The Central Board of Indirect Taxes and Customs (CBIC) has made it mandatory for businesses with a monthly turnover of more than Rs. 50 lakh to pay at least 1% of their Goods and Services Tax (GST) liability in cash. It will be effective from 1st January 2021.
♦ The new rule restricts the use of Input Tax Credit (ITC) for discharging GST liability to 99%.
♦ So far, CBIC has booked about 12,000 ITC fraud cases and arrested 365 people so that this move will stop tax evasion through false invoices.
♦ Provide ITC to offset taxes on the purchase of raw materials, consumables, goods or services used to manufacture goods or services. This helps avoid the cascading effect of taxes and double taxation.
♦ This restriction does not apply to the following situations:
– The general manager or any partner paid more than Rs. 100,000 income tax, or
– The registered person has received a refund amount of more than Rs. 100,000 in the preceding financial year on account of unutilised input tax credit.
– This accounts for only 0.37% of the total number of companies registered in the GST system.
– In the total base of 12 billion GST taxpayers, only about 400,000 monthly supplies are worth more than Rs. 5000000
– Among them, only about 1.5 lakh pay less than 1% of their GST liability in cash, and when exclusions in the rule are applied, around 1.05 lakh taxpayers get further excluded.
– Therefore, the rule only applies to 40,000 to 45,000 taxpayers.
♦ Criticism: People are worried that mandatory cash payments will adversely affect small businesses, increase their working capital needs, and make GST a more complicated indirect tax system.
Central Board of Indirect Taxes and Customs:
It is part of the Department of Revenue under the Ministry of Finance. The Central Board of Excise and Customs (CBEC) was renamed as the CBIC in 2018 after the GST rollout. It is responsible for formulating policies related to tariffs and collections, Central excise duties, Central GST (CGST) and Integrated GST (IGST).