New Delhi, June 23, 2025 — India’s indirect tax system faces a growing credibility challenge, with FY25 witnessing the highest-ever Goods and Services Tax (GST) evasion, both in value and volume. The development has raised fresh concerns over the effectiveness of enforcement mechanisms and the persistent loopholes being exploited by fraudulent entities.

As per internal sources from the Ministry of Finance, GST evasion in FY25 crossed ₹1.63 lakh crore, a significant jump from the previous fiscal’s ₹1.36 lakh crore. This alarming surge has prompted Finance Minister Nirmala Sitharaman to call for focused reforms and faster execution of anti-evasion strategies under the GST regime.

Worrisome Signals from the System

Officials noted that while GST collections have grown steadily, averaging ₹1.65 lakh crore monthly in FY25, the rate of tax evasion has outpaced revenue growth, indicating systemic issues that go beyond routine non-compliance.

Key red flags highlighted by the Central Board of Indirect Taxes and Customs (CBIC) include:

• Bogus Input Tax Credit (ITC) claims by shell companies

• Fake invoicing networks spanning multiple states

• Evasion by e-commerce sellers operating without registration

• Underreporting by small traders under the Composition Scheme

“What we’re seeing is not small-time non-compliance but organized tax fraud,” said a senior GST officer, adding that many offenders use digital means and cross-border networks to manipulate filings.

FM’s Key Recommendations

In response, the Finance Minister has proposed a multi-pronged approach to plug revenue leakages:

1. Real-Time Invoice Matching:
   Immediate integration of e-invoice data with GSTR filings to detect fraud in real time.

2. AI-Powered Risk Profiling:
   Deployment of machine learning algorithms to identify potential tax evaders based on pattern recognition.

3. Nationwide Data Integration:
   Linking PAN, Aadhaar, bank accounts, and GSTINs for deeper compliance monitoring.

4. Faster Prosecution & Recovery:
   Streamlining the adjudication process and empowering officers to initiate asset seizures and recover dues within strict timelines.

5. Collaboration with States:
   Joint teams between the Centre and states for audits and raids, especially in GST-sensitive sectors like gold, real estate, and FMCG.

Why Urgent Execution Is Crucial

While the FM’s roadmap has been welcomed by tax experts, its success hinges on rapid and targeted execution. Delays or half-hearted implementation, they warn, may further erode trust in the GST regime and incentivize more evasion.

Sakshi Jain, a tax partner at a Big 4 firm, said:

“GST was meant to simplify compliance and expand the tax base, but enforcement has not kept pace with system sophistication. Technology is key, but so is strong accountability.”

Further, with India targeting a fiscal deficit of 5.1% in FY26, plugging GST leakages is vital to meet revenue goals without overburdening honest taxpayers or introducing new taxes.

Systemic Weaknesses & Political Sensitivities

The enforcement push also faces political sensitivity. Crackdowns in states often get caught in the crossfire of Centre-State disputes over tax administration powers. Critics argue that centralized controls undermine the federal spirit of GST, while the Centre counters that a standardized enforcement regime is necessary to ensure compliance.

Moreover, small businesses have expressed concerns about increased compliance costs, especially if invoice matching and audits become stricter without support infrastructure.

Way Forward: Balancing Reform and Ease

Tax experts say the government needs to strike a balance:

• Introduce graded compliance frameworks for MSMEs vs large corporations

• Use soft notices and nudges before initiating action

• Expand GST Suvidha Providers (GSPs) to help small traders with filings

• Offer pre-filled returns and compliance scorecards to ease filing burdens

Conclusion

The record GST evasion figures for FY25 underscore that India’s indirect tax system needs not just reform, but reform with urgency and intent. The Finance Minister’s recommendations offer a clear direction, but now it is time for decisive execution. Only then can GST fulfil its promise of being a robust, fair, and transparent tax framework for a growing economy.

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