On July 1, 2017, India marked a historic shift in its indirect tax landscape with the launch of the Goods and Services Tax (GST). In tune with its perceived importance, it was freedom of another kind at midnight — appropriately celebrated in the Central Hall of Parliament — from an archaic tax system that duplicated and cascaded taxation between Centre and States adding enormous costs to compliance. GST was meant to subsume more than 20 different levies and provide a simple and uniform method for its collection using the best of technology. However, as implementation began, it became evident that the true challenge of GST lay not only in tax policy, but in the operational realities of return-filing and digital infrastructure. The original GST return model — comprising GSTR-1, 2, and 3 — was rooted in the ambition of perfect invoice matching. While conceptually robust, it proved complex and difficult to operationalise at scale. Within the first two months, this gave way to a simplified GSTR-1 –2A-3B structure. Despite technological instability and compliance friction, these years were crucial in seeding a new digital compliance mindset and establishing a culture of voluntary compliance.
In late 2019, a new ANX model was also attempted which was essentially a refined version of the original GSTR-1-2-3 framework. However, the Council shelved the same, recognising the need for system stability. Instead, the Council retained the existing returns framework and called for focus on incremental improvements. The government later introduced GSTR-2B, which became the de facto source of truth for credit reconciliation. The majority of taxpayers began filings based on auto-populated returns, indicating a clear move towards frictionless compliance. This period also saw the success of India’s E-Invoicing framework. Built as a democratic public–private arrangement, the Invoice Registration Portal (IRP) system enabled real-time invoice validation at zero-cost to taxpayers. Now that GST-filing is largely stable and has completed eight years, it is time to return to the drawing board — to truly reflect on the efficiency of GST return design. Each idea must be evaluated not only for its conceptual strength but also against IT system’s capacity, prevailing industry practices, and most importantly the specific problem it aims to address. One low-hanging reform is the integration of E-Way Bills with E-Invoicing. Currently, taxpayers generate two statutory documents for the same transaction. This duplication can be eliminated by mandating the inclusion of transporter-details in the E-Invoice itself, thereby removing the need for a separate document that only complicates compliance and results in notices in situation like where goods are sold on as-is basis without any movement, whatsoever. Certain operational flexibilities should also be considered. For example, provide a one-time facility to issue missed E-Invoices. These are tax-paid invoices that the industry could not issue due to system glitches or unintentional oversight. Further, the government should consider declaring the E-Invoice as the irrefutable statutory document for a B2B transaction. Once an E-Invoice is issued, it should be treated as final and immutable—i.e. If any correction is required, the taxpayer must fully nullify the original invoice through an E-Credit Note and issue a fresh E-Invoice. Similarly, if additional tax is to be paid, it should be done through a new E-Invoice or an E-Debit Note. Once the principle of irrefutability is adopted, the need for filing a separate GSTR-1 could be eliminated. Instead, all issued E-Invoices, E-Credit Notes, and E-Debit Notes can flow directly into the recipient’s auto-drafted credit statement (GSTR-2B), enabling a seamless, tamper-proof, and auditable compliance ecosystem. On the returns side, it is essential to start by fixing the basics. Auto-population must be made robust and reliable, with complete and consistent flow of return data. Additionally, bill-of-entry data should seamlessly integrate into GSTR-3B. Taxpayers should experience a smooth filing process where auto-populated returns can be submitted with a single click. Apart from stabilising the existing system, the Government needs to rethink its approach to the Invoice Management System (IMS). Unlike prior models, IMS introduced a direct linkage between the supplier and the recipient by operationalising the recipient’s added input to accept or reject an invoice as well as any subsequent alteration in invoice by way of a credit note. This fundamentally redefines the compliance architecture — from being a supplier-led declaration to a model dependent on recipient’s validation. While the intent may be to strengthen controls and reduce credit misuse, it is introducing friction by making the supplier financially vulnerable to recipient’s inaction and sometimes whims or even blackmailing. This may spiral into a situation where the supplier may start blocking essential working capital of the recipient by holding back the reimbursement of tax amount until the credit note is duly accepted at his end. A few fundamental questions need to be asked. What is the intent of IMS? What issues does it solve? Can technology handle such a high volume of real-time transactions? Or are we trying to solve the fake credit problem? In a self-assessment regime like GST, the act of availing input tax credit should, in principle, imply that the recipient has accepted the underlying invoice or credit note. If credit has been claimed, why then introduce an additional and cumbersome step of validation? Let us look at the fake credit problem. Even in IMS, a taxpayer can still issue a fake invoice, and the recipient can still accept and avail of credit. Conceptually, fake input tax credit can arise through only two distinct mechanisms:
(a) Liability gap — when suppliers issue invoices but do not discharge the corresponding tax liability.
(b) Credit gap — when recipients avail excess credit or fail to reverse credit on credit notes.
Bridging these gaps must remain the central focus of every audit, scrutiny, and system reform initiative. Current data suggests these mismatches account for nearly 8–9% of the total credit in the system. With calibrated interventions, reducing this to 5% is both realistic and necessary. The government has already announced that GST return liability will be locked — a move expected to comprehensively address the issue of liability gaps in return filing. However, the credit gap is the more complex issue and needs focused resolution. The credit gap is not a compliance issue but one of identification and correction. The government should focus on distinguishing between compliant and non-compliant taxpayers by leveraging existing datasets.For instance, before November 30, taxpayers could be required to report a reconciliation variable ‘X’, where:X = ITC (input tax credit) as per GSTR-2B – ITC availed in the current financial year – ITC of the current FY availed in the next FY.
If X = 0, no further action is necessary.
If X > 0, it indicates that excess credit has been claimed or a credit note has not been reversed. In such cases, the system may issue an automated notice, and if no satisfactory response is received, the liability could be auto populated in the subsequent return.
If X < 0, it suggests that eligible credit has not been claimed and may lapse. Such amounts can be settled accordingly.
While this is just once example, the brilliance of this approach lies in its simplicity. Taxpayers with no gap remain unaffected, reinforcing compliant behaviour while introducing consequences for persistent mismatches. Today, young professionals demonstrate deep insights into return design, often surpassing initial policy assumptions. A more open, consultative environment with contributions from government, industry, and academia will enable the next wave of return reform. Ultimately, the success of GST lies not in its digital infrastructure, but in the people who shape and sustain it. It is their perseverance, adaptability, and collaborative spirit that continue to drive the system toward greater transparency, inclusivity, and scale. The path forward is promising, and the next chapter will undoubtedly be built on this strong foundation — with clarity of purpose, ambition, and wisdom. —The author, Siddharth Jain, is a former IRS officer and currently serves as Vice President – Indirect Tax, at Reliance Retail Limited. The views expressed are personal.
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