The central government has decided to bring into effect a dozen amendments to the Central Goods and Services Tax (CGST) Act from 1 January, tightening the indirect tax regime further.
The changes are part of the Finance Act 2021 passed by Parliament earlier this year but their implementation date has been announced only now. The changes cover a host of issues including what constitutes a taxable supply, eligibility for tax credits and norms for filing appeals in certain cases.
One of the amendments says that transactions, by a person, other than an individual, to its members or constituents for cash, deferred payment or other valuable consideration will be treated as a taxble supply. Such transactions from the members to the entity too will be treated in the same way. Experts said this would mean all clubs and associations would be subject to GST on their transactions with members.
Another provision that comes into effect from January will tighten the norms governing grant of credits for the taxes paid on raw materials and other services procured by businesses. If the seller of an item does not disclose the invoice details in his monthly sales return (in form GSTR-1), then the buyer will not be able to avail of credit for the taxes paid on that item.
The central and state authorities have been tightening the rules regarding tax credits to check tax evasion. While indirect tax evasion by errant firms using fake invoices has been a major headache for the government, the tighter tax credit rules warrant businesses to ensure that their suppliers disclose the transaction details promptly in their monthly sales returns. The idea is to effectively use the reporting requirements and technology for improving tax compliance. This will also encourage businesses to source materials and services from suppliers who are credible and are law abiding.
Also, businesses will have to pay 25% of the penalty for appealing against the orders of officials in cases where goods are seized for alleged storage or transportation in violation of the rules. This provision also comes into force from 1 January.
“These changes, among other things, would strengthen the recovery of taxes, provisional attachment of assets, tighten eligibility of tax credit, empower jurisdictional commissioner to call for information from any person on any matter, and widen the tax net on clubs/associations,” explained Rajat Mohan, senior partner with AMRG & Associates, an accounting firm.
The move comes at a time central and state governments are exploring GST system reforms. A ministerial panel led by Maharashtra Deputy chief minister Ajit Pawar is working on GST system reforms.