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Tax authorities to levy interest on cash, ITC component of GST paid after due date

Tax authorities to levy interest on cash, ITC component of GST paid after due date

Officials to conduct due verification of all cases of late filing of returns
Tax authorities have made it clear that interest will be levied on both cash and input tax credit (ITC) component of GST paid after the prescribed due date.

Although the standing order has been issued by the Principal Commissioner of Hyderabad GST Commissionerate, experts say the same will be applicable for all the regions as it draws an inference from C-GST (Central Goods & Services Tax)/S-GST (State Goods & Services Tax) Act. The order also made it clear that recovery of such interest will be recoverable arrears.

It has also asked the officials to conduct due verification of all the cases of late filing of returns (which obviously involve payment of self-assessed tax after the prescribed due date) and ensure that the interest liability is paid not only on the cash component but also on the credit component.

The order also says that in case the interest was not discharged by any taxpayer, the concerned officer(s) should initiate prompt action for recovery of the same. It also states that a register will be maintained, in the divisions, in order to keep track of the cases and will be updated on a regular basis with proper abstract; and the unpaid interest amount shall be pursued for recovery by treating the same as recoverable arrears.

The order has recorded some irregularities like interest liability not being discharged by some taxpayers. It is possible that some taxpayers are discharging such interest liability, either at the instance of the officers of the department or on their own as convenient to them while filing subsequent returns. It is also possible that some taxpayers are paying such interest only on the cash component of the tax, but not on the ITC component.

On priority
“These irregularities are against the provisions of the GST law and need to be addressed on priority. In fact, the delay in payment of interest is a clear case of financial accommodation; and is absolutely against the interest of the revenue,” the order read while calling for prompt action to recover interest.

The law says, “Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made there under, but fails to pay the tax or any part thereof to the government within the period prescribed, shall, for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the government on the recommendations of the Council.” The provision is the base of this order.

Augmenting revenue
Commenting on the order, Anita Rastogi, Indirect Tax Partner at PwC, said in order to ensure revenue augmentation, the government is focusing on available data to figure out areas where the taxpayers have short paid. “Interesting they have noticed evasion of interest and that will be an area of further investigation,” she said.

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Source: The Hindu Business Line.
Tax officials may examine high usage of ITC to set off GST liability

Tax officials may examine high usage of ITC to set off GST liability

Concerned over a decline in GST revenues, tax officials are likely to examine the high usage of an input tax credit set off tax liability by businesses, sources said.

The issue of high ITC was flagged at the meeting of the Group of Ministers (GoM) which was set up by the GST Council to look into the reasons for revenue shortfall being faced by a large number of states.

According to sources, availing ITC ideally should not result in loss of revenue but there could be a possibility of misuse of the provision by unscrupulous businesses by generating fake invoices just to claim a tax credit.

During the meeting of the GoM, it was pointed out that as much as 80 percent of the total GST liability is being settled by ITC and only 20 percent is deposited as cash.

GST revenue has averaged around Rs 96,000 crore per month so far this fiscal and this reflects the cash component being deposited by businesses.

Under the present dispensation, there is no provision for real-time matching of ITC claims with the taxes already paid by suppliers of inputs.

The matching is done on the basis of system generated GSTR-2A after the credit has been claimed. Based on the mismatch highlighted by GSTR-2A and ITC claims, the revenue department sends notices to businesses.

“Currently there is a time gap between ITC claim and matching them with the taxes paid by suppliers. Hence there is a possibility of ITC being claimed on the basis of fake invoices,” a source said.

Once the new return filing system becomes operational, it would become possible for the department to match the ITC claims and taxes paid on a real-time basis.

The revenue department would now analyze the large number of ITC claims to find out if they are genuine or based on fake invoices and take corrective action, sources said.

GST collection stood at Rs 1.03 lakh crore in April, Rs 94,016 crore in May, Rs 95,610 crore in June, Rs 96,483 crore in July, Rs 93,960 crore in August, Rs 94,442 crore in September, Rs 1,00,710 crore in October, Rs 97,637 crore in November and Rs 94,726 crore in December 2018.

