GST Council cuts rates on 82 items, introduces measures against tax evasion, gears up for simple return filing

The decision on inclusion of real estate in GST has been deferred.

Rates of goods such as bio-diesel, packaged drinking water, drip, irrigation system, bio-pesticides, among others have been brought down to 12 percent from 18 percent. Diamonds and precious stones will now attract 0.25 percent GST instead of 3 percent, while vibhuti and de-oiled brown rice will attract nil tax.

Similarly, rates of 53 categories of services will now attract lower tax. However, out of these, finance ministry has also made clarification on certain services.

While the change in rates will be applicable from January 25, overall, the rationalisation exercise  will have an impact of Rs1,000-1,200 crore annually.

“Rates have again been rationalised on few items, which  is a step in the right direction.  One would expect that over next few months, this process would continue, particularly with respect to 28% category, which should only be for select luxury and demerit products.  In many cases like works contract services or used motor vehicles the reduction of rate might have been due to restriction of input credit. Therefore, there is a good case to further liberalise the input credit regime,” Pratik Jain, Leader Indirect Tax at PwC said.

A ministerial group headed by Bihar finance minister Sushil Modi, information technology committee headed GST Network (GSTN) chairman Ajay Bhushan Pande and Nandan Nilekani put forth possible outcomes towards making the return filing process less complex.

“GSTR3B will be continued, but sellers or suppliers will have to upload their invoices (separately via different form),” Jaitley's said.

The finance minister indicated that in the future a single stage return filing will be introduced to reduce compliance burden and ease procedures for businesses.

This would mean that the three key return forms — GSTR1 (outward supply), GSTR2 (inward supply) and GSTR3 (the final netted out return) —will be consolidated into a single form.

However, businesses will continue to file GSTR3B and GSTR1 till the new mechanism is announced and similar changes are made in the software.

“It appears nearly certain that 1 return will be launched instead of GSTR-1,2 and GSTR-3. This would be significant simplification in the number of times a business needs to do compliance for GST. However, details are still awaited on how this single return will be and the information that will have to be reported,” Archit Gupta, CEO of ClearTax said.

Since its implementation from July 1, the new indirect tax system has faced mounting criticism owing to the teething troubles including lack of clarity on return filing, errors in invoice matching, and major technical snags on the information technology portal GST Network (GSTN), among others.

The government has also, time and again, extended return filing dates. In a bid to ease compliance and simplifying procedures, in November, the Council allowed tax assessees to file only two sets of forms — GSTR1 and GSTR 3B. In October, it was decided that small taxpayers with an annual turnover of less than Rs 1.5 crore would file quarterly returns (once in three months), while those with a higher turnover would file monthly returns.

In the Council meeting, it was reaffirmed that e-way bill system would be rolled out from February 1 and 15 states are on board for obtaining intra-state bill, Jaitley's said.

“It is necessary to build an anti-evasion measure. Towards this, e-way bill will be an important step,” Jaitley said.

The recommendations of the law review committee was also considered by the Council and 40-50 amendments will be made in the GST-related laws — State GST, Integrated GST and Centre GST.

One of key recommendations of the law review committee was to re-introduce reverse charge mechanism (RCM) only for dealers under composition scheme.

Reverse charge is a mechanism where the recipient of the good or service will have to pay GST, which is otherwise paid by the supplier. The charge is applicable on a registered dealer, if he buys goods from a dealer not registered under GST. However, the receiver of the good is eligible for input tax credit, while the unregistered dealer is not.

While registered taxpayers were not willing to take the burden of paying tax, small or unregistered taxpayers would have run out of business if registered dealers did not buy goods from them. Keeping this in mind, GST Council in October had deferred the mechanism till April 1.

Bringing composition dealers under RCM is a crucial anti-evasion measure as tax officials have found such dealers trying to escape paying taxes.

Infact, out of 17 lakh taxpayers under composition scheme, only RS 307 cr tax was collected during the quarter ended July, Jaitley said.

A report on items falling under the definition of handicrafts has also been accepted by the Council. Further, the fitment committee will fix rates of 40 handicraft items, he added.
Close to RS 35,000 cr from IGST will also be provisionally divided by the Centre and the states.