Key GST Compliance Challenges in 2025 and How to Address Them

Addressing Critical GST Compliance Challenges in 2025

It has been almost a decade since Goods and Services Tax Law (GST) is implemented in India. GST is a progressive and future-oriented tax system. It is considered one of the biggest taxation reforms in the history of the Indian economy, in which approximately 17 taxes of both the central and state governments were removed and a new uniform taxation system was introduced. It has benefited society at large by boosting robust tax environment, ensuring compliances and removal of cascading effect which were present in earlier tax system and achieved its vision of one nation one tax.

Since the implementation of the GST, there have been 56 meetings of the GST Council till September 2025 to decide on the changes in the structure and operational details of the tax. It has positively impacted in the overall growth of economy. As per the world bank report, it predicts that GST 2.0 Reforms has boosted India’s GDP growth by 6.5% for FY 26.

Notwithstanding significant growth and meaningful contributions, the challenge continues to persist. This article aims to provide insight into the key issues involved. There is no doubt that GST is a progressive and future-oriented tax system but it won’t succeed unless it is supported by a strong infrastructure and an active learning process that involves all stakeholders, i.e., tax officials, entrepreneurs, legal consultants, tribunals, GST professionals etc.

We begin by outlining the issues commonly encountered by taxpayers, as follows: GST Registration

The GST Rules provide a list of papers that must be submitted for registration, and the drop-down list makes it clear which documents must be uploaded in digital format and with what limited options. Obtaining GST registration is often the first and most difficult stage for taxpayers in India, with many facing procedural hassles and arbitrary demands by officers despite the clarity of laws and documentation requirements. To exemplify the same, would like to bring into kind knowledge that the denial of registration due to absence of an authorized signatory during site visits is a known issue and often cited in appeals and grievances related to GST registration. In order to authenticate the same, we refer to the case where the absence of an authorized signatory during GST registration site visits led to denial of registration, as upheld by the courts.

• The Punjab-Haryana High Court addresses in the case of Cylos Consulting Pvt. Ltd. Vs Union Territory of Chandigarh that –

“merely on one inspection, if the person is not found to be available at his place of office, a presumption cannot be drawn that the firm is not functional, more so when there have been transactions and the firm has been regularly filing its returns.

Keeping in view thereto, we observe that the action taken by the respondents is in haste, and the same is not sustainable in law.”

The High Court ruled in favour of the petitioner, emphasizing that a single inspection could not be the basis for cancellation. The court reiterated that due process must be followed in such cases, ensuring that businesses are not unjustly harmed by administrative actions. Numerous other precedents exist regarding this matter.

Henceforth, the GST proper officer should adopt a cooperative approach with the new registrant. Such a cooperative approach will increase the number of registered taxpayers in the country as well as the revenue of the government. In summary, a stringent and clear regulatory framework around authorized signatories and procedural compliance under GST is crucial for smooth and uninterrupted business operations.

GST Compliances

After GST registration, the most challenging area for businesses is GST compliances, which include multiple mandatory requirements such as timely filing of various returns (e.g., GSTR-1, GSTR-3B, annual returns), accurate invoicing, record maintenance, and payment of taxes. Compliance demands strict adherence to rules on input tax credit reconciliation, reverse charge mechanism, e-invoicing, and e-way bill regulations, with evolving mandates such as mandatory multi-factor authentication starting in 2025 to enhance security.

• In the erstwhile law, there was a concept of centralised registration which is not there in present GST Law. Under GST, the concept of decentralized registration requires businesses operating in multiple states or locations to obtain separate GST registrations for each state or place of business. This creates significant challenges for large businesses with a high volume of transactions and distributed operations. For instance, a service provider operating in 15 states may need to file hundreds of returns annually, compared to just a few under the earlier centralized system.
• Each registration demands separate maintenance of accounts, input tax credit reconciliation, and adherence to state-specific compliance, increasing administrative burden and compliance costs substantially. Consequently, managing the compliances has become more complex due to multiple returns, filing deadlines, technological barriers, adherence to regulatory updates and resource constraints.

