Amid slowing economy, new input tax credit rules could stifle GST refunds

Experts feel that the idea is to force business houses to get their suppliers to upload their bills and receipts as soon as possible so that they can claim input credit.

Published: 12th October 2019 07:30 AM  |   Last Updated: 12th October 2019 09:26 AM   |  A+A-


For representational purposes.

Express News Service

NEW DELHI: In a move that is likely to impact the cash flow of businesses, which are already battling a slowing economy, the government has capped the input tax credit registered entities can claim under GST at 20 per cent.

There was no such restriction till now and GST refunds could be claimed on the basis on self-assessment.

While the government seeks to check false claims and plug revenue leakages by tightening norms, the new rules will increase the workload of assessees.

To avail full input credit, the entire eligible amount must now be supported by relevant invoices uploaded by suppliers.

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"The idea is to force business houses to get their suppliers to upload their bills and receipts as soon as possible so that they can claim input credit. Time gaps between the two actions mean loose ends and a lot of fake credit claims," said Sumit Dutt Majumder, former chairman, Central Board of Excise and Customs
He noted that the disruptive measure will cause initial hardship to businesses, especially small businesses that do not have the clout to force suppliers to comply with law. 

"The move will not impact those businesses that regularly check with their vendors. It was initiated after multiple deliberations with tax officials. This will improve compliance," said a senior finance ministry official.

According to Pratik Jain, national leader (indirect taxes) at  PWC India, the move was long overdue.  “The government had taken an in-principle decision at the beginning of the GST exercise to place the burden of checking of compliance by vendors on businesses. It could not enforce this initially because of technical glitches. It is doing so now."

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Analysts warn the Centre’s decision to cap the input tax credit to 20 per cent will adversely impact working capital available with businesses and may increase their borrowings, besides increasing their compliance costs, as manpower will have to be deployed to prompt suppliers to do timely filing.

"It appears that the 20 per cent condition is to be complied with each month. Taxpayers may still decide to pursue reconciliations on a yearly basis to reduce their compliance costs. If they do so, then money will get stuck down the chain and businesses' interest cost arising from borrowing working capital will go up," said Harpreet Singh, partner, KPMG.

Revenue officials admit the move will work down the chain as large businesses, whose credit government withholds, will then withhold part or full payments to suppliers.

“Businesses will have to now bifurcate eligible credit and credit where a supplier has not uploaded the invoice. They will have to then pursue errant suppliers to ensure they upload timely,” said Archit Gupta, CEO, Cleartax.


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