GST Council’s Game-Changing Reforms: Relief for Small Taxpayers Ahead!

Introduction

The 53rd  GST Council Meeting held on June 22, 2024, brought forth a series of significant recommendations aimed at streamlining the GST framework and alleviating the compliance burden on taxpayers, particularly small businesses. Key changes include adjustments in GST rates on various goods and services, exemption of certain services provided by Indian Railways, and trade facilitation measures like the introduction of Section 128A for waiving penalties and interest under specific conditions. Additionally, the Council proposed important amendments to enhance clarity and reduce litigation, such as the retrospective amendment in Section 16(4) and the introduction of biometric-based Aadhaar authentication for GST registration applicants. These measures collectively aim to create a more transparent, efficient, and taxpayer-friendly GST regime.

Important recommendations of 53rd  GST Council Meeting impacting major small taxpayer:

A. Changes in GST Rates of Goods & Services:

• Milk cans (steel, iron, aluminum): 12% GST.
• Cartons, boxes, and cases of paper or paperboard: GST reduced from 18% to 12%.
• All solar cookers: 12% GST.
• Indian Railways services (platform tickets, retiring rooms, cloakroom, battery-operated car services): Exempt from GST.
• Accommodation services up to Rs. 20,000/month for a minimum of 90 days: Exempt from GST.

B. Trade Facilitation Measures in Detail:

1. Waiver of Interest and Penalties (Section 128A, CGST Act):

• Context: Taxpayers faced significant challenges during the initial implementation years of GST (2017-2019).
• Measure: The GST Council recommends waiving interest and penalties on demands raised under Section 73 for FY 2017-18 to FY 2019-20, provided the taxpayer pays the full amount of tax demanded by March 31, 2025. This waiver does not apply to demands related to erroneous refunds.
• Benefit: This measure provides financial relief and encourages taxpayers to settle past dues without the burden of additional penalties.

2. Extended Time Limit for Input Tax Credit (Section 16(4), CGST Act):

• Context: Ensuring compliance with input tax credit provisions was challenging for many during the initial GST years.
• Measure: The Council recommends that the time limit to avail input tax credit for invoices or debit notes under Section 16(4) through any return in FORM GSTR-3B filed by November 30, 2021, for FY 2017-18 to FY 2020-21, be deemed as November 30, 2021. A retrospective amendment effective from July 1, 2017, is also recommended.
• Benefit: This amendment allows taxpayers to claim rightful credits, reducing financial strain from disallowed credits due to delayed filings.

3. Extended Filing Deadline for Composition Taxpayers (Rule 62, CGST Rules):

• Context: Composition taxpayers often require more time to prepare their annual returns.
• Measure: The Council recommends extending the due date for filing FORM GSTR-4 from April 30 to June 30 following the end of the financial year, starting from FY 2024-25.
• Benefit: This extension provides composition taxpayers with additional time to ensure accurate return filings, reducing compliance pressures.

4. Interest Calculation Adjustment (Rule 88B, CGST Rules):

• Context: Delays in filing returns can result in significant interest costs.
• Measure: The Council recommends amending Rule 88B to ensure that any amount available in the Electronic Cash Ledger on the due date of filing FORM GSTR-3B, and debited when filing the return, is not included in the interest calculation under Section 50 for delayed filing.
• Benefit: This adjustment reduces interest liabilities for taxpayers, easing their financial burden.

5. Regularization of Non-Levy or Short Levy of GST (Section 11A, CGST Act):

• Context: Common trade practices sometimes result in short payment or non-payment of GST.
• Measure: The Council recommends inserting a new Section 11A to allow the government, on the Council’s recommendation, to regularize non-levy or short levy of GST.
• Benefit: This provision offers a mechanism to address and correct trade practices without penalizing taxpayers unduly, promoting compliance.

6. Clarifications on GST Provisions:

• Place of Supply: Clarification on the place of supply for goods delivered to unregistered persons when the delivery address differs from the billing address.
• Post-Sale Discounts: Guidance on providing evidence of compliance with conditions under Section 15(3)(b)(ii) related to post-sale discounts and ensuring input tax credit is reversed by the recipient.
• RCM Invoices: Clarification that the financial year for calculating the time limit for input tax credit under Section 16(4) is the year in which the recipient issues the invoice under reverse charge mechanism (RCM).
• Benefit: These clarifications provide clear guidance to taxpayers and tax officers, reducing disputes and litigation.

7. Optional Amendment Facility (FORM GSTR-1A):

• Context: Taxpayers sometimes miss or need to amend details in their returns.
• Measure: Introduction of FORM GSTR-1A to allow taxpayers to amend or add details in FORM GSTR-1 before filing FORM GSTR-3B for the same period.
• Benefit: This facility ensures accurate reporting and liability calculation, reducing errors and compliance issues.

8. Exemption from Annual Return Filing (FORM GSTR-9/9A):

• Context: Small taxpayers face difficulties in filing annual returns.
• Measure: Exemption from filing FORM GSTR-9/9A for taxpayers with an aggregate annual turnover up to Rs. 2 crore for FY 2023-24.
• Benefit: This exemption reduces compliance burden for small taxpayers, saving time and resources.

9. Adjustment Mechanism for Pre-Deposit (Rule 142, CGST Rules):

• Context: Taxpayers often need to adjust payments made against demands when filing appeals.
• Measure: Amending Rule 142 and issuing a circular to prescribe a mechanism for adjusting payments made through FORM GST DRC-03 against pre-deposit amounts for appeals.
• Benefit: This mechanism simplifies the appeal process, ensuring that payments are properly accounted for and reducing administrative complexity.

