evaders managed to successfully legalize their undisclosed income.

Inviting proposals for firms interested in the mandate, the I-T department said that it plans to select two entities for data analytics and one for business process management.

The I-T department has a huge volume of data at its disposal after it tightened reporting requirements in the aftermath of demonetisation.

The I-T department estimates that banks and financial institutions will report around 30-40 lakh accounts under its new reporting requirements.

The I-T department has asked banks and post offices to report all cumulative cash deposits above Rs2.5 lakh and one-time cash deposits of more than Rs50,000 from 9 November to 30 December, also.

In case of such accounts, it had sought information from 1 April to 9 November as well.

The cash transaction data will be compared with information available in the I-T department’s databases to identify those cash transactions that do not appear to be in line with the taxpayer profile and subsequently, the taxpayer will be asked to submit details of these transactions online.

After Prime Minister Narendra Modi invalidated high value currency notes with effect from 9 November, the government had estimated that around Rs11-12 trillion will come back into the banking system.

However, with tax evaders finding innovative ways to legalize their black money including using conduits to deposit money or purchasing jewellery with back-dated bills, the I-T department has been forced to step up scrutiny of cash deposits in bank accounts.

“The income tax department will need external help as they don’t have the capacity. But this is going to take a long time as it’s a herculean task to follow up with the depositors,” said B.M. Singh, former chairperson of the Central Board of Direct Taxes.

“Even if some accounts are red-flagged through data analytics, the tax department does not have the manpower to follow up,” he said.