Council, apart from deciding to meet again on October 12 to thrash out an agreement on the compensation issue, also took a number of decisions that will not only ease the compliance burden on most taxpayers, but also make the overall input tax credit (ITC) system more robust and accurate. These decisions range from relaxing the periodicity of return filing for small taxpayers
to increasing the amount of information demanded from larger taxpayers.
How has the compliance burden eased?
In March 2020, the GST Council
had decided to gradually incorporate additional features into the existing return filing system based on the GSTR-1 and the simplified GSTR-3B forms. That phased exercise has now begun in earnest.
The decisions taken on Monday will create a system where the summary GSTR-3B form would almost entirely be auto-populated by the details filled in the GSTR-1 form. In other words, the tax filer would have to fill in just one form, and not two.
The system would also enable the taxpayers
to see how much ITC they have available in their electronic credit ledger from all sources (domestic supplies, imports, et cetera).
To achieve this, eligible taxpayers will, from January 1, 2021, have to file their quarterly GSTR-1 forms by the 13th of the month succeeding the quarter they are filing for.
Once this is done, the system will auto-populate the GSTR-3B form with not only the information in the taxpayers’ own GSTR-1 forms but also, from April 1, 2021, with information from the suppliers’ GSTR-1 forms.
So, the GSTR-3B form will automatically have all the taxpayer’s data plus the relevant data from the suppliers. This will make calculating the input tax credits easier and more accurate for the taxpayers as well as the government.
In what should also come as a relief for smaller taxpayers, those with an aggregate annual turnover of less than Rs 5 crore can soon file returns on a quarterly basis (instead of monthly) with an option to pay 35 per cent of the net cash tax liability of the last quarter using an auto generated challan in the first two months of the quarter.
How has the input tax credit system been made more robust?
The auto-population of the GSTR-3B form using the taxpayers’ and suppliers’ data is one major way that the ITC system would become more robust. So far, the Council has gone easy on this kind of verification of supplies, giving taxpayers the benefit of the doubt as they come to terms with the new tax system.
The other major decision that will make the input tax credit system more accurate and robust has to do with the Harmonised System of Nomenclature (HSN) and the Services Accounting Code (SAC). Each item comes with an internationally-accepted HSN code (an SAC in the case of services), which makes clear the category it belongs to, the sub-category, and what exactly it is. The length of the number (four-digit, six-digit, eight-digit, etcetera) determines how detailed this information is.
From April 1, 2021, taxpayers with an annual turnover of more than Rs 5 crore will have to provide the 6-digit HSN code/SAC for their supplies. Those with a turnover of up to Rs 5 crore will have to provide the 4-digit codes for their B2B supplies. The government is empowered to notify a list of supplies for which the 8-digit code will be required by all taxpayers.
This move is ostensibly to ensure that taxpayers receive the correct amount of input tax credit due to them, but it will also ensure that taxpayers don’t inflate their supplies and claim extra credits.
Another decision to ensure taxpayers remain honest with the government is to make PAN and Aadhaar linkages mandatory for the bank accounts the taxpayers want their credits transferred to.
This, the government said, was to discourage companies from taking the credits and disappearing shortly after.