Goods and Services Tax evasion balloons despite success of e-invoicing
In the fiscal year 2023-24, Goods and Services Tax (GST) evasion in India escalated significantly, reaching a staggering ₹2.01 lakh crore, as per data released by the Directorate General of GST Intelligence (DGGI). This marks nearly a 100% increase compared to the previous year’s ₹1.01 lakh crore, highlighting the growing complexity and challenge of enforcing GST regulations across various sectors in India. GST implementation in India was July 2017.
The GST Gap attempts to measure the gap between expected tax revenues compared to actual. Missing tax takings can be down to: evasion; errors; and bankruptcies of businesses. Per DGGI, over 45% of evasion were related to non-payment of tax, 20% involved fake Input Tax Credit (ITC), and 19% concerned the wrongful ITC claims.
This comes despite the otherwise successful launch of mandatory e-invoicing for B2B transactions from 2020. This is now likely to be expanded to B2C in two years’ time.
Sector Analysis: Online Gaming and BFSI in the Spotlight
A detailed sectoral analysis reveals that the online gaming industry and the Banking, Financial Services, and Insurance (BFSI) sector are particularly vulnerable to GST evasion. The online gaming sector alone accounted for ₹81,875 crore in tax evasion, spanning 78 cases. The BFSI sector followed, contributing to ₹18,961 crore in evasion across 171 cases.
Apart from these, goods-related industries such as metals also contributed heavily to the GST evasion figures. Notably, iron, copper scrap, and alloys saw evasion of ₹16,806 crore, while sin goods like pan masala, cigarettes, and beedis contributed ₹5,794 crore in evasion.
Geographic Breakdown: Mumbai Leads in GST Evasion
From a geographic perspective, Mumbai topped the charts with ₹70,985 crore in GST evasion detection. Delhi followed with ₹18,313 crore, Pune at ₹17,328 crore, Gurugram at ₹15,502 crore, and Hyderabad at ₹11,081 crore. The significant concentration of evasion in major economic hubs underlines the difficulty of managing GST compliance in high-transaction zones.
Other sectors that witnessed notable evasion included plywood, timber, and paper, which collectively amounted to ₹1,196 crore across 238 cases. The electronics sector also had a significant presence, with ₹1,165 crore in tax evasion identified from 23 cases.
Increasing Cases of GST Evasion
In FY24, the number of GST evasion cases rose sharply, with 6,084 cases reported compared to 4,872 in the previous year. The increase in cases reflects the growing trend of tax avoidance and fraudulent practices. Voluntary payments, a key mechanism through which businesses settle tax dues, also saw a rise. A total of ₹26,605 crore was paid voluntarily across 4,520 cases in FY24, up from ₹20,713 crore paid in 3,683 cases in FY23. Among the most common methods of evasion were non-payment of tax (46% of cases), fake input tax credit (20%), and incorrect availment or non-reversal of ITC/blocked credits (19%).
Role of Electronic Invoicing in Curbing GST Evasion
The Indian government has implemented several initiatives to curb GST evasion, one of the most notable being the introduction of electronic invoicing (e-invoicing). E-invoicing under GST was first rolled out in October 2020 for businesses with a turnover exceeding ₹500 crore and has progressively expanded to cover more businesses. By FY24, the threshold for mandatory e-invoicing was lowered to ₹5 crore. This system requires businesses to generate invoices through the government’s Invoice Registration Portal (IRP), which assigns a unique Invoice Reference Number (IRN) to each invoice.
The e-invoicing system enhances transparency by creating a digital trail of every B2B transaction, making it more difficult for businesses to manipulate records or evade taxes. The automatic flow of invoice details into the GST returns (GSTR-1) and the e-way bill system further strengthens compliance and ensures consistency in reporting. However, while e-invoicing has significantly improved compliance among large and mid-sized businesses, small and unorganized sectors continue to find loopholes, contributing to the persistently high evasion figures.
GST Terminology: ITC Frauds and Non-Reversal of Credits
A major form of GST evasion includes frauds related to Input Tax Credit (ITC). ITC allows businesses to reduce the tax paid on inputs from their tax liability on outputs. However, many fraudulent practices have emerged where fake ITC claims are made by issuing invoices without actual supply of goods or services. Non-reversal of ITC or availing blocked credits, often seen in sectors like real estate and construction, further complicates the compliance landscape.
In conclusion, the surge in GST evasion to ₹2.01 lakh crore in FY24 highlights the ongoing challenges in India’s tax administration. While measures like e-invoicing and stricter compliance checks are in place, addressing evasion in highly susceptible sectors like online gaming and BFSI requires more robust enforcement. Moreover, continual refinements in technology-driven compliance mechanisms such as e-invoicing are critical to bringing about long-term improvements in GST adherence across India.
