India’s fight against GST evasion has entered a sharper phase. The discovery of 24,109 fake invoice cases in FY 2025–26 (up to October 2025) highlights how widespread the problem of fraudulent Input Tax Credit (ITC) has become. These cases represent a systemic misuse of the GST framework through non-existent entities, paper-only transactions, and sophisticated “sleeping modules” that create layered fake invoicing networks.

The latest information tabled in Parliament reveals a steady increase in such cases over the last four years. The number of detections rose from 7,231 cases in FY 2022–23 to over 15,000 in FY 2024–25, culminating in a dramatic spike this year. The revenue at risk is equally alarming, with estimated detection value reaching ₹41,664 crore in FY 2025–26. The data signals how fake invoicing continues to challenge GST’s objective of creating a transparent tax ecosystem.

The Rise of Technology-Driven Tax Fraud

Fake invoicing is not new, but its scale and technological sophistication continue to evolve. Fraud networks now rely on mass registration of dormant entities, cloned firms, or “sleeping modules”, often created to remain inactive for long periods before being activated to circulate ITC.

The A2Z TaxCorp report notes how these entities form layers of fictitious supply chains. They create invoice movements without actual movement of goods or services, enabling wrongful ITC claims across the value chain. Once investigations begin, the entities often vanish, leaving little trace of beneficial ownership. Between FY 2022–23 and the current fiscal, the number of cases and estimated tax detection are as follows:

This trend is most evident in sectors with heavy B2B activity, including pharmaceuticals, metals, and automotive components. Even though only a handful of cases are attributed explicitly to pharmaceutical entities this year, the modus operandi mirrors broader patterns across industries. Specific enforcement action against GST evasion routed through pharmaceutical entities yielded the following outcomes:

Government’s Technology-Led Countermeasures

The rise in detections does not only reflect greater fraudulent activity; it also demonstrates stronger enforcement. The Government has introduced multiple technology-driven safeguards to tighten controls around registration, invoice reporting, and ITC availability.

A central change is the Invoice Management System (IMS) implemented in late 2024. The system allows recipients to accept, reject, or mark supplier invoices as pending. This feature supports real-time reconciliation and reduces the risk of claiming ITC based on ineligible or fictitious invoices. By improving invoice transparency, IMS builds a stronger compliance trail.

The Government has also expanded the e-invoicing mandate. All businesses with turnover above ₹5 crore must now issue e-invoices for B2B transactions. This step ensures machine-readable, tamper-proof invoice trails and significantly limits scope for backdated or duplicate invoices.

Registration processes have also undergone major tightening. Risk-based Aadhaar authentication, physical verification for high-risk taxpayers, and mandatory PAN-linked OTP verification aim to curb the creation of shell entities. Mandatory bank account validation within 30 days and geo-tagging of business premises further reduce the possibility of ghost registrations.

In cases where returns are not filed on time, the GST system now automatically suspends the registration. Automated notices under Rules 88C/88D push taxpayers to explain discrepancies between GSTR-1 and GSTR-3B, preventing mismatches from persisting unchecked.

Special Drives Enhance Field-Level Enforcement

Central and State GST administrations have jointly undertaken special drives to identify non-existent entities and networks of ITC fraud. The drives conducted between May–August 2023 and August–October 2024 involved large-scale physical verification campaigns. Thousands of suspicious GSTINs were suspended or cancelled after authorities found the premises non-operational. These field operations complement system-based controls by tackling fraud at its root: registration abuse.

The Government has also made fraudulent ITC availment a cognizable and non-bailable offence. Penalties now extend not only to the issuer but also to any beneficiary who retains undue credit or facilitates invoice circulation. This shift signals a policy move toward shared accountability across the supply chain.

Understanding the Pattern Behind the Numbers

The continuous rise in fake invoice cases does not necessarily reflect a failing system. Instead, it indicates better detection capacity. As data analytics deepen and cross-linkages through IMS and e-invoicing strengthen, authorities can identify irregular patterns more effectively.

However, the magnitude of cases suggests that gaps remain. Many businesses still face compliance challenges due to reliance on manual reconciliation, fragmented ERP systems, or limited oversight of vendor compliance. Fraudsters exploit these vulnerabilities by inserting fictitious suppliers into the chain or offering ITC at discounted rates. At the macro level, fake invoicing distorts competition by enabling unscrupulous players to artificially lower prices. It also weakens tax buoyancy and shifts the burden onto compliant taxpayers.

What Businesses Must Do Now

In this environment, businesses must adopt a proactive compliance approach. Vendor onboarding should include GSTIN verification, physical premise checks wherever feasible, and continuous monitoring of return filing behaviour. IMS-based invoice verification is no longer optional; it is central to safeguarding ITC claims.

Strengthening internal controls around procurement, documentation, and reconciliation will also reduce exposure to litigation. Businesses should integrate their ERP systems with automated reconciliation tools to detect mismatches early.

For industries with complex supply chains – such as automobile, infrastructure, and trading – the risk is higher. These businesses should periodically conduct GST health checks, classification reviews, and ITC utilisation analyses to identify red flags before authorities do.

The Road Ahead

The uncovering of 24,109 fake invoice cases in FY 2025–26 showcases a persistent challenge in India’s indirect tax ecosystem. While technology-driven safeguards and policy reforms have strengthened the compliance framework, fraud networks continue to innovate. Sustained vigilance, tighter enforcement, and stronger taxpayer systems must evolve together.

As GST enters deeper stages of maturity, the balance between ease of doing business and risk management will define the next phase of compliance strategy. Industry will need to align accordingly, adopting a prevention-first mindset and leveraging technology to stay ahead of regulatory expectations.