GST Evasion Hits Rs 2.01 Lakh Crore in FY24, with Mumbai at the Forefront
GST evasion in India has escalated to unprecedented levels, with a staggering Rs 2.01 lakh crore detected in the financial year 2023-24, almost double the Rs 1.01 lakh crore recorded in FY23, according to data released by the Directorate General of GST Intelligence (DGGI) on Saturday. The surge reflects mounting challenges in enforcing the Goods and Services Tax (GST) regime and curbing fraudulent practices.
Sectors Most Affected by GST Evasion
The DGGI report revealed that the online gaming sector was the biggest contributor to the evasion figures, responsible for Rs 81,875 crore in unpaid taxes. The Banking, Financial Services, and Insurance (BFSI) sector followed, with Rs 18,961 crore in detected evasion. Other industries with significant cases of tax fraud include iron, copper, scrap, and alloys, which collectively accounted for Rs 16,806 crore, and pan masala, tobacco, cigarettes, and bidi, which registered Rs 5,794 crore.
Among goods, the sectors dealing with iron, copper, scrap, and alloys saw 1,976 cases of GST evasion, while the pan masala, tobacco, and related goods sector recorded 212 cases. Additionally, the plywood, timber, and paper sector reported 238 cases, resulting in Rs 1,196 crore in evasion, while electronic items contributed 23 cases with a total of Rs 1,165 crore.
Cities Leading in GST Evasion
Mumbai emerged as the city with the highest amount of GST evasion, with detected cases totaling Rs 70,985 crore. Delhi followed with Rs 18,313 crore, while Pune, Gurugram, and Hyderabad rounded out the top five cities with Rs 17,328 crore, Rs 15,502 crore, and Rs 11,081 crore, respectively.
Growing Cases and Voluntary Payments
The number of GST evasion cases reported in FY24 rose to 6,084, up from 4,872 in the previous year. Voluntary payments in these cases, often made by businesses before the official investigation concludes, also increased to Rs 26,605 crore across 4,520 cases. This represents a significant rise from FY23, where voluntary payments stood at Rs 20,713 crore across 3,683 cases.
Breakdown of Evasion Types
The report revealed that nearly half (46%) of the cases involved the non-payment of taxes, including clandestine supply and undervaluation of goods and services. Additionally, 20% of cases were linked to the fraudulent use of fake input tax credit (ITC), while another 19% related to the improper claiming or non-reversal of ITC and blocked credit.
Nationwide GST Evasion Statistics
Overall, the combined efforts of DGGI officers and Central GST zones uncovered Rs 2.37 lakh crore in evasion across 20,576 cases in FY24. Of this, Rs 2.01 lakh crore was identified by the DGGI, while Rs 35,377 crore was detected by the Central GST zones.
Historical Trends in GST Evasion
Since the introduction of GST in 2017, tax evasion has been an ongoing concern. In the initial years of the GST regime, detected evasion was relatively low, with Rs 7,879 crore reported in 2017-18. However, this figure has consistently climbed each year, reaching Rs 19,319 crore in 2018-19, Rs 21,739 crore in 2019-20, Rs 31,908 crore in 2020-21, and Rs 50,325 crore in 2021-22. This rising trend indicates that enforcement efforts will need to be further strengthened to combat GST evasion effectively.
Conclusion
The sharp rise in GST evasion for FY24 underscores the growing complexities of enforcing tax laws in sectors such as online gaming and BFSI. With the DGGI and Central GST zones stepping up efforts, the challenge now lies in closing the loopholes that allow such widespread evasion, ensuring that businesses adhere to the tax norms to foster a healthier economic environment.
Exceptional Use of Section 11A for Retroactive Tax Relief, Says Revenue Secretary
The newly introduced Section 11A of the GST Act 2017 will be applied only in “rarest of the rare” circumstances to provide retrospective tax relief, clarified Revenue Secretary following the GST Council’s meeting on September 9. This section was added through a recent amendment and is designed to offer protection to businesses facing punitive retrospective tax demands.
The Revenue Secretary emphasized that Section 11A is not intended for frequent use and will be applied sparingly. “It is not a usual section to be used. It has to be used in the rarest of rare cases. It is not to be used generally. As a matter of fact, we would not like to issue a circular at this point. Nothing was discussed regarding it in the September 9 meeting,” he stated.
Purpose of Section 11A
The inclusion of Section 11A aims to shield industries from retroactive tax demands, specifically for periods dating back to the early years of GST implementation. Industries such as real-money gaming (RMG) have been particularly impacted by substantial GST dues, covering the period from July 1, 2017—when GST was first introduced—until March 31, 2023.
The GST Council had first proposed the introduction of Section 11A in its June meeting as a legal tool to protect businesses from retrospective tax claims. However, Malhotra stressed that the application of the provision is still pending further clarification. A corresponding circular, which will provide detailed guidance on how the law is to be applied, is under discussion and will be issued once the council reaches an agreement.
Relief for Affected Sectors
Industries such as the RMG sector, which has been battling large GST liabilities, are expected to benefit from Section 11A. Last December, the Union Finance Ministry disclosed that 71 show-cause notices had been sent to online gaming companies for alleged GST evasion, with a total of Rs 1.12 lakh crore in unpaid taxes.
Once the circular is approved and released, it is anticipated to reduce litigation and provide clearer guidelines on how past tax disputes and practices will be handled. The objective is to improve the ease of doing business and resolve longstanding tax-related issues for affected sectors.
