The Central Board of Indirect Taxes and Customs (CBIC) is likely to introduce a mechanism to track reverse charge liability of businesses under the Goods and Services Tax (GST) framework to improve compliance, and ensure that excess input tax credit (ITC) is not availed by them, official sources said.

According to the sources, the CBIC and the Goods and Services Tax Network (GSTN) are working on creating an “Input Tax Credit (ITC) ledger” to track the quantum of ITC availed by businesses accurately. The ledger is expected to be operational by the GSTN in October or November.

Under the GST framework, certain businesses are required to pay tax through the reverse charge mechanism (RCM), meaning the recipient of goods or services is responsible for paying the tax instead of the supplier. This approach helps extend GST coverage to various unorganised sectors (which act as suppliers) and ensures the taxation of imported services when suppliers are located outside India.

After paying the tax and issuing an invoice, the recipient is eligible to claim input tax credit (ITC). However, there have been instances where ITC has been claimed without the recipient actually paying the GST under RCM, or where disproportionately higher ITC has been claimed. The CBIC aims to address these issues by ensuring that the ledger correctly reflects RCM-related data.

According to the finance ministry, fake input tax credit (ITC) detection surged 50% year-on-year in FY24 to Rs 36,374 crore, as against Rs 24,000 crore in FY23. In FY24, not even 10% of the detected amount was deposited voluntarily, Minister of State for Finance Pankaj Chaudhary had informed Parliament in July.

Source: The Financial Express