GST – Budget 2022 Updates

Article explains changes vide Union Budget 2022 related to Changes in Input Tax Credit, Additional Condition of taking Input Tax Credit, Auto generated statement – Input tax, Extension of Due date for availing ITC, Availment of input tax credit, Restriction on credit usage, Cancellation of GST Registration, Extension of last date for issuance of credit note, Changes pertaining to GSTR-1, Removal of matching concept, Changes in filing of returns – GSTR 3B, Inter-unit transfer of balance in e-cash ledger, Change in Interest rate,  Changes in GST Refund  Provisions and Retrospective exemption under GST. Summary of such changes has be analyzed as under:

Changes in Input Tax Credit

Additional Condition of taking Input Tax Credit

Section 16 of the CGST Act provides condition for availing credit. This section is proposed to be amended to include an additional condition for availing the credit. The condition is that, input tax credit should not have been restricted for the vendor under the new proposed Section 38. The credit would be restricted to the recipient if :

• The supplier’s returns are filed within such period of taking registration as may be prescribed,
• The supplier has defaulted in payment of tax, which has continued for a period as prescribed,
• The tax declared by the supplier in his GSTR-1 is more than that declared in GSTR-3B, as per the limit prescribed
• The supplier avails excess tax than prescribed,
• The supplier has defaulted in discharging his tax liability by availing excess of what is permitted to avail in e-credit ledger
• Class of persons as may be prescribed.

Impact on Business:

• Default of the vendor would cost the tax-payer’s business,
• More time spent in vendor communication etc.
• Will have any impact in working capital and cash flow if the tax paid to vendor is reported and restricted credit.

Comment:

Now this requires the recipient availing the credit to be more diligent in vendor empanelment and availing the credit. The proposal of auto-generated statement would provide details of the credit which the recipient would not be eligible for taking. This will ensure proper monitoring of the vendor.

Representation required:

• Vendor tax compliance should not be the obligation of the taxpayer, but that of the Revenue department. Compliance burden has been enhanced on the taxpayer, which needs a strong representation of protest.
• To start the taxpayer rating.

Action Required:

1. Vendor screening and grading based on the past compliance
2. Revise the PO/WO/Agreement to provide a clause for safeguarding the credit and recover if reported as ineligible
3. Revised payment terms with the vendors
4. Stock management of items which require emergency purchase
5. Vendor grooming and training for proper compliance.

(Refer Clause 99 and 103 of the Finance Bill 2022)

Auto generated statement – Input tax

GST law had provided for filing of the inward supplies return in GSTR-2 (which is inoperative). Now, a new auto generated statement system is proposed to be substituted for the same. The said statement will be provided to the recipient as per GSTR-1 filed by the service provider, which would contain:

• Details of inward supplies in respect of which credit of input tax may be available to the recipient; and
• Details of supplies in respect of which such credit cannot be availed (either in full or part) because of
  • Filing of return within such period of taking registration as may be prescribed
  • Default in payment of tax and continued for a period as prescribed
  • If tax declared in GSTR-1 is more than that in GSTR-3B, as per the limit prescribed
  • If excess tax has been availed than prescribed
  • Default in discharging his tax liability by availing excess of what is permitted to avail in e-credit ledger
  • Class of persons as may be prescribed.

Impact on Business:

• Non-compliance and deviation gets reported as credit that cannot be availed to customer/client leading to loss of reputation and business
• Leaving no scope for deferment of tax payment
• Impact on cash flows and working capital considering the restriction of usage of e-credit ledger

Comment:

The change is proposed to provide a two-way communication; however, it appears the communication is more to the recipient considering the input of the vendor also. One of the major challenges for the industry was, they were not able to check if the vendor has made the payment with genuine credit etc. This report gives a fair idea on the vendors non-compliance. At the same time penalising the taxpayer for non-compliance of the vendor is not justified.

Representation required:

As long as the amount has been paid to the vendor and all other conditions are satisfied, the credit should not be denied to taxpayer. Only when they are not able to recover from vendor and trace the vendor, the credit should be denied. This was also recommended by the GST Council, representation has to be made to implement the same.

Action Required:

1. Vendor screening and grading based on the past compliance
2. Revise the PO/WO/Agreement to provide a clause for safeguarding the credit and recover if reported as ineligible
3. Revised payment terms with the vendor
4. Stock management of items which requires emergency purchase
5. Vendor grooming and training for proper compliance
6. Effective vendor communication based on such auto generated statement to be implemented.

