GST means goods and services tax. It is the tax applied on any commodity bought or sold by the government. This has been introduced since 2 years and it is one tax rule against all the old taxes applied. It has abolished the usage if multiple taxes and brought all of them under on name ( i.e. GST).
Last week the GST council of India announced a new rule stating that any businessman who has a turnover of more than 50 lakh Rs. per month has to pay at least 1% of his or her GST tax liability in form of cash. The rule is applicable from the new year i.e. 1st January, 2021.
Recently there has been a lot of protest from many GST tax payers and trader body CAIT against this rule. They believe that the rule is pointless and it only incurs more hard work as the tax needs to be paid in cash. Hence making the work of business tougher on account of accumulating cash to pay tax liability. On account of exceptions and the set criteria only 40000-45000 companies fall under this rule. This is only 0.36% of the entire company portfolio in the GST database.
Exceptions to the Rule:-
There are also exceptions provided under this new GST rule:
- It is not applicable on those registered people who have received more than 1 lakh Rs. in refund on grounds of exports or the inverted form of tax structure in the last financial year.
- It is not applicable on the person who has deposited more than 1 lakh Rs. as tax (income tax) in the last two financial years each.
- The rule excludes PSU’s (public sector undertakings), Government department and local authorities.
- All the small businesses like MSME’s and Composite dealers have been automatically excluded from the rule (because of the basic conditions of the rule)
The first and foremost reason to apply this rule is to stop the generation of fake tax liability. The GST council has found many instances where a dummy or shell company is created for generation of fake layers or multi layers of GST credit. This helps the main company to avoid paying more cash as they have a handsome amount of credit left over on their plate.
The Council says that all genuine businesses have solo aim of earning more profit. This drives the expectation of increasing the business value. The rule is created to stop the creation of tax audit. With payment in cash businesses who generate or utilize fake tax credit would no longer pursue that. The reason being they have to pay tax in cash and without any real tax credit or real business transaction there won’t be any cash circulation. Hence blocking the fake tax credit flow.
Govt. Research on the Rule :-
This rule is only applicable on risky or suspicious dealers. This won’t affect the genuine businessmen as all their income comes from original companies and not dummy companies.
The rule is created on the basis of an ongoing research by CBIC (Central board of Indirect Duties and Customs). The research is based on finding ITC fraud and fake GST invoices. It started in Nov 2nd week. Till date more than 12000 cases have been booked. This includes more than 4500 fake or dummy companies. All these cases have been found in last 6 weeks alone. More than 365 people have been arrested and out of them 175+ have been arrested in the last week alone.
Finance minister Announcement Regarding the Rule
Recently the Finance minister showed support towards the rule. Nirmala Sitharaman said that the rule only applies on the business entities with more than 6 crore Rs. of turnover annually. Hence this excludes the small businessmen and genuine businesses. With the exceptions applied it also creates a habit of daily payment of cash tax liability. This would have two benefits. First is circulation of real tax and elimination of fake invoices or fake ITC. Second is generation of liquidity with the GST department.
The FinMin is of the opinion that this will put the dummy or shell companies in ground and eliminate their existence. Also this is a very quick and smart move by the council against the fraud credit claimants and generators and it does not affect the genuine businesses or Easiness in doing business in any manner.
The council says that the new law created is very carefully thought and discussed for over a month and then put into practice. This is only done to support the genuine businessmen and eliminate the fraudsters from the GST chain.