Tracking GST Evasion: Assessing India’s New Track and Trace Mechanism (2025)

Policy Update
Mannat Abbot

Background

Tax evasion is a constant threat and has a deep impact on the revenue collection of the Indian government. Before the GST (Goods and Services Tax), the Indian tax system was complex, as there were multiple taxes on consumers. CGST (Central Goods and Services Tax) field officers have detected a substantial 7.08 lakh crore rupees worth of tax evasion in about 91,370 cases in the last five years, i.e., from FY 2020-21 to 2024-25 (N. J. Jain & Associates, 2025). A major chunk of this evasion is in the form of Input Tax Credit (ITC) fraud, over 44,938 cases, to the tune of ₹1.79 lakh crore (N. J. Jain & Associates, 2025). These figures continue to be a challenge for India’s tax administration and the government’s efforts to contain financial irregularities.

Figure 1: GST Evasion Detected, FY 2020–21 to FY 2024–25

Source: CBIC data; author’s calculations.

The data shows a substantial increase in GST evasion detected by CGST field officers over the period. Detected evasion increased from ₹49,384 crore in FY 2020–21 to ₹2,23,375 crore in FY 2024–25, representing an increase of approximately 352.3%.The increase was not uniform across the period: detection rose from ₹49,384 crore to ₹73,238 crore in FY 2021–22 and further to ₹1,31,613 crore in FY 2022–23, before more than doubling to ₹2,30,332 crore in FY 2023–24. Although detection declined slightly to ₹2,23,375 crore in FY 2024–25, it remained more than four times the FY 2020–21 level. This sharp rise suggests that tax authorities are identifying evasion on a much larger scale, potentially reflecting improvements in data-based scrutiny, enforcement and the ability to identify complex forms of non-compliance. However, the increase in detected evasion should not be interpreted as a direct increase in the actual incidence of evasion, since higher detection may also reflect stronger enforcement and improved monitoring. The persistence of high detection levels therefore indicates both the scale of the compliance challenge and the growing capacity of tax authorities to uncover irregularities.

However, the amount paid as a share of detected evasion shows a declining trend in the later years. The recovery rate fell from 34.35% in FY 2021–22 to 12% in FY 2024–25, meaning that only ₹12 out of every ₹100 of detected evasion was recovered in the latest year. This widening gap between detection and recovery suggests that identifying tax evasion does not necessarily translate into immediate revenue collection for the government. Unrecovered amounts may remain subject to investigation, adjudication, appeals, or other legal proceedings, delaying their conversion into actual government revenue. Consequently, while the increase in detection indicates stronger identification of suspected evasion, the declining recovery rate points to limitations in converting these detections into realised revenue and highlights the need for more effective post-detection enforcement and recovery mechanisms.

India’s tax administration has stepped into a new era of technology-led governance. The Central Board of Indirect Taxes & Customs (CBIC) is leveraging Artificial Intelligence (AI), Data Analytics and other technologies to change the way taxes are monitored, collected and enforced. Indian businesses are responding by enhancing compliance processes, embedding technology and preparing for data driven scrutiny.

Functioning 

The Track and Trace mechanism (TTM) is used to follow goods along the supply chain from the manufacturer to the end consumer through digital records and technological tools. This system under GST tracks the movement of goods through e-way bills and e-invoicing which allows the tax authorities to detect discrepancies and ensure compliance. The Union Budget 2025-26 proposed the insertion of Section 148A in the Central Goods and Services Tax Act, 2017, to implement the initiative of TTM. This provision empowers the government to specify the persons or goods to which the Unique Identification Marking system may apply.The system would involve encoding specific information within the marking, allowing for electronic storage and access to enhance traceability. Entities covered under this scheme would be required to affix these markings on goods or packaging, maintain records, provide details of installed machinery and its capacity, and fulfil other compliance requirements. Additionally, corresponding amendments to GST laws—including defining key terms and introducing penalties for non-compliance—have been proposed to ensure effective implementation and enforcement of the scheme.

Key Components of the Track and Trace Mechanism

1. E-Way Bills

• Mandatory for the transportation of goods worth over a specified value.
• Ensures goods are moved with proper documentation, reducing the risk of tax evasion.
• Allows authorities to track the movement of goods.

2. E-Invoicing

• Standardised invoicing for businesses exceeding a prescribed turnover threshold.
• Invoices are reported to the Invoice Registration Portal (IRP) and validated with a unique IRN (Invoice Reference Number).
• Ensures that only genuine invoices are used for ITC claims.

Unique Identification Marking (UIM)

• Definition: Digital stamp, digital mark, or similar marking that is unique, secure, and non-removable.
• Characteristics: Must be tamper-proof, machine-readable, and linked to product/batch details.
• Information recorded: Product name, manufacturer details, batch/serial number, production date, MRP, tax rate.
• Electronic storage: Information stored in a centralized government database accessible by tax authorities.
• Verification: Officers can scan UIM at any supply chain stage to verify authenticity and tax compliance.

