NEW DELHI :
Export turnover is exempt from a new rule that prevents businesses from fully meeting their tax liability using tax credits, a finance ministry official clarified on Sunday.
The clarification comes after experts pointed out that the requirement of paying 1% of the total tax outgo in cash by businesses with ₹5 million sales a month could lead to cashflow related difficulties for some. Also, traders have registered their protest at the new rule that is effective from 1 January.
Besides export turnover, sale proceeds of items which are exempt from Goods and Services Tax (GST) is to be excluded while computing the ₹five million sales threshold for 1% cash tax payment, said the official.
The government’s idea is to step up GST compliance and nail fake invoice rackets by forcing a part of the payment in cash. Those engaging in trading bogus invoices (selling invoices without actual supply of goods) chose items which have limited value addition so that the there is no need for any cash payment of tax and the entire tax liability is met by bogus credits. The 1% tax is meant to address this. As per finance ministry estimates, this rule is expected to apply on about 40,000-45,000 tax payers.
“This provision is a very smart rule against fraudsters and would not affect genuine business entities or the ease of doing business in any manner” the official explained. GST authorities had held a nation-wide drive against fake invoices since mid-November. This has so far led to arrest of more than 175 persons including five chartered accountants and more than 1800 cases against 8,000 entities so far, the official added.
Also, from 1 January, the extent of tax credits that could be claimed by businesses where their vendors have not uploaded invoices, has been halved to 5% of their eligible tax credits. Businesses with more than ₹100 crore sales will also have to compulsorily raise electronic invoices (e-invoice) from 1 January. Now, only those with ₹500 crore sales need to do this. E-invoicing entails real time validation of transaction details in a portal run be National Informatics Centre. This gives tax officials access to data about transactions in the economy instantaneously and helps prevent fraud.
Fake input tax credit claim is the most common way of GST evasion, according to Rajesh Gupta, co-founder and director of Busy Infotech Pvt. Ltd., an accounting software maker. E-way bills and e-invoicing which leverage digital technology are welcome steps to weed out fake invoices, said Gupta.
