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High usage of ITC comes under taxman’s scanner

GST shortfall prompts Centre to act
Concerned over a decline in GST revenues, tax officials are likely to examine the high usage of input tax credit (ITC) to set off tax liability by businesses, sources said.

The issue of high ITC was flagged at the meeting of the Group of Ministers (GoM) which was set up by the GST Council to look into the reasons for revenue shortfall being faced by a large number of States.


Misuse’ of provision
According to sources, availing ITC ideally should not result in loss of revenue but there could be possibility of misuse of the provision by unscrupulous businesses by generating fake invoices just to claim tax credit.

During the meeting of the GoM, it was pointed out that as much as 80% of the total GST liability is being settled by ITC and only 20% deposited as cash.

GST revenue has averaged around ₹96,000 crore per month so far this fiscal and this reflects the cash component being deposited by businesses.

Under the present dispensation, there is no provision for real time matching of ITC claims with the taxes already paid by suppliers of inputs.

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