How Track and Trace Prevents Tax Evasion

• Real-time monitoring: Tax authorities can track goods movement at every supply chain stage.
• Production verification: Reconcile declared production with actual output via machinery capacity data.
• ITC fraud prevention: Detect fake invoices and false input tax credit claims.
• Under-reporting detection: Identify discrepancies between reported sales and actual market supply.
• Counterfeit identification: Distinguish genuine goods from counterfeit products.
• Supply chain transparency: End-to-end visibility reduces opportunities for tax evasion

Performance

The data on GST evasion detected by CGST field formations indicates a significant increase in the scale of evasion detected over the five-year period from FY 2020–21 to FY 2024–25

Table 1: Number of GST Evasion Cases (FY 2020-21 to FY 2024-25)

Figure 2: Recovery Rate of Detected GST Evasion

Source: Author’s calculations based on CBIC data.

The recovery rate shows a different trend. After reaching 34.35% in FY 2021-22, the recovery rate declined to 12% in FY 2024-25. This indicates a growing gap between the amount of evasion detected and the amount subsequently recovered.

The data therefore highlights the continuing challenge of detecting and recovering GST revenue lost through evasion. Despite improvements in GST monitoring, gaps remain in the existing compliance system. The complexity of ITC matching can create compliance difficulties and litigation, while cash transactions and unrecorded sales can enable concealment of transactions. Better integration of data across GSTN, e-way bills and other government systems could further strengthen the identification of tax evasion (N. J. Jain & Associates, 2025).  While existing mechanisms have enabled tax authorities to identify substantial instances of evasion, the gap between detection and recovery points to the need for stronger monitoring and traceability across the supply chain (GST Council, 2023; CashFlo, 2025). It is against this backdrop that the Track and Trace Mechanism assumes significance. The Track and Trace system remains in the early stages of implementation. Although the mechanism was approved by the GST Council in December 2024, operational implementation began later, with the system becoming effective for cigarettes and notified goods from October 2025 (GST Council, 2024a, 2024b; CashFlo, 2025). The initial phase focused on manufacturer onboarding and system testing, followed by full enforcement and activation of penalty provisions from January 2026. Expansion to other high-risk goods is expected to take place progressively during 2026–27. Consequently, the system does not yet provide sufficient post-implementation data to assess its economy-wide impact on tax evasion.

Impact

Macroeconomic Impacts

Increase in tax revenues and formalisation: End-to-end visibility reduces opportunities for tax evasion and could significantly boost government tax revenues. Increased tax revenues can be channelled into funding development projects and public services. The mechanism could also contribute to the formalisation of the economy by bringing more economic activities under the tax net and improving the overall transparency of transactions. If the mechanism were successful, regulation compliance enhancements in these sectors could serve as a model for similar monitoring schemes in other high-risk industries.

Industry and Supply Chain Effects

The Track and Trace mechanism can improve visibility and monitoring across different sectors. In manufacturing, it can track the movement of raw materials and finished goods efficiently, while in retail chains, it can support proper ITC distribution across multiple locations. In logistics, it can facilitate efficient tracking of consignment movement through e-way bills.

Stronger Control Over Compliance: Track and trace systems provide early warnings when shipments deviate from expected timelines or routes. This proactive visibility helps logistics teams coordinate alternate routes, allocate backup inventory, inform stores ahead of time, and avoid last-minute escalations.

Operational Adaptability

Track and trace doesn’t function in isolation; it supports upstream warehouse performance. Scannable barcodes, RFID tags, and integrated labelling help warehouses process inbound and outbound shipments faster, with fewer errors.

Reduced Risk of Theft, Pilferage, and Loss: High-value products, branded goods, electronics, and pharmaceuticals face constant risk of tampering and theft. Track and trace creates a clear chain-of-custody record, making every movement transparent.

Better Customer Delivery

In retail, delivery accuracy and transparency directly influence customer satisfaction. Track and trace systems allow businesses to offer precise delivery windows, live tracking links, and automated updates. This reduces customer queries, lowers dependence on service teams, and increases trust in the brand.

Emerging Issues

Despite its potential, the ‘Track and Trace’ mechanism has significant challenges.

• Operational changes: Supply chain processes need modification to scan and record UIMs. This requires businesses to adapt their existing processes to incorporate the scanning and recording of UIMs at different stages of the supply chain.
• Small businesses: The compliance burden may be higher for MSMEs with limited technological infrastructure. Smaller manufacturers, often limited by resources, may find it difficult to meet the technological and compliance requirements of the mechanism (Mark IT Solutions, 2025).
• Cost implications: The cost of UIMs, estimated at Rs. 0.50–2 per marking, may impact product pricing (Mark IT Solutions, 2025). For businesses, the additional cost of implementing and maintaining the required tracking processes could add to the overall compliance burden.

