The Union Budget 2024-25: Overview of GST proposals
Union Budget 2024 presents the Government's agenda of "Viksit Bharat" focusing primarily on employment, skilling, MSMEs and middle class. The Hon'ble Finance Minister, following the strategy outlined in the Interim Budget presented the Union Budget 2024, which strives to create abundant opportunities in every sector, be it agriculture, human resource, social justice, manufacturing and services, urban development, infrastructure and the like. The Finance Minister also informed that to enhance 'Ease of Doing Business', the Government is working on the Jan Vishwas Bill 2.0. Further, it is planned to incentivize States for implementation of their Business Reforms Action Plans and digitalization.
On the indirect taxes front, Goods & Services Tax (GST) as well as customs saw a whole lot of positive changes. The Union Budget 2024 has introduced significant changes aimed at streamlining compliance, addressing practical issues faced by businesses, and enhancing the overall tax administration system. This article aims to discuss the amendments made in GST and their implications and the anticipated impact on various stakeholders.
Amendments proposed in GST Law
The amendments proposed in CGST Act, 2017, IGST Act, 2017, UTGST Act, 2017 and the GST (Compensation to States) Act, 2017 (GST Law) mainly showcase the recommendations made in the 53rd meeting of the GST Council. The amendments in the GST provisions may be divided based on the objectives with which the same are brought in by the Finance (No.2) Bill 2024. The proposed amendments are categorised in three parts in the article, namely "Trade Facilitation", "Better Compliance Mechanisms" and "Legal and Administrative Streamlining" and let us start our discussion based on each these categories.
Trade Facilitation
(i) Extra Neutral Alcohol (ENA) used in Alcoholic Beverages
Exclusion of "un-denatured extra neutral alcohol or rectified spirit used for manufacture of alcoholic liquor for human consumption" from the levy of GST in Section 9(1) aligns with the current exclusion of alcoholic liquor for human consumption. Similar amendments are also proposed in IGST Act and UTGST Act.
(ii) Activity of Apportionment of Co-insurance Premium
The proposed amendment in Schedule III to CGST Act, 2017 seeks to classify the activity where the lead insurer apportions the co-insurance premium to the co-insurer in co-insurance agreements as neither a supply of goods nor supply of services. This is however subject to the condition that the lead insurer pays the tax liability on the entire premium paid by the insured.
(iii) Services by Insurer to Re-insurer
Similarly, the services provided by the insurer to the re-insurer, where the ceding commission or reinsurance commission is deducted from the reinsurance premium, are also proposed to be treated as neither a supply of goods nor supply of services. This is contingent on the reinsurer paying the tax liability on the gross reinsurance premium inclusive of the commission.
The proposed changes to Schedule III as discussed in point (ii) and (iii) above will significantly impact the insurance industry by simplifying tax compliance and reducing ambiguities. The amendment is treating the apportionment of co-insurance premiums and services between insurers and reinsurers as non-supplies, and thus, the industry can focus more on their core activities without the added complexity of GST on these transactions. This will also foster better collaboration and efficiency in the insurance sector, ultimately benefiting policyholders through potentially lower premiums and better service.
(iv) Empowering the Government for Regularization
The insertion of Section 11A in the CGST Act, 2017 is a significant amendment, empowering the Government to regularize non-levy or short levy or higher levy of central tax due to any general practice prevalent in trade. This provision acknowledges the practical difficulties and trade practices that might have led to non-compliance and provides a legal framework to address such issues retrospectively.
Similar powers are proposed for the IGST Act, 2017, UTGST Act, 2017 and GST (Compensation to States) Act, 2017 as well. This amendment aims to bring uniformity and fairness in the tax administration by allowing the Government to address past practices without unduly penalizing taxpayers for following common industry practices which were not strictly compliant with the GST law. Similar provision in respect of the availment of input tax credit is also required and should be covered within the ambit of this provision.
(v) Allowing Authorised Representative to appear on behalf of Summoned Person
Section 70 of the CGST Act, 2017 is proposed to be amended by inserting a new sub-section (1A) to permit an authorised representative to appear on behalf of the summoned person before the proper officer. This provision will facilitate the summoned person to fulfil his obligations by attending in person or through an authorised representative, thereby fostering a more effective representation of the matter, because in number of cases the matter is not related to the management of the organisation but related to tax compliance.
(vi) Amnesty for Taxpayers for Interest & Penalty
A new section 128A is proposed to be inserted in the CGST Act, 2017 to provide for a conditional waiver of interest and penalty in respect of notices/orders issued under section 73(1), statements issued under section 73(3), orders issued under section 73(9), or even in the case of orders issued by the Appellate Authority or Revisional Authority for the Financial Years 2017-18, 2018-19, and 2019-20.