(Refer Clause 103 of the Finance Bill 2022)

Extension of Due date for availing ITC

The provision of GST Act provides for availing of credit subject to the various conditions. However, the credit can be availed maximum within the due date of furnishing the return for the month of September of the next financial year. Now this has been extended to 30th November of the next financial year.  Example as under:

Tax Period	Original Due Date	Proposed Due date
April 2022- March 2023	20th October 2023 or filing of annual return, whichever is earlier	30th of November 2023 or filing of annual return, whichever is earlier

Impact on Business:

Additional time of around 40days has been provided, which gives more time to perform the reconciliation and identify the missed credit and follow-up with the vendors for compliance so that the credit can be taken.

Comment:

Presently the last date for taking the credit is linked to the due date of filing the return for September, which could be dynamic, but the proposal makes it stable and helps the business to plan accordingly.

Representation required:

Since most of the reconciliation would be made at the time of filing the annual return, representation may be made to extend the last date for claiming the credit to the due date of fling the annual return.

Action Required:

• Having a periodical reconciliation system by way of third-party validation
• Adopting technology and tools for effective communication and reconciliation

(Refer Clause 99 of the Finance Bill 2022)

Availment of input tax credit

It is proposed that the taxpayer can take the credit on self-assessment which would be credited to e-credit ledger. In case the tax has not been paid by the supplier, the same has to be reversed by the recipient along with interest. In case of payment of tax by the vendor, subsequently credit may be re availed.

Impact on Business:

This requires monitoring the payment of tax by the vendor, adding to the burden of tax compliance.

Comment:

This provision earlier was based on the provisional availment of credit. Since there is proposal of removal of matching concept, the credit is now proposed to be taken on self-assessment.

Representation required:

Vendor tax compliance should not be the obligation of the taxpayer, but that of the Revenue department. Compliance burden has been enhanced on the taxpayer, which needs a strong representation of protest.

Action Required:

1. Vendor screening and grading based on past compliance
2. Revise the PO/WO/Agreement to provide a clause for safeguarding the credit and recover if reported as ineligible
3. Revised payment terms with the vendor
4. Stock management of items which requires emergency purchase
5. Vendor grooming and training for proper compliance

(Refer Clause105 of the Finance Bill 2022)

Restriction on credit usage

GST liability can be paid by debiting the e-credit ledger. There is a proposal to provide powers to prescribe restriction on such usage.

Impact on Business:

Restriction on the usage of credit would have impact on the cash flows of the taxpayer.

Comment:

Rule 86B of the CGST Rules was inserted from 1st of January 2021 restricting the credit to 99% in case the value of supplies in a month exceeds Rs. 50 lakhs. This rule, although in force, appears there was no power provided to make such rule effective. Hence this amendment has been proposed.

Action points:

• The rule also provides certain exception, which can be examined to be fulfilled
• Cash flows to be planned accordingly

(Refer Clause 109 of the Finance Bill 2022)

Cancellation of Registration

Composition Dealer

GST Law provides for cancelation of registration certificate for non-furnishing of the returns among other scenarios. The cancellation could be done in case the returns for 3 consecutive tax periods was not filed. The proposal now states that cancellation can be done when returns are not filed within 3 months from the due date of furnishing the return. Example as under

Tax Period	Due date of Return	Earliest Cancellation under present law	Earliest Cancellation under proposed law
April 2022 – June 2022	18th July 2022	19th Jan 2023	19th Oct 2022

Impact on Business:

Cancelation of registration will have a challenge in procuring the goods for want of e-way bill etc.

Comment:

The time available to refrain from cancellation of registration is only 3 months as against 9 months earlier, so one has to be more compliance oriented and cannot be negligent.

Representation required:

The composition dealers are generally small and micro enterprises and may not have full-time accountant. Hence there would be an issue in compliance. Considering the nature of such entities, the revenue collection and encouraging such sector, a representation may be made seeking quarterly payment and annual filing.

Action Required:

• Having a system of recoding the purchases as required for filing of the returns as and when procured
• Have a monthly sale statement made and compute the tax payable.
• Ensure retune is filed within due date with the aid of professional or self-development.

(Refer Clause 100 of the Finance Bill 2022)

Regular taxpayer

Like composition taxpayer the GST law provided for cancellation of registration in case the regular taxpayer failed to file returns for 6 continuous tax periods. However, now there is a proposal to prescribe based on the rules.  Though, the notification amending the rules to this extent is not provided yet.

Comment:

With quarterly return and monthly payment (QRMP) scheme, the tax period would be a quarter and 6 tax periods is a long time for cancellation. Hence there would be a suitable rule to check this.

Representation required:

The other proposal in budget provides that returns for a tax period cannot be filed if the same was not filed for the previous tax period. Further, the cancellation for non-filing for a consecutive period will put the taxpayer with huge pressure. In the background of Government’s objective of encouraging business, ease of business etc. some leeway should be granted in case of genuine cases.

