Budget 2022’s GST adjustments foreshadow harsher laws to come.
Nirmala Sitharaman, the Finance Minister, has announced her second budget since the COVID-19 pandemic began. She opened her address by praising India’s 9.2% GDP growth rate, which is the highest among global economies. She also stated that this year’s Union Budget will create the groundwork and blueprint for the economy for the next 25 years.
There was a significant focus on digital reforms across education, health, taxation of digital assets, and the launch of e-services, in addition to the fact that it was a digital budget. Agriculture, startups, e-vehicles and energy, defence, healthcare, infrastructure, and housing were among the sectors that experienced a wave of recovery measures.
In terms of GST, the FM stated that despite the pandemic, income has been strong, with a record receipt of Rs.1,38,394 crore gross GST revenues in January 2022. Since the commencement of GST, this has been the largest ever collection.
GST Law
The Central Goods and Services Tax (CGST) Act was intended to be amended in the Union Budget 2022. The deadline for amending, correcting, or uploading missed sales invoices or notes, as well as claiming missed input tax credit, has been moved from September to November of the following year.
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Section 29 of the CGST Act was changed to allow an officer to cancel a GSTIN. A composition taxpayer’s registration may be revoked if they fail to file an annual return for three months after the 30th April deadline the following year. For other taxpayers, a six-month consecutive return filing default has been replaced by a consecutive tax period default, if applicable.
A new sub-section in Section 37 stipulates that taxpayers will be barred from providing details of outward supplies for a tax period if the same information is pending for any preceding tax period. In keeping with this logic, Section 39 has been changed to prevent taxpayers from filing a Section 39 return if their Section 37 return is still pending.
Section 38, which governs the provision of inward supplies, has been altered to eliminate the reference to the former GSTR-2 and replace it with GSTR-2A and 2B. ‘Communication of details of inward supply and input tax credit’ has been added to the section.
The deadline to file GSTR-5 for non-resident taxpayers under GST has been moved from the 20th to the 13th of the next month.
Sections 42, 43, and 43A, which deal with the matching and reversal of tax credits, are also gone. Once the CBIC has notified the modifications to the GST law, they will take effect.
Duties on Customs
Faceless Customs is now completely operational in terms of customs duties. Furthermore, it is planned that over 350 exemption entries be phased away over time. Exemptions on some agricultural products, fabrics, chemicals, pharmaceuticals, and medical gadgets that have sufficient domestic capacity are included.
In order to reduce disputes, the budget proposes simplifying the customs rate and tariff structure for industries such as chemicals, textiles, and metals. Exemptions on things that are manufactured or can be manufactured in India will be removed, in line with the goals of ‘Make in India’ and ‘Atmanirbhar Bharat.’ Concessional duties will also be applied to the raw materials used in the production of intermediary products.
By September 30, 2022, the customs administration of Special Economic Zones (SEZs) will be totally IT-driven and run through the Customs National Portal.
Imports of capital goods and project materials
The Union Budget for 2022 proposes phasing out concessional rates for capital goods and project imports and replacing them with a 7.5 percent mild tariff. This will help the home economy flourish and the ‘Make in India’ strategy succeed. Exemptions for modern machinery that isn’t made in India, on the other hand, will continue.
The effect on businesses
The GST adjustments announced in this budget foreshadow stricter restrictions to come, particularly in the areas of return filing and input tax credit. The GST law has already been amended twice in the new year of 2022, with both changes taking effect on January 1, 2022. Section 16(2)(aa) was added to allow taxpayers to claim input tax credits only if their vendors upload a specific invoice or debit note to their GSTR-1 or Invoice Furnishing Facility (IFF). The beneficiary taxpayer’s GSTR-2B must then reflect this information.
This change was bolstered by Rule 36(4), which was also changed to eliminate the concept of a provisional input tax credit limit. In order to receive input tax credit, taxpayers must must transmit invoices from their suppliers.
The GST law governing outward supplies has also been strengthened by the government. It is now critical that the GSTR-1 and GSTR-3B outward supplies coincide. The GST portal is already sending out error warnings suggesting that if the liability recorded in the GSTR-1 versus the GSTR-3B differs by more than 10%, the GST registration can be suspended. This message also appears if the input tax credit claimed in the GSTR-3B differs by more than 10% from the values auto-populated from the GSTR-2B.
Businesses are under greater pressure than ever to reconcile purchase and sales data more often and in real time. Furthermore, there is an unprecedented reliance on vendors, necessitating more frequent follow-up to pressure them into uploading bills on time. Excessive input tax credit claims may result in demand notices and penalties, while under-claimed input tax credits may have a negative impact on working capital and profitability.
