India’s Good and Service Tax Council October Meeting

During the 41st Good and Service Tax (“GST”) Council meeting held on August 27, 2020, Indian States were given two options to make up for their revenue shortfall amid the COVID-19 pandemic.

1. To provide a special borrowing window to states, in consultation with the Reserve Bank of India (“RBI”), to provide Rs 97,000 crore at a “reasonable” interest rate and this money can then be repaid after five years by extending cess collection
2. To meet the entire GST compensation gap of Rs 2.35 lakh crore this year itself after consulting with the RBI.

Twenty-one states have opted for option one and the remaining have not opted for any of the options. They wanted a third option where the Centre should borrow and compensate the states. During the 42nd GST Council meeting that was held via video conference, on October 5, 2020, the below important recommendations that were made:

1. Compensation Cess

• To be extended beyond the transition period of five years i.e. beyond June 2022 for such period may be required to meet the revenue gap.
• Release of the compensation cess by the Center for Rs. 20,000 crore to the States on October 5 to cover the loss of revenue during 2020-21
• An additional amount of Rs. 25,000 crore towards IGST (Integrated Goods and Service Tax”) of 2017-18 by next week

2. Reduction of Compliance Burden

The small taxpayers having a yearly aggregate turnover of less than Rs. five crores shall be allowed to file the Goods and Service Tax Returns (“GSTR”) on a quarterly basis with monthly payments by such taxpayers. This facility will be enabled w.e.f.  January 1, 2021. Such quarterly taxpayers would, for the first two months of the quarter, have an option to pay 35% of the net cash tax liability of the last quarter using an auto-generated challan.

3. Under the Indian Government’s policy of ease of doing business in India the GST Council has enhanced and improved the compliance experience of the taxpayers regarding their GSTR such as:

• The due date of furnishing GSTR-1 by quarterly taxpayers (i.e. taxpayers whose aggregate turnover in preceding the financial year is below Rs. five crores) to be revised to 13^th of the month succeeding the quarter w.e.f. January 1, 2021. Earlier the due date was the last day of the month succeeding the quarter.
• The GST council will enhance the GST portal to auto-populate liability declared by suppliers GSTR 1 in GSTR-3B w.e.f. January 1, 2021
• Enhancement of the GSTR-2B to auto-populate input tax credits (“ITC”) from suppliers GSTR-1s for monthly filers w.e.f. January 1, 2021, and for quarterly filers w.e.f. April 1, 2021.
• In order to ensure that the ITC is auto-populated in GSTR-3B, as mentioned above, GSTR-1 will be required to file mandatorily before the GSTR-3B is filed w.e.f. April 1, 2021. In other words, w.e.f. April 1, 2021, ITC will be allowed only of those invoices which are appearing in Form GSTR-2A till date to filing of GSTR-3B.

4. The present GSTR-1 and GSTR-3B return filing system to be extended till ^t March 31, 2021, and the GST laws to be amended to make the GSTR-1 and GSTR-3B return filing system as the default return filing system.

5. The GST Council revised the requirement of declaring HSN (Harmonized System of Nomenclature) for goods SAC (Services Accounting Code) for services in invoices and GSTR -1 w.e.f. April 1, 2021.  Returns – HSN/SAC at six-digit for suppliers with more than Rs. 5crore turnover annually; HSN/SAC at four-digit for B2B suppliers turnover of up to Rs. five crore.

• HSN/SAC at six digits for supplies of both goods and services for taxpayers with aggregate annual turnover above Rs. five crores;
• HSN/SAC at four digits for B2B supplies of both goods and services for taxpayers with aggregate annual turnover up to Rs. five crores
• Government to have power to notify eight-digit HSN on notified class of supplies by all taxpayers.

6. The GST refunds to be paid/disbursed shall be in a validated bank account linked with PAN and Aadhaar with the effective date January 1, 2021.

What Does This Mean for Your Business?

The Government of India has taken a positive step during the pandemic despite the heavy shortfall in GST collections and has not increased the Compensation cess. As part of ease of doing business in India initiative, the Government of India has also proposed extensions to file the GSTR-1 and GSTR-3B, with auto-generation of these returns, as well as ease of compliance to small taxpayers.  If you need to further discuss or understand the recent changes by the GST Council what it means for your business, please reach out Withum’s U.S.–India Corridor leader.