The outbreak of Coronavirus has caused a significant impact on day to day living of the common man, government coffers, and business operations. Though lockdown remains the only way to slow the spread, it will also continue to push economic operations to the brink.

We have outlined the GST impact due to the Coronavirus pandemic so that the taxpayers can make informed decisions and be aware of the compliance requirements.

We are also working on a comprehensive Q&A which will enable our fellow tax practitioners and taxpayers to make informed decisions. If you have any specific queries which require our inputs you can add those queries to our LinkedIn post or mail to us at pavan@vjllp.in or adyantha@vjllp.in

Please do download the PDF document to read the impact due to pandemic.

COVID-19 GST Impact

Overview

The outbreak of Coronavirus has caused a significant impact on day to day living of the common man, government coffers and business operations. Though lockdown remains the only way to slow the spread, it will also continue to push economic operations to the brink.

The coronavirus will have a significant impact on various provisions under GST law such as GST return compliance, eligibility of input tax credit, the charge of
tax on outward supplies, e-way bill and goods sent for Job work.

In this article, we have outlined the GST impact due to the Coronavirus pandemic so that the taxpayers can make informed decisions and be aware of the compliance requirements

COVID - 19 in Numbers As of April 24, 2020

Impact on Outward Supplies

1. Interest / penalty charged for delayed payment by customers.

In case the invoice or the agreement stipulates that the overdue fine shall be applicable for delay in payment by the customer, GST shall be applicable on such overdue fine.

GST to be remitted at the time of receipt of such fine/interest/penalty as per provisions of section 15 of CGST Act, 2017.

2. Post-sale Discounts provided to customers

In the wake of coronavirus outbreak, post-sale discount may be provided to customer due to various reasons such as non-availability of funds, decrease in the market value of goods, etc. such discounts shall not be allowed as a deduction under GST law, unless:

(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and

(ii) input tax credit as is attributable to the discount based on a document issued by the supplier has been reversed by the recipient of the supply

3. Subsidy provided by Government

GST shall not be applicable to any subsidy provided by the Government. In case the subsidy is provided by any other association or industrial body GST may be applicable on the same.

4. Non – Export of Goods

In case of Export under Bond or Letter of Undertaking (LUT), the exporter is liable to pay tax along with interest if goods are not exported outside India within 3 months of issuing the export invoice .

The delay may be caused due to various restrictions by customs, nonavailability of logistics and non-acceptance of goods by customers.

Note: Refund can be claimed post export of goods.

5. Goods or Services provided free of cost to the Customer

As per Circular No. 92/11/2019-GST dated 7th March 2019. The goods or services or both which are supplied free of cost (without any consideration) shall not be treated as “supply” under GST. However, Input Tax Credit availed on such goods and services need to be reversed.

GST shall be applicable if there is consideration involved. (Except supplies falling within the ambit of Schedule I of CGST Act, 2017)

6. Support services provided by Group Companies

Any support services provided by group Companies/ head office to branch offices by way of setting up of IT infrastructure and capabilities to work from home to employees shall have GST impact.

In certain cases, the said services may be provided by the group companies free of cost. In such cases, the activities shall fall under Schedule I of CGST Act, 2017 and may still be continue to be taxable.

Impact on Inward Supplies

1. Restriction on input tax credit in case of delayed payment to supplier

In case of non-payment to the supplier within a period of 180 days from the date of invoice, the input tax credit availed on such supplies need to be reversed along with interest.

2. Denial of credit on slow moving and non-moving stock disposed

The input tax credit is allowed only in case in the inputs are used in business. In case there is disposal/ write off of stock due to lockdown. The same might require reversal of input tax credit.

3. Transfer of business assets

If there is any transfer or disposal of business assets due to redundancy and other factors, the GST impact on such disposal to be carefully analyzed.

4. Input tax credit on employee related expenses

The overall impact and admissibility of input tax credit on employee related expenses needs to be carefully examined. Some of the points which require consideration are given below:

  • Eligibility of input tax credit on medical insurance taken for employees
  • Eligibility of input tax credit on reimbursement of expenses related to internet, telephone facility
  • Eligibility of input tax credit on expense incurred on providing food and shelter to migrant workers stuck at factory

5. Non-denial of credit due to non-uploading of invoice by Supplier

Considering the extension of GST due dates and cash flow issues across industries, the Government has relaxed the provision of restricting the credit for non-uploading of details by Supplier in GSTR-1 for the period February – August ‘2020

Few key points to be considered

1. Failure to raise invoice to customer within a period of 30 days from the date of provision of service due to complete lockdown of premises

2. GST Impact on non-receipt of consideration for exports of services within a period of 1 year

3. E-way bill cannot be raised twice for the same document, a situation where an e-way bill is raised and the validity has lapsed but goods not handed over to customers need to be analyzed

4. The eligibility of input tax credit on various expenses incurred during the Covid-19 crisis such as purchase of temperature reader, sanitizers etc. needs to be analyzed carefully

5. Denial of refund of input tax credit due to non-receipt of consideration

6. Non- receipt of Inputs and Capital Goods within the stipulated timeline from the job worker (1 year and 3 years respectively)

7. Impact on eligibility of Input Tax Credit on expired stock / goods of perishable nature

8. Any recovery of damages due to non- fulfillment of obligations by customers/ suppliers and employees to be examined for GST implications

9. Impact due to enforcing of ‘Force Majeure’ clause either by the taxpayer or to the taxpayer

WAY FORWARD

Verify agreements with various stake holders to analyse GST impact

Representation before council & various forums on practical issues faced due to the pandemic

Take stock of pending tax compliance and draw up the plan to ensure that it is adhered to within due date

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions of the Act and as per the information existing at the time of the preparation by way notification, circular, order etc. Although utmost care has been taken to ensure the accuracy, completeness and reliability of the information provided, We assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. We assume no responsibility for the consequences of use of such information.

(Author can be reached at pavan@vjllp.in & adyantha@vjllp.in)

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