Experts said the limit for provisional credit where invoices are not uploaded could be raised to make things easier for businesses. (Photo: Pradeep Gaur/Mint)
Experts said the limit for provisional credit where invoices are not uploaded could be raised to make things easier for businesses. (Photo: Pradeep Gaur/Mint)

Govt frames new rules for companies to claim provisional tax credits

  • Move is aimed at checking evasion, revenue leakage at a time when GST revenue growth has been below target
  • The changes will come into force on the date of its publication in the official gazette, which is expected shortly

New Delhi: The government has amended the goods and services tax (GST) rules to limit the provisional tax credits that businesses can claim, if invoices are not uploaded and the tax collected from the buyer not paid to the government, to 20% of the total taxes that they have paid on raw materials and services.

The changes will come into force on the date of its publication in the official gazette, which is expected shortly, according to the notification by the Central Board of Indirect Taxes and Customs (CBIC).

The move is aimed at checking evasion and revenue leakage at a time when GST revenue growth has been below target.

The amendments also imply that after more than two years of handholding businesses, the authorities are invoking the full force of the technology-driven indirect tax system to curb tax evasion. The GST system entails matching of transactions reported by buyers and sellers on a technology platform to ensure that tax rebate is not claimed if tax is not paid to the government in the first place. This is one of the most common ways of tax evasion detected by the authorities.

Under the existing system, businesses can claim full provisional credit based on a self-declaration and any mismatch between the credit claimed by the buyer and what has been reported by the seller that is reflected in an electronic credit ledger can subsequently be reconciled.

The recent amendment takes away this flexibility.

Experts said the limit for provisional credit where invoices are not uploaded could be raised to make things easier for businesses.

Restricting provisional credit to buyers because of some lapse by sellers is an aggressive policy position, according to Archit Gupta, founder and chief executive officer of ClearTax, a taxpayer services firm.

The government has also amended rules retrospectively to treat the monthly summary of transactions filed by businesses as tax return filings.

This could open up a Pandora’s box for businesses that were planning to avail credits for FY18 till the filing of annual return, according to Abhishek Jain, tax partner at EY India.

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