Input Tax Credit Reconciliation

Having addressed the previous issues, we now proceed to discuss the challenges pertaining to Input Tax Credit. Since the inception of GST, there has been ongoing legislative and judicial dispute surrounding the availability and conditions of Input Tax Credit (ITC).

Through this article, we would like to highlight that the challenges related to Input Tax Credit (ITC) under GST are multifaceted and arising due to gaps, ambiguities in law, rapid legislative changes, and technical complexities. This often results in mismatches in ITC claims, leading the department to issue notices such as DRC-01 or GST ASMT-10 seeking clarity or demanding explanations from taxpayers. These issues stem from difficulties in reconciling ITC claimed by recipients with details uploaded by suppliers, compounded by evolving rules and strict timelines for filing returns and claiming credits.

Such ambiguity complicates compliance and increases the risk of notices and penalties, necessitating careful reconciliation of ITC claims with GSTR-2B statements and abiding by the prescribed conditions under Section 16 of the CGST Act.

Further, there is no mechanism to revise the GSTR-3B return once filed. The GST department identifies inconsistencies between returns using portal data, but since GSTR-3B cannot be altered, taxpayers either adjust the discrepancies in the September return of the following financial year or before filing the annual return, whichever is earlier. Meanwhile, the department often issues notices such as DRC-01 or GST ASMT-10 without acknowledging the adjustments made by the taxpayer in subsequent returns. This creates practical difficulties and disputes, as taxpayers cannot amend the original return and face penalties or demands despite having corrected the errors later.

These cases establish that mere technical mismatches in returns are insufficient ground for denial of ITC, and the burden should be on the department to investigate supplier defaults before demanding reversals. This body of case law provides valuable precedent protecting taxpayers against indiscriminate ITC reversal demands arising from GSTR-2B vs. GSTR-3B mismatches. One of the most common and contentious issues faced by taxpayers is the mismatch between GSTR-2B and GSTR-3B, where the vendor has not filed their GST return but the purchaser has claimed ITC on the purchase. In such cases, the department demands reversal of ITC from the purchaser, even though they have made legitimate purchases.

Several High Courts have ruled in favor of taxpayers on this issue. For example:

• The Calcutta High Court in Suncraft Energy Pvt Ltd vs. Assistant Commissioner ruled that a demand notice to the recipient of services due to discrepancies between GSTR-2A and GSTR-3B is invalid unless there is an investigation into the supplier’s default.

These cases establish that mere technical mismatches in returns are insufficient ground for denial of ITC, and the burden should be on the department to investigate supplier defaults before demanding reversals. This body of case law provides valuable precedent protecting taxpayers against indiscriminate ITC reversal demands arising from GSTR-2B vs. GSTR-3B mismatches

To authenticate the presence of ambiguity in GST laws concerning Input Tax Credit (ITC), we wish to exemplate several landmark judgements delivered by the Hon’ble Supreme Court of India that highlight the interpretative challenges and legal uncertainties. Notable instances include:

• In the case of Safari Retreats Pvt Ltd. v. Chief Commissioner CGST (2019), the Supreme Court concluded that when a building (like a mall or hotel) is specifically designed to meet unique business needs, it could be classified as a plant under clause (d). This allows for the possibility of availing ITC for such constructions, depending on their functionality and usage in generating outward supplies. The court concluded that a building or immovable property could be classified as a plant if it is integral to business operations, such as in cases where a mall or warehouse is essential for supplying services (renting). The functionality test must be applied to assess this. Thus, the ruling was partly in favor of the assessee, as it left open the possibility for ITC to be granted if the mall could be shown to be essential for business operations and classified as a “plant” under the functionality test.
• In the case of Bharti Airtel Ltd. v. Union of India (2021), the Supreme Court ruled that GSTR-3B returns cannot be revised beyond statutory deadlines, impacting ITC planning and emphasizing timely reconciliation.

