In a significant revelation, the Central Board of Indirect Taxes and Customs (CBIC) has reported a massive detection of fake Input Tax Credit (ITC) worth Rs. 36,374 crore for the financial year (FY) 2023-24. This figure, unveiled by Union Minister of State for Finance Shri Pankaj Chaudhary, underscores the scale of fraudulent activities involving fake ITC claims. The report highlights the growing trend of ITC fraud and outlines the steps taken by the government to combat this issue.

Detailed Analysis

1. ITC Fraud Detection Statistics:

The detection of fake ITC has shown a marked increase over recent years. For FY 2023-24, the CBIC uncovered 9,190 cases involving a staggering Rs. 36,374 crore in fraudulent ITC claims. This is a notable rise from the 7,231 cases and Rs. 24,140 crore detected in FY 2022-23.

The table below provides a comparative overview of the number of cases and detection amounts for the past three financial years:

2. Government Measures to Curb ITC Frauds:

In response to the surge in ITC frauds, the government has implemented several measures aimed at strengthening the regulatory framework and improving compliance. Key measures include:

• Biometric-Based Aadhaar Authentication (Rule 8): Introduction of risk-based Aadhaar authentication for registration applicants flagged by data analytics as risky.
• Physical Verification (Rule 9): Mandatory physical verification of high-risk cases, even with Aadhaar authentication.
• Bank Account Verification (Rule 10A): Requirement for bank accounts to be in the name of the registered person, linked with Aadhaar in the case of proprietorship firms, and details to be submitted within 30 days of registration or before filing GSTR-1.
• ITC Restriction to Supplier's Statement: Restriction on the availment of ITC to invoices and debit notes included in the supplier's outward supply statements.
• Mandatory GSTR-1 Filing: Requirement to file FORM GSTR-1 before FORM GSTR-3B and mandatory sequential filing of GSTR-1.
• Liability of Beneficial Owners: Beneficial owners held liable for penal actions similar to suppliers/recipients in cases of incorrect invoicing or excess ITC claims.
• Provisional Attachment of Property (Section 83): Allowance for provisional attachment of properties related to beneficiaries of fraudulent transactions.
• E-Way Bill Restrictions: Limitation on e-way bill generation by non-compliant taxpayers.
• Reduction in E-Invoice Threshold: Lowering of the threshold for e-invoice generation from Rs. 10 crore to Rs. 5 crore, effective from August 1, 2023.
• Data Analytics Usage: Regular use of data analytics to identify and monitor risky GST registrations for detecting tax evasion.

3. Impact and Future Outlook:

The increase in detected fake ITC cases signifies a growing challenge for the GST system, highlighting the need for continued vigilance and enhanced enforcement measures. The government's proactive steps reflect a commitment to curbing fraud and ensuring the integrity of the tax system.

The effectiveness of these measures will be closely monitored as they are implemented. Businesses and tax professionals need to be aware of the stringent regulations and compliance requirements to avoid falling foul of these new rules.

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Ministry of Finance

Central Tax formations under Central Board of Indirect Taxes and Customs (CBIC) detect Rs. 36,374 crore worth of fake Input Tax credit (ITC) involving 9,190 cases in FY 2023-24

Posted On: 29 JUL 2024 5:42PM by PIB Delhi

The Central Tax formations under Central Board of Indirect Taxes and Customs (CBIC) detected Rs. 36,374 crore worth of fake Input Tax credit (ITC) that involved 9,190 cases in the Financial Year (FY) 2023-24. This was stated by Union Minister of State for Finance Shri Pankaj Chaudhary in written reply to a question in Lok Sabha today.

The details of the fake Input Tax Credit (ITC) cases booked by Central Tax formations during the F.Y. 2022-23 and 2023-24 are as under:

The number of cases booked by Central Tax formations during the F.Y. 2021- 22 to 2023-24 is as under:

The Minister stated the steps taken by the Government to curb the ITC frauds that include:

1. Insertion of sub-rule (4A) in rule 8 of CGST Rules, 2017 to provide for risk based biometric-based Aadhaar authentication of registration applicants who appear to be risky based on data analytics.

2. Amendment in rule 9 of CGST Rules, 2017 to provide for physical verification in high-risk cases, even when Aadhaar has been authenticated.

3. Amendment in rule 10A of CGST Rules, 2017 to provide for requirement of bank account furnished as a part of registration process to be in the name of the registered person and obtained on PAN of the registered person and also linked with Aadhaar in case of proprietorship firm and that the details of bank account will be required to be furnished within 30 days of grant of registration or before filing of GSTR-1, whichever is earlier.

4. Restriction on availment of ITC to invoices and debit notes furnished by the supplier in their statement of outward supplies.

5. Filing of FORM GSTR-1 made mandatory before filing of FORM GSTR-3B for a tax period and filing of FORM GSTR-1 made mandatorily sequential.

6. Making the beneficial owner liable for penal action and prosecution similar to that of actual supplier/recipient, in cases where a supply has been made without the issuance of an invoice, or invoice has been issued without supply, or excess ITC has been availed/distributed.

7. Amendment in Section 83 of the CGST Act to provide that provisional attachment of property can be done in respect of any other person who has retained benefits of such transactions.

8. Restriction on generation of e-way bills by non- compliant taxpayers.

9. Reduction in threshold limit for issue of e-invoice for B2B transactions from Rs. 10 crore to Rs. 5 crore w.e.f. 01.08.2023.

10. Regular use of data analytics to identify or track risky GST registrations to detect tax evasion.

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