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The Goods and Service Tax (GST) Council will consider at its meeting on Friday proposals for lowering the maximum penalty payable by businesses for delayed tax returns.

A panel of central and state officials which makes recommendations to the federal indirect tax body has found that the burden of late fee as a share of the tax liability is higher for small businesses than bigger ones.

Accordingly, the panel has suggested that the maximum late fee for filing monthly summary of transactions (form 3B) be lowered to 500 from 10,000 now for businesses with no tax liabilities.

This applies to all businesses irrespective of turnover, said a person briefed about the discussions in the government.

In the case of those with a tax liability, the recommendation is to cap late fee at 2,000 for those with annual sales up to 1.5 crore and at 5,000 for those with sales between 1.5-5 crores, the person said on condition of anonymity. For small firms filing returns on a quarterly basis, the proposal is to cap late fee at 500 if there is no tax liability and, otherwise, at 2,000.

While this relief will be available prospectively, there will be a special window for filing all pending returns of transactions (form 3B) from July 2017 to April 2021, which may run for a limited period with the late fee relief.

The idea is to ease the burden of late fee on businesses, which is especially high on small businesses, and encourage compliance.

While consensus is expected in the Council on giving compliance relief, a heated debate is expected on the issue of reducing taxes on medical supplies needed for covid-management.

State ministers are pitching for steep tax cuts in covid-related medical supplies that go beyond normal GST practices.

Another panel of central and state officers that examines tax rate-related proposals to be placed before the Council—called the fitment committee—has already told Council members that outright exemption or zero rating of locally made covid vaccines cannot be considered.

There is political pressure from states, especially those ruled by parties other than the Bharatiya Janata Party, to transcend technicalities and take steps that are warranted given the enormity of the covid-19 pandemic which has already claimed over 311,000 lives— as per official estimates. Unofficial estimates are much higher.

Punjab finance minister Manpreet Singh Badal has urged finance minister Nirmala Sitharaman to address the high taxes on some of the medical supplies used in covid care. West Bengal finance minister Amit Mitra has also written to Sitharaman hoping that the GST Council chaired by her would rise to the occasion in addressing the covid crisis, going beyond technicalities and bureaucratic approaches. Mitra proposed zero rating of GST for all covid-relevant material, equipment, drugs and vaccines.

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