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Source: Economic Times.
GST returns non-filers grow faster than tax base

GST returns non-filers grow faster than tax base

The number of tax filers failing to file their returns has been increasing in the 17 months of GST implementation until November 2018, according to an answer submitted by the Finance Ministry in the Lok Sabha.


While the number of people required to file monthly returns has grown 32% from July 2017 to about 98.5 lakh in November 2018, the number of people not filing these returns has grown 167% during that time, the latest Goods and Services Tax filing data showed.

The data also shows that this is not just the case for monthly filers, but also for those under the composition scheme, which allows for quarterly return filing.

While the number of people required to file quarterly returns increased about 55% from July 2017 to 17.74 lakh in November 2018, the number of people who have not filed returns increased about 162% during this period.

In other words, the number of people failing to file returns has grown faster than the tax base itself for both regular and composition filers.

Tax analysts say the reasons are varied, including some taxpayers having too low a turnover, and others getting registered onto GST only due to the insistence of their large clients, and yet others simply daunted by the filing process.

“While the increase in the proportion of non-filers is a matter of concern, it must be borne in mind that several GST registrants may be having nil or low turnover and some others may have taken registration on their customers’ insistence,” M.S. Mani, a partner at Deloitte India, said. “Some of the initial challenges faced by smaller business on the GST portal may also have deterred some of them from attempting to file online returns.”

However, other tax analysts point towards a more serious situation where small businesses are systematically and fraudulently evading tax in the hope that they are too small for the taxman to notice.

“What happens is that a lot of small vendors get onto the system because their large clients force them because the client can avail of input tax credits only if their supplies are from a GST-registered vendor,” a tax analyst with a large consultancy told The Hindu on the condition of anonymity.

“However, these small vendors try to fly below the tax radar. They charge the GST rate on their supplies, but then keep this as their own profit margin instead of paying tax to the government.”

These vendors base these activities on the fact that the taxman will take 2-3 years to notice this activity since invoice matching is still not activated on the GST portal, the analyst added.

“By the time they are noticed, the vendor has already changed their name and GST number and is carrying on their business,” the analyst said.

‘Government loses’

“They have been doing this for 15 years under VAT and are simply transferring that practice to GST. The government loses because it has to pay ITC to the big corporate and doesn’t even get its tax revenue from the small vendors.”

Another analyst explained that, in reality, there are a relatively small number of taxpayers that fall below the ₹20 lakh threshold for filing returns.

“A ₹20 lakh income per year works out to about ₹5,500 a day,” the analyst explained. “Even your corner grocery store or Kirana store would do more business than this in a day. They just don’t file their returns because they are scared to draw the attention of the taxman.”

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Source: The Hindu
Not just lower taxes, evasion too a factor in the GST shortfall

Not just lower taxes, evasion too a factor in the GST shortfall

It’s fairly clear by now that goods and services tax (GST) collections are falling way short of the government’s initial expectations. The monthly run rate of collections until November was less than ₹90,000 crore, far lower than the monthly average of ₹1.05 trillion required to meet the annual target.

Graphic: Paras Jain/Mint

One reason, of course, is the downward revision of tax rates on various products. But another, and more worrying cause is widespread tax evasion despite measures such as e-way bills.

Shiv Pratap Shukla, minister of state for finance, provided data in Parliament on Friday that showed the percentage of eligible taxpayers who are not filing returns has risen sharply. A year ago, 84.4 million hadn’t filed returns; this has risen to a whopping 283.1 million.

“Our understanding is that people are still gaming the system and this has to do with input credit,” said an expert in indirect taxation, who did not want to be named.

“Basically these companies are claiming input credit by showing estimates of their sales in the GSTR-1 form, as you just have to give details of your sales in this form and not show the actual invoices based on which the input credit is being availed. Later, they avoid paying GST, as payment of taxes happens when you file the GSTR-3B form. So, in many cases, registrations are made, and initial GST payments are missed. By the time the tax authorities figure it out, many of them have deregistered or shut shop,” he added.

