Business With a Monthly Turnover of Over Rs.50 Lakh Gets to Pay 1% GST Liability in Cash

The finance ministry has announced that now on the businesses with a monthly turnover of over Rs 50 lakh would have to pay a minimum of one percent of their GST liability in cash and this move has been initiated to curb evasion by fake invoicing.

The Central Board of Indirect Taxes and Customs (CBIC) has announced that certain modifications have been made to the Goods and Services Tax (GST) Rules, bringing in stringent conditions for getting GST registration as well as for businesses to settle tax liability using the input tax credit.

The CBIC has introduced Rule 86B in GST Rules, to be applicable from January 1, 2021, which restricts the use of input tax credit for discharging GST liability to 99 percent.

The CBIC states, " The registered person shall not use the amount available in electronic credit ledger to discharge his liability towards output tax over 99 percent of tax liability, in cases where the value of taxable supply ... in a month exceeds Rs 50 lakh." It further adds, "There has been some misinformation on the recent rule changes on the social media causing confusion among the genuine taxpayers."

However, this restriction will not apply where the managing director or any partner has paid more than Rs 1 lakh as income tax or the registered person has received a refund amount of more than Rs 1 lakh in the preceding financial year on account of any unutilized input tax credit.

Finance Minister Nirmala Sitharaman has tweeted, "In order to curb the GST fake invoice frauds, the Govt on the recommendations of the GST Council's Law Committee has issued a notification to deal with the menace of fraudsters who avail & pass on ineligible ITC by fake or fly-by-night firms."

"Precise targeting of fraudsters is being done only in specific cases, after doing a comprehensive analysis, using advanced data analytics tools etc. Further, multiple risk indicators are checked and only then few high-risk entities are selected," states CBIC.

Abhishek Jain, EY Tax Partner states, "the government has put restrictions on seamless input credit utilization with introduction of Rule 89B, which blocks utilization of ITC beyond 99 percent of the output liability, for businesses having taxable turnover of more than Rs 50 lakh per month." He adds, "With the government providing reasonable exceptions to this rule, the idea remains to prevent misutilisation of credit by businesses taking fake credits."