05 Feb 2020Posted By: Mudit Handa

Claiming Fake GST ITC now a Non-Bailable Offense!

The Union Budget 2020, was passed in the parliament on 1st February 2020 by the Honorable Finance Minister of India Smt. Nirmala Sitharaman. No doubt, it is a tax-friendly budget.

At the Budget session, the government has introduced many important initiatives to rectify the GST framework. A number of measures were discussed to enhance the Goods & Service Tax Network (GSTN) and to strengthen the compliance mechanism for the taxpayers who have a GST registration.

Very importantly, the government at the budget session has introduced some stringent measures against the most troublesome issue, i.e. the problem of fake GST ITC claims made by some dishonest merchants. Very soon, the fake GST ITC claim will be made a Non-Bailable Offense. Moreover, both the beneficiary and the person who makes such a fake ITC claim will be subject to the penal action stated under the GST law.


1. What is the problem of fake GST ITC claim?

In the current scenario, the problem of claiming fake ITC is causing huge awkwardness. Recently, many cases were detected by the government wherein excessive Input Tax Credit was claimed by some taxpayers. Many of these ITC claims were found to be falsely made.

2. What measures did the government bring to check fake ITC claims?

The government had recently taken some measures, in order to check excessive GST Input Tax Credit claimed by the taxpayers having GST registration. 

  • Recently, the GST department had imposed restriction on availing GST ITC. Now, a dealer can claim a maximum of ITC up to the amount in GSTR-2A + 10%.

  • Apart from that, the 2nd National GST Conference was also held on 7th January 2020, in order to bring solutions against the problem of fake ITC claims.

  • And now, at the Union Budget 2020 session, the government has introduced the most strict measure to control fake ITC claim, by making it a Non-Bailable Offense.

  • In this regard, the government has proposed to amend the Sections 122 & 132 of the CGST Act 2017.

3. What amendment is to be done in Section 122 of the CGST Act?

Section 122 of the CGST Act 2017 states that if any individual indulges in the violation of GST compliance or makes a fraudulent GST ITC claim, shall be liable to a high penalty of ₹10,000/- or the tax evaded, whichever of them is higher. 

Now, the government has proposed to revise this section so as to make the beneficiaries of the transactions evolving out of fake ITC claim, also be liable for such a penal action.

As a stringent measure against the fake ITC claim, the government has proposed to penalize the beneficiaries of the transactions due to the fake ITC claim just as the claimants of fake ITC. 

4. What amendment is to be done in Section 132 of the CGST Act?

As a step forward, section 132 of the CGST Act 2017 shall also be amended. This amendment will make false ITC claim, made without a GST invoice, a non-bailable offense. With its effect, the following shall be liable for the imprisonment term as specified in this section:

  • The fake ITC claimant, 

  • Those who are involved in fake ITC claim,

  • The beneficiaries of transactions arising out of fake ITC claim. 

As a matter of fact, the punishment for fraudulent ITC claims, as specified in section 132 of the CGST Act 2017 is a minimum of 6 months imprisonment term, which may extend to 5 years.

Obviously, it is better to follow proper GST compliance and raise the correct GST invoice, for making an ITC claim.

The Taxpayers can instantly create the GST Tax Invoice and the debit note through the InstaBill Software.

Also, read about other GST reforms introduced in Budget 2020.


If you need any further guidance as regards the GST registration or the GST return filing procedure, please feel free to contact our business advisors at 8881-069-069.

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