Introduction
Goods and services tax (GST) has been an integral part of India’s economy since its inception in 2017. It has replaced the cumbersome tax system and made tax compliance easier, but in the recent times fraudulent activities related to GST have increased significantly. The current menace of GST fraud not only affects the government’s revenues, but threatens the integrity of the whole taxation system, thereby leading to losses to honest taxpayers as well. It is therefore essential to take necessary steps to minimize the risk of GST fraud. In this article, we discuss some of the key measures that businesses and stakeholders can take to prevent and detect fraud in GST.
Understanding GST Fraud
Before planning to combat fraud in GST, it is important to understand what GST fraud actually is. According to the Institute of Chartered Accountants in India(ICAI), GST frauds include any wrongful act or omission leading to evasion of taxes held under GST. Fraudulent activities in GST can be broadly divided into:
- Claiming wrong or exaggerated input tax credit (ITC)
- Issuing false invoices
- Erroneous filing of ITC returns
- Intentional non-filling of GST returns
- Encountering fake invoices
- Electronic credit forging
- Filing GST returns with wrong or breached information for avoiding payments of dues
These are some of the major types of GST frauds being noticed these days.
Preventing Fraud in GST
The GST fraudsters are always trying to find ways to exploit the loopholes of the system. Hence companies and stakeholders must take proactive action to protect their GST structure from any kind of fraud.
Below mentioned are some of the steps they can take :
1. Proper Documentation: Proper documentation is the key to a successful GST compliance system. Businesses must ensure that all GST documents are properly maintained and tracked to create a secure audit trail. Adequate reconciliation should also happen at regular intervals to ensure that the information provided is accurate.
2. Automation of Processes: Automation is essential for creating efficiency and reducing errors in any tax procedure. Automation of GST compliance procedures can drastically minimize human intervention in the process, thus reducing the risk of fraud and errors.
3. Implementing Security Protocols: Businesses should implement compliance protocols, security checks and control systems to ensure that there are no discrepancies in the GST process. This also helps in resolving or detecting fraudulent activities early.
4. Timely Filing of Returns: Timely filing of GST returns is one of the simplest but most effective ways to prevent GST fraud. Delay in filing of returns give leeway to fraudsters for carrying out fraudulent activities, which can then be difficult to detect. Hence, businesses should regularly file and update their GST returns.
5. Strict Internal and External Audit: An Internal audit by the business itself and an external audit by an independent chartered accountant are essential to identify any irregularities. The auditor analyses the records and other documents to ensure that all internal and external processes comply with the GST regulations.
6. Strengthening Compliance Measures: GST rules are continuously evolving and it is important for businesses to keep themselves updated to ensure GST compliance. They should keep track of changes in regulations applicable to their business and ensure that timely action is taken.
7. Upholding Vigilance: Any activity which deviates from the norms should be reported immediately and proper action should be taken. Stakeholders should remain vigilant and report any kind of suspicious activity to the authorities.
Conclusion
GST fraud can cause a massive dent in the government’s coffers and can hamper the credibility of the entire taxation system. As a responsible business or stakeholder, it is important to take proactive steps to protect the GST system from fraudulent activities. Businesses should not only adhere to compliance measures, but also be vigilant about discrepancies and report any suspicious activity immediately. With the help of all the above mentioned steps, one can significantly reduce the risk of GST fraud and thus contribute to the country’s economy.
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Disclaimer: “Neither this article nor the information contained herein shall in any way be construed as forming a contract or shall constitute professional advice required before acting upon any matter. CA Sharad Kumar Sharma has taken all due care in the preparation of this article for accuracy in its contents at the time of publication. However, no liability shall be accepted by him in the event of any direct, indirect or consequential damages arising out of or in any way connected with the use of this article or its contents. “
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