Digital Tax Administration as A Mechanism to Combat Black Money: Legal and Technological Perspectives

Abstract

The problem of black money has been one of the critical issues confronting the economic, fiscal and legal system of India. Not only does this undocumented income led to considerable revenue losses for the state, but it is also responsible for promoting corruption, tax evasion, money laundering, benami transactions, and illicit accumulation of wealth. The traditional approach to tax administration implies a manual system of collecting, assessing, and managing taxes through the means of paper documentation and personal contacts. Thus, it can be assumed that the traditional approach to tax administration might encounter difficulties in addressing black money and tax evasion since a large amount of financial information is hard to gather, verify and analyze in a traditional way. There might be limited opportunities of identifying any income which has not been reported, suspicious transactions or inconsistencies between the declared income of a taxpayer and his or her financial operations. The digital tax administration implies the use of technology, electronic databases, data analytics, automation, and artificial intelligence (AI). Thus, digital tax administration has greatly changed the process of identifying, monitoring, and tackling undisclosed income and tax evasion. The shift from Income-tax Act, 1961 to the Income-tax Act, 2025 in context of the rising use of AI, data analytics, and digital technology for the detection of untold income and tax evasion. The paper will focus on the various challenges posed to technology-based tax administration through constitution and legislation. These include the problems of privacy, natural justice, transparency, and protection of the taxpayer’s right.