Budget moots tweaks to GST law to tighten input tax claims

Suppliers’ failure to remit taxes could result in credits being blocked

In a bind: ‘Excess ITC could lead to demand notices, while suboptimal ITC could hit firms’ cash flows.’

Amendments to the GST law mooted in the Finance Bill could stretch businesses’ cash flows and lay the onus on taxpayers to accurately report input tax while filing returns, as the Bill seeks to scrap the provisional input tax credit (ITC) option.

The changes proposed in the Central GST Act sections relating to input tax credits aim to restrict such credits unless suppliers have remitted their share of taxes. While the provisional input tax credits are being scrapped, specific restrictions will apply for availing all input tax credits.

For instance, input tax credits from newly registered taxpayers may be restricted for a prescribed period, as would credits from any existing taxpayer that had fallen short on paying their dues. Most of the tweaks, aimed at plugging tax leakage and deterring businesses from wrongfully availing ITC, were approved by the GST Council last year.

Tax practitioners, however, caution that any failure to accurately report input tax credits could lead to demand notices from authorities, even though firms are not in a position to ensure their suppliers pay taxes on time.

‘Added pressure’

“Doing away with the provisional ITC concept puts added pressure on businesses to accurately report ITC each month,” said Archit Gupta, founder and CEO of tax portal Clear. “Excess ITC could lead to demand notices and penalties, while suboptimal ITC could hit cash flows.”

Khaitan & Co. partner Abhisek A. Rastogi pointed out that the system of two-way communication between the supplier and recipient to ensure matching of respective returns is also being omitted.

“The deletion of these provisions relating to matching of returns will strengthen the reasoning adopted by the department in disputes before various judicial and quasi- judicial forums about ITC that GST is a self-assessment tax regime and hence the taxpayer is responsible for the tax positions adopted,” he pointed out, stressing that taxpayers would henceforth need to be diligent while submitting the returns.