Key Updates to the Central Goods and Services Tax Act in the 2019 Finance Bill

The Finance Bill of 2019 introduced significant changes to the Central Goods and Services Tax Act. This article details the key amendments and their implications for taxpayers registered under GST.

Composition Scheme

A new sub-section now extends a similar Composition Scheme to service providers and mixed suppliers of both goods and services. This scheme is available to those with an annual turnover not exceeding Rs 50 lakhs in the previous financial year.

Two important clarifications have been added:

First, the value of exempt services like extending deposits, loans, or advances, where interest or discount is the consideration, will not be included in the aggregate turnover when determining eligibility for the scheme.

Second, this same principle applies when assessing turnover value within a specific State or Union Territory. Additionally, supplies made from April 1st of the financial year until the taxpayer becomes liable for registration are not to be considered.

This amendment implements the GST Council's commitment to extend the composition scheme to mixed suppliers. It also clarifies that services involving deposits and loans are excluded from aggregate turnover calculations, providing clarity for taxpayers concerned about increased GST composition liability from such services.

Registration

Persons Liable for Registration

For exclusive suppliers of goods, the GST registration threshold has been raised from Rs 20 lakhs to Rs 40 lakhs.

The GST Council proposed this change in its 32nd meeting, effective April 1, 2019, and it has since been approved by Parliament. This amendment benefits small and medium taxpayers, as those who exclusively supply goods now only need to register for GST if their turnover surpasses Rs 40 lakhs.

Procedure for Registration

A new sub-section introduces mandatory Aadhaar authentication for all GST-registered individuals. This provision outlines the authentication process, noting that failure to complete it will result in invalid registration. This requirement also applies to new registrations. Furthermore, Aadhaar authentication is now compulsory for authorized signatories such as Kartas, Managing Directors, or Board of Trustees, as specified by the Government.

The mandatory disclosure of Aadhaar, first under the Income Tax Act and now under the Central Goods and Services Tax Act, highlights the government's increasing reliance on the Aadhaar Card. The government intends to use Aadhaar for both direct and indirect tax administration, while PAN may continue for routine compliances.

Mode Of Making Supplier Payments

A new Section 31A has been added to the CGST Act, requiring specific registered suppliers to offer their recipients prescribed electronic payment methods.

This measure reflects the government's push towards a cashless economy by mandating electronic payment options for certain registered persons and payments. It is also expected to help prevent tax evasion. This aligns with a direct tax amendment requiring businesses with turnovers exceeding Rs 50 crores to provide electronic payment means, with such suppliers not bearing e-payment charges, further promoting digital transactions.

Furnishing Of Returns

Section 39 has been revised to permit certain taxpayers to file returns quarterly rather than monthly, though tax payments remain monthly. Additionally, the sub-section now allows Composition Scheme taxpayers to file annual returns, a change from the previous quarterly requirement, while quarterly tax payments persist.

Small and medium businesses, along with Composition dealers, had previously found GST compliance to be burdensome and costly. The latest Finance Bill update allows a specified class of taxpayers to file a single quarterly return, and Composition taxpayers to file annually. This significantly reduces the compliance burden and costs for these small businesses, who previously had to file up to 24 monthly returns. This change aligns with announcements made during GST Council meetings.

Payment Of Taxes And Interest

Payment of Tax, Interest, Penalty, and Other Amounts

A new sub-section has been introduced in Section 49 to simplify the process for taxpayers. This allows for the transfer of funds from the electronic cash ledger—including amounts for tax, interest, penalties, or fees—to the correct tax heads such as Integrated Tax, Central Tax, State Tax, Union Territory Tax, or cess.

This amendment addresses a long-standing issue for taxpayers who mistakenly paid taxes under the wrong head. Previously, such incorrectly paid taxes could not be utilized and often required re-payment under the correct head. With this new sub-section, all taxes incorrectly paid can now be simply transferred to the appropriate head.

Interest on Delayed Payment of Tax

Section 50 has been modified to impose interest on overdue taxes only on the portion paid in cash, specifically via the electronic cash ledger.

This is a positive development for taxpayers. Previously, interest was levied on the entire unpaid tax amount, even without allowing Input Tax Credit (ITC), if taxes were not paid by the due dates. With this amendment, taxpayers now only incur interest on the cash-paid portion of their tax liability, thereby reducing their overall tax burden. However, this benefit does not apply to cases where proceedings under Sections 73 and 74 have been initiated, meaning if an investigation is pending and tax is due, interest will still be paid on the gross tax liability.

Miscellaneous

Anti-Profiteering Measure

Section 171, which addresses anti-profiteering measures, has been revised. It now authorizes the National Anti-profiteering Authority to levy a penalty equal to 10% of the amount profiteered. This authority ensures that suppliers pass on the benefits of input tax credit to recipients through reduced prices, preventing any unlawful gains.

This measure helps prevent suppliers from utilizing the benefits of input tax credit to reduce their tax costs without simultaneously lowering prices for consumers.