Changes in GST Rules on 22nd December 2020 - Impacts and Actions
The Govt. has made various changes on 22nd December 2020 which will be effective from 1st January 2020. In this article, an attempt is made to discuss these changes and their impact on the taxpayers along with actions taxpayers would need to take to comply with these changes.
The major changes are-
1. Increase in the time period to get GST registration
Change: At present as per rule the time allowed to the department to approve an application for GST registration is 3 days. This time for system-based registration has been increased to 7 days. That means, now department shall be required to review and grant registration within 7 days from the date of application.
Further, if the applicant has not done the Adhaar authentication or where the GST department deems it fit to carry out physical verification of the business premises then this time limit for grant of registration will be 30 days.
Impact: The Government seems to be planning thorough verification of the application for registration and documents submitted along with it. There may be more cases selected for physical verification of premises. Also the number of queries raised may increase.
Action: The documents filed with the application for registration should be checked properly before submitting. The applicant should also be prepared for physical verification by the GST officer. The application should also be filed much in advance to take care of the increased time frame for approval.
2. Cancellation of Registration
The GST Officer can take action of canceling registration where the ITC availed is availed in excess of what is allowed or permissible under the Act and the rules made therein.
Impact: Cases of availing excess ITC by mistake or intentionally is going to be dealt with very severely involving even cancellation of GST registration. Hope, the distinction is made by the department between the cases of genuine clerical mistakes and those with malafide intentions.
Action: The taxpayers will have to set their accounting and recording systems in order. There is no scope for errors and omissions. One has to be also aware of the very frequently changing rules affecting ITC. It will also have the impact of increasing the costs of litigation.
3. Cancellation of Registration for lower Liability in GSTR3B
Change: Where the liability on account of outward supply declared in GSTR 3B is less than that of what is declared in GSTR 1 in a month, the department may take action to cancellation of GSTIN of that taxpayer. understand that Taxable value and tax both should be in synchronization between GSTR 1 and GSTR 3B.
Further, no opportunity of being heard shall be given to a taxpayer for suspension of registration, where the GST officer has reasons to believe that the registration of the person is liable to be canceled.
Impact: Another very draconian provision affecting taxpayers adversely. There may be many reasons, owing to omissions or errors in previous months, for the value and tax liability on outward supply being lower than what is declared is GSTR1. Not giving an opportunity to the taxpayer to explain the reasons for the difference is against the principles of natural justice. It is based on the unrealistic assumption that the taxpayer is not "to err is human".
Action: This provision is applicable from 1st January 2021 which means for the GSTR3B of January 2021. The first action is that the taxpayer should immediately identify all the errors or omissions that happened from April to December 2020 and rectify the same in December returns. And then the taxpayer has to identify the process gaps and fix them so that errors do not take place or are detected before filing returns. It is also advisable to take necessary professional help and abstain from taking risks.
4. Suspension of Registration
Change: Rule 21A has been inserted which prescribes that Where, a comparison of the returns furnished by a registered person under section 39 with (a) the details of outward supplies furnished in FORM GSTR-1; or (b) the details of inward supplies derived based on the details of outward supplies furnished by his suppliers in their FORM GSTR-1, or such other analysis, as may be carried out on the recommendations of the Council, show that there are significant differences or anomalies indicating contravention of the provisions of the Act or the rules made thereunder, leading to cancellation of registration of the said person, his registration shall be suspended and the said person shall be intimated in FORM GST REG-31, electronically, on the common portal, or by sending a communication to his e-mail address provided at the time of registration or as amended from time to time, highlighting the said differences and anomalies and asking him to explain, within a period of thirty days, as to why his registration shall not be cancelled.
Where there are significant deviation/anomalies between details of outward supply between GSTR 3B and GSTR1 or inward supplies (ITC) between GSTR 3B and GSTR 2B which indicate contravention of Act, the department shall now serve a notice in FORM GST REG 31 to call explanation as to why GSTIN should not be canceled. The taxpayer shall be required to submit his reply within 30 days of such notice being served to him.
Further, no refund u/s 54 of CGST Act 2017 can be availed by the taxpayer where his registration has been suspended.
Impact: The impact of this change is that there has to complete matching and reconciliation of GSTR1, GSTR2B, and GSTR3B figures every month before filing the returns.
Action: The taxpayers have to ensure that the necessary resources are deployed and attention given to these things. One can not continue in the same manner. The costs and damage (suspension/cancellation of registration which will disrupt normal business working) of these provisions is very high for the taxpayers. They have to use technology as much as they find suitable and processes have to improve.
5. Reduction in availability of ITC
Change: The ITC entitlement has been reduced to 105% of the invoices appearing in GSTR2B from 110% at present under rule 36(4).
Impact: Another blow in difficult times. This will affect your funds flow adversely. One has to arrange for cash payment to this extent.
Action: The only solution is to increase the availability of ITC by pressurizing and motivating suppliers to declare all invoices and file GSTR1 on time. Here another change made in the rule will help which is that where a taxpayer fails to file GSTR 3B for two subsequent months, then he will not be allowed to file his GSTR 1. For quarterly return filers, the failure to file GSTR 3B for the last quarter will not permit him to file GSTR1 for the current quarter. These measures will help in more invoices in GSTR2B thereby increasing the availability of ITC for the taxpayer.
6. Restriction to use 100% ITC for tax payment
Change: An unique new Rule 86B has been inserted wherein restriction has been put on the utilization of 100% ITC for payment of tax liability in a month. Maximum utilization of ITC to pay tax liability can be 99% only, the remaining 1% has to be paid from cash ledger. However, this provision will apply only if the value of taxable supplies other than exempt supply and zero rated supply exceeds Rs. 50 lakhs in a month. Further, this rule will not be applicable-
a. Where the taxpayer paid Income Tax exceeding Rs. 1 lakh in two preceding financial years.
b. Where the taxpayer has received GST refund exceeding Rs. 1 lakh or more.
c. Where the taxpayer has used cash ledger to discharge his output tax cumulatively 1% of the total liability up to that month.
d. Where a person is a Government Department, Public Sector Undertaking (PSU), local authority, or a statutory body.
Impact: The above change appears to be intended to check fake invoicing and ITC.
For normal taxpayers, it will only lead to complexity unless the tax involved is substantially higher.
Recently the Government is trying to bring in various measures to check and prevent fake invoicing and availing fake ITC which is a welcome step. However, in the process of all these changes, things are becoming very complex and difficult for genuine taxpayers who could be more than 99%. Given the changes, the taxpayers should pay due attention and take suitable measures to minimize the impacts.
Disclaimer: The views expressed are personal of the writer.
Note: The author is a GST consultant and member of the Institute of Chartered Accountants of India.