The new rule that requires companies with a monthly turnover of more than 50 lakh to pay at least 1% of their liability net of goods and services tax (GST) in cash will not affect small businesses and the payment Cash is calculated on the basis of the tax component only, said a Finance Ministry official.
“The 1% cash payment will be calculated on the tax debt in a month and not on the business volume of the month. For example, if a merchant has made a sale of Rs 1 crore of goods, whose tax rate is 12%, and if he is meeting his tax obligation by more than 99% through ITC [input tax credit], then you have to pay only Rs 12,000 under this rule, ”said the official requesting anonymity.
The Central Board of Indirect Taxes and Customs (CBIC) recently introduced a change in the GST rules that restricted the use of ITC to discharge GST responsibility to 99%. The move was aimed at curbing ITC’s misappropriation through false billing.
According to a statement issued by the GST Council Secretariat on December 23, the government took several steps to curb fraudulent claims of the input tax credit through false invoices. One of the measures was a mandatory GST payment of 1% by those showing unusually large turnover.
“Some apprehensions have been raised in print and social media that the introduced measure of the mandatory cash payment requirement will negatively affect small businesses and increase their working capital requirement. However, the misconceptions about the measure taken are unfounded and will not affect the true taxpayers, “said the official.
Of the 10.2 million GST payers, only about 400,000 have a supply value greater than Rs 50 lakh. Only about 150,000 of them pay less than 1% tax in cash, the official said. “Now when the exclusions are applied in the rule, then around 1.05 lakh taxpayers are further excluded from these 1.5 lakh. Therefore, the rule would apply only to approximately 40,000-45,000 taxpayers. This would be around 0.37% of the total GST tax base, ”he added.
“The rule clearly identifies where the risk to revenue is high and imposes a very reasonable cost to deter scammers in a multi-layered ITC fraud,” he said. He added that the minimum cash payment system is being introduced to deter shell companies, which will take effect from January 1.
The new rule announced on Wednesday says that the registrant should not use the amount available in the electronic credit ledger to discharge the responsibility for the production tax in excess of 99% of the tax liability in cases where the value of the taxable offer in one month exceeds Rs 50 lakh. However, tax-exempt sales of goods and zero-rate supply would not be included when calculating the billing threshold, under the new rule.
Commenting on the new rule, Abhishek Jain, a tax partner at consultancy EY, said the idea is “to prevent misuse of credit by companies receiving bogus credit.”
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