Payment of at least 1% of GST liability in cash: FinMin issues clarification

Finance Ministry on Saturday clarified the mandatory payment of at least one per cent of the tax liability in cash will affect less than half a per cent of total GST assessees. This rule intends to curb the menace of fake invoice.

“The rule clearly identifies where the risk to revenue is high and imposes very reasonable cost to deter the fraudsters in a multi-layered fraud of ITC,” a senior Tax Department official said. Further he added that the rule applies only to approx. 45,000 taxpayers in the GST tax base of 1.2 crore, which is just 0.37 per cent of all the assessees. “Genuine dealers and businesses would not be impacted,” he reiterated.

On December 22, through a notification, the Finance Ministry prescribed one per cent cash payment norm. It said, “To curb fake ITC (Input Tax Credit) availment and passing on of such credit by unscrupulous persons who generally pay no tax in cash, particularly in those risky cases where GST turnover does not match with the income tax returns and where the value of taxable supply other than exempt supply and zero-rated supply in a month exceeds ₹50 lakh, such registered person will not be able to use the amount of ITC available in electronic credit ledger to discharge his liability towards output tax in excess of 99 per cent of such tax liability. At least one per cent liability would need to be discharged in cash. This change will come into effect from January 1, 2021.

After the notification, concerns were raised. Some experts said that certain category of genuine taxpayers will may have to face problem. Chartered Accountant Pritam Mahure listed such taxpayers such as newly registered exporters (who are yet to file GST refund claim), taxpayers whose stock is accumulated on account of Covid-19, assessees who are supplying goods at loss due to pandemic and first time or start-up entrepreneurs not having proven income tax record. Some experts feel that this rule will face judicial scrutiny soon.

However, officers in tax department feel that apprehension like requirement of mandatory cash payment will adversely affect small businesses and will increase their working capital requirement, not true. Also, ‘misconceptions’ about the measure taken are unfounded and will not affect genuine taxpayers, officials clarified.

Using data analytics, official mentioned that out of the total GST tax base of 1.2 crore taxpayers only around 4 lakh taxpayers have supply value greater than ₹50 lakh, and only around 1.5 lakh out of these 4 lakh taxpayers pay less than 1 per cent tax in cash. Now, when the exclusions in the rule are applied, then around 1.05 lakh taxpayers get further excluded from these 1.50 lakh. Thus, the rule would apply only to approx. 40,000 to 45,000 taxpayers, they claimed.

Further it was explained that the cash payment of one per cent is to be calculated on the tax liability in a month and not turnover of the month. For example, if the turnover of taxable supplies of a taxpayer is ₹100 in a month and he is required to pay GST of 12 per cent on his output taxable supplies, then he will be required to pay 1 per cent of ₹12, i.e., ₹0.12 (12 paisa) only in the month through cash under this rule, the official said.

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