The detection of fake input tax credit (ITC) claims by central GST officers saw a remarkable rise of 50.6% in the fiscal year 2023-24, reaching a staggering Rs 36,374 crore. This substantial increase in detection by the Central Tax formations under the Central Board of Indirect Taxes and Customs (CBIC) was shared with the Parliament by the Minister of State for Finance, Pankaj Chaudhary, in a written response to the Lok Sabha.
Overview Of Fake Input Tax Credit Cases Over The Years
FY 2023-24
- Cases Booked: 9,190
- Fake ITC Amount: Rs 36,374 crore
- Arrests Made: 182
- Voluntary Deposits: Rs 3,413 crore
FY 2022-23
- Cases Booked: 7,231
- Fake ITC Amount: Rs 24,140 crore
- Arrests Made: 153
- Voluntary Deposits: Rs 2,484 crore
FY 2021-22
- Cases Booked: 5,966
Challenges In Detecting Input Tax Credit Fraudsters
The challenges faced in tracking down Input Tax Credit fraudsters were highlighted by Minister of State for Finance, Pankaj Chaudhary. The primary issue lies in the sophisticated methods employed by the masterminds behind fake ITC schemes. These individuals manage and control a complex network of entities, which are strategically spread across different jurisdictions to evade detection. These intricacies make it difficult for authorities to pinpoint the actual perpetrators.
Government Initiatives To Curb Input Tax Credit Frauds
Honourable minister recently outlined a series of measures implemented by the government to tackle the rampant issue of fake Input Tax Credit (ITC) claims. These measures aim to enhance the integrity of the GST system and ensure compliance across the board.
- Biometric-Based Aadhaar Authentication: Risk-based biometric authentication using Aadhaar has been introduced to verify the identity of individuals and entities involved in high-risk transactions.
- Physical Verification: Physical verification is mandated for high-risk cases to ensure the authenticity of businesses claiming ITC.
- Bank Account Verification: The bank account provided during the registration process must be in the name of the registered person. It should be obtained using the PAN of the registered person and linked with their Aadhaar.
- Restriction on ITC Availment: ITC can only be availed against invoices and debit notes that have been furnished by the supplier in their statement of outward supplies. This ensures that only genuine transactions are considered for ITC claims.
- Mandatory Filing of FORM GSTR-1: Filing of FORM GSTR-1, which details outward supplies of goods and services, has been made mandatory. This step ensures that all transactions are properly recorded and reported.
- Provisional Attachment of Property: Authorities can provisionally attach the property of individuals or entities involved in fraudulent ITC claims. This measure acts as a deterrent against tax evasion.
- Restriction on E-Way Bill Generation: Taxpayers who are non-compliant with GST regulations face restrictions on generating e-way bills. E-way bills are essential for the movement of goods, and restricting their generation helps curb tax evasion.
- Reduction in E-Invoice Threshold: The threshold limit for issuing e-invoices for B2B transactions has been reduced from Rs 10 crore to Rs 5 crore. E-invoicing enhances transparency and traceability in transactions.
- Data Analytics for Risk Assessment: Regular use of data analytics is employed to identify and track risky GST registrations. This proactive approach helps in early detection and prevention of tax evasion.
What Is Input Tax Credit (ITC)?
Input Tax Credit (ITC) is a mechanism under the Goods and Services Tax (GST) system that allows businesses to claim credit for the tax paid on inputs used in the production or supply of goods and services. This system prevents the cascading effect of taxes by allowing a set-off of the tax paid on inputs against the tax payable on output. In essence, it ensures that the tax is levied only on the value addition at each stage of the supply chain, promoting transparency and reducing the overall tax burden on businesses.
About CBIC
The Central Board of Indirect Taxes and Customs (CBIC) is a part of the Department of Revenue under the Ministry of Finance, Government of India. It is responsible for administering customs, GST (Goods and Services Tax), Central Excise, Service Tax, and Narcotics laws in India. The CBIC formulates policies related to the levy and collection of indirect taxes, prevention of smuggling, and administration of related matters. It also oversees the customs processes at ports, airports, and land borders, ensuring smooth and efficient trade operations. Additionally, the CBIC plays a crucial role in implementing tax reforms and modernizing tax administration to enhance compliance and revenue collection.
Shri Sanjay Kumar Agarwal is the Chairman of the Central Board of Indirect Taxes & Customs (CBIC) and also serves as the Special Secretary to the Government of India. An officer of the 1988 batch of the Indian Revenue Service (Customs & Indirect Taxes), he has held numerous key positions in Customs, Central Excise, Service Tax, and GST field formations throughout his career.
FAQs
The penalty for wrong availment of Input Tax Credit (ITC) under GST includes paying interest at 24% per annum on the wrongly availed amount, a monetary penalty equivalent to the amount of the wrong ITC, and a general penalty of Rs. 10,000 or the tax involved, whichever is higher. In severe cases involving fraud, prosecution and imprisonment ranging from 1 to 5 years can be initiated, and the taxpayer’s ITC may be blocked.
Here are the new rules for ITC claims in GST:
- Restriction on Unmatched ITC:
- ITC can only be claimed on invoices and debit notes that are furnished by suppliers in their GSTR-1 and reflected in the recipient’s GSTR-2B.
- Matching ITC Claims:
- ITC claims must match the details uploaded by suppliers in their outward supply statements to be eligible.
- Biometric-Based Aadhaar Authentication:
- Aadhaar authentication is required for taxpayers to avail ITC, ensuring identity verification.
- Mandatory GSTR-1 Filing:
- Suppliers must file GSTR-1 for recipients to claim ITC on their invoices.
- Physical Verification:
- Physical verification of business premises may be conducted for high-risk taxpayers before allowing ITC claims.
- Bank Account Verification:
- The bank account used for GST registration must be in the name of the registered person and linked with their PAN and Aadhaar.
- E-Invoicing Requirement:
- Businesses with turnover above a certain threshold must generate e-invoices for B2B transactions to avail ITC.
- Use of Data Analytics:
- Regular use of data analytics to track and identify risky ITC claims and GST registrations to prevent tax evasion.
- Provisional ITC Limit:
- The limit for provisional ITC (not matched with GSTR-2B) is restricted to a specific percentage of eligible ITC.
- Restriction on E-Way Bill Generation:
- Non-compliant taxpayers face restrictions on generating e-way bills, affecting the movement of goods and ITC claims.
- Login and Navigate to ITC-01 page.
- Declaration for claim of input tax credit under sub-section (1) of section 18.
- Preview GST ITC-01.
- Submit GST ITC-01 to freeze data.
- File GST ITC-01 with DSC/ EVC.
Yes, GST Input Tax Credit (ITC) can be refunded under certain circumstances. Here are the key scenarios where a refund of GST ITC can be claimed:
Zero-Rated Supplies:
- Export of Goods or Services: If you export goods or services, you can claim a refund of the unutilized ITC.
- Supplies to SEZ: Supplies made to a Special Economic Zone (SEZ) developer or unit are considered zero-rated. You can claim a refund of the accumulated ITC used to make these supplies.
Inverted Duty Structure:
- If the tax rate on inputs is higher than the tax rate on output supplies, leading to an accumulation of ITC, you can claim a refund of the unutilized credit.
Finalization of Provisional Assessment:
- If you were assessed provisionally and the final assessment results in a refund, you can claim it.
Deemed Exports:
- Supplies regarded as deemed exports (as notified) are eligible for a refund of ITC.
Excess Balance in Electronic Cash Ledger:
- Any excess balance in your electronic cash ledger can be claimed as a refund.
