The Centre has significantly stepped up its technology-driven crackdown on Goods and Services Tax (GST) fraud, with authorities detecting Input Tax Credit (ITC) fraud worth Rs 74,782 crore across 30,162 cases in FY26, more than double the amount detected two years earlier, according to information shared by the Finance Ministry in Parliament.
In a written reply to Parliament on July 28, the ministry said central tax authorities detected ITC fraud involving Rs 74,782 crore in FY26, compared with Rs 58,772.51 crore across 15,283 cases in FY25 and Rs 36,373.36 crore across 9,190 cases in FY24.
Government officials told Moneycontrol that the increase reflects stronger detection capabilities rather than a proportional rise in fraud. They said the Central Board of Indirect Taxes and Customs (CBIC) has deployed artificial intelligence, data analytics and other technology-driven checks to identify fake ITC claims and dismantle fraudulent networks.
"More sophisticated tools have been used to detect more frauds. CBIC has improved the use of technology for this purpose," one official said.
Under GST laws, ITC is a tax credit a business gets for the taxes it has already paid on input purchases. It ensures that tax is levied only on the value added at each stage of the supply chain, preventing double taxation.
These fake invoices are then submitted by legitimate businesses to claim credit on the input tax – which they didn’t submit in reality, officials explained.
In other instances, a seller issues a tax invoice to a buyer so the buyer can claim ITC, but no actual goods change hands.
In case exports, fraudsters use fake invoices to accumulate massive amounts of artificial ITC and then file for cash refunds from the government for exported goods that were "dummy shipments", meaning ITC for a separate item was claimed (that was not exported).
Why is it a big challenge?
"Input tax credit (ITC) fraud had become a significant challenge over the past few years, with fake invoicing and fraudulent claims leading to substantial revenue leakages. The department had to undertake several special enforcements drives across the country to identify fake firms, detect fraudulent credit chains and act against offenders. Those efforts have now considerably strengthened the compliance ecosystem," explained a senior official.
In the recent years, AI risk-scoring and invoice matching are simply detecting more frauds than before. "While fraud networks have become increasingly sophisticated, using shell entities and identity theft, the tax department has simultaneously bolstered detection through Al tools and targeted enforcement," Ikesh Nagpal, Lead- Indirect Tax, AKM Global.
Platforms such as ADVAIT, BIFA and other network intelligence tools have significantly enhanced the ability of tax authorities to identify complex fraud patterns and dismantle organised syndicates that may previously have remained undetected, the person added.
E-invoicing at lower thresholds, biometric Aadhaar authentication, geo-tagging of premises, and system-driven GSTR-2B matching have tightened the net. Periodic anti-fraud drives have also curbed bogus registrations. Income tax, GST and Customs data integration, banking and financial intelligence are also helping to curb such frauds.
On the ground, however, shell entities, circular trading among related entities, invoices without real supply, fabricated service transactions that are inherently difficult to verify, are some of the sophisticated models which continue to fuel the surge in such ITC frauds.
Focus shifts from detection to prevention
From the current financial year onwards, the CBIC expects instances of input tax credit fraud to reduce substantially. "A series of technology-driven checks and balances, enhanced data analytics, tighter verification mechanisms and continuous monitoring by the department are making it increasingly difficult to misuse the system. The focus has shifted from only detecting fraud after it occurs to preventing it at the initial stage itself," a second official noted.
The department has introduced multiple safeguards over time to ensure that only genuine taxpayers are able to claim input tax credit. "As these measures become more effective and taxpayers adapt to the stricter compliance framework, the scope for fraudulent claims is expected to narrow significantly," the second official said.
"The shift needs to be from detection to prevention real-time registration checks and invoice authentication, AI flagging before ITC is utilised, and risk profiling of taxpayers as well as sectors prone to circular trading, to minimize the fraud,” Nitin Vijaivergia, Partner, Price Waterhouse & Co LLP said.
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