GSTN now under anti-money laundering law: As ED gets more teeth to counter tax evasion, your point-by-point guide to this big story

The government has brought the Goods and Services Tax Network (GSTN) under the ambit of the Prevention of Money Laundering Act (PMLA). This will allow probe agencies like the Enforcement Directorate (ED) to seek information from the GST authorities and prevent tax evasion through generation of fake tax invoices.   

As per a government notification, issued on July 7, the Goods and Services Tax Network (GSTN) has been added as the 26th entity to the list of agencies, which are required to share information with the Enforcement Directorate and the Financial Intelligence Unit (FIU) under the PMLA.

Government-issued a notification to bring the Goods & Services Tax Network (GSTN) under the Prevention of Money Laundering Act (PMLA). Information stored on GSTN can be now shared under PMLA Act. pic.twitter.com/VrhUq3vuCY

— ANI (@ANI) July 8, 2023

Government-issued a notification to bring the Goods & Services Tax Network (GSTN) under the Prevention of Money Laundering Act (PMLA). Information stored on GSTN can be now shared under PMLA Act. pic.twitter.com/VrhUq3vuCY

— ANI (@ANI) July 8, 2023

Many Central agencies like the Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), Competition Commission of India (CCI), Reserve Bank of India (RBI), Serious Fraud Investigation Office (SFO), and Director General of Foreign Trade (DGFT), among other have already been included to the list of government bodies, which as mandated to share data with ED and FIU as per PMLA.

What is GSTN?

The Goods and Services Tax Network (GSTN) provides common and shared IT infrastructure and services to taxpayers, Central and state governments and other stakeholders. GSTN facilitates processes like filing of registration application, creation of challan for tax payment, filing of return, settlement of IGST payment, generation of business intelligence and analytics, and filing of various applications by taxpayers. https://www.gstn.org.in/about-us

What is PMLA?

The Preventions of Money Laundering Act, 2002, (PMLA) is a criminal law enacted with an aim to prevent money laundering. The law also provides for the confiscation of property derived from or involved in money laundering. The rules and provisions under the law require financial institutions, banks, intermediaries, and persons involved in a business or profession to identify their clients, maintain records, and provide information to the Financial Intelligence Unit (FIU).  

The ED and FIU are the apex agencies to probe and take preventive measures in cases of money laundering under the provisions of PMLA.

What are fake input tax credit and false GST invoices?

Many cases of claiming fake input tax credit (ITC) have been reported since the implementation of the goods and services tax (GST). In such cases, individuals or businesses generate fake GST invoices or the invoices that are raised without supplying any actual goods or services or without payment of GST. These fake GST invoices are then used to avail undue input tax credit and avoid paying GST by payment of tax liability using undue input tax credit. 

What are the likely effects of bringing GSTN under PMLA?

Now that GSTN has been brought under PMLA, it will help the ED to zero in on violators who evade taxes by generating fake GST invoices and using other means within the GST network. ED will be able to make use of the crucial information with the GSTN to track and monitor transactions and investigate cases more efficiently.

On the development, Kishore Kumar of tax consultancy firm Taxmann said, “Now that GST law has crossed its infancy stage, from the perspective of effective administrative and good corporate governance, inclusion of GSTN in the list of entities for cross sharing of information is a good, logical and expected step. Having said that, this increases India Inc's need for ensuring synchronised records and reconciliations from multiple tax and regulations perspectives (now expanding to GSTN). Besides increasing the cost of compliances, businesses will also need cross training of their respective compliance teams to enable them deal with any enquiries/investigation based upon cross sharing of information”.