The government’s decision on the mandatory payment of at least 1 percent of the GST tax liability in cash will only apply to establishments that have an annual turnover of Rs 6 crore and the new rule will not apply to micro and small businesses. companies, and composition distributors, finance ministry sources said Sunday.
Based on the recommendations of the GST Law Committee, the government has notified new indirect tax rules that make the cash payment of 1 percent of the GST tax liability mandatory for companies whose taxable supply value exceeds 50 lakh rupees in a month. This change will take effect as of January 1, 2021.
The new rules stoked fears that the mandatory cash payment will negatively affect small businesses and increase their working capital requirement.
“Contrary to what is being fed, the new rule will only help curb the threat of false ITC utilization and will affect only suspicious and risky merchants or operators who fly at night. It will in no way bother honest taxpayers.” said one. from the sources cited above.
Apart from the exemption based on turnover, the cash payment rule will also not apply in cases where the registrant has deposited more than Rs 1 lakh as income tax in each of the last two years and when such person has received a refund of more than Rs 1 lakh. in the previous year due to exports or invested tax structure. Also, the cash rule does not apply to the government department, the PSU, and the local authority.
Explaining the reason for the introduction of this rule, a highly positioned source from the Ministry of Finance said that a legitimate business operates for profit and that minimal added value is expected from them. Only when a large amount of bogus credit is used is no cash tax payment made. Also, shell companies that generate fake ITCs or are used to be a layer in the multi-layer fake credit stream do not pay cash taxes.
“This provision is a very smart rule against the fraudster and would not affect in any way any genuine business entity or Ease of doing business,” sources from the Finance Ministry said.
Regarding the exemption based on turnover, the Ministry of Finance has clarified only those companies that have a turnover of more than Rs 6 Crore and pay more than 99 percent of their taxes through the ITC (Tax Credit for inputs) and yet pay less than Rs 1 lakh of income tax. in one year, you will fall into the category of risk under this rule.
The new rule is expected to control fake invoice scammers who take advantage of and transfer the ITC by fictitious, fake and inactive entities that show high turnover, but have no financial credibility and flee after issuing false invoices and misusing the ITC. ITC.
The seriousness of this threat to the GST ecosystem can even be understood from the fact that in the recent national campaign against GST fake invoice fraud that was launched in the second week of November and is still continuing, it has resulted in the arrest of over 175 scammers. and more than 1,800 cases are registered against 8,000 false entities in just 40/45 days.
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