The Union Ministry of Finance is advancing efforts to curb fraudulent Input Tax Credit (ITC) claims related to the Goods and Services Tax (GST) paid under the Reverse Charge Mechanism (RCM). A senior official has revealed that the Central Board of Indirect Taxes and Customs (CBIC) is collaborating with the Goods and Services Tax Network (GSTN) to develop an ITC ledger system to track and verify RCM-related transactions.
This new ITC ledger, expected to launch by November, will target fraudulent practices where businesses claim ITC without properly paying GST under RCM or inflate their claims. RCM places the responsibility of tax payment on the recipient rather than the supplier, particularly for transactions with unregistered suppliers or services imported from abroad.
While a ledger already exists under the GST framework for non-RCM transactions, this new ledger will focus on enhancing the accuracy and transparency of RCM data. Fraudulent actors have often exploited non-genuine GST registrations to fraudulently claim ITC, significantly affecting government revenue.
The Ministry of Finance aims to mitigate these risks by leveraging advanced data analytics and artificial intelligence (AI) to identify suspicious patterns in tax credit claims. Tax experts have expressed optimism, noting that this initiative could improve compliance, minimize evasion, and bring greater transparency to the system. However, businesses may need to prepare for additional reporting requirements to justify their ITC claims.
In FY24, the detection of fraudulent ITC claims surged by 50% to over INR 36,000 crore, with only a fraction of this amount being voluntarily repaid. With increasing reliance on data-driven approaches, the government is set to tackle fake ITC networks operating across jurisdictions.
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