Agenda Matters: Remaining Unresolved Issues
In the eight years since the Goods and Services Tax (GST) was implemented in India, tax evasion and fake input tax credits (ITC) have continued to pose significant challenges. According to the Minister of State of Finance, Pankaj Chaudhary, over the past five years (March 2020-25), approximately ₹7 lakh crore has been lost due to GST evasion.
The latest figures reveal that in Financial Year 25 alone, GST evasion amounted to ₹2.23 lakh crore, a stark increase from ₹49,300 crore in Financial Year 21. The issue of fake ITC over the past period is estimated to account for about ₹1.8 lakh crore.
The uncertainty over whether accumulated ITC will lapse if not set off against output before September 22 has raised concerns, potentially leading to the issue of fake invoices. This issue, along with unsettled invoices that are not settled over six months, necessitates a technological response to address these concerns.
The integration of financial data, given the wide use of ERP and SAP software solutions, should not pose a huge challenge. However, the latest rate rationalization may reduce disputes over ITC claims, but tax assessments arising from GSTR 2A interpretations continue to cause issues.
The GST Council recently rationalized rates further at its 56th meeting, an effort aimed at reducing the incentive to evade taxes. Improved payment discipline could help reduce the liquidity requirements of businesses, with the GSTN network providing details on invoices and payments on a near-real-time basis.
However, revenue officials are often aggressive in their assessments, which can pose headaches. If MSME suppliers face difficulties, it can lead to buyers' ITC being held up due to incorrectly filed returns.
The primary goal of GST is to facilitate ease of doing business, and tax authorities should keep this objective in mind. The change in GST could benefit MSME suppliers by allowing them to receive payments within 45 days.
Pankaj Chaudhary, the currently responsible Minister of State for Finance in India, including tax affairs, is serving as Minister of State for Finance under Finance Minister Nirmala Sitharaman. This article does not provide new information about GST evasion, fake ITC, rate rationalization, technological response, or the integration of financial data.
The publication date of this article is September 8, 2025.
