ndia's tax system generates remarkable amounts of structured data. GST alone produces GSTR-1, GSTR-2B, GSTR-3B, GSTR-9 , every transaction captured in a format that is, in principle, machine-readable. The compliance problem is not a data availability problem. It is an aggregation, reconciliation, and action problem.
That is the gap where AI agents are starting to operate.
The reconciliation problem
Every month, a GST-registered business must reconcile its GSTR-2B (auto-populated purchase register from suppliers' filings) against its own purchase register. ITC claimed in GSTR-3B cannot exceed the ITC in GSTR-2B. But suppliers file late, amend invoices, or match GST numbers incorrectly , so the raw data is always dirty.
A rule-based reconciliation script can flag mismatches. An AI layer can classify them: supplier-delay (wait and reclaim next month), permanent mismatch (chase the supplier), vendor-error (the GSTIN was mistyped), or genuine ineligibility (the item is blocked for ITC). Correct classification reduces the manual review queue by 60-80% in practice.
The TDS section classification problem
TDS requires applying the correct section to each payment type. Section 194C for contractors, 194J for professionals, 194H for commission, 194Q for goods purchases above Rs 50 lakh , with overlapping criteria and frequent edge cases (a mixed-service contract spanning 194C and 194J).
LLMs trained on statutory text and case law can classify invoice descriptions into the right TDS section with reasonable accuracy. A small fine-tuned model outperforms a generic LLM for this task because the vocabulary is domain-specific and the training data (actual invoices with confirmed TDS sections) is available within any mid-sized accounting practice.
The architecture pattern that works
Input layer
structured invoice data (description, amount, vendor type, GSTIN, payment terms)
Classification layer
LLM + retrieval over statutory definitions
Validation layer
rule-based checks against the classifier output
Action layer
populate TDS challan or flag for human review
Tax Garden's overview of how AI in Indian tax compliance is reshaping small business GST and TDS management covers the practitioner side of these systems.
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