Mandatory payment of at least 1 per cent of the tax (GST) liability in cash rule applies only to businesses with annual turnover over ₹6 crore, sources in Revenue Department clarified on Sunday.
“The rule does not apply to micro and small businesses, and Composition dealers. The fears about this rule are entirely misplaced. The rule will impact only risky or suspicious dealers or fly-by-night operators,” a source said.
On December 22, through a notification, the Finance Ministry prescribed 1 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.
On Sunday, sources said that the new provision restricts the use of ITC for discharging output liability and this rule is applicable to the registered person whose value of taxable supply other than exempt supply and export, in a month exceeds ₹50 lakh — that means those whose annual turnover is more than exemptions to this rule6 crore.
Exemptions to the rule
Further, there are exemptions to this rule. It is not applicable in the cases where the registered person deposited more than ₹1 lakh rupees as Income Tax in each of the last two years. Also, wherein registered person has received a refund of more than ₹1 lakh in the preceding financial year on account of export or inverted tax structure besides and wherein cumulatively up to the month in the financial year exceeds 1 per cent and more so, the new rule will not have any impact. Government department, PSU and local authority are not covered under the new rule.
The Revenue Department has maintained that new rule would help to control fake invoices fraudsters who avail and pass on ITC by dummy, fake and dormant entities which show high turnovers, but have no financial credibility and flee after issuing fake invoices and misusing ITC.
It may be noted that recently nationwide campaign launched against GST fake invoice frauds was launched and that has resulted in the arrest of more than 175 fraudsters and more than 1,800 cases are booked against 8,000 fake entities in just 40-45 days.