News

Published: September 27, 2024
Updated: September 27, 2024

New ITC Ledger System to Combat GST Fraud Expected by November

Strengthening Efforts Against ITC Fraud

The Union Ministry of Finance is ramping up its efforts to tackle fraudulent claims of Input Tax Credit (ITC) under the Goods and Services Tax (GST) framework. A senior official from the Central Board of Indirect Taxes and Customs (CBIC) has disclosed that a new mechanism is in the works, aimed specifically at curbing fraud related to the Reverse Charge Mechanism (RCM). This initiative, developed in collaboration with the Goods and Services Tax Network (GSTN), is set to launch by November 2024.

Introducing a New ITC Ledger System

Currently, businesses can claim ITC for GST paid on purchases, but fraudsters have been exploiting loopholes, particularly under RCM, where the responsibility for tax payment shifts to the recipient instead of the supplier. This new ITC ledger system will provide a way to track and verify RCM transactions, preventing businesses from fraudulently claiming ITC without actually paying GST under RCM or inflating their claims.

How the Reverse Charge Mechanism Works

RCM applies in specific cases, such as transactions with unregistered suppliers or the import of services from abroad, placing the tax liability on the buyer rather than the seller. The existing GST ledger system covers non-RCM transactions, but this new ledger will enhance the accuracy and transparency of RCM-related data, addressing gaps that fraudsters have previously exploited.

Leveraging Advanced Technology to Fight Fraud

To prevent fraudulent ITC claims, the Ministry of Finance plans to use advanced data analytics and artificial intelligence (AI) to detect suspicious patterns in ITC claims. These technologies will allow the government to pinpoint fraudulent activities more efficiently and ensure that only genuine claims are approved. This initiative comes in response to a surge in fraudulent ITC claims, which saw a 50% increase in FY24, amounting to over INR 36,000 crore.

Impact on Businesses and Compliance

While tax experts have expressed optimism about the new system, they note that businesses will need to adapt to additional reporting requirements to justify their ITC claims. The introduction of this ITC ledger system is expected to improve compliance, reduce tax evasion, and bring greater transparency to the entire GST ecosystem.

A Major Step Toward Reducing Fraud

With the launch of this new ITC ledger system, the government is taking a significant step towards addressing fraudulent ITC claims and protecting revenue. Businesses should prepare for these changes and ensure that their ITC claims are backed by accurate and transparent data to avoid any compliance issues.