Budget 2021: Key Changes In GST To Help Small And Medium-Sized Businesses
An employee displays a receipt book showing a store’s goods and services tax identification number (GSTIN) in an arranged photograph in New Delhi, India. (Photographer: Anindito Mukherjee/Bloomberg)

Budget 2021: Key Changes In GST To Help Small And Medium-Sized Businesses

Finance Minister Nirmala Sitharaman, in Budget 2021, announced multiple changes to the goods and services tax framework aimed at helping small and medium businesses to tide over pandemic-induced disruptions.

This includes relaxation in the mandatory audit requirement for registered businesses, determination of interest payable against outstanding tax liability and specifying conditions under which input tax credit can be utilised.

Key changes that were announced

Mandatory Audit Requirement Relaxed

Ever since its inception, the GST has been criticised for multiple compliances that prove challenging for taxpayers, especially for small- and medium-sized businesses. Many industrial bodies have made representations for the need to ease such requirements. In response, the government has been gradually tweaking the GST law.

Continuing with this trend, the finance minister has now announced that businesses having a turnover above Rs 5 crore won’t be required to get their accounts audited by a chartered accountant. Similarly, the earlier need for an external certification of annual reconciliation statement has been abolished. Now, businesses can rely on self-certification for this purpose.

Explaining the impact of this change, Abhishek Rastogi, partner at Khaitan & Co., said that while the self-certification will reduce compliance cost, the numerous errors that can be highlighted at the initial stage may be missed and this can lead to inadvertent errors and deliberate frauds.

Jigar Doshi, partner at TMSL LLP, explained that the changes bring a much awaited relief for the industry and arrives at time when businesses are grappling with the impact of Covid-19. Form 9 and Form 9C may get fused together, reducing the compliance to a large extent, he said.

Self-certification by businesses themselves may lead to another relief and make the process quicker. The industry has been suffering since last three years as Form 9C seeks a lot of information, often leading to time consumption and effort on the part of tax function in a company
Jigar Doshi, partner, TMSL LLP

Interest Payable Only On Net Liability

The GST law requires a registered person to deposit tax collected by it before the deadline prescribed by the government. Businesses generally set off the unutilised input tax credit available in the electronic ledger before paying the tax to the government. In case of a delay in depositing tax, businesses need to shell out interest up to the rate of 18%.

Taxpayers are faced with a question in such situation—whether they must pay interest on their gross or net tax liability. Gross tax liability means the entire outstanding amount of tax without any deduction of unutilised credit. This anomaly even led to multiple rounds of litigations.

To clarify on this issue, the government has now moved an amendment to the CGST Act which specifies that interest will only apply on the net tax liability. This amendment will apply retrospectively from July 1, 2017—the date from which GST was enforced.

Rastogi explained that the proposal would mean that demand for even the earliest period in 2017-18 will only apply on that portion which is paid through cash. However, the amendment has certain peculiarities, he said.

It must be noted that the law has also carved out certain exceptions. For instance, the change will not apply if investigations have been initiated by the tax department. This exception has already been challenged in Gujarat High Court.
Abhishek Rastogi, partner, Khaitan & Co

Doshi agreed. The changes are in line with the announcements made in the 39th GST Council meeting and a suitable legislative amendment has been made to bring it under the law. It’s a welcome decision as it results in a fair and just view for taxpayers by charging interest on delayed payments only on the actual liability, he said.

Credit Available Only If Specified Conditions Fulfilled

The Central Goods and Services Tax Act says registered persons can avail input tax credit against valid invoices if they comply with prescribed requirements.

While the act prescribed no further conditions, the government amended the CGST rules to specify that tax credit can only be availed if the supplier gives a valid invoice and furnishes its details in his statement of outward supplies. Taxpayers questioned the legal validity of the changes and the power of government to impose such restrictions through the rules.

Budget 2021 now introduces an amendment in section 16 of the CGST Act to incorporate such restrictions.

The amendment to section 16 seems rightly placed, Doshi said. Section 16 never had a condition to say that input tax credit shall be only available if the supplier has reflected his invoices in GSTR. The only conditions were, filing of return , payment of tax, receipt of goods and possessing the tax invoice, he added.

By bringing in the amendment, the government has provided backing to the legislation to streamline it with the rules framed in this regard. Litigation on said ground will now be put to rest!
Jigar Doshi, partner, TMSL LLP

The moot point that arises is whether credit can be denied due to the procedural lapse on the part of the supplier, especially when the receiver has paid the consideration and tax, Rastogi questioned. The restriction of credits in such circumstances may require a judicial review, he said.

Other Important Changes

The government has also proposed amendments which specify that a tax appeal can be filed in certain instances only after 25% deposit of the contested amount with the department, allowing the GST commissioner to call for information from any person in connection with any matter under the CGST Act.

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