GST officers from central and state departments have unearthed fraudulent Input Tax Credit (ITC) claims amounting to Rs 15,851 crore in the April-June quarter of FY26, marking a sharp 29% increase from the same period last fiscal. This spike in ITC fraud has occurred despite a decline in the number of fake firms detected year-on-year (YoY), officials said.
During Q1 FY26, 3,558 fake firms were identified as involved in these scams, compared to 3,840 fake entities unearthed in Q1 FY25. Officials attribute this drop in fake firm detection to the success of ongoing nationwide drives aimed at weeding out non-existent GST registrations.
"On average, around 1,200 fake firms are being detected every month. The lower number of fake firms this year suggests that the crackdown on fraudulent GST registrations is showing results," said a senior tax official.
Alongside identifying the Rs 15,851 crore in fake ITC, authorities have arrested 53 individuals and recovered Rs 659 crore during the quarter. By contrast, in Q1 FY25, Rs 12,304 crore of fraudulent ITC was found, 26 arrests were made, and Rs 549 crore was recovered.
Multi-Front War on Fake ITC: National Drives and Stricter Registrations
Tackling fake ITC claims has become a top priority for the GST administration, given their recurring role in defrauding the exchequer. ITC-an essential part of the GST system-allows businesses to claim credit on the taxes paid on inputs or purchases. Fraudsters exploit this by creating shell firms that issue fake invoices to illegally claim credit without actual supply of goods or services.
To address this systemic challenge, two nationwide drives were launched:
First Special Drive (May 16 - July 15, 2023):
- 21,791 non-existent entities found
- Rs 24,010 crore in suspected tax evasion detected
Second Special Drive (April 16 - October 30, 2024):
- Over 18,000 fake companies detected
- Tax evasion of nearly Rs 25,000 crore uncovered
As a result, the GST registration process has been tightened. While normal businesses continue to receive GST registration within 7 days, risky applicants-flagged via data analytics-must undergo physical verification and Aadhaar authentication before approval.
Panel of Ministers Studying Sector-Specific Tax Evasion
Meanwhile, a panel of state finance ministers, chaired by Goa Chief Minister Pramod Sawant, is currently examining sector-specific tax evasion practices and is expected to recommend further reforms to prevent ITC misuse.
Legal Tools to Fight ITC Fraud Strengthened
The GST Act empowers authorities to take a multi-pronged approach in ITC fraud cases:
- Suspension or cancellation of GST registration
- Blocking of ITC in electronic credit ledger
- Provisional attachment of property or bank accounts
- Imprisonment and monetary penalties for wrongful availment of ITC
With Rs 61,545 crore of fake ITC involving 25,009 bogus firms detected during FY 2024-25 alone, the government continues to bolster its enforcement mechanisms using data analytics, cross-verification of invoices, and technology-driven compliance tools.
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