Due to the constant changes being brought to the system, GST Return filing and GST registration have become confusing. Most people trust what they hear from authorities because they think of them as experts.
There is a rumor about people getting forced to pay maximum GST liability in cash by the authorities. The Finance Ministry has made things clear by a circular issued on Saturday. Let’s discuss that topic today.
The Issue with GST Liability
Some people reported that they had received phone calls and WhatsApp, or average messages asking them to make the payment their maximum GST liability in cash as soon as they could.
Maximum GST liability means the total money you can impose a tax upon without deductions like input tax credit (ITC). ITC is the tax which an individual pays while buying, and it can be used to set off the tax liability on sales made by it. While there are various drawbacks of using ITC, it still assists in making the amount of tax less that one is liable for.
So, when authorities asked people to pay maximum GST liability in cash, there was confusion and worry.
When the people asked the authorities about it, the officers answered: ‘To achieve GST collection for this financial year.’
Despite the pandemic, the government has collected over Rs. 1 lakh crore as GST for the past five months, which is a large number. For the past three months, the GST received over Rs.1.1 lakh crore consecutively. This shows that our economy is recovering from the hit it took while the pandemic lasted.
That might be good news, but it is not right to ask people to pay up their maximum GST liability in cash to achieve the revenue collection goals. And reaching people via channels such as WhatsApp or phone calls is not acceptable at all.
Clarification made by the Finance Ministry with GST Liability
This problem was finally solved when the Finance Ministry issued a circular on Saturday, March 20, 2021.
It was said that individuals could utilize input tax credits (ITC) to adjust their tax liability for March. Utilization of ITC will be done according to the guidelines as given in GST rules.
It was also announced that both the Central Board of Indirect Taxes and Customs (CBIC) and the government had not given any order or powers to any authority to use informal communication methods to take the maximum GST liability in cash.
GST For Big Businesses
Businesses that have a monthly turnover of more than 50 lakh rupees must pay at least 1% of the GST liability they have in cash; the finance ministry took this decision as it moved to end tax evasion by fake invoicing.
The Central Board of Indirect Taxes and Customs (CBIC) has announced specific modifications to the Goods and Services Tax (GST) regulations, introducing strict conditions for getting GST registration and for businesses to settle tax liability using input tax credit too.
The CBIC has announced Rule 86B in GST Rules, which is applicable since January 1, 2021, which limits the use of ITC for discharging GST liability to 99%.
“The registered person can not utilize the amount that is available in the electronic credit ledger to adjust his liability towards output tax for more than 99% of tax liability, in cases where the value of taxable supply … in a month is more than 50 lakh rupees,” the CBIC stated.
This limitation will not be applicable where the managing director or any partner has given more than 1 lakh rupees as income tax or the registered person has taken a return amount of more than 1 lakh rupees in the last financial year account of an unused input tax credit.
Moreover, the CBIC has changed GST rules limiting the filing of exterior supply details in GSTR-1 for businesses that did not pay tax for the previous years by filing GSTR 3B.
So far, the non-filing of GSTR 3B resulted in a blockage of the e-way bill but will now result in GSTR 1 blockage.
“To prevent the GST fake invoice frauds, the Govt. on the suggestions of the GST Council’s Law Committee has announced to deal with the menace of fraudsters who avail & pass on ITC that is not eligible by false or fly-by-night firms,” This tweet was sent out by our Finance Minister Nirmala Sitharaman, getting rid of a lot of confusion. Until then, the result of non-filing of GSTR 3B was blockage of the e-way bill, but the result will now be the blockage of GSTR 1 as well.
The CBIC also stated it has registered around 12,000 cases of input tax credit (ITC) fraud and taken 365 persons in custody in such cases till now. In the last six weeks, over 165 fraudsters have been taken into custody.
The CBIC said that “There is some confusion on the recent rule changes on the social media causing concern among the genuine taxpayers.” To fix that, CBIC issued a “myth v/s fact” list regarding the announcement.
Regarding the concerns over registration cancellation, the CBIC stated, “The GST laws made by the Parliament and State Legislatures state that GST registration can be canceled for those who have not submitted six or more GST returns. Hence, it is not right to say that the cancellation will be made without any causes.”
It also said that only in fraud cases where there are major differences based on data analytics and the right risk parameters, and not only some clerical errors, the action of suspension and cancellation will be performed.
“Accurate targeting of fraud people is being done only in certain cases, after doing a comprehensive analysis, using modern data analytics tools, etc. Moreover, multiple risk indicators are taken in accord, and only then few high-risk individuals are chosen,” said the CBIC.
These modifications state that the government is struggling with lower tax collections and high tax evasions, the liability of which will be on genuine taxpayers again.
