When GST Meets Income Tax: How GST Analytics Are Driving Assessments and Reassessments

The introduction of the Goods and Services Tax (GST) marked a major reform in India’s indirect tax structure. Equally transformative, though less discussed, is the integration of GST data with the Income-tax Department’s compliance, assessment and investigation mechanisms. GST analytics has emerged as a key tool for detecting income suppression, bogus transactions, excessive ITC claims and unexplained cash flows.

With the expansion of e-invoicing, e-way bills and automated risk-based assessment systems under Section 135A of the Income-tax Act, GST data is now routinely used as tangible material for scrutiny assessments, reassessment proceedings and surveys. The Income-tax Department leverages discrepancies between GST returns and income-tax records to identify potential non-compliance.

Legal Framework for GST–Income Tax Data Sharing

Information sharing is enabled through multiple statutory provisions such as Sections 133C and 133(6), empowering authorities to seek explanations and third-party information based on GST discrepancies. Sections 142(1), 143(2) and 143(3) facilitate scrutiny assessments driven by GST mismatches, while Sections 147 and 148 allow reopening of assessments based on GST analytics. A formal Memorandum of Understanding between CBDT and CBIC enables real-time data exchange, PAN-based linkage of GSTINs and automated alerts.

Key Data Sources Used by the Department

The Department correlates GST data such as GSTR-1, GSTR-3B, GSTR-2B, e-invoices, e-way bills and payment ledgers with AIS/TIS, bank statements, MCA records, FIU alerts, transporter data and customs information. This multi-source convergence significantly enhances detection capability.

Major GST-Based Risk Triggers

The most common trigger is mismatch between GST turnover and income-tax turnover. Other triggers include purchases from non-existent or risky suppliers, abnormally low profit margins, excessive or ineligible ITC claims, e-way bill mismatches, cash deposits for GST payments and non-filing of income-tax returns by GST registrants.

Typical Additions Made in GST-Driven Assessments

Assessing Officers often make additions for turnover suppression, bogus purchases, profit estimation, unexplained cash credits and unexplained money. Rejection of books under Section 145(3) frequently leads to best-judgment assessments under Section 144.

Practical Issues and Misuse of GST Data

Mechanical reliance on GST data without independent verification, misinterpretation of e-way bills, ignoring industry-specific profit variations and double taxation due to accounting differences are recurring issues. Arbitrary best-judgment assessments based on minor discrepancies remain a major concern.

Defences Available to Taxpayers

Taxpayers can safeguard themselves through detailed reconciliations between GST returns and books, proper documentation, explanation of accounting principles, substantiation of purchase genuineness and reliance on judicial precedents. Filing comprehensive and timely replies to notices under Sections 142(1), 148A, 131 and 133(6) is critical.

Best Practices for Businesses

Monthly reconciliations, strong documentation, monitoring supplier compliance, avoiding circular trading, training accounting teams and timely filing of GST and income-tax returns are essential to prevent adverse action.

Conclusion

The integration of GST analytics with income-tax enforcement has reshaped India’s tax compliance landscape. While it enhances transparency and curbs evasion, it also increases litigation where GST data is applied without appreciating accounting and legal distinctions. Robust compliance systems, proactive reconciliations and informed responses are now indispensable for businesses operating in this data-driven tax environment.

Link to download the article
https://mytaxexpert.co.in/uploads/1766464364_WhenGSTMeetsIncomeTax.pdf