ITC frauds are being unearthed every month with the amount going up to Rs. 4000 Crore aggregated for FY 2021.
The government has been trying its best to make the GST structure a transparent one. However, still many businesses and even the top-most tax practitioners are involved in this fake ITC scam.
Claiming of fake ITC can land your business in big trouble and can even lead to the cancellation of your GST registration.
In this short article, we have submitted a checklist for businesses to help them identify their defaulting suppliers and claim only the eligible GST Input Tax Credit.
What can block your Input Tax Credit?
There are certain pre-requisites that should be satisfied to avail eligible Input Tax Credit under GST.
Following are some of the reasons that can be a reason to block your Input Tax Credit:
- If a business or an individual avails GST Input Tax Credit based on the invoice issued by any NON-EXISTING supplier or on the supply of inputs which was NEVER received by the recipient.
- ITC availed by the business for an invoice on which the tax has NOT been paid to the government.
- The entity that is demanding to avail the Input Tax Credit does NOT have any proper invoice to support their ITC claims.
- The person claiming Input Tax Credit is NOT an authentic entity& is NOT operating from the registered place of business.
These are some of the reasons that through which if ITC is claimed, will be identified as an ineligible ITC claim.
The amount of such ITC claims is very high in number and digs a big hole in the Indian economy followed by the cascading effects where the honest taxpayers suffer.
Steps to Stop ITC from getting blocked
In this section we have discussed some easy steps that every business can take to claim only the eligible Input Tax Credit and keep the ITC frauds away from their business.
We list some of the major points which you must remember for a smooth Input Tax Credit chain of cash flow:
- Verify your supplier–
- Always verify your supplier before getting into business with him.
- You can simply verify the GSTIN of your supplier on the GST portal using the GSTIN/UIN or the PAN card details.
- We are providing a link to the GST portal to easily verify your supplier using their GSTIN or the PAN details.
- Spot the GST defaulting Suppliers
- Identifying the defaulting GST supplier is the most essential step in this checklist to stay away from the ITC frauds.
- A flawless & automated reconciliation of your Purchase Data against the GSTR-2A helps you identify your eligible Input Tax Credit for the given month.
- This Reconciliation will also help businesses to identify the mismatches which may occur due to incorrect filing of GSTR-1 by your seller.
- Businesses are advised to use an automated reconciliation tool like GSTHero for this purpose to get an accurate report which flags all the mismatches by which you can easily identify the anomalies introduced due to irregular GSTR-1 filing of your supplier.
- Notify the GST defaulting Suppliers
- It’s quite possible that your supplier may have missed out on the GSTR-1 filing for the outward supply done to you. This can be an oversight and can be rectified on communicating with the supplier.
- When you as a business spot any mismatch in the reconciliation, you should immediately inform the concerned supplier regarding it and ask him to file his GSTR-1.
- In this way, businesses can nip the problem in the bud.
- If the supplier doesn’t corrects this error before the due date, then your Input Tax Credit under GST will surely get affected.
If your supplier is reluctant in filing his GSTR-1 for the outward sales, then this is a matter of concern and you should avoid giving them further business.
Even if you have honestly paid the tax on your input supplies, you will still be a part of ITC fraud in claiming the ineligible ITC.
It’s highly advised that the business have a routine of Purchase vs. GSTR-2A reconciliation.
How can ITC frauds impact your business?
As mentioned in the previous sections of this article, it’s evident that claiming of ineligible ITC under GST can take a heavy toll on your businesses and can also damage your professional reputation.
Hence, businesses are advised to stay alert about claiming the Input Tax Credit under GST and avail only that ITC which suffices all the requirements of an eligible ITC.
Involving in a fake ITC claim can have serious repercussions as follows:
- Blocking of your Input Tax Credit will affect your working capital
- Arrest for committing ITC fraud
- Suspension of your GST registration until completion of the enquiry
- ITC frauds may attract a GST audit by the department
- Cancellation of your GST registration by the GST officer
- Reputational loss to the businesses
- Waste of resources like business time & money\
It’s essential that the businesses keep themselves away from any such fraud cases & avoid further complications.
Businesses need to device a scrutiny mechanism that will help them to identify such malicious transactions.
These checks should be applied every month to spot such errors and protect your businesses from any big threats.
In this article, we have shared a small checklist to help businesses reach out to their GST defaulting suppliers and take maximum measures to help their businesses to claim only the eligible Input Tax Credit under GST.