The data presented by Shukla showed that until December, 499 cases of fake invoices, which were used for claiming input tax credit worth ₹3,895 crore, were detected. In contrast, in the July 2017-March 2018 period, only four such cases had been detected, cumulatively worth ₹9.75 crore.

“Many companies, which have not been paying income tax, continue to remain outside the GST net as well. They have simply decided to not get registered,” said another tax expert requesting anonymity. “Frankly, the government doesn’t have the bandwidth to detect all such cases, ” added the tax expert.

The dice seems loaded against the government, which also may not want to be seen as being too tough on small businesses ahead of the general elections.

Leakages are especially high in industries where the market share of unorganized companies is high.

Analysts at JM Financial Institutional Equities recently visited Haryana’s Yamunanagar, a region where 550-600 plywood manufacturing units are located. According to their interactions, while invoicing levels have increased, e-way bill implementation is still not strict at most places and companies are able to get away with under-invoicing, it said in a report on 12 December.

“Reconciliation of GSTR-1 and e-way bills generated by taxpayers need to be implemented at the earliest for e-way bills to be a more effective anti-evasion measure,” says Abhishek Jain, tax partner, EY.

After the implementation of e-way bills in April 2018, revenues were expected to rise. It was expected that lower effective taxes, along with increased compliance, would accelerate formalization, and organized businesses would gain share and tax collections would surge. But it seems the mechanism has failed to yield the desired results so far.

“The government is committed to increase the percentage of compliance by taxpayers under GST,” Shukla told Parliament. “In this regard, an extensive outreach programme has been carried out across the country to create awareness among traders, industry bodies and other stakeholders. Further, effective enforcement measures are being undertaken to check cases of tax evasion and fake invoices.” It’s another matter that the numbers he provided don’t hint at any reduction in evasion.

In fact, the way things stand, shoring up GST revenue collections meaningfully could be a long row to hoe.

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Source: Live Mint


Another round of GST rate cuts? Council to meet on January 10

Another round of GST rate cuts? Council to meet on January 10

The GST Council, set to meet on January 10, will decide on bringing under-construction residential properties to 5 percent slab, raising the threshold limit for MSMEs and bringing small service suppliers under the composition scheme.

There are heightened expectations that the Council could decide another round of rate cuts including on products like cement with the industry arguing that the product is a critical construction material and needs to be taxed at a lower 18 percent from the current 28 percent.

“The GST (Goods and Services Tax) Council will meet on January 10 in New Delhi,” said a government official.

In the last meeting on December 22, Jaitley had said that based on the report of the fitment and law committee, Council will decide on GST rate of residential properties, which is currently taxed at 12 percent, with a provision for claiming an input tax credit (ITC).

Currently, homebuyers of real estate properties do not have to pay GST if they purchase a ready-to-move-in property after the issue of completion certificate as it considered as ‘transfer of property’ and comes under state’s jurisdiction of stamp duty.

This generally makes the under-construction property costlier for the buyers.

Jaitley had also said in the next meeting in January, the Council will look at the report submitted by the group of ministers (GoM) headed by MoS Shiv Pratap Shukla on micro, small and medium enterprises (MSMEs).

“One of the proposals is on (increasing) the threshold limit of Rs 20 lakh (annual turnover). Should it be status quo or do we need to alter it,” he said.

Currently, businesses below annual turnover of Rs 20 lakh are exempted from paying GST. The proposal is to increase to increase this threshold for MSMEs.

The Council will also bring small service suppliers under the composition scheme—an alternate method of taxation that allows small businesses with annual turnover up to Rs 1 crore to pay tax at a concessional rate as well as reduce the compliance cost.

An eligible dealer, mainly traders, manufacturers, and restaurants, can pay tax at a prescribed percentage of the business’ turnover every quarter, instead of paying tax at normal rate. However, they are not allowed to claim ITC.

