India’s Auditor Flags Lapses In Transfer Of IGST To States By Centre
CAG headquarters in New Delhi. (Source: CAG website)

India’s Auditor Flags Lapses In Transfer Of IGST To States By Centre

The Comptroller and Auditor General of India has flagged errors in the distribution of integrated goods and services tax by the central government to states.

The central government, the CAG has said in a report, omitted transfer of IGST to states in one instance, and made errors while distributing states’ share of IGST—which is shared between the Centre and the state in which a good or service is consumed—in 2018-19.

The central government transferred Rs 13,944 crore to the Consolidated Fund of India, leading to a lower transfer to states in financial year 2018-19, a year before GST collections started falling short.

Even when the law provides for the Centre to make ad-hoc settlement of unutilised IGST to states, it retained the amount in the Consolidated Fund of India, the auditor said in its report which was tabled in Parliament. Some businesses from industries like oil and gas can’t claim credit on tax they pay, leading to an increase in unutilised or unclaimed IGST.

The report also flags erroneous transfer of Rs 15,001 crore as states’ IGST share, which was supposed to be split between the Centre and states.

This isn’t the first time the auditor has flagged gaps in IGST transfers to states. Last year, the CAG had said collections from IGST were devolved based on the Finance Commission’s recommendations, which was in contravention of the IGST Act.

Transfers To Consolidated Fund

The central government collected Rs 2.74 lakh crore from 35 cesses in the year ending March 2019, of which Rs 1.10 lakh crore was transferred to Consolidated Fund of India.

The remaining Rs 1.64 lakh crore was moved to funds created specifically for which the cess was levied. For instance, India levies road and infrastructure cess to develop highways and rural roads, and the collections are transferred to a fund created for the purpose. Collections from cess aren’t devolved to states as their share of central taxes.

However, even this isn’t the first such instance. In one of its previous reports, the CAG had pointed out Rs 94,036 crore collected as secondary and higher education cess since 2006-07 to 2017-18 continues to be retained in the Consolidated Fund of India.

Gains From Penny Stocks

The auditor has also pulled up the Income Tax Department for not scrutinising taxpayers who traded in penny stocks and claimed long-term capital gains exemption.

The taxman also didn’t issue notices to individuals who were involved in penny stock trading, but weren’t filing income tax returns. This was done despite the department having information of such individuals not filing their returns.

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