This waiver would be available if the person pays the full amount of tax payable as per the notice, statement, or order, as the case may be, on or before a date notified by the Government on the recommendations of the Council (as of now 53rd GST Council has recommended 31st March 2025), except for demand notices in respect of erroneous refunds. In cases where interest and penalty have already been paid in respect of any demand for the said financial years, no refund shall be admissible for the same.
This section aims to reduce the burden on taxpayers for past liabilities and encourage compliance by offering relief for certain periods. However, like any other amnesty scheme, the compliant taxpayer who has settled his dues will feel the pinch as he will not be eligible for refunds.
(vii) Relief to Taxpayers in relation to Input Tax Credit Availment
Amendments to section 16 of the CGST Act, 2017 propose to enhance the flexibility in claiming input tax credit (ITC). A new sub-section (5) proposed to be inserted, which seeks to allow the taxpayers to claim ITC for invoices or debit notes from FY 2017-18 to 2020-21 in returns filed up to November 30, 2021. The said amendment is offering relief to the persons, who have already taken credit upto the given date although the same could have also been extended to others, who failed to do so upto the given date.
Another new sub-section (6) proposed to be inserted in section 16 seeks to permit ITC claims for invoices or debit notes in returns filed within 30 days of revoking registration cancellation, provided the time limit under sub-section (4) has not expired.
These changes streamline compliance and provide taxpayers with needed flexibility in managing ITC claims.
(viii) Relief to Input Service Distributors in relation to Transitional Credit
Input Service Distributors will also be allowed to claim transitional credit for eligible CENVAT credit on input services received and invoiced before the appointed day by virtue of an amendment proposed in section 140(7) of the CGST Act, 2017. This change alleviates credit blockage issues, facilitating smoother credit transitions for taxpayers.
The amendments at points (vi), (vii) and (viii) above collectively ease financial pressures and streamline compliance processes, benefiting taxpayers by providing more opportunities and reducing past liabilities.
(ix) Reduction in amount of pre-deposit for filing appeal
Section 107 of the CGST Act, 2017 is proposed to be amended to reduce the maximum amount of pre-deposit for filing appeal before the Appellate Authority from Rs. 25 crores to Rs. 20 crores in CGST. Section 112 of the CGST Act, 2017 is also proposed to be amended to reduce the maximum amount of pre-deposit for filing appeals before the Appellate Tribunal from the existing 20% to 10% of the tax in dispute and also reduce the maximum amount payable as pre-deposit from Rs. 50 crores to Rs. 20 crores in CGST.
The above amendments offer significant relief to Small and Medium Enterprises (SMEs). These changes alleviate the financial burden on SMEs, making it more feasible for them to contest tax demands and seek judicial redressal. By lowering the pre-deposit requirements, SMEs can better allocate their financial resources towards their operational needs and growth rather than tying up significant funds in pre-deposit requirements. This, in turn, promotes a fairer tax system where even smaller businesses have the opportunity to challenge tax assessments and defend their interests without facing prohibitive costs.
(x) Time limit for filing appeal before GSTAT
Section 112 of the CGST Act, 2017 is proposed to be amended to empower the Government to notify the date for filing appeal/application before the Appellate Tribunal and also enable the Appellate Tribunal to admit Departmental appeals filed within 3 months after the expiry of the specified time limit of 6 months.
The empowerment of the Government to notify the filing dates for appeals or applications before the Appellate Tribunal enhances the procedural clarity and efficiency, further benefiting SMEs by streamlining the compliance process.
Better Compliance Mechanisms
(i) Electronic Furnishing of TDS Returns
Section 39 of the CGST Act, 2017 is proposed to be amended to mandate electronic submission of TDS returns every month even if no tax is deducted during the month, i.e. the amendment provides for filing of nil TDS returns as well. This amendment is aimed at ensuring that all taxable transactions are reported promptly and accurately, which enhances the overall tax compliance framework.
(ii) Determination of Time of Supply
For transactions under the reverse charge mechanism, a new clause (c) is proposed to be inserted in section 13(3) of the CGST Act, 2017. This clause specifies that the time of supply shall be the date of issue of the invoice by the recipient when the recipient is required to issue an invoice and payment has not been made until then for that supply. This change provides clarity on the time of supply, ensuring timely tax payments and reporting.
(iii) Time Limit for Issuing Invoices
An enabling provision is proposed in clause (f) of section 31(3) of the CGST Act, 2017 to prescribe a time limit for issuing invoices under the reverse charge mechanism, especially when the supplier is not registered. This amendment aims to streamline the invoicing process, thus aiding in accurate tax reporting and compliance.
An explanation is proposed to be added to sub-section (3) of section 31 to clarify that a supplier registered solely for tax deduction at source (TDS) under section 51 will not be considered a registered person for the purposes of clause (f) of sub-section (3) of section 31. This distinction helps in simplifying the compliance requirements under RCM.
