Union Budget 2022 and GST

For taxpayers, it’s been a mixed bag.

The Budget’s GST provisions should be dissected in two parts: the Finance Minister’s speech and the proposed revisions to GST laws.

The contrast between the two is striking: the Budget speech waxes poetic about how GST has been a success, yet the amendments continue to place new constraints on taking use of input tax credits and filing returns. In an unusual event, the Finance Minister strayed from the script and revealed extempore that GST returns for January 2022 totaled $140,000 crore, a new high.

When you consider that a large percentage of taxpayers were either sick or recovering from Omicron in January 2022, the figure appears to be excessive. Artificial limits on input tax credit (requiring taxpayers to claim credit only for input invoices that appear in GSTR 2B) and aggressive tax collection by the Department (pay now, pay later) have undoubtedly contributed to the Department’s record revenue collections.

These figures are likely to have encouraged the Finance Minister to predict a nearly 16 percent increase in GST in the Budget Estimates for 2022-23, bringing the total to $660,000 crore. Budget projections for 2022-23 should be confronted with an even heavier dose of the same medicine: limits and severe assessments. Many taxpayers and their advisers who contact the Department on a regular basis would disagree with the fact that GST regulations have now become progressive and totally IT-driven, as stated in the Budget address.

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The Modifications

The proposed GST modifications are a mixed bag of good and unfavourable measures. If taxpayers do not file their returns for three months, they risk losing their registration (Section 29).

The expansion of the time limit for issuing credit notes from September to November of the financial year is one of the advantageous clauses. While taxpayers would have applauded this provision, their sole query would have been, “Why not December?” Similarly, the deadlines for correcting errors in return filing have been extended until November.

When GST was first established, the “matching concept” was offered, but it never really took off. By altering the parts that required a two-way dialogue procedure, Budget 2023 nips this in the bud. In other words, taxpayers can only claim input tax credit on invoices that are both in their books of account and automatically populate GSTR 2B. Budgets have virtually become accustomed to include measures that have retroactive effect.

The Tax Department has been displaying and attempting to explain Section 50(3) of the CGST Act, which imposes a 24 percent interest penalty for any unreasonable or excessive claim of input tax credit. The Section has also generated some substantial revenue. The Budget, hoping for a windfall, makes the Section effective on July 1, 2017. They also ensured that the SGST and UTGST Acts were amended in the same way. Late fees will be charged if returns are not filed on time.

In terms of GST modifications, annual budgets are not intended to make substantial announcements – that is the work of the GST Council. With Council sessions becoming increasingly rare, annual budgets might be utilised to introduce urgent revisions.

Budget 2023 lost a trick by not taking a page from the Direct Taxes provisions in the same Budget in terms of decreasing litigation and applying it to GST. Different jurisdictional authorities for Advance Rulings (AARs) on the same GST query have offered opposing opinions. Budget 2023 may have included a mechanism to address this problem. Taking more and giving less could become a common theme in annual budgets.