The CBIC has also said that validation of the Aadhaar number or physical verification of business locations for obtaining GST registration. This move aims at stopping fraudulent registrations just for the reason of passing on ITC.
Also, the validity of E-Way bill regulations has been changed by the CBIC as per which the e-way bill will be valid for every 200 km of travel, instead of 100 km.
Introduction To Electronic Credit Ledger
All the taxable people who are registered need to have an Electronic Credit Ledger in FORM GST PMT-2 on the government’s GST portal. All the claims related to Input Tax Credit as per GST law will be recorded in this ledger only. Some other related provisions are:
Electronic Credit Ledger can be debited only up to the payment of the liability of GST.
A taxable person who is registered can debit an amount equal to the unused amount from an electronic credit ledger as a return of tax.
If any refund received has been rejected by the officer empowered in GST, Electronic Credit Ledger will be re-credited to the extent of the amount the officer has not accepted. This transaction must be done in FORM GST PMT-2A.
Meaning Of Electronic Cash Ledger
Electronic Cash Ledger is an account that every taxable person registered as per GST law is needed to have on GST common portal. This form needs to be created in FORM GST PMT-3 to credit the amount deposited and pay that amount toward tax, the penalty fee, interest, or any other amount.
In other words, the amount of money that is outstanding in the Electronic Tax Liability Register even after setting off the amount lying in the Electronic Credit Ledger is needed to be deposited in Electronic Cash Ledger and be set off in that account.
Every taxable person registered has to create a challenge in FORM GST PMT-4 on the GST portal and put in the details of the amount to be deposited by him regarding the tax, interest, penalty, fees, or any relevant amount. The payment can be made by using the following methods:
- Through banks using the function of Internet Banking;
- You can also use a Credit or Debit Card after publishing it on the GST portal as per the authorized bank.
- Using Real-Time Gross Settlement (RTGS) by any bank;
- National Electronic Fund Transfer (NEFT)
- Over-the-counter (OTC) payment by authorized banks for deposits to the extent of Rs. 10,000 for every challan per tax period, by cash, cheque, or demand draft.
Liability Of Paying Outstanding GST in Specific Cases
GST Rules have provisions for specific situations like transfer of business, where the person who transfers and receives are both held liable to pay unpaid GST. There are many other situations like this that you should know about, so let’s talk about them.
Liability If There Is A Transfer of Business :
Suppose a taxable person transfers his business, either entirely or a part of it, to another. In that case, the person who transfers (transferor) and the person who receives the business (transferee) will be liable, jointly and individually, entirely or to the extent of such transfer, to pay the outstanding GST. They will have to pay tax, interest, and penalty if there are any outstanding for the taxable person (transferor) up until the time of the transfer. It is irrelevant if such tax, interest, or penalty has been imposed before or after the transfer if it’s outstanding.
Any kind of methods or ways can perform this transfer.
Apart from outstanding costs, the transferee will also have to pay GST from the day of transfer of the business. If the person who received the company does business by a new name (unlike the original), he has applied for a change of his registration certificate.
Liability of Principal And Agent
If an agent gets or supplies taxable stock as per the instructions of his principal, then the agent and the principal will have to pay GST, jointly and individually.
Liability of A Private Company’s Directors
This part overrules the Companies Act of 2013. If a private company doesn’t pay its outstanding amounts, then the company’s directors will jointly and individually be liable for the outstanding charges. In a scenario like this, only the directors working in the period when the tax was outstanding will be held liable. If a director can prove to the Commissioner that the non-payment wasn’t because of any negligence or non-compliance of rules on his part, he will not be held liable. If the company was converted from a private company to a public limited company, then the rules mentioned above will not be applicable.
Public Limited Companies’ Liability
Nothing has been stated in the GST Act related to converting a private company to a public company. Considering that this provision is not applicable when a private company is changed to a public company, it can be said that this provision applies to public companies.
The Liability Of Partners In A Firm
Because the liability of partners in a firm is unlimited, according to GST rules, the firm’s partners are jointly and individually liable to make the payment of GST outstanding, ignoring any clause of Partnership Deed or any other law. The partners have to tell the Commissioner about a retiring partner or the retiring partner himself in the scenario of the retirement of a partner. The retiring partner is liable for outstanding GST until his retirement.
All of this information is for educational purposes. Do not consider this as any kind of suggestion or advice. It would be best if you discuss these topics with an expert before making a major decision because they are subject to change.
The government has created an Online portal for GST i.e www.gst.gov.in which is popularly known as the GST Portal/ GSTN portal that helps many sorts of services for taxpayers right from getting GST registration, traversing by GST Return filing, application for refunds, and applying for cancellation of GST registration.
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