The Finance Ministry is taking major steps to curb fake input tax credit under the Goods and Services Tax (GST) system. The Revenue Department, under the Ministry of Finance, may restrict any editing or manual intervention in GSTR-3B. A source close to the development told Zee Media, “The GST department is planning to curb fake input tax credit through new regulations.”
The source added that in the first phase, which may kick in from April 2026, GST is likely to freeze the editing of output details in GSTR-3B, where tax liability is declared — this data will directly flow from GSTR-1.
Another source told Zee Media, “From July, which is the second phase of this reform, input tax credit entries in GSTR-3B may no longer be entered manually; they will automatically flow from GSTR-2B.”
Both phases are expected to be completed by July 2026.
Experts feel this is a necessary step to curb fake input tax credit.
An tax expert told Zee Media: “The move to curb fake input tax credit (ITC) is undoubtedly important, but it is equally essential that genuine businesses do not suffer collateral hardship. In several legitimate sectors, the ratio of ITC to output tax is inherently high due to the nature of operations. For such businesses, even a short-term blockage or restriction on credit can severely impact working capital and overall cash flow.”
“While the proposed shift to auto-populated GSTR-3B, first for output tax (from GSTR-1) and later for ITC (from GSTR-2B), may strengthen system integrity, the transition must be calibrated carefully. Any mismatch, system delay, or vendor-level non-compliance can unfairly penalise compliant taxpayers, who rely on timely ITC to keep operations running smoothly,” he said.
“As the July 2026 implementation progresses, the focus must remain on ensuring that the fight against fake ITC does not translate into procedural bottlenecks for honest businesses, whose financial stability depends on seamless credit flow,” he added.
In the last seven years, frauds amounting to more than Rs 2 lakh crore have been detected by the GST department. If the government can curb this fake input tax credit practice, both the Centre and the states will receive a higher share of tax revenue.
“The proposed framework signals a decisive shift toward a fully system-driven compliance architecture under GST, and while the objective of curbing fraudulent input tax credit is legitimate, the transition must be calibrated. Freezing edits in GSTR-3B and mandating an automatic flow of output liability from GSTR-1 will certainly reduce scope for manipulation, but it also raises concerns for genuine taxpayers who often discover clerical errors or supply-side mismatches only at the 3B stage. Similarly, auto population of ITC from GSTR-2B without permitting manual intervention could lead to denial of legitimate credits due to supplier non-compliance, effectively shifting the burden onto the recipient,” another tax expert said.
“Unless the government simultaneously strengthens supplier side enforcement and provides a robust correction window, these changes may increase litigation and working capital blockage for compliant businesses. The intent is sound but the implementation must ensure that the system does not punish bona fide taxpayers while chasing fraudulent claims,” he said.
Another tax expert highlighted that the idea of hard-locking auto-populated data in GSTR-3B has been on the table for a while. “It was first planned for the January 2025 tax period in a phased manner, beginning with outward supplies. After several trade representatives flagged practical challenges, the move was deferred. The GSTN advisory issued again for the July 2025 tax period clearly shows that the government is keen to move ahead with this architecture,” he said.
“What this signals is a clear shift in GST compliance. By locking the tax liability based on GSTR-1 and, eventually, auto-populating ITC from GSTR-2B/IMS, the administration wants to build a system where accuracy is embedded in the workflow and reporting becomes far less manual. While this is aimed at curbing fake input tax credit, it also nudges the ecosystem towards cleaner data, fewer disputes and a more automated return cycle,” he said.
“If the transition is handled well, the long-term impact could be a significantly more streamlined and predictable compliance environment for genuine taxpayers. With these changes taking shape, it is evident that we are steadily moving towards a fully automated compliance system,” he added.
Recently, the GST Council raised the issue of fake input tax credit at its meeting.
At the time of publishing this report, the finance ministry was yet to respond to Zee Media’s query. A new GST filing regulation may be discussed in the next meeting.