(Refer Clause 100 of the Finance Bill 2022)

Extension of last date for issuance of credit note

GST law provides for issuance of credit note, in case of excess payment of tax, rejection or return etc. Time limit for issuance of such credit note is proposed to be extended to 30^th November of next financial year from the due date of filing the returns. Earlier the time limit was up to Sept of the next financial year. Example

Tax Period	Original Due Date	Proposed Due date
April 2022- March 2023	20th October 2023 or filing of annual return which ever earlier	30th of November 2023 or filing of annual return which ever earlier

 Impact on Business:

Provides extra time of 40 days for issuance of credit note.

Comment:

The date would be now fixed; planning and compliance can be done accordingly.

Representation required:

Considering that no time limit for issuance of debit note and the due date for filing of refund claim is 2 years, representation may be made to extend this to 2 years.

Action Required:

• Revise the rejection and returns policy with customer to ensure that the due date for returning is kept in such a way based on the buffer available
• Credit note for the discount scheme can also be planed according to the new deadline.
• Settlement of deficiency claim accordingly can be closed within such new deadline.

(Refer Clause 101 of the Finance Bill 2022)

Changes pertaining to GSTR-1

The GST law requires the taxpayer to file returns with the details of outward supply in Form GSTR-1. There are certain proposed amendments in this regard, as under:

• Powers provided to prescribe conditions and restrictions for filing of the returns
• Powers provided to prescribe conditions and restrictions for communication to recipient
• Due date for rectification/amendment has been extended to 30th November of the next year, from the existing due date for furnishing returns for September.
• Return for a tax period cannot be filed if not filed for the previous tax period
• Discretion provided to allow by Govt. subject to recommendation of the Council.

Impact on Business:

Provides extra time of 40 days for rectification of entries in GSTR-1. Returns must be filed regularly else would have challenges of credit being disallowed for customer leading to loss of business. 

Comment:

The rules have not been amended to this effect to comment on the actual conditions and restrictions. But appears more restrictions and making compliance to be a top priority.

Action Required:

• Make suitable changes to the system of capturing the sales and outward supplies, in order to capture on real time basis to help compliance on time.
• Enhance communication with the B2B customer/clients for rectification and corrections.
• Usage of technology and tools for quick and error fee filing
• Adopt maker-checker concept
• Management Information System to include filing status.

(Refer Clause 102 of the Finance Bill 2022)

Removal of matching concept

GST Law provided for matching of credit vide section 38, 42, 43 etc. Due to protest from industry regarding compliance burden, all the provisions were made inoperative. With the introduction of various other checks and balance in place for fraudulent transactions, these provisions are proposed to be removed from the statute.

Changes in filing of returns – GSTR 3B

GST law requires filing of returns in GSTR 3B, there is proposal for some changes with respect to the said return as under:

• Due date preponed to 13th of the next month from 20th of the next month for Non-resident taxpayers.
• Tax payment after considering the input tax credit is to be paid. There is proposal for payment of alternative amount which needs to be prescribed in rules
• Rectification of returns extended to 30th November of the next financial year from the due date for furnishing returns for September of the next year
• Returns cannot be filed if GSTR-1 for the previous tax period is not filed
• Discretion provided to Govt. subject to recommendation of the Council to allow furnishing of the returns

(Refer Clause 104 of the Finance Bill 2022)

Late Fee

Late fee payment exists for delay in filing all returns, but for the tax collection at source (TCS) returns to be filed in form GSTR -8 by an e-commerce operator. There is proposal to levy late fee for TCS return u/s 52 upto Rs.100/- per day max Rs.5,000/-. Same would be proposed in SGST also.

Business Impact:

Delay in filing would lead to late fee payment.

Comment:

With various activities happening at e-com today, there were many operators who were collecting the tax at source for the supplies made through their network. However, there was delay in remittance and filing of returns. This was creating cash crunch for the deductee taxpayer.

Action Points:

• Adopt a system for compilation of details for filing GSTR-8 on a real time basis
• Usage of technology and tools for quick and error fee filing
• Adopt a system of real time reconciliation of the system based ITC with GSTR 2B, along with a control statement.

Inter-unit transfer of balance in e-cash ledger

As per the GST provision, when a different GST registration has been taken for the same entity for different units/place of business, each such unit/place of business would be considered as deemed distinct persons. There is proposal to transfer the balance of e-cash from one unit to another unit having separate registration. This provision is subject to such conditions and restrictions as may be prescribed. However, in case there exist an unpaid liability in such unit, then balance of e-cash ledger to any other unit can’t be transferred.

Impact on business:

This will help in better cash management. Ensures no unnecessary accumulation of balance in e-cash ledger. 

