GST Council Meeting: There is going to be a major change in the country’s tax system. The government is gearing up for major reforms in the Goods and Services Tax i.e. GST structure. It is being shaped as GST 2.0. Several important proposals are likely to be approved in the GST Council meeting on Wednesday. These proposals are aimed not only at simplifying tax rules, but also at releasing hundreds of crores of rupees from companies. Most importantly, a major step is being taken towards removing the fear of arrest under the GST law.

The council meeting will review rules related to registration, return filing, refund, input tax credit (ITC) and litigation. The strict rules and restrictions that were imposed in the early years may now be relaxed. The system is now completely based on data and technology. Experts say that now an automated and risk based system will work instead of paper investigation.

A new way of extracting stranded capital

The most important proposal on the table of the Council is to simplify input tax credit. If there is a consensus on this, the money stuck in the hands of the industries will be returned. Under the proposal, tax paid on plant, machinery and input services will be considered for refund through monthly installments over five years. Till now companies could not withdraw this amount through ITC.

In addition, there are plans to reopen several tax exemptions closed under Article 17(5). These include employee health and life insurance, outdoor catering, telecom towers, pipelines laid outside factories, free samples and tax credit on expired goods. There is also a proposal to provide credit on vehicles up to 13 seats, their insurance, maintenance and leasing of vehicles.

According to EY partner Bipin Sapra, unlocking block credit under Article 17(5) will reduce costs for industries and enable Indian goods to compete globally. By refunding the stranded money under the inverted duty structure, the stranded capital of the companies will be converted into growth capital. This will support industry like PLI scheme without any new subsidy. Credit on telecom towers and pipelines will provide major relief to telecom, petrochemical, fertilizer, gas distribution and infrastructure sectors. ITC worth thousands of crores is stuck in 5% tax slab sectors like food, pharma, textile and EV, which if exempted can be converted into new investment.

Buyers will be relieved on supplier’s mistake

The biggest cause of litigation in GST is supplier default. When suppliers up the chain did not deposit the tax, the tax department used to withhold the credit of the bona fide buyer downstream. A formula has been devised to settle this dispute once and for all. According to the new proposal, the buyer’s input tax credit will not be forfeited if the transaction is completely genuine. The tax will be collected directly from the tax evading supplier.

This change is possible because now the system fully matches buyer and seller data through invoices. Frauds or irregularities are immediately traced at their source. The refund process is also being made very easy. Data from Customs and Reserve Bank’s export monitoring system will be directly linked to the GST refund portal. Taxpayers will not need to appear before officials with documents in hand.

Big discount to IT sector, small traders

Relief is also expected for IT and ITES companies in the meeting. Services provided to foreign branch offices can be given export status, which will make them eligible for ITC. In addition, if the goods sold to a foreign buyer are delivered to a country’s Special Economic Zone (SEZ) and payment is made in foreign currency, it will also be treated as an export. The rules are being adapted as per Reserve Bank’s payment rules.

This process is being made very easy for small traders as well. Businessmen with an annual turnover of up to Rs 5 crore, who sell goods only to unregistered customers, can be exempted from filing returns only once a year and paying tax every quarter. To facilitate new registration, number is being issued in just three working days through automated route. Currently, 61 percent of registrations are through this route. Change of business name, director, partner or new address will also be done through automatic system.

Stopping unnecessary litigation and short notices

Small traders often receive tax notices for minor irregularities. To prevent this, it is proposed to completely ban the issuance of show cause notices in cases involving amounts below Rs 10,000. Relievingly, this rule will apply to pending cases as well. According to statistics, about 95,000 notices are sent every year due to differences in returns, but only 0.08 per cent of the total amount is recovered.

These notices waste the time of businessmen and also complicate the government system. Apart from this, the rules of e-way bill will be made practical. The biggest reform would be the removal of punishment and arrest provisions. The government’s thinking is clear that when the system has solid data of every transaction, then there is no need to put undue pressure on businessmen. These changes will make India’s business environment more transparent and easier.