Clearing the air around "misconceptions" about recently amended Goods and Services Tax (GST) rules, the Central Board of Indirect Taxes and Customs (CBIC), in a series of tweets, has said the rule will be applicable to only 0.5 per cent of the total taxpayers base of 1.2 crore. Some had earlier raised objections that this rule will affect a large number of taxpayers.
Traders' body the Confederation of All India Traders (CAIT) also urged Finance Minister Nirmala Sitharaman to defer the implementation of Rule 86B in GST, terming it a "counter-productive" measure that will increase the traders' compliance burden.
Misconceptions vs Reality!— CBIC (@cbic_india) December 26, 2020
Reality for Misconception 1
Facts about 1% payment of tax liability in cash in GST under Rule 86B. pic.twitter.com/vJUxnBE7Nn
"The rule clearly identifies where the risk to revenue is high and imposes deterrence to the fraudsters in a multi-layered fraud of passing fake ITC," the nodal national agency responsible for administering customs and GST said. It added the rule will help control those who issue fake invoices and show high turnovers but have no financial credibility and flee after misusing ITC without payment of any tax liability in cash.
On speculations that it'll lead to a huge burden on small businesses by increasing their working capital requirement, the CBIC said the cash payment of 1 per cent is to be calculated on the tax liability in a month and the turnover of the respective month. "In fact, it amounts to only 0.01 per cent of turnover," the CBIC said.
It clarified that the rule does not apply to micro and small business and composition dealers. "The new provision which restricts the use of ITC for discharging output liability is applicable to the registered person who value of taxable supply other than exempt supply and export in a month exceeds Rs 50 lakh -- that means those annual whose turnover is more than Rs 6 crore," it added.
The CBIC said the rule only applies to those whose value of taxable supply, other than exempt supply and export, in a month exceeds Rs 50 lakh or Rs 6 crore in a year.
Notably, to curb evasion by fake invoicing, the CBIC on December 24 notified certain changes to the GST rules, asking businesses with a monthly turnover of over Rs 50 lakh to mandatorily pay at least 1 per cent of their GST liability in cash.
The CBIC introduced Rule 86B in GST Rules, to be applicable from January 1, which restricts the use of input tax credit for discharging GST liability to 99 per cent.
However, this restriction will not apply where the managing director or any partner has paid more than Rs 1 lakh as income tax or the registered person has received a refund amount of more than Rs 1 lakh in the preceding financial year on account of the unutilised input tax credit.