Comment:

This is a welcome move, since in many cases it is found that there is balance in one registration of the taxpayer but liability in other registration and this balance is not usable. So this proposal enables utilization of such cash balance.

Action Point:

After computing the tax liability to be paid in e-cash ledger for all the units of the taxpayer, check the e-cash balance available and the requirement of transfer.

(Refer Clause 109 of the Finance Bill 2022)

Change in Interest

GST law provides for interest on short payment of tax. At the same time, it also provided for levy of interest in case of availing excess credit or excess reduction of output liability based on the matching concept. There is a proposal to amend, in order to provide for payment of interest in case of wrong availment and utilization of input tax credit at rate upto 24%. This proposal is with retrospective effect of 1^st of July 2017. The Notification prescribing rate of tax at 24% for this has been revised to 18% with retrospective effect.

Impact on Business    

Any erroneous availment and utilization would attract GST. Some cases the eligibility of input tax credit would be subject to interpretation. If the taxpayer takes such credit and utilises credit and later is not able to prove the eligibility, then they end up with paying interest.

Comment:

Presently when an ineligible credit has been taken and used for making the payment, it amounts to short payment of output tax, the same applies in the proposed case also.

Action Point:

• Ensure no ineligible credit is taken
• In case there is doubt on the eligibility, one can explore to take and not utilise the credit so that interest can be saved.

(Refer clause 110 of Finance Bill 2022)

Changes in Refund

E-cash Ledger

It is proposed that for refund of e-cash ledger balance in respect of which the form and manner would be prescribed, as against the present auto refund by filing the GSTR 3B returns.

Business Impact

Amount in e-cash ledger refund needs to be through an adjudication process, which increases the cost in terms of time and effort.

Comment

Though the law provides for auto refund of balance in e-cash ledger on filing of the return, the common portal requires filing of the refund application in RFD-01. Thereby this amendment is to rectify the existing process.

Representation Required

Representation may be made to prescribe rule which can make this refund hassle free and without any intervention of the officer processing the refund.

Action Points:

• Computation of the tax payment must be made on real time basis ensuring no excess payment.
• If multiple registrations exist in the same entity, option of transfer may be explored
• Refund needs to be applied within 2 years.
• Ensure there is no default in pf payment in returns when the refund is claimed.

(Refer Clause 112 of the Finance Bill 2022)

Extension of time for United Nation Organisation and others

Refund by a specialised agency of the United Nations Organisation or any Multilateral Financial Institution and Organisation notified under the United Nations (Privileges and Immunities) Act, 1947, Consulate or Embassy of foreign countries or any other person or class of persons, as notified under section 55 shall be filed within 2 years from the relevant date for the GST paid on the inward supplies from the existing 6 months

Business Impact

More time to claim refund. Refund can also be claimed now on annual basis which will save time and efforts.

Comment:

Refund time limit in general is 2 year and this amendment is to rationalise for all types of refund.

(Refer Clause 112 of the Finance Bill 2022)

Withholding of refund

Withholding of the refund sanctioned and deducting against pendency of returns can be done for all refunds including cash ledger refund, refund by UNO, erroneous payment. Presently its only for SEZ/Exports and inverted duty structure.

Business Impact

Withholding or adjustment of the refund against the liability for e-cash ledger will have an impact in case there is disputed payment which has not been stayed. This acts as cash trap

Comment

GST law provides for withholding the refund in case there is default in filing of returns or adjusting with the refund any amount of tax due to the Revenue. If the order has been passed and no stay has been granted, that amount would also be recoverable. This provision which was earlier only for refund for exports and inverted duty structure is applicable to all types of refunds.

Representation Required

Representation must be made to get clarity that this provision would not apply when the appeal is filed on payment of the required pre deposit.

Action Points

Refund application to be made after filing all returns and making appeal on the order if any passed

(Refer Clause 112 of the Finance Bill 2022)

Supplies to SEZ

Relevant date to claim refund for supplies to SEZ/SEZ Developer is proposed as due date for filing GSTR-3B (20th of the next month).

Impact on Business:

Presently the due date for claiming refund was considered from the date of supply. This proposal gives time from the due date of returns, which adds few more days for one to claim refund.

Comment:

Due date for filing SEZ refund would be from the due date of filing the return for the tax period for which the refund is involved. This is to bring clarity on the due date.

(Refer Clause 112 of the Finance Bill 2022)

Retrospective exemption

The following retrospective amendments have been proposed with effect from 1^st of July 2017:

• Exemption for unintended waste generated during production of fish
• Exemption for Liquor license by the State Govt.

No refund is already paid.

(Refer clause 116, 117 of the Finance Bill 2022)

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