“A composition scheme will be framed for small service suppliers. Threshold and composition charge will be decided by law and fitment committee,” Jaitley had said.

Besides, the GoM on ‘Modalities for Revenue Mobilisation in case of Natural Calamities and Disasters’ headed by Bihar Deputy Chief Minister Sushil Modi, will present its report to the Council next week.

The GoM was set up in line with what the Kerala government had asked after the devastating floods swept through the southern state in August, leading to severe loss of life and property. The panel is expected to devise a mechanism to raise additional funds to help states if they are affected by natural calamities.

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Source: Money Control
GST Annual Return And Audit: Complexities Galore

GST Annual Return And Audit: Complexities Galore

In less than 30 days from now, over 1.15 crore taxpayers will have to file the Goods and Services annual return and audit forms. Made available by the government in September this year, the forms require businesses to not only consolidate information that they have been filing in monthly returns but also reconcile it. Both the forms are fraught with complexities and given that many companies have only now engaged auditors, it would be near impossible to meet the Dec. 31 deadline, experts told BloombergQuint.

GST Annual Return: Surprises

The annual return Form 9 is essentially consolidation of information that taxpayers have been filing via summary return Form 3B and outward supplies Form GSTR 1. It requires consolidation of outward and inward supplies, input tax credit, tax paid, GST demands and refunds.

There are two key areas of concerns in Form 9: requirement of HSN Code for input side and bifurcation of input tax credit or ITC.

The HSN Code Problem:

HSN codes are prescribed by the government to classify goods and services. So far, a buyer while filing Form 3B and GSTR 1 didn’t have to mention the HSN codes of the inputs—i.e. goods bought from a vendor. But the annual return form requires them to do this classification. This is new information altogether that needs to be given and companies’ ERP systems are not geared to give input classifications, Jigar Doshi, an indirect tax partner at SKP Business Consulting, pointed out.

Ritesh Kanodia, a partner at Dhruva Advisors questioned the need for this data.

“The liability for a taxpayer arises only on account of HSN of goods and services he sells and their rate of tax. The HSN of the vendor is not his liability. He merely takes credit for what he has paid for the inputs. He is not going to get into the debate of what is the HSN of the inputs, the rate of tax on them, etc.”

Ritesh Kanodia, Partner, Dhruva Advisors

So there is no need for him to get into the HSN for inputs and many companies won’t even have this data, he said.

ITC Bifurcation Problem: 

The annual return requires a three-way split of ITC availed into inputs, input services, and capital goods credits, Doshi said. But in the reporting so far, there was no concept of ITC bifurcation, Kanodia added. He explained the issue by way of an illustration—let’s say, we purchase some machinery. That is a fixed asset. So the credit has been taken as capital goods. If I purchase some inputs, credit has been taken as that and similarly for input services. What has been reported in Form 3B so far is the total figure.

“This data is not appearing anywhere else. Credit is available to me, I can consume that credit. Capital goods—I can understand—because there are certain rules around capital goods. But why do I need this bifurcation for input and input service?”

Ritesh Kanodia, Partner, Dhruva Advisors

That’s another layer of complication which has been added in the annual return form, he said.

GST Audit: Complexities

The complexities in the annual return form pale in comparison to what the audit process entails, both the experts pointed out.

Divided in two parts, the GST Audit Form 9C needs to be filed by a taxpayer who has an aggregate annual turnover exceeding Rs 2 crore. It requires companies to reconcile turnover declared in the financial statement and annual return, tax liability and tax paid, input tax credit availed and reported. Any liability arising out of non-reconciliation also needs to be specified.

This form is trying to dissect the entire financial statement—P&L and balance sheet— and compare the numbers on the outward-inward side and the tax-paid side with the annual return numbers which have been disclosed, Doshi said.

