Finance Ministry must find High-Risk Taxpayers under the GST Composition Scheme: CAG

The Comptroller and Auditor General (CAG) has suggested that the Finance Ministry identify high-risk taxpayers under the GST composition system on a regular basis and verify their claimed sales figures using additional sources, including third-party data to combat tax evasion.

After reviewing data from 8.66 lakh composition taxpayers under central authority from 2019-20 to 2021-22 fiscal years, the CAG discovered that many GST taxpayers are at a high risk of breaching the composition levy scheme’s turnover threshold (CLS).

Such high-risk taxpayers were identified through audits that included data from GST returns such as GSTR-4A and GSTR-7, as well as information from third-party sources such as IT returns and the ‘Vahan’ database.

The GST composition scheme is offered to taxpayers whose aggregate turnover in the previous financial year did not exceed Rs.1.5 crore. For taxpayers in special category states, the limit is Rs.75 lakh.

The CAG identified two primary risk areas for CLS taxpayers: under-declaration of ‘value of outward supply’ to remain eligible for the scheme, and failure to meet the eligibility rules for CLS payments.

The audit also discovered that some CLS taxpayers continued to engage in the scheme despite not matching the qualifying criteria and that many CLS taxpayers failed to file returns and pay taxes under the reverse charge mechanism.

“The Ministry ought to identify high-risk taxpayers in the CLS on a regular schedule using a risk-based approach and verify their declared value of outward supply from other sources including third parties to minimize the possibility of misuse by ineligible persons,” according to a report submitted to Parliament this past week.

The official auditor also advised that the Finance Ministry implement a system to identify unqualified taxpayers and remove them from the CLS, ensuring that the scheme’s intended benefits are not abused.