Ten Common GST Red Flags That Trigger Notices

Over the last year, the GST notices have been increasing not just because of fraud but because of small errors flagged by the system using Artificial Intelligence. With the help of Adata analytics, the GST authorities are able to identify GST non-compliance. Additionally, the CBIC has also introduced a framework that allows the GST department to instantly detect the mismatches. Here are the top 10 GST red flags that businesses should be aware of.

• ITC Claimed, But Supplier Failed to File GSTR-1: Claiming the Input Tax Credit (ITC) for the purchases when your supplier has not filed their return (GSTR-1) flags the GST return.
• GSTR-1 and GSTR-3B Mismatch: The difference between the outward supplies reported in GSTR-1 and the tax liability paid through GSTR-3B can lead to a tax notice.
• Sudden Increase or Decrease in Sales or Tax Liability: If there is a sudden increase or drop in the turnover or the tax liability without any valid reason, it can attract scrutiny.
• Excess ITC Compared to Turnover: The GST department may raise suspicion if you are claiming excess ITC, as compared to the declared turnover.
• ITC Claim on Blocked Credits: Taxpayers cannot claim ITC on blocked or ineligible ITC under section 17(5) of the Income Tax Act.
• Filing Nil Returns Despite Active E-Way Bills: Filing a NIL return while your e-way bills show business activity can be one of the major red flags.
• Frequent Late Filing: Non-filing or delayed filing of GST returns can reflect poor compliance and can result in the suspension of your GSTIN.
• E-Way Bills Not Matching Declared Turnover: Mismatch between e-way bill data and turnover declared in GST returns is a strong red flag.
• High Refund Claims Without Supporting Documents: Large refund claims, without proper supporting documentation, can attract scrutiny.
• Large Value Invoices From Fake Suppliers: High-value Invoices issued by non-compliant or suspicious suppliers often attract scrutiny.