Key Points
- India lost Rs 15,851 crore to GST fraud in April–June 2025, a 29% increase over the previous year.
- 3,558 fake companies were identified in Q1; about 1,200 new fake firms are busted every month.
- Despite efforts to curb fraud, fake input tax credit (ITC) claims remain rampant.
- Only Rs 659 crore has been recovered so far in the current fiscal, with 53 arrests made.
- Last year, Rs 61,545 crore was recovered from over 25,000 fake companies.
- Officials urge stronger action as ITC fraud continues to cost the exchequer thousands of crores.
New Delhi: India’s indirect tax system is facing a major crisis as losses from Goods and Services Tax (GST) fraud soared to fresh highs in the first quarter of FY2025-26. Between April and June, the government treasury lost a massive Rs 15,851 crore due to fraudulent input tax credit (ITC) claims, marking a 29% jump from last year’s Q1 figure of Rs 12,304 crore.
Surge in Fake Companies Despite Crackdown
GST officials disclosed that 3,558 fake companies were tracked and linked to these losses in the first three months of the fiscal year slightly lower than last year’s 3,840, but still alarming. Authorities estimate that around 1,200 fake companies are exposed every month, with scams becoming increasingly sophisticated.
While a marginal drop in new fake companies suggests ongoing enforcement is having some deterrent effect, the financial damage remains substantial. Officials acknowledged, “Our efforts to curb fake companies are yielding results, but a lot of work is still left.”
Arrests, Recoveries, and Escalating Evasion
As the government intensifies its crackdown, 53 people have been arrested and Rs 659 crore recovered from those implicated in fraudulent GST claims this quarter. For comparison, Q1 last year saw 26 arrests and Rs 549 crore in recoveries. However, recovery rates lag far behind the scale of tax losses.
Table: Snapshot of GST Fraud and Enforcement (April–June)
| FY Quarter | Fake Companies | GST Fraud (Rs Crore) | People Arrested | Recovery (Rs Crore) |
|---|---|---|---|---|
| Q1 FY24-25 (2024) | 3,840 | 12,304 | 26 | 549 |
| Q1 FY25-26 (2025) | 3,558 | 15,851 | 53 | 659 |
Note: For the entire previous financial year, those numbers compounded with over 25,000 fake companies associated with Rs 61,545 crore in GST fraud.
How Does ITC Fraud Work?
The input tax credit (ITC) mechanism under GST helps businesses avoid double taxation. When raw materials are taxed at a higher rate than the finished goods, the surplus tax paid is refunded through ITC. Fraudsters exploit this by:
- Setting up fake companies with no genuine business activity.
- Generating bogus invoices to claim ITC on non-existent purchases.
- Government refunds are siphoned off, causing colossal losses to public funds.
Government Response and Ongoing Challenges
Despite sharpened vigilance and advanced data analytics, fake ITC claims remain a major headache for both state and central authorities. Goa’s Chief Minister Pramod Sawant, during a recent finance ministers meeting, admitted that traditional check points have not been effective in halting ITC fraud.
Tax officials said that while identifying bogus companies is improving, the pace of fraud is accelerating. Calls are growing for stricter registration processes, more rigorous audits, and tougher penalties.
Experts urge a combination of:
- Enhanced digital monitoring and e-invoicing
- Inter-state data sharing
- Quick prosecution and recovery mechanisms
- Awareness campaigns to warn businesses about fraudulent operators
With GST now a cornerstone of India’s tax infrastructure, plugging leaks and prosecuting fraudsters remains critical to safeguarding public revenue and building business trust.
