Knowledge Base

Changes to GST rules

GST was adopted by India to counteract the tedious complications arising out of indirect taxes. The current GST model comprises of two components viz. the Central GST to be levied and collected by the Centre and the State GST to be levied and collected by the respective States. This will benefit both the Central and the State governments. Since GST subsumes indirect taxes, the process of raising taxes and sending goods for transportation have been simplified. Manufacturers or traders especially who need to send good from one state to another find the GST process simpler than the earlier tax regime of VAT, interstate tax, and other complicated taxes. Filing of GST is easy as well - there is no need to visit any office as everything is online. The current GST slabs are 5%, 12%, 18% and 28%; it is expected that after the GST model stabilizes there will be a single tax slab for everything. As of now, certain products like petroleum, most food items, some raw material do not come under the purview of GST. There are various criteria for filing GST, depending upon your turnover, your citizenship status and the goods or services that you deal in. The Central Board of Indirect Taxes and Customs (CBIC) comes under the Department of Revenue, Ministry of Finance, GoI, and is responsible for GST policies. In an effort to streamline the GST process, the CBIC constantly refines its policies. Effective Jan 2021, there will be certain changes that will affect the GST process. Here are the salient revisions:

1. Reduction in Input Tax Credit
Input Tax Credit is the tax that a business pays on a purchase and that it can use to reduce its tax liability when it makes a sale. Say you are a GST and income tax consultant and raise invoices with GST added to them. Once the client pays the invoices, you need to transfer the GST you have collected to the government. If, in this period, you have paid any vendor bills that had a GST component, you are eligible to deduct that GST component from the net GST payable. In other words, businesses can reduce their tax liability by claiming credit to the extent of GST paid on purchases. Under the previous indirect tax regime of levy of Service Tax, VAT, Excise – a lot of input tax credit was not properly utilised, GST redresses that lacuna. As per the sub-rule (4) inserted in rule 36 of the Central Goods and Service Tax Rules, 2017, a taxpayer filing GSTR-3B can claim input credit tax only to the extent of 5% of the eligible credit available in GSTR-2A. The amount of eligible credit is arrived upon those invoices or debit notes, the details of which have been uploaded by the suppliers in the GSTR-2A only. The new percentage applies from 1 January 2021 onwards. The input tax credit claim was earlier restricted to 10% between 1 January 2020 and 31 December 2020 whereas it was 20% for the period from 9 October 2019 till 31 December 2019.

2. Change in Quarterly Return
While the reduction in the GST’s input tax credit may not be up to everyone’s liking, the reduction in the frequency of filing returns will be welcomed by most. In the context of GST, 'small businesses' are defined as those who have a turnover of Rs. 5 crores or less per year. As per the new revisions, as of Jan 1, 2021, these firms will need to file only four returns showing the summary of all transactions in the quarter. That is, instead of filing one return per month, they will need to file only 4 returns in a year. As per the current GST base, this will be benefit more than 9 million small businesses. They will now have the option to file their GSTR-1 and GSTR-3B returns quarterly beginning January-March 2021 period. The monthly GST can be paid by both pre-filled challan and cash ledger. Another benefit that is offered to GST taxpayers is that the quarterly GSTR-1 and GSTR-3B can also be filed through an SMS from the mobile registered with the GST portal. This will also reduce the charges that are paid to GST consultants as their workload will reduce.

3. Change to e-Way Distance
E-way bill will now be valid for 1 day for every 200 km of travel, as against 100 km earlier, in cases other than Over Dimensional Cargo or multimodal shipment in which at least one leg involves transport by ship.
For every 200 km. or part thereof thereafter, one additional day will be allowed.

4. Special procedure for making payment of 35% as tax liability in first two months by small taxpayers
Registered Persons notified under proviso to sub-section (1) of Section 39 of the CGST Act, who have opted to furnish a return for every quarter or part thereof, may pay the tax dues in first month or second month or both months of the quarter under proviso to Section 39(7) of the CGST Act, by way of making a deposit of an amount in the electronic cash ledger equivalent to,

  • 35% of the tax liability paid by debiting the e-cash ledger in the return for the preceding quarter where the return is furnished quarterly; or
  • The tax liability paid by debiting the electronic cash ledger in the return for the last month of the immediately preceding quarter where the return is furnished monthly

5. Time limit for filing Form GSTR-1
Extends the time limit for furnishing the details of outward supplies in Form GSTR-1
Quarterly GSTR-1: If opted in for/ by default
Quarterly Return Filing and Monthly Payment of Taxes: on the 13th day of the next month succeeding such quarter

6. E- Invoicing
It is now mandatory to register all tax invoices, credit notes and debit notes with the invoice registration portal for those whose aggregate turnover is over Rs. 100 cr. It will also be necessary to mention the IRN number along with QR code on these documents.

Note: The information furnished in this article is compiled from various sources, and no claim is made about its accuracy. Neither does it constitute professional advice or recommendation from Levare Consultants Pvt. Ltd. Neither the author nor the company and its affiliates accept any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon. For updated information, please visit the official GST portal or the Central Board of Indirect Taxes and Customs, India website.