A Critical Analysis of GST Compliance and Input Tax Credit Misstatements

Abstract

The implementation of the Goods and Services Tax (GST) in India marked a significant reform in the country’s indirect
taxation system by subsuming multiple taxes into a unified framework. One of the most crucial components of GST is
the Input Tax Credit (ITC) mechanism, which eliminates cascading taxation and promotes transparency. However,
increasing instances of ITC misstatements, fake invoicing, non-compliance, and fraudulent claims have emerged as
major challenges for tax authorities and businesses alike. This paper critically examines GST compliance practices
and analyzes the causes, consequences, and legal implications of Input Tax Credit misstatements in India. The study
also evaluates technological, legal, and administrative measures adopted by the government to strengthen compliance
and reduce tax evasion. The paper concludes with recommendations for improving GST governance through digital
auditing, AI-based monitoring systems, and stronger taxpayer awareness initiatives.
The Indian GST framework introduced in 2017 aimed to create a transparent and destination-based indirect tax
system. However, reports from the Government of India indicate substantial revenue leakages due to fake ITC claims
and invoice manipulation, making compliance monitoring a key policy concern.