Fake claims for tax credits, known as Input Tax Credit ( ITC ) fraud, are posing a major challenge for India’s Goods and Services Tax ( GST ) authorities. This comes even as authorities continue to crack down on various GST frauds, including fake registrations and tax evasion.
So far in the current financial year (2023-24), authorities have detected nearly ₹19,690 crore in fake ITC claims across 1,999 cases – a significant increase of 49% compared to ₹13,175 crore detected in 1,940 cases during the previous year (2022-23). This data pertains only to cases booked by the Directorate General of GST Intelligence ( DGGI ) and excludes those handled by central and state GST authorities.
While Gujarat and West Bengal saw the highest number of fake ITC cases, Haryana and Delhi topped the list in terms of value involved. These two states accounted for over half (55%) of the total fake ITC amount detected this year (₹10,851 crore), despite having a smaller share (14.5%) in the number of cases.
Government officials acknowledge the problem’s severity and are taking steps to address it. This includes stricter registration processes with bank and address verification to eliminate fake entities. Authorities are also focusing on identifying and targeting the masterminds behind these elaborate fraud schemes.
The most common methods used for fake ITC claims are issuing fake invoices without actual supply of goods or services and routing invoices through a network of shell companies to inflate ITC wrongfully.
Construction, metals, tiles, pharmaceuticals, and manpower supply are some of the sectors most affected by fake ITC claims. Even large businesses are not immune to this practice. While authorities are using data analysis tools to detect such activities, recovering the lost revenue is slow due to lengthy investigations and difficulty in tracing the culprits.
Arrests & Recoveries:
Despite these challenges, authorities have made some progress. In 2023-24, 105 individuals were arrested, and ₹2,504 crore was recovered from the detected fake ITC of ₹19,690 crore. This compares to 68 arrests and ₹1,597 crore recovered in the previous year.
The fight against fake ITC claims remains an ongoing battle for a better GST regime.
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