The objective is to assess whether you’ve paid GST on transactions recorded in the books of accounts and, if not, then the explanation for it needs to be provided, Kanodia said. “Similarly, on the credit side, whatever credits you have taken, there is an entry in the books of accounts. That needs to be reconciled with the annual return. So, reconciling rupee to rupee with the books of account is the objective of this exercise,” he added.

And the complexities are many:

Unclear Time Period: The filing threshold is based on gross turnover in a financial year, Kanodia said, but GST came in July. “You have lot of adjustments which happen in any financial accounting—for instance, unbilled revenue. Do I consider the beginning of the financial year or the beginning of July? There are lot of adjustments which need to be seen,” he added.

State-Wise Audit: Doshi explained that GST Identification Number is the basis for the audit. If a taxpayer has branches in five states and each has a separate GSTIN, then five audits need to be done. This would require GSTIN-level bifurcation of audited financial statements which most companies do not maintain, he said.

Reconciliation Issues: GSTR 1, which is filed at the state level, will need to be reconciled with the income and sales ledger at the company P&L level which is not available state-wise and it’s likely that the consolidated figure of different states’ GSTR 1 may not match with the annual P&L, Kanodia explained. This could be due to accrual entries, IND-AS, out-of-scope GST supplies, etc, he added.

“This may entail a line-item level analysis to find out unreconciled line items and ascertain reasons of such mismatch, which is time consuming. Availability of data in the right format is critical to carry out such reconciliations.”

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Source: Bloomberg Quint
Companies rush to match input tax credit with vendor returns

Companies rush to match input tax credit with vendor returns

Indian companies are scrambling to retain hundreds of crores of input tax credit for last financial year under the Goods and Services Tax (GST) regime that it could lose if it fails to substantiate the claim with vendor returns.

The deadline to file this claim is October 20, while vendors can file their sales return till October 31. This has created a situation where vendor returns are not available for reconciliation.

Industry associations have represented to the government seeking an extension of the deadline.


“In the event the tax authorities insist on disallowing input tax credit based on a cut-off date referenced to filing of GSTR-3B, taxpayers will be denied the opportunity of availing input tax credit to which they are rightly entitled to as per the provisions of the Act,” industry body Assocham said in its representation to the finance ministry.

Other industry bodies such as CII have also petitioned the government on the issue.

The GST, which was rolled out in July 2017, replacing multiple state and central taxes, introduced a concept of matching for claiming input tax credit.

A buyer had to reconcile input tax credit claimed with tax paid by the supplier in returns filed on the GSTN portal to claim credit.

However, due to IT-related glitches, online matching was put on hold and taxpayers were allowed to claim a provisional credit on the basis of self-declaration in monthly summary return or GSTR-3B.

Most businesses did not carry out reconciliation of input tax credit provisionally claimed.

There are many instances of a supplier not filing the return for months but the buyer claiming input credit for tax paid to them.

The GST law, however, clearly spells out that the buyer is not entitled to claim input tax credit if the supplier does not pay tax to the government.

The law also provides that any adjustment on account of input tax credit pertaining to invoices of the financial year 2017-18 cannot be claimed, whether additional or reversal, beyond the filing of GST, return for the month of September 2018, for which due date is October 20, 2018.

With barely days to go, businesses are rushing to match credit claimed with vendor returns. Buyers will need to communicate any mismatch to his supplier, who will then need to undertake corrective action in their upcoming GST returns that is the GSTR-1. The government, last month, extended the due date of filing GSTR-1 to October 31.

So, while a vendor can file corrected GSTR-1by October 31, the buyer needs to make an adjustment in his input tax credits by October 20. This, therefore, requires completion of reconciliation exercise on assumption that vendor would correctly report the transaction or amend the previous return transactions on or before October 31.

Experts say there could be significant error in vendor returns. “Matching is to be done on an all-India basis and not state-wise. There are numerous cases where vendors have reported the invoices in a wrong state and if a state-level matching is done, there are numerous mismatches, leading to credit loss,” said Rajeev Dimri, partner, Deloitte Touche Tohmatsu India LLP.

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Sources: The Economic Times