The Comptroller and Auditor General (CAG) of India has issued a warning regarding potential tax evasion within the Goods and Services Tax (GST) composition scheme. The CAG’s audit, which analyzed data from 8.66 lakh taxpayers under the central jurisdiction during the 2019-20 to 2021-22 fiscal years, revealed significant risks of taxpayers exceeding the turnover limit for the composition levy scheme (CLS). This scheme allows taxpayers with an annual turnover below ₹1.5 crore (₹75 lakh for special category states) to opt for a simpler tax regime.
The CAG identified high-risk taxpayers through audits that utilized data from GST returns (GSTR-4A and GSTR-7) along with information obtained from external sources such as IT returns and the ‘Vahan’ database (a vehicle registration system). The audit highlighted two primary areas of concern: under-declaration of outward supply values to remain eligible for the scheme and failure to meet the eligibility criteria for availing CLS benefits.
Furthermore, the audit uncovered instances where some CLS taxpayers continued to participate in the scheme despite not meeting the prescribed eligibility criteria. Additionally, many CLS taxpayers failed to comply with their obligations to file returns and pay taxes under the reverse charge mechanism.
In response to these findings, the CAG recommended that the Finance Ministry implement a risk-based approach to identify high-risk taxpayers within the CLS. This includes verifying their declared outward supply values using data from third-party sources to minimize potential misuse by ineligible individuals.
The CAG also emphasized the need for the Finance Ministry to establish a system for identifying ineligible taxpayers and removing them from the CLS. This proactive approach aims to ensure that the scheme’s intended benefits are not abused and that the tax system remains fair and efficient.
