New Delhi: Only a small fraction of the industry—about 40,000-45,000 taxpayers—will get covered by the new rule that prevents businesses from fully meeting their tax liability using tax credits, a finance ministry official said.
The new rule requires businesses with more than ₹50 lakh sales a month to pay 1% of their tax outgo in cash. It limits the use of credit from taxes paid on raw materials and services to meeting 99% of the tax outgo. This provision is effective from 1 January. The move was aimed to check the practice of frauds involving fake invoices. Fraudsters chose products depending on the tax rates in such a way that they could trade fake invoices without any cash payment of tax involved, using bogus credits.
Out of the total goods and services tax (GST) base of 12 million taxpayers, only around 400,000 taxpayers have sales above ₹50 lakh and only around 150,000 of these pay less than 1% tax in cash, said the official who spoke on condition of anonymity.
When the exclusions to the rule are applied, the 1% tax payment in cash will apply only to about 40,000-45,000 taxpayers.
“This would be around 0.37% of the total GST tax base of 12 million taxpayers,” the official explained.
The clarification comes after a leading traders’ body on Friday urged finance minister Nirmala Sitharaman to defer the anti-evasion measure’s implementation to a later date.
In a letter to the finance minister, the Confederation of All India Traders (CAIT) said this requirement was “a counter-productive step which will load traders further with the burden of compliance and much financial obligation”. CAIT also said traders were not happy with certain rules enforced without consulting them, and for ignoring the implications.
The finance ministry official quoted above said that the cash payment of 1% is to be calculated on the tax liability in a month and not turnover of the month.
Thus, on sales of ₹100 in a month and GST of 12% payable on it, only 12 paisa needs to be paid in cash under this rule. The net requirement of cash payment will be only 0.12% of the turnover in such a case. If a dealer has made sale of ₹1 crore of goods taxed at 12% and if he is discharging his tax liability more than 99% through input tax credits, then he has to pay only ₹12,000 under this rule, the official said.
“The rule clearly identifies where the risk to revenue is high and imposes very reasonable cost to deter the fraudsters in a multi-layered fraud of input tax credits,” said the official.
Go to the news source: Only 45,000 taxpayers affected by 1% cash payment rule, says govt official