And the list goes on. There are various other judgments regarding Input Tax Credit (ITC) as the subject is vast and vague. However, the ultimate liability lies with the taxpayer to maintain proper books of account and ensure compliance until the litigation around these issues is resolved. Taxpayers are advised remain vigilant and maintain accurate records to mitigate risks associated with these statutory ambiguities.

Despite numerous notifications and clarifications issued by the GST Council to address the complexities surrounding Input Tax Credit (ITC), their practical effectiveness remains limited, often leading to ongoing confusion and disputes among taxpayers

GST ITC Refund

ITC refund is the one of leading issue of the taxpayers. Delay in ITC refund leads to liquidity crisis and shortages of working capital for businesses. Consequently, for a businessman investments and growth opportunities are reduced. Even if a taxpayer manages to maintain proper books and gets them audited, claiming an ITC refund can still be a major hassle. The refund process involves multiple stages, including rigorous verification and reconciliation by the GST authorities. If discrepancies or deficiencies are detected in the refund claim, the taxpayer may face rejection or delays, along with notices for providing additional information or justification. For an instance, refunds related to exports or inverted duty structures may be rejected due to procedural lapses or mismatched filing.

For an instance, in the case of Real Prince Spintex vs. Union of India (2020), the exporter filed for refund of accumulated ITC on exports, but due to departmental inaction, the claim was stuck for over a year. The Bombay High Cout criticized the department’s casual approach and ordered them to process the refund with interest under Section 56 of the CGST Act. This case highlights that refund delays must carry a cost. Interest on delayed refunds is not a discretion—it’s a legal obligation.

There are various pronouncements by the apex court which reflect a healthy evolution of GST refund jurisprudence. While the law must be followed, the courts have consistently reminded tax authorities that intent, fairness, and justice should guide the refund process. In essence, the ITC refund system, while legally robust, poses substantial practical challenges for genuine taxpayers navigating regulatory compliance and administrative bottlenecks.

E-Way Bill

Apart from the major issues covered in the article, one significant challenge faced by taxpayers under GST is related to the E-Way Bill system. There are circumstances which has encountered several problems, such as technical malfunctions and delays in bill generation. The delay in generating e-way invoice leads to the detention of the consignment of goods and increased compliance costs forte businesses.

Further would like to mention that, due to complexity involved in cross border commercial transactions it has been observed that businesses often come across challenges in determining correct place of supply, accurately valuing the transaction value and obtaining refunds of zero-rated ITC. To curb these challenges effectively and ensuring smooth business operations, a coordinated intervention is essential from GST authorities, tax professionals, and GST Suvidha Providers (GSPs).

After examining the persistent key issues in GST, we would like to conclude this article on an optimistic note by acknowledging that the Goods and Services Tax system has indeed been one of India’s most significant economic reforms. Since its implementation in 2017, GST has successfully unified numerous indirect taxes under a single umbrella, fostering a seamless national market and driving a substantial increase in tax compliance and revenue collection. GST has been evolving in India, and it is facing many issues and challenges before settling down to an efficient and stable tax system. The digitization of tax processes, including return filing, e-way bills, and refund processing, has significantly enhanced efficiency and transparency. While challenges remain, the steady growth in the taxpayer base and the continued evolution of the GST framework provide a strong foundation for future reforms aimed at simplifying compliance and promoting economic growth. Thus, the GST journey exemplifies an important milestone in India’s fiscal policy, with promising prospects for further improvements and benefits to all stakeholders.

Therefore, it will be worthwhile for a progressive India that the Government, CBIC, and GST Council all come together to take appropriate steps in time to address various issues and challenges found in the GST system and make it more efficient and convenient for all stakeholders, especially entrepreneurs.