CBIC cleared Misconceptions about 1% cash payment of GST liability under Rule 86B
Central Board of Indirect Taxes and Customs (CBIC), has introduced new Rule 86B. This rule will restricts the use of input tax credit for discharging GST liability to 99 per cent. That means 1% of GST liability will be paid through cash not by ITC. It is applicable from January 1, 2021.
However, many misconceptions about recently amended Goods and Services Tax (GST) rules were in the air. CBIC issued series of Tweets to bring out the reality about the Misconceptions. CBIC said the rule will be applicable to only 0.5 per cent of the total taxpayers base of 1.2 crore. Some had earlier raised objections that this rule will affect a large number of taxpayers. The misconceptions and their reality are as follows-
1. Misconception that large number of taxpayers would be affected.
CBIC said that this rule provides for various exemptions like exporters, suppliers of goods of inverted duty structure, taxpayers having a footprint in the income tax database etc. It is expected that new rule will be applicable to only 0.5 per cent of the total taxpayers base of 1.2 crore. This clearly identifies where the risk to revenue is high and imposes deterrence to the fraudsters in a multi-layered fraud of passing fake ITC. It added the rule will help to control those who issue fake invoices and show high turnovers but have no financial credibility and flee after misusing ITC without payment of any tax liability in cash.
2. Misconception that 1% cash liability rule will create huge burden on small businesses by increasing their working capital requirement
CBIC said the cash payment of 1 per cent is to be calculated on the tax liability in a month and the turnover of the respective month. In fact, it amounts to only 0.01 per cent of turnover. For example,, if a dealer has made sale of Rs 1 crore of goods whose tax rate is 12% and if he is discharging his tax liability more than 99% through ITC, then he has to pay only Rs 12,000 under this rule. On the other hand, a composition dealer would have paid Rs 1 lakh in cash with this volume of sale.
3. Misconception that rule 86B will adversely affect the micro and small business
CBIC clarified that the rule does not apply to micro and small business and composition dealers. The new provision which restricts the use of ITC for discharging output liability is applicable to the registered person whose value of taxable supply other than exempt supply and export in a month exceeds Rs 50 lakh, that means those annual whose turnover is more than Rs 6 crore.
4. Misconception that all registered person will be required to pay 1% cash liability.
The CBIC said the rule 86B only applies to those whose value of taxable supply, other than exempt supply and export, in a month exceeds Rs 50 lakh or Rs 6 crore in a year. This rule is not applicable where GST registered person –
- has deposited more than 1 lakh Rs as income tax in each of the last two years.
- has received the refund of more than Rs 1 lakh in the preceding financial year on account of export or inverted tax structure.
- have paid output tax through cash in excess of 1% of total output tax liability applied cumulatively up to the month in the current financial year.
- is a government department PSU local authorities statutory body.
5. Misconception that new rule 86B will adversely affect genuine taxpayer
CBIC, clearing the misconception said, this rule is only applicable to taxpayer having taxable supplies or more than Rs 50 lakh in a month, which amounts to an annual turnover of more than Rs 6 crore.
Beside the registered person failing in any other exempted category including paying Rs 1 lakh as income tax in each of the last two financial year or having received refund for more than Rs 1 lakh in the previous year on account of export inverted duty structure etc are also out of the purview of this rule. With this exemption and condition and precise targeting the requirement of mandatory payment of at least one percent of tax liability in cash would apply only to risky or suspicious taxpayer and genuine taxpayers would remain excluded.
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