Way Forward

Strengthen technological infrastructure:

The Track and Trace mechanism will depend on reliable digital infrastructure for generating, recording and transmitting Unique Identification Markings (UIMs) across the supply chain. The government should therefore ensure that the GSTN and associated systems can handle large volumes of transaction and product-level data without disruptions. This should include regular system testing, rapid resolution of technical failures and adequate support for manufacturers and other supply-chain participants during onboarding. The GST Council’s proposed framework already envisages the recording of UIM-related information on a centralised system and making the data accessible to enforcement authorities (GST Council, 2024a, 2024b).Simplification of processes: Compliance processes should be reduced and simplified so that businesses can operate efficiently while supporting economic growth.

Simplification of processes: Compliance requirements under the Track and Trace mechanism should be designed to minimise unnecessary reporting and duplication for businesses. This could be achieved by integrating UIM-related reporting with existing GSTN processes, using standardised digital procedures for uploading and verifying information, and reducing the need for businesses to submit the same information through multiple platforms. Clear guidelines and standardised procedures would also help businesses understand their obligations and reduce errors during implementation. Such simplification would make the mechanism easier to adopt while ensuring that the government retains access to the information required for effective monitoring.

Reduced compliance burden: The government should adopt a proportionate compliance approach for smaller businesses that may face greater difficulties in adopting the Track and Trace mechanism. This could include providing simplified onboarding procedures, accessible technical support and adequate transition periods for businesses that require additional time to integrate the system into their existing operations. Training and guidance could also be provided to help smaller manufacturers, distributors and other supply-chain participants understand UIM-related requirements. These measures would reduce the risk that compliance costs and technical difficulties discourage smaller businesses from participating in the formal supply chain.

Efficient UIM processes: The process of generating, recording, scanning and verifying UIMs should be designed to minimise disruption to normal supply-chain operations. This could involve standardised scanning procedures at key points such as manufacturing facilities, warehouses and retail outlets, along with reliable digital systems for recording movement and verification. The system should also allow information captured at one stage of the supply chain to be used at subsequent stages, reducing repetitive data entry. Efficient UIM processing would improve traceability while limiting delays and operational difficulties for businesses.

India’s Track and Trace mechanism represents an important step towards strengthening GST compliance and reducing tax evasion. Its effectiveness, however, will depend on efficient implementation, technological readiness, and ensuring that compliance remains practical for businesses across the supply chain.

References

1. Goods and Services Tax Council. (2024). Agenda for the 55th GST Council meeting: Amendment in Central Goods and Services Tax Act, 2017 for incorporation of provisions relating to track and trace mechanism for specified commodities. https://gstcouncil.gov.in/sites/default/files/Agenda/55th_meeting_agenda_compressed_1.pdf
2. Goods and Services Tax Council. (2024). Minutes of the 55th GST Council meeting. https://gstcouncil.gov.in/sites/default/files/Minutes/minutes_of_55th_gst_council_for_upload_ocred_compressed_0.pdf
3. Goods and Services Tax Council. (2023). Detailed agenda note, 49th GST Council meeting: Track and trace mechanism for evasion-prone commodities. https://gstcouncil.gov.in/node/4692
4. N. J. Jain & Associates. (2025). GST evasion on the rise: A five-year analysis. https://njjain.com/industry-news/gst-evasion-on-the-rise/
5. CashFlo. (2025). Track and trace mechanism under GST. https://www.cashflo.io/magazine/track-and-trace-mechanism-under-gst
6. Yadav, D., & Tanwar, T. (2025). The role of GST in curbing tax evasion in India: A critical analysis. Indian Journal of Law and Legal Research. https://www.ijllr.com/post/the-role-of-gst-in-curbing-tax-evasion-in-india-a-critical-analysis
7. International Journal of Research and Analytical Reviews. (2019). https://ijrar.org/papers/IJRAR19D4661.pdf
8. Pitchers Global. (2025). Understanding the new GST track and trace mechanism. https://pitchersglobal.com/2025/02/11/understanding-the-new-gst-track/
9. Mark IT Solutions. (2025). Track and trace mechanism under GST: Avoiding penalties from October 2025. https://www.markitsolutions.in/blog-details/track-and-trace-mechanism-gst-avoiding-penalties-october-2025

About the Contributor

Mannat Abbot is pursuing a B.A. (Hons.) in Economics at the College of Vocational Studies, University of Delhi and serves as a Research & Editorial Intern at IMPRI. She is passionate about public policy research, economics and data-driven analysis, with interests in macroeconomics, economic policy, and evidence-based policymaking.

Acknowledgements

The author sincerely acknowledges the guidance and constructive feedback provided by Sandra Menon and Madhuritha throughout the preparation of this article. Their valuable suggestions and thoughtful observations helped strengthen the analysis, improve the organisation of ideas, and enhance the overall quality of the manuscript. The author also extends gratitude to everyone whose support and encouragement contributed to the successful completion of this work.

Disclaimer

Any remaining errors, omissions, or interpretations are solely the responsibility of the author and do not necessarily reflect the views of the reviewers or IMPRI.

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