C. Law and Procedure Enhancements in Detail:

1. Biometric-Based Aadhaar Authentication:

• Context: Strengthening the GST registration process to combat fraud.
• Measure: The GST Council recommends rolling out biometric-based Aadhaar authentication for GST registration applicants on an All-India basis, to be implemented in phases.
• Benefit: This measure will enhance the security and integrity of the GST registration process, preventing fraudulent registrations and bogus claims of input tax credit (ITC). It will also streamline the registration process, making it more robust and reliable.

2. Unified Time Limit for Demand Notices and Orders (Sections 73, 74, and new Section 74A, CGST Act):

• Context: Simplifying the process and ensuring consistency in demand notices and orders.
• Measure: The GST Council recommends amending Sections 73 and 74 of the CGST Act and inserting a new Section 74A to provide a common time limit for issuing demand notices and orders, regardless of whether the case involves fraud, suppression, willful misstatement, or not. The time limit for taxpayers to avail of reduced penalties, by paying the tax demanded along with interest, is also recommended to be increased from 30 days to 60 days.
• Benefit: This unification simplifies compliance, reduces confusion, and ensures a standardized approach for issuing demand notices and orders, benefiting both taxpayers and tax authorities. The extended period for availing reduced penalties gives taxpayers more time to comply, promoting timely settlement of dues.

3. Reduction in Reporting Threshold for B2C Inter-State Supplies (Table 5, FORM GSTR-1):

• Context: Ensuring comprehensive reporting and transparency.
• Measure: The GST Council recommends reducing the threshold for reporting B2C inter-State supplies invoice-wise in Table 5 of FORM GSTR-1 from Rs. 2.5 lakh to Rs. 1 lakh.
• Benefit: This measure enhances the accuracy and completeness of reporting, helping tax authorities to better track and analyze inter-State transactions, thus improving compliance and reducing the risk of tax evasion. 

53rd  GST Council Meeting Recommendations to Reduce Taxpayer Burden and Harassment under GST

From my professional perspective, to reduce the burden and harassment of taxpayers and to truly make GST a “Good and Simple Tax,” the following suggestions should be considered:

1. Reduction of Penalties for Minor Tax Mistakes (Section 73):

• Recommendation: Reduce penalties for small amounts of tax discrepancies under Section 73, benefiting numerous taxpayers who have made minor errors. Additionally, clarify the applicability of Section 126 of the CGST Act to ensure that penalties are imposed fairly and consistently, based on the nature and gravity of the mistake.
• Benefit: This will provide relief to small taxpayers, reduce undue financial strain, and encourage voluntary compliance.

2. Time Limit for Acceptance or Rejection of Appeals:

• Recommendation: Establish a specific time limit for the acceptance or rejection of appeals by the Commissioner (Appeals) under GST. Currently, many appeals remain pending without any action, requiring taxpayers to follow up unnecessarily.
• Benefit: This will expedite the appeals process, ensure timely resolution of disputes, and reduce the backlog of pending appeals. It will also prevent the undue delay that taxpayers face, thereby reducing administrative burdens and fostering a more efficient tax system.

3. Minimize Unnecessary Documents Requests:

• Recommendation: Ensure that taxpayers are not asked to provide unnecessary documents that are not part of GST requirements and do not have any relevance to the case. For instance, documents like GSTR-1, credit notes, and debit notes should be directly accessible to tax authorities through the GST portal.
• Benefit: This will streamline compliance, reduce administrative burdens on taxpayers, and eliminate redundant paperwork, leading to a more efficient and taxpayer-friendly process.

4. Correct Handling of RCM Payments in Notices:

• Recommendation: Issue clear instructions to tax authorities to avoid issuing notices erroneously claiming that applicable tax under the Reverse Charge Mechanism (RCM) has not been deposited when it has already been paid through GSTR-3B.
• Benefit: This will prevent unnecessary harassment of taxpayers and ensure that notices are issued based on accurate and up-to-date information, enhancing trust in the tax system.

5. Clarification and Training on Reversal under Rules 42 & 43:

• Recommendation: Provide proper training and clear guidelines to tax officers regarding the application of Rules 42 and 43 concerning ITC reversal. Ensure that assessment notices accurately reflect the taxpayer’s activities, particularly in cases where the taxpayer is not supplying exempt items or claiming ITC on capital goods.
• Benefit: This will reduce incorrect assessments and unnecessary disputes, promoting a fair and transparent tax environment.

6. Mechanism for Reporting Non-Payment by Registered Suppliers:

• Recommendation: Develop a mechanism where suppliers can notify the GST department if they have not received payment from other registered suppliers within 180 days or more. This system should help monitor timely payments and address issues of delayed creditor payments.
• Benefit: This will support better financial discipline among businesses, ensure that suppliers receive timely payments, and allow the GST department to monitor and address issues related to payment delays effectively.

Conclusion

The 53rd GST Council meeting’s recommendations mark a positive step towards simplifying and improving the GST framework. By addressing key areas such as GST rates, trade facilitation, and procedural clarity, the Council has demonstrated a commitment to making the tax system more efficient and taxpayer-friendly. However, to fully realize the vision of GST as a “Good and Simple Tax,” it is crucial to incorporate additional measures that directly address taxpayer concerns.

Implementing the proposed recommendations—such as reducing penalties for minor tax errors, setting a time limit for appeal decisions, minimizing unnecessary documentation, ensuring accurate handling of RCM payments, and providing clear guidelines on ITC reversal—will further ease the compliance burden. Moreover, introducing a mechanism for reporting non-payment by registered suppliers will enhance financial discipline and support timely payments within the business community.

Together, these measures will create a more transparent, efficient, and supportive GST system, benefiting small taxpayers and fostering a culture of compliance and trust. By continuing to refine and improve the GST framework, the government can ensure that it remains a cornerstone of India’s economic growth and development, truly embodying the principles of fairness and simplicity.