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Key Indirect Tax and GST Changes from India's 2019 Union Budget

The 2019 Union Budget introduced significant indirect tax reforms, including a 2% interest subvention for GST-registered MSMEs on certain loans to boost small businesses. A new "Sabka Vishwas" scheme was announced to resolve long-standing pre-GST tax litigations, offering substantial relief on disputed amounts. Furthermore, the budget adjusted basic customs duties on various imported goods to support domestic industries and increased excise duties on petrol, diesel, and tobacco products. Retrospective service tax exemptions were also provided for specific services by state governments and IIMs.

📖 3 min read read🏷️ Budgetary Changes

Key Indirect Tax and GST Changes from India's 2019 Union Budget

The Union Budget presented on July 5, 2019, introduced several significant announcements regarding indirect taxes.

Interest Subvention for GST-Compliant MSMEs

The government allocated ₹350 crore for the fiscal year 2019-20 to provide a 2% annual interest subvention. This benefit applies to fresh or incremental loans for Micro, Small, and Medium Enterprises (MSMEs) that are registered under GST and apply through psbloansin59minutes.

Eligibility and Procedure Highlights:

  • Loan Type: The interest subvention is available for incremental or fresh term loans, or additional working capital, sanctioned during FY 2018-19 (from November 2, 2018) or FY 2019-20.
  • Application Process: Businesses must register on the psbloansin59minutes website using a mobile number and OTP. The entire loan application, verification, sanction, and disbursal process is conducted online and is faceless.
  • Credit Limit: The interest subvention applies to loans with a maximum credit limit of ₹1 Crore for an MSME. However, MSMEs can still apply for business loans up to ₹5 Crore from SIDBI or five other public sector banks via the website.
  • Collateral and Rates: No collateral is required, and interest rates begin at 8% per annum under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme.
  • Required Documents for Existing Businesses: Applicants need to submit their GSTIN, GST Username and OTP; Income Tax Returns (ITR) in XML format; bank statements for the last six months in PDF format (up to three accounts); details of directors, partners, or the proprietor; and information related to the loan requirement.
  • Approval and Disbursal: In-principle approval is provided within 59 minutes of application, with disbursal typically occurring within 7-8 working days.
  • Credit Assessment: The system employs advanced algorithms to assess credit eligibility by analyzing the borrower's history of statutory compliances, including IT returns, GST filing data, and bank statements. Therefore, GST compliance can significantly improve eligibility for these loans.
  • GST Portal Consent: The GST portal's dashboard includes an option for GST-registered MSMEs to consent to sharing their GST details with psbloansin59minutes.com.

Panel Formed to Resolve Pre-GST Tax Disputes

A new initiative, the “Sabka Vishwas Legacy Dispute Resolution Scheme,” is set to launch to address and conclude pending litigations under the central excise and service tax regimes. This scheme operates on a dispute resolution and amnesty model. The Finance Minister highlighted in the 2019 Union Budget that over ₹3.75 lakh crore was blocked in pre-GST tax disputes. The scheme aims to expedite the legal process for pre-GST cases with unresolved ambiguities that are still pending before tribunals. Under this scheme, relief is offered through a reduction in tax dues, ranging from 40% to 70% of the disputed amount, for all cases except those voluntarily disclosed.

Exclusions:

  • Cases already pending before a settlement commission.
  • Cases where parties have faced conviction.

Additional benefits include a waiver of interest and penalties upon full payment of the reduced tax dues, and immunity from prosecution.

Adjustments to Basic Customs Duty on Imports

Basic customs duty on certain imported goods was revised to ensure a level playing field for domestic industries. Conversely, duties on several imported items used as inputs by domestic manufacturers were reduced. Notably, the basic customs duty was increased on items like gold, silver, and other precious metals. Conversely, duty reductions were applied to CRGO sheets, amorphous alloy ribbon, ethylene dichloride, propylene oxide, cobalt matte, naphtha, wool fibers, inputs for manufacturing artificial kidneys and disposable sterilized dialyzers, and fuels for nuclear power plants. Furthermore, customs duty exemptions were granted for capital goods necessary for manufacturing specific electronic products. To foster the domestic production of electric vehicles, certain imported components for these vehicles are now duty-free. Similarly, a 5% customs duty was imposed on imported books to support the domestic publishing and printing industries. To enhance India's defense capabilities, imports of defense equipment not manufactured domestically are exempt from basic customs duty.

Increased Excise Duty on Fuel and Other Goods

The Finance Minister proposed an increase of one rupee per liter in both the special additional excise duty and the road and infrastructure cess on petrol and diesel. This adjustment was justified by a marginal reduction in global oil prices. This announcement raises questions about the Central Government's plans to eventually include petrol under GST, potentially eliminating central and state levies. Other minor excise rate adjustments were announced for tobacco products and crude oil, which will now attract a nominal basic excise duty based on specific categories (e.g., ₹10 per thousand, 5 per thousand, 0.5%, 1%, ₹0.05 per thousand, ₹0.10 per thousand). This decision addresses industry representations concerning the levy of a natural calamity and contingent duty despite the absence of basic excise duty on these items.

Additional Retrospective Service Tax Exemptions

Retrospective exemptions were granted under service tax law for specific services, as detailed below:

Nature of ServiceService ProviderPeriod of Exemption
Granting a liquor license against a license fee or application fee.State GovernmentApril 1, 2016 – June 30, 2017
Educational programs for students (excluding Executive Development Programs and specific IIM programs: 2-year full-time PGD programs in Management based on CAT results; Fellow program in Management; 5-year integrated program in Management).IIMs, following Central Government guidelinesJuly 1, 2003 – March 31, 2016
Granting a long-term lease (30 years or more) on plots designated for infrastructure in financial businesses, where consideration is received as an upfront amount.State Industrial Development Corporations or Undertakings, or any other entity with 50% or more ownership by Central/State Government or Union Territory, to developers in industrial or financial business areasOctober 1, 2013 – June 30, 2017

Frequently Asked Questions

What is GST and why was it introduced in India?
GST (Goods and Services Tax) is a comprehensive indirect tax introduced in India to replace multiple cascading taxes levied by central and state governments. Its primary objective was to streamline the tax structure, reduce complexity, and create a unified national market, thereby boosting economic growth and improving ease of doing business.
What are the different types of GST in India?
In India, there are four main types of GST: CGST (Central Goods and Services Tax) levied by the Central Government, SGST (State Goods and Services Tax) levied by State Governments, IGST (Integrated Goods and Services Tax) levied by the Centre on inter-state transactions and imports, and UTGST (Union Territory Goods and Services Tax) for Union Territories without a legislature.
How does Input Tax Credit (ITC) work under GST?
Input Tax Credit (ITC) allows businesses to claim credit for the GST paid on purchases of goods and services that are used for business purposes. This credit can then be used to offset the GST payable on their outward supplies (sales), effectively preventing a cascading effect of taxes and reducing the overall tax burden for businesses.
What is the GST registration threshold limit for businesses in India?
The GST registration threshold limit in India varies depending on the nature of goods or services supplied and the state where the business operates. Typically, for goods suppliers, it's ₹40 lakh (with some exceptions like special category states), and for service providers, it's ₹20 lakh. However, these limits can be lower in certain states or for specific types of businesses.
How often are GST returns required to be filed by businesses?
The frequency of GST return filing in India depends on a business's turnover and chosen scheme. Most regular taxpayers with an annual aggregate turnover above ₹5 crore file monthly returns (GSTR-1 for outward supplies and GSTR-3B for summary). Smaller businesses or those opting for the Quarterly Return Monthly Payment (QRMP) scheme can file quarterly returns.

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