The government`s decision on mandatory payment of at least 1 per cent of GST tax liability in cash will impact only around 40,000 to 45,000 taxpayers but help the entire system curb the menace of fake ITC availment and operation of fly-by-night operators, sources in the finance ministry said on Saturday.
Based on the recommendations of the GST Law Committee, the government has notified new indirect tax rules that makes cash payment of 1 per cent of GST tax liability mandatory for businesses whose taxable supply value exceeds Rs 50 lakh. This change will come into effect from January 1, 2021.
Sources in department of revenue said data indicated out of the total GST tax base of 1.2 crore taxpayers only around 4 lakh taxpayers have supply value greater than Rs 50 lakh, and only around 1.5 lakh out of these 4 lakh taxpayers pay less than 1 per cent tax in cash. So, the changes would include only a small section of taxpayers.
Moreover, the DoR sources said with exclusions around 1.05 lakh taxpayers get further excluded from these 4 lakh. Thus, the rule would apply only to about 40,000 to 45,000 taxpayers. This would be around 0.37 per cent of the total GST tax base of 1.2 crore taxpayers.
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“The data clearly indicates that a small fraction of taxpayers would need to pay 1 per cent of GST liability in cash. Moreover, the rule is clearly for businesses whose taxable value of supply exceeds Rs 50 lakh, so the measure would not affect small businesses or increase their working capital requirement,” sources said.
Under the new rule cash payment of 1 per cent is to be calculated on the tax liability in a month and not turnover of the month. For example, if the turnover of taxable supplies of a taxpayer is Rs 100 in a month and he is required to pay GST of 12 per cent on his output taxable supplies, then he will be required to pay 1 per cent of Rs 12, i.e., Rs 0.12 (12 paisa) only in the month through cash under this rule.
Therefore, the net requirement of cash payment will be only 0.12 per cent of the turnover in such a case, finmin sources said citing another example, if a dealer has made sale of Rs 1 crore of the goods whose tax rate is 12 per cent and if he is discharging his tax liability more than 99 per cent through input tax credit (ITC) then he has to pay only Rs 12,000 under this rule.
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 ITC, said the sources.
The government had notified the cash rule to curb fake ITC availment and passing on of such credit by unscrupulous persons who generally pay no tax in cash, particularly in those risky cases where GST turnover does not match with the income tax returns. Such registered person will not be able to use the amount of ITC available in electronic credit ledger to discharge his liability towards output tax in excess of 99 per cent of such tax liability. At least 1 per cent liability would need to be discharged in cash.