New GST rules
to boost tax payments in cash
·
New GST
rules restrict input tax credit for CGST and SGST unless credits for taxes on
IGST are fully used
·
Experts
said that although unintentional, the move to remove input tax credit is
pinching businesses
A new rule on businesses adjusting their final
GST liability against credit for taxes already paid on raw materials and
services is pushing up their tax payments made in cash, experts say.
The amendments to central and state GST laws made in
2018 and brought into effect from February 2019 have the unintended consequence
of certain tax credits getting piled up without getting used for meeting the
final tax liability of businesses, they said.
The amendments prescribe the order in which credits
for past payment of various components of GST can be adjusted against the tax
liability on the final output of a business. The new norms restrict using
credits for central and state components of GST (CGST and SGST) unless credits
for taxes paid on inter-state transactions are fully used.
GST involves two equal components on any
transaction—Central and state GST—that go to the respective governments.
Inter-state supplies attract integrated GST (IGST), which is eventually
apportioned between the union and state governments.
According to the new norms, credit for IGST has to
be exhausted before using credit for central or state GST paid in the past for
meeting CGST and SGST liability, respectively.
This, in many cases, leads to a situation where the
more flexible IGST credit is used up for paying CGST liability fully, forcing
businesses to pay at least part of SGST liability in cash. It takes away the
flexibility in utilization of tax credits.
Unlike credits for IGST, the same for CGST and SGST
can’t be cross-utilised. This results in tax payment in cash while tax credits
remain on the books of the company.
Experts said that although unintentional, the move
is pinching businesses.
“This amendment has become a point of worry for most
industry players as they may now have to pay SGST liability in cash even in
scenarios where prior to this amendment it could be paid by utilizing credits.
What led to this is the introduction of this new rule of utilization of IGST
credit," said Abhishek Jain, tax partner, EY.
If you want to make your career in GST then you may register into IIGST’s course to get complete theoretical and practical understanding of the law. IIGST provide recorded and live classes to student and help you to become GST Practitioner.
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