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Saturday, January 23, 2021

Paying 1% GST in cash: ‘No impact on small businesses’

The new rule restricts the use of input tax credit (ITC) for discharging GST liability to 99 per cent, effective January 1, 2021. It would apply only to risky or suspicious dealers who use a lot of fake credit and make no cash tax payment, they said.

By: ENS Economic Bureau | New Delhi | December 28, 2020 6:08:19 am
Government crackdown on 7,000 GST evaders, 185 arrestedGST collections surged to an all-time high of over Rs 1.15 lakh crore in December as economic activities picked up after lifting of stringent lockdown restrictions. (File photo)

The new rule requiring businesses to pay at least 1 per cent of their GST liability in cash will not impact small businesses and dealers as only entities with annual turnover of Rs 6 crore and above are required to follow this rule, sources in the Finance Ministry said.

After unearthing rampant use of fake invoices to evade goods and services tax (GST), the Central Board of Indirect Taxes and Customs (CBIC) had last week amended rules to make it mandatory for businesses with monthly turnover of over Rs 50 lakh to pay at least 1 per cent of their GST liability in cash.

This new rule applies only to about 45,000 taxpayers of the GST taxpayer base of 1.2 crore and genuine dealers and businesses would not be impacted, sources said, adding that it has been brought to check use of fake invoices to claim credit for tax paid on non-existent or highly inflated input cost.

The new rule restricts the use of input tax credit (ITC) for discharging GST liability to 99 per cent, effective January 1, 2021. It would apply only to risky or suspicious dealers who use a lot of fake credit and make no cash tax payment, they said.

Dummy companies which generate fake ITC or are used to be a layer in multi-layer fake credit flow pay no tax in cash.

“This provision is a very smart rule against fraudsters and would not affect any genuine business entities or ‘Ease of Doing Business’ in any manner,” an official said, adding that all small businesses, including MSMEs (micro, small and medium enterprises) and composition dealers, have been excluded from the rule.

The rule is applicable to registered persons whose value of taxable supply, other than exempt supply and export, in a month exceeds Rs 50 lakh, or Rs 6 crore annually, sources said.

The rule is not applicable in cases where the registered person deposited more than Rs 1 lakh as income tax in each of the last two years and also wherein registered person has received a refund of more than Rs 1 lakh in the preceding financial year on account of export or inverted tax structure.

The rule is also not applicable to government departments, public sector undertakings and local authorities.

The CBIC has booked about 12,000 cases of ITC fraud and arrested 365 persons in such cases so far. More than 165 fraudsters have been arrested in last six weeks.

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