As India’s tax authorities embrace artificial intelligence (AI) for compliance enforcement, audit detection, and taxpayer behavior analysis, the boundaries between efficient governance and personal privacy have blurred. Leveraging AI-powered analytics and faceless assessments, agencies like the Central Board of Direct Taxes (CBDT) now deploy predictive models to track transactions, identify outliers, and automate interventions, transforming traditional tax administration. Yet, this surge in algorithmic oversight presents profound challenges to data protection. Automated systems increasingly depend on bulk personal data, often processed without explicit or informed consent, raising critical questions about the adequacy of India’s current legal safeguards.
The Digital Personal Data Protection Act, 2023 (DPDPA), while pioneering in many respects, offers broad exemptions to statutory authorities engaged in investigations effectively allowing access to individuals’ digital footprints with limited oversight or prior notice. In practice, this means AI tools may comb through vast datasets, flagging non-compliance or tax evasion without robust transparency or accountability mechanisms. Such powers risk undermining the fundamental privacy rights enshrined under Article 21 of the Indian Constitution unless tempered by judicial oversight, data minimization, and rigorous audit trails.
This paper critically evaluates the intersection of AI adoption in tax enforcement and the evolving regulatory landscape for data protection in India. It assesses global best practices, highlights legal and ethical blind spots, and offers policy recommendations to ensure effective, responsible, and rights-respecting deployment of AI. Ultimately, the integration of algorithmic governance must be balanced by transparent safeguards so technological innovation does not come at the expense of citizen rights and trust in public institutions.
