GST sleuths tracking merchants skipping tax via digital payments

Synopsis

The rapid growth of digital payments prompted increased scrutiny of online merchants by the DGGI due to rising tax evasion cases. Authorities worked with startups and payment gateways to monitor proper GST invoicing. Continuous monitoring and vigilance were required to identify and correct anomalies in merchants’ activities, highlighting the need for rigorous due digilence from payment aggregators.

The rapid growth of digital payments has led to increased scrutiny of online merchants due to a rise in tax evasion cases. The Directorate General of Goods and Service Tax Intelligence (DGGI) is collaborating with startups, payment aggregators, and payment gateways to ensure that merchants are selling the correct products with the appropriate GST invoices.

Commonly, small merchants evade taxes by listing products that attract a lower GST rate but actually sell goods with a higher GST rate. This issue has prompted the government, along with the Reserve Bank of India (RBI), to crack down on such merchants. Payment aggregators are required to perform due diligence at the time of merchant onboarding, but ongoing monitoring is lacking.

The RBI has proposed draft guidelines for payment aggregators, emphasizing the need for continuous monitoring of merchant activities. Merchants engaging in fraudulent activities, such as using UPI IDs of unrelated services like laundry but engaging in betting or gaming, are being flagged by fraud detection platforms. This ongoing vigilance aims to ensure that merchants are correctly reporting and paying the necessary taxes​​.