GST rules will get tightened from January 1st


From January 1, the central government will implement a dozen amendments to the Central Goods and Services Tax (CGST) Act, tightening the indirect tax regime even more.

Even though the implementation date was recently announced the amendments were included in the Finance Act 2021, which was passed by Parliament earlier this year.. The changes affect a wide range of issues, including what constitutes a taxable supply, tax credit eligibility, and the rules for filing appeals in certain situations.

Transactions by a person other than an individual to its members or constituents for cash, deferred payment, or other valuable consideration will be treated as a taxable supply, according to one of the amendments. The same rules will apply to transactions between members and the entity.

Experts stated that, this would mean that GST will be applicable to all clubs and associations on their member transactions.

Another provision, which takes effect in January, tightens the rules for granting tax credits for raw materials and other services purchased by businesses. The buyer cannot claim credit for the taxes paid on an item if the seller does not disclose the invoice details in his monthly sales return (in form GSTR-1).

To combat tax evasion, the federal and state governments have tightened the rules on tax credits. While errant firms using fake invoices have been a source of indirect tax evasion for the government, the tighter tax credit rules require businesses to ensure that their suppliers disclose transaction details in their monthly sales returns.

The goal is to improve tax compliance by effective reporting requirements and technology. These will also encourage businesses to buy materials and services from reputable and law-abiding suppliers.

In cases where goods are seized for alleged storage or transportation in violation of the rules, businesses will be required to pay 25% of the penalty if they appeal against officials’ orders. This provision also takes effect on January 1st.

Rajat Mohan, senior partner with AMRG & Associates, an accounting firm explained “These changes, among other things, would strengthen the recovery of taxes, provisional attachment of assets, tighten eligibility of tax credit, empower jurisdictional commissioner to call for information from any person on any matter, and widen the tax net on clubs/associations”.

The move comes when central and state governments are exploring GST system reforms. GST system reforms are being worked on by a ministerial panel led by Maharashtra Deputy Chief Minister Ajit Pawar.

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