GST is the biggest tax reform of our country, writes Shshank Saurav.

GST: Taxman May Examine High Usage Of Input Tax Credit To Set Off Liability

Concerned over a decline in indirect tax revenues, the taxman is likely to examine the high usage of input tax credit to set off liability by businesses, sources said.

The issue of high input tax credit was flagged at the meeting of the Group of Ministers which was set up by the Goods and Services Tax Council to look into the reasons for revenue shortfall being faced by a large number of states.

According to sources, availing the credit ideally should not result in loss of revenue but there could be possibility of misuse of the provision by unscrupulous businesses by generating fake invoices just to claim tax credit.

During the meeting of the GoM, it was pointed out that as much as 80 percent of the total GST liability is being settled by credits and only 20 percent is deposited as cash.

GST revenue has averaged around Rs 96,000 crore per month so far this fiscal and this reflects the cash component being deposited by businesses. Under the present dispensation, there is no provision for real-time matching of input tax credit claims with the taxes already paid by suppliers of inputs.

The matching is done on the basis of system generated GSTR-2A, after the credit has been claimed. Based on the mismatch highlighted by GSTR-2A and input tax credit claims, the revenue department sends notices to businesses.

“Currently there is a time gap between ITC claim and matching them with the taxes paid by suppliers. Hence there is a possibility of ITC being claimed on the basis of fake invoices,” a source said. Once the new return filing system becomes operational, it would become possible for the department to match the ITC claims and taxes paid on a real time basis.

The revenue department would now analyse the large number of ITC claims to find out if they are genuine or based on fake invoices and take corrective action, sources said.

Here’s a snapshot of monthly GST collections so far this financial year:

  • April: Rs 1.03 lakh
  • May: Rs 94,016 crore
  • June: Rs 95,610 crore
  • July: Rs 96,483 crore
  • August: Rs 93,960 crore
  • September: Rs 94,442 crore
  • October: Rs 1.01 lakh crore
  • November: Rs 97,637 crore
  • December: Rs 94,726 crore

Also read: Soon, No E-Way Bill If GST Returns Not Filed For Six Months