Finance Ministry should identify high-risk taxpayers in the GST composition scheme: CAG

The Comptroller and Auditor General (CAG) has recommended that the Finance Ministry regularly identify high-risk taxpayers within the GST composition scheme and verify their declared sales figures using additional sources, including third-party data, to prevent tax evasion.

After analyzing data from 8.66 lakh composition taxpayers under central jurisdiction during the 2019-20 to 2021-22 fiscal years, the CAG found that many GST taxpayers are at significant risk of exceeding the turnover threshold for the composition levy scheme (CLS).

These high-risk taxpayers were identified through audits using data from GST returns such as GSTR-4A and GSTR-7, along with information from third-party sources like IT returns and the 'Vahan' database.

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

The CAG highlighted two major risk areas for CLS taxpayers: the under-declaration of 'value of outward supply' to remain eligible for the scheme and the failure to meet the eligibility conditions for availing CLS benefits.

The audit also found instances where certain CLS taxpayers continued to participate in the scheme despite not meeting the prescribed eligibility criteria, and many CLS taxpayers were not fulfilling their obligations to file returns and pay taxes under the reverse charge mechanism.

"The Ministry should identify high risk taxpayers in the CLS on a periodical basis 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," the CAG said in a report tabled in Parliament recently.

The official auditor also recommended that the Finance Ministry establish a system to identify ineligible taxpayers and take steps to remove them from the CLS, ensuring that the scheme's intended benefits are not misused.

(With inputs from PTI)