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The Goods and Services Tax Network (GSTN) is designed to streamline tax compliances and build a transparent and efficient taxation system that reduces tax evasions and frauds. The government’s decision to bring GSTN under the PMLA Act was a step in this direction. The PMLA Act (i.e., Prevention of Money Laundering Act, 2002) was enacted to prevent illegal financial activities, namely money laundering. With GSTN covered under PMLA, the aim is to build an ecosystem where relevant authorities have access and the means to gather information to prevent tax frauds and curb the circulation of illegal currencies in the system. This provision has been included under Section 66 of the PMLA Act, enlisting the GST Network to disclose information when required.
GSTN under PMLA
In July 2023, the GST Network was brought under the Prevention of Money Laundering Act (PMLA). The notification issued by the Central Government meant that going forward specific data in the GST Network would now to available for further scrutiny and verification under the PMLA Act. This would enable the authorities to take preventive measures and even strict action against offenders and those taxpayers not adhering to legitimate ways of making money or evading taxes.
This notification of bringing GSTN under PMLA meant that fake invoices, or claims for ITC, would all be under the PMLA Act. It also makes provision for confiscating any property involved in the same.
The notification from the Ministry of Finance (Department of Revenue) was dated 7 July 2023 and highlights the details on the decision to share data from GSTN under the PMLA Act (Section 66) by acknowledging ‘Goods and Services Tax Network’ as the 26th agency for data sharing (sub-section Number 26).
(Source: LiveMint, 8 July 2023)
Reason why GSTN is brought under PMLA Act?
When Section 66 of the PMLA Act was inserted with sub-section 26 for ‘Goods and Services Tax Network’ the natural question was the objective behind the step.
GST was a step taken to streamline taxation and prevent tax frauds. By bringing numerous indirect taxes under GST, the process was highly streamlined, but it still left some loopholes. The move to bring GSTN under PMLA Act therefore is a step to prevent money laundering related tax frauds and strength the system to combat the same.
This GSTN under PMLA notification by the Central Government makes provision for disclosure and sharing of information between the GST Network and the relevant authorities/agencies under the PMLA (i.e., The Enforcement Directorate – ED, and Financial Intelligence Unit – FIU).
In a nutshell, the move to bring GSTN under PMLA has helped to:
- Allow agencies like the Enforcement Directorate (ED) and Financial Intelligence Unit (FIU) under the PMLA to access GSTIN based relevant information to track and trail suspicious financial transactions
- Detect suspicious cases of tax-evasion (e.g., undeclared money, fake invoices, etc.) and potential money laundering activities and curb it at the outset
- Promote transparency in the taxation ecosystem through the use of GST records and digital tools to monitor and track financial transactions and seek clarifications where necessary
Impact of GSTN in PMLA
It is estimated that within a span of two months, over 69,000 GSTINs were identified for verification and check its authenticity. Of these, almost 25% of the GST identification numbers (GSTINs) were identified as fake or non-existent. (Source: Drishti IAS, July 2023).
With information sharing between the GSTN and the ED/FIU, there’s likely to be:
- Effective monitoring and money trailing
- Deeper investigation of fraudulent transactions and discrepancies
- Faster recovery of pending taxes and penalties
- Widespread alertness and awareness to prevent financial wrongdoings
It is also expected that the integration of GSTN and PMLA will benefit the overall financial ecosystem. Considering GSTN’s role in keeping trail of all financial activities including returns filing, input credit claims, etc. this integration will enable to detect tax-fraud and money laundering at the outset enabling authorities to build a clean, transparent, and robust financial system.
Also read: GST return types – List of forms for filing GST returns
What is GSTN?
GSTN refers to the Goods and Services Tax Network that acts as the technology platform and backbone of the GST portal in India. It functions as the one-stop platform for taxpayers to access GST related activities, such as file returns, claim input credits, generate GST e-Invoices, and more. By integrating technology into the taxation process, the GSTN thereby promotes transparency and facilitates the administration of seamless taxation.
Some of the key activities and functions taxpayers can avail through the GST Network are:
- Registration for GST to generate valid GST registration certificate with GSTIN
- Filing of tax returns on a monthly, quarterly, and annual basis
- Payment of taxes via a secure network to ensure taxpayer’s compliance with GST
- Manage ITC claims and reconciliation to reduce tax burden and levy taxes on value added
- Monitor transactions and administer compliance, identify discrepancies (e.g., GST notices), analyse data and enforce GST rules
Understanding the PMLA Act
The PMLA Act or Prevention of Money Laundering Act, 2002 was designed as a legislative framework to identify and deal with money laundering activities and other financial transactions involving illegal methods of income generation. It instructs specific entities to maintain detailed records of transactions, maintain due diligence and report any suspicious activities. The GSTN was added as the 26th entity to the list for information sharing (Section 66).
Other government agencies that are included in the PMLA Act and required to share necessary data are:
- RBI – Reserve Bank of India
- SEBI – Securities and Exchange Board of India
- CCI – Completion Commission of India
- IRDAI – Insurance Regulatory and Development Authority of India
- SFO – Serious Fraud Investigation Office
- DGFT – Director General of Foreign Trade
(Source: Zee Business, 10 July, 2023)
Scope of activities:
Some of the key functions and activities that the PMLA Act highlights are:
- Record keeping on clients, their accounts and financial transactions
- Reporting any suspicious financial activities to the FIU to prevent money laundering and fraud
- Imposing fines and penalties for non-compliance
- Seizing and freezing assets suspected of being involved in money laundering activities
- Set up a systematic legal procedure and adjudication mechanism to combat such issues
Bringing GSTN under PMLA Act is a significant step towards enhancing transparency and accountability in the financial system. The integration will further strengthen compliance with tax laws, detect and prevent tax frauds, and facilitate speedier investigation of financial irregularities.
FAQs
Is GST covered under PMLA Act?
In a notification by the Central Government on 7 July 2023, the GST Network (GSTN) is now listed as the 26th entity/agency in Section 66 of the PMLA Act, for sharing and disclosure of information with the Enforcement Directorate and Financial Intelligence Unit.
What is Section 7 of PMLA?
Section 7 of the PMLA Act, 2002, deals with details on ‘Staff of Adjudicating Authorities’. This refers to the provision of providing employees and officers to the Adjudicating Authorities as the Central Government may thank relevant. The salaries and compensation of these officers/employees will be specified and they will discharge their duties under the Chairperson of the Adjudicating Authority. (Read the PMLA Act for more details)
What is under section 3 of PMLA?
Section 3 under the PMLA Act deals with details on the ‘Offence of money-laundering’. It provides a detailed meaning of the offence and the offender. This is a part of Chapter II of the Act and the subsequent sections (i.e., Section 4) elaborates on punishment and other components of the money-laundering activity.
*This article is for information only. For more details, please visit the official GST website and GSTN portal. You can also consult with a GST practitioner or CA or tax consultant for professional advice.
Sohini is a seasoned content writer with 12 years’ experience in developing marketing and business content across multiple formats. At Tata nexarc, she leverages her skills in crafting curated content on the Indian MSME sector, steel procurement, and logistics. In her personal time, she enjoys reading fiction and being up-to-date on trends in digital marketing and the Indian business ecosystem.
Tax fraud had already reduced by a lot since GST came into play. Now, with GSTN under PMLA Act, it would reduce even more since now there is the threat of severe legal action being taken immediately if a fraud claim is detected by the concerned authority. The data being shared with the authorities will enable them to quickly find those exploiting the loopholes and catch them.