Decriminalising GST offences up to 5 crores is a positive step towards a more business-friendly tax system.

The GST Law was introduced in India on July 1, 2017. The idea behind enforcing this law was to simplify the country’s indirect tax structure by consolidating every indirect tax into a single unified tax system. Since its implementation, the GST framework has been amended to address challenges, improve compliance, and make it more business-friendly, especially for SMEs and individual businessmen of this country.?

In the year 2022, the GST Council meeting was held to propose key reforms aimed at easing the compliance burden for small businesses, particularly those with an annual turnover of up to ? five crore. This meeting emphasised mainly the decriminalisation of certain GST offences to reduce the punitive impact on smaller taxpayers. Under the new proposal, businesses with turnover below ? five crores would face penalties for offences like wrongful issuance of invoices, failure to file returns, and tax evasion, replaced with monetary fines rather than Criminal action or imprisonment, making compliance less daunting. Additionally, the Council suggested that minor violations, including non-payment of taxes and wrongful Input Tax Credit (ITC) claims, be decriminalised and treated as civil offences, reducing the criminal burden on small businesses and also a burden on the Indian judiciary.

These measures aim to promote ease of doing business and simplify the GST compliance process by embracing digitalisation, minimising human error, and streamlining the tax system. With a more lenient approach to penalties and a focus on improving tax filing procedures, the reforms are expected to make it easier for small businesses to comply with GST regulations, reducing both time and effort spent on compliance. This would not only ease the tax burden but also ensure that filing taxes becomes a simpler, less intimidating process for SMEs. The proposed changes were seen as a significant relief for SMEs, which often face disproportionate penalties for accidental or minor infractions. Furtherance to that, legal amendments were also discussed to align with these decriminalisation efforts, ensuring a more business-friendly tax environment without compromising on compliance standards. The GST Council emphasised the importance of stakeholder feedback before finalising the changes, with the overarching goal of fostering a more accessible, efficient, and less punitive GST system for smaller businesses in this Country.

The Central Goods and Services Tax Act, 2017 (CGST) penalises tax evasion and fraudulent practices under sections 132 to 138. These offences, including fake invoicing, fraudulent activities, false input tax credit claims, and tax evasion, attract criminal offences ranging from registration of FIR, arrest, fines, and imprisonment up to 7 years. In the years 2019 to 2020, a joint operation by DGGI and DRI uncovered multiple large-scale GST frauds in Delhi, Haryana, and Gujarat. For ?1,100 crore, fraud was discovered for a fake invoicing scam involving ?30 crore in fraudulent “Input Tax Credit” (ITC) claims. This led to multiple arrests in 2020. The DGGI and DRI played very crucial roles in this joint operation in investigating such fraudulent activities carried out on a large scale. Significant cases of GST fraud have been found, with authorities cracking down on a large number of fraudulent businesses from the year? 2023 to 2024. A large group of syndicates generated fake invoices worth over ?5,000 crore, resulting in a government loss of over ?1,000 crore. DGGI and DRI had conducted multiple raids and arrests against fraudsters who created fake entities like “shell companies” for tax credits. GST enforcement agencies seized their properties, froze bank accounts, and arrested all masterminds. DGGI and DRI also scrutinised financial records to identify irregularities in ITC claims. These enforcement actions reflect the government’s zero-tolerance policy toward tax evasion. However, detailed statistics on criminal cases and arrests that have taken place are not available in the public domain.?

Nevertheless, time and again, the GST Council has raised awareness through online workshops to help SMEs mitigate compliance risks by proactively educating them, as the Government wanted to make this entire filing process easier for smaller businesses. By this approach, the central government aims to align India’s tax enforcement with international standards, decriminalising GST offences to boost entrepreneurship, improve business ease, and enhance tax system efficiency. This balanced approach ensures accountability while promoting growth in SMEs, especially those with limited resources and legal knowledge.?

“What do you think about decriminalising GST offences? Let us know your thoughts in the comments below.”?

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