India has proposed a slew of changes to the year-old goods and services tax law, including an amendment to deny credit in lieu of accumulated balances of education cess, secondary and higher education cess, Krishi Kalyan cess, and additional excise duties levied on textile and textile articles.
The GST Council, the apex decision-making body for the tax, on Monday unveiled the draft of changes proposed to the GST law before they are introduced in the upcoming monsoon session of parliament. India Inc.’s key demand on transfer of cess credits has been turned down, but substantial changes have been proposed to provide relief to businesses. In a significant easing of compliance norms, businesses have been allowed to amend GST returns.
“It appears that the feedback from businesses on the need to simplify the compliance processes and streamline the input tax credit provisions is being acted upon and once these amendments are approved, there would be a considerable degree of comfort for all businesses,” said MS Mani, a partner at Deloitte India. Aimed at benefitting smaller businesses, the turnover threshold for composition dealers is proposed to be raised to Rs 1.5 crore from.`1 crore now. GST liability under reverse charge basis on procurement from unregistered vendors is proposed to be restricted to specified classes of registered persons.
This is in line with the changes proposed by the group of ministers tasked by the GST Council to look into the issue. Ecommerce companies with a turnover of less than Rs 20 lakh and not liable to deduct tax at source will not be required to register with the tax authorities. The provision barring input tax credit for food and beverages, health services and travel benefits provided to employees is being amended to allow the tax benefit where it is obligatory for entities to provide such goods and services under any law.
This may bring cheer from labourers, nurses, security guards and working women and would align the GST law with the labour laws and other employee friendly laws. Banks can now get input tax credit on the life insurance premium paid for security guards, hospitals for medical insurance premium paid for nurses and companies for canteen fees charged to labourers. In places where the state law mandates that women employees be dropped home at night, the facility would count for input tax credit.
“While ideally, input tax credits should be permitted on all business expenditure without any restrictions, as is prevalent in many other jurisdictions, this directional change would be very beneficial to businesses across sectors,” said Mani. Among other amendments, passenger vehicles with a seating capacity of over 13 will be eligible for input tax credit, resulting in vehicles such as dumpers, trucks, fork lifts becoming eligible to claim credit for tax paid on inputs. Goods stored in warehouses will face tax only once and not twice.
Transactions involving goods that do not enter India, the sale of goods stored in customs bonded warehouses and high-sea sales will be specified as those that do not amount to the supply of goods, resolving the ambiguity over the treatment of such transactions. Tax experts said that while some of the proposed changes remove inconsistencies, some key issues have not been touched.
“The proposed amendments are aimed at streamlining the current GST law and correcting inconsistencies and errors. The new compliance mechanism is prescribed, which will simplify return-filing and credit availment,” said Bipin Sapra, a partner at EY. However, Sapra said a number of areas of significance still remain outside the ambit of the present amendment, including centralised registration and assessment/audit, broad-basing of eligible credits, simplification of availing credit and provisions like TCS.