These amendments are part of the broader initiative to enhance the efficiency of tax administration, ensuring that tax liabilities are met promptly and accurately. By setting clear guidelines and timelines for various compliance requirements, the Government aims to reduce ambiguities and improve the overall tax compliance environment.
Legal and Administrative Streamlining
(i) Insertion of Section 74A
A new section 74A is proposed to be inserted in the CGST Act, 2017 to provide for determination of tax not paid/ short paid/ erroneously refunded or ITC wrongly availed/ utilised for both fraudulent and non-fraudulent reasons pertaining to the Financial Year 2024-25 onwards.
It provides a common time limit for issuing demand notices and orders in respect of demands from the Financial Year 2024-25 onwards, irrespective of whether the charges of fraud, wilful misstatement, or suppression of facts are invoked or not, while keeping a higher penalty, for cases involving fraud, wilful misstatement, or suppression of facts.
Under the new section, the notice can be issued upto 42 months from the due date of filing the annual return of the relevant financial year or up to 42 months from the date of erroneous refund. Further, no notice will be issued if the amount in question for a financial year is less than Rs. 1,000. Furthermore, time limit for issuing of order is being proposed as 12 months from the date of issue of notice which can be extended maximum by 6 months.
The amount of penalty for fraud and non-fraud cases is being kept the same as provided under sections 73 and 74 of the CGST Act, 2017 respectively. However, the time limit for the taxpayers to avail the benefit of nil/reduced penalty, by paying the tax demanded along with interest, is being increased from 30 days to 60 days.
Consequential amendments in Sections 73 and 74 are proposed to bring into effect the applicability of the proposed section 74A for demand notices pertaining to FY 2024-25 onwards. Sub-section (12) is proposed to be inserted in sections 73 and 74 to restrict the applicability of these sections for the determination of tax pertaining to the period up to FY 2023-24.
Additionally, consequential amendments are also proposed in sections 10, 21, 35, 49, 50, 51, 61, 62, 63, 64, 65, 66, 75, 104, 107, and 127 of the CGST Act, 2017 to incorporate a reference to the proposed new section 74A.
The introduction of section 74A and the amendments in sections 73 and 74 are expected to have a significant impact on both taxpayers and the tax department. For taxpayers, this means a clearer and more predictable timeline for tax assessments and demands, reducing uncertainty and potential litigation. The higher penalties for fraud and wilful misstatement serve as a deterrent against tax evasion, promoting greater compliance. For the tax department, these changes simplify the legal process, streamline administrative procedures, and help focus enforcement efforts on more serious cases of non-compliance.
(ii) E-commerce Operators not liable to penalty under section 122(1B)
Section 122(1B) is proposed to be amended to restrict the applicability of sub-section (1B) to only those electronic commerce operators who are required to collect tax at source, thus streamlining the penalty provision with correct perspective and bringing the needed clarity.
(iii) Refund to Exporters
Amendments have been proposed in the refund provisions under the CGST Act, 2017 and IGST Act, 2017 particularly affecting zero-rated supplies.
Omission of the second proviso to sub-section (3) and insertion of sub-section (15) in section 54 the CGST Act, 2017 explicitly provide that no refund of unutilized ITC or Integrated Tax (IGST) shall be allowed in case of zero-rated supply of goods where such goods are subjected to export duty.
Simultaneously a new sub-section (5) is proposed to be inserted in section 16 of the IGST Act, 2017. This provision will ensure that no refund of unutilized ITC or IGST paid on zero-rated supplies of goods will be allowed if these goods are subjected to export duty.
Furthermore, sub-section (4) of section 16 of the IGST Act, 2017 is proposed to be amended to empower the Government to notify specific class of persons who may make zero rated supplies of goods and/or services or class of goods or services which may be supplied on zero rated basis, and refund of IGST in respect of which can be claimed, in accordance with the provisions of section 54 of the CGST Act, 2017, subject to such conditions, safeguards and procedures as may be prescribed.
Exporters of goods subjected to export duty will no longer be able to claim refunds of unutilized ITC or IGST. This change may affect the cash flow for such exporters. Exporters must carefully evaluate their supply chains to align with the new provisions.
(iv) Anti-Profiteering Cases
Section 171 is proposed to be amended to empower the Government to notify the cut-off date for accepting anti-profiteering applications. The Government will notify a specific date from which the Authority under this section will not accept any new applications for anti-profiteering cases.
Further, it is being provided that Appellate Tribunal may be notified as the Authority of Anti-Profiteering. The explanation proposed in section 171 includes a reference to the Appellate Tribunal within the Authority under this section. This inclusion allows the government to notify the Appellate Tribunal to act as the Authority for anti-profiteering cases.