Easier compliance in focus as GST completes 7 years

NEW DELHI: Days before the seventh anniversary of the Goods and Services Tax regime, the Centre along with states took a slew of measures to make it more friendly to taxpayers, particularly micro, small and medium enterprises (MSMEs), by providing amnesty to legacy disputes, restraining officials from harassing small businesses through endless appeals, and encouraging them to access the pan-India market through online sales.

The GST Council, chaired by Union finance minister Nirmala Sitharaman, last week provided a major relief to thousands of small enterprises in remote areas that sell their products through e-commerce platforms, said an official present at the 53rd meeting of the council on June 22.

The government will soon implement the council’s recommendation to slash the applicable rate of tax collected at source (TCS) by half to 0.5% of the net value of transaction, which is collected by electronic commerce operators, he said, asking not to be named.

“Small suppliers were unable to utilise the TCS amount credited in their electronic cash ledger. The move will provide respite to small entrepreneurs whose working capital was often blocked due to delays in refunds,” he said. About 7.20 lakh suppliers using online platforms to sell their products paid ₹3,970 crore in TCS to the government in 2023-24 but got only about ₹1,980 crore as refunds, official data show.

The other major directive of the council was to provide amnesty from paying penalty and interest on old tax demands (2017-20), which will reduce disputes and provide relief, particularly to MSMEs, the official said. “Taxpayers are now saved from paying penalty payable at 10% of the tax demanded, and interest at the rate of 18% per annum from the due date mentioned in the tax demand with certain conditions,” he added.

It is a “very pleasing announcement” but it will be “worthwhile to see the nuances of this amnesty, specifically their coverage for cases where interest and penalty has already been paid” before issuance of the tax demands, said Abhishek Jain, partner and head of indirect tax at KPMG India, a consultancy.

Another decision pertains to dissuading tax officials from prolonging litigation through appeals on flimsy grounds, the official said. The council directed officials not to go for appeal at appellate tribunals for any amount less than ₹20 lakh, high courts for a sum less than ₹1 crore and the Supreme Court for an amount less than ₹2 crore, provided the matter does not involve any major policy issue.

Taxpayers are, however, free to appeal at any stage without any such limit. To further help aggrieved taxpayers in approaching appellate tribunals, the council also reduced the amount of deposit required for filing GST appeals from 20% to 10% of the amount involved, with a cap of ₹20 crore, which was earlier ₹50 crore.

“Similarly, there are more than a dozen clarifications for both tax officials and businessmen so that litigation could be avoided or reduced,” the official said. One of them relates to the taxability on the employee stock option plan (ESOP) offered by a foreign holding company to an employee of its Indian subsidiary. As transfers of shares or securities are neither goods nor services, they are not subject to GST, he said.

“However, GST will be levied on the amount of the additional fee, markup or commission charged by the foreign holding company from the domestic subsidiary,” said MS Mani, partner at Deloitte India, another consultancy. “GST shall be payable by the domestic subsidiary company on reverse charge basis in such a case on the said import of services.”

Other recommendations of the 53rd meeting included several clarifications to make compliance easier and unambiguous. For example, it was decided that if supplies were received from unregistered suppliers and GST was paid by the recipient under the reverse charge mechanism (RCM), then the date of invoice issued by the recipient in the financial year will be considered for availing the input tax credit (ITC).

The clarification will help registered firms to claim ITC for supplies received from unregistered entities, experts said. RCM is a mechanism where a registered receiver of goods and services issues an invoice and pays tax instead of its unregistered supplier.

The council also provided relief to taxpayers by allowing midway corrections in tax returns. It offered an optional facility by way of GSTR-1A, allowing taxpayers to rectify inadvertent errors before paying the monthly tax. It is aimed at reducing number of notices, said experts.

The council’s proposal to set April 1, 2025, as the sunset date for receipt of any new application regarding anti-profiteering is also a major relief to businesses. The anti-profiteering provision in the GST regime that started on July 1, 2017, to ensure that benefits of duty reductions are passed on to the consumer was transitional and the number of such complaints gradually reduced to less than one in a month, the official said.

“The sunset clause is essential for allowing businesses to operate normally with the competitive economy naturally managing pricing details,” Jain of KPMG said.

Commenting on the 7th anniversary of GST on Monday, Institute of Chartered Accountants of India president CA Ranjeet Kumar Agarwal said the journey of the “transformative tax regime” has been “remarkable” as it has “significantly reshaped India’s economic landscape, fostering greater compliance, transparency, and efficiency in the tax system”.

Speaking on the far-reaching decisions at the 53rd council, Mani said the meeting that took after nine months “once again demonstrated the fact that the GST Council is alive to the concerns of business and is committed to improving the ease of doing business”.

“Several procedures have been tweaked, clearly indicating the desire to simplify the GST processes while making it difficult for non-compliant taxpayers. While the rate rationalisation exercise is expected to take time, it would be good to have a broad level time frame to achieve the goal of fewer rates as this is one of the key areas of simplifying GST and improving the ease of doing business,” he added.