Significant Goods and Services Tax Reforms in India During 2019

The year 2019 marked a period of significant Goods and Services Tax (GST) reforms in India, introducing various systemic adjustments. This year witnessed several crucial changes, including the repeated extension of the first annual return deadline, which was postponed to 2020 to benefit taxpayers, partly due to issues with the portal's readiness. Despite concerns over declining GST revenue and states not receiving promised compensation, numerous other important reforms were enacted. This article will examine five major GST developments that occurred in 2019.

Preparing for the New Return Filing System

Regular filers of GSTR-1 and GSTR-3B were required to prepare for an upcoming transition to a new return regime. From April 2020, taxpayers would begin filing ANX-1, acting on ANX-2, and submitting RET-1/2/3. The necessary forms, procedures, and an offline utility trial version were all made available in 2019.

Impact of ITC Claim Restrictions on Businesses

A significant change that affected business confidence was the decision to limit the claiming of Input Tax Credit (ITC) in GSTR-3B. Starting from October 2019, businesses could only claim ITC up to the amount reflected in GSTR-2A, with an additional 20% allowed as provisional credit. This meant that taxpayers were permitted to claim a maximum of 120% of the ITC visible in GSTR-2A. Previously, taxpayers could claim any ITC amount in their GSTR-3B, provided they reconciled these amounts with GSTR-2A by year-end and reversed any excess. This restriction was further tightened to 10% following the 38th GST Council meeting in December 2019. With increasing efforts to combat fake invoicing and fraudulent ITC claims, the responsibility falls on taxpayers to ensure compliance. They must enhance their accounting systems and implement robust recording and communication processes to monitor ITC claims effectively.

E-Way Bill Blocking Caused Business Concerns

Another announcement that created nationwide apprehension was the restriction on generating e-way bills for taxpayers who failed to file GST returns. To encourage better compliance with GSTR-1 and GSTR-3B filings, the GST Council took a decisive step. Effective December 1, 2019, taxpayers were prevented from generating e-way bills if they had not filed two or more consecutive GSTR-3B returns on the GST portal. This measure initially disrupted business operations across the country. However, the GST Council later extended the GSTR-1 due date to January 10, 2020, allowing all outstanding returns to be filed by this date without late fees. This provided taxpayers with an opportunity to regularize their compliance without incurring penalties.

Increased Limits for GST Registration Benefited Businesses

Several modifications were introduced to the GST registration process. A key change was the increase in the threshold limit for GST registration. Suppliers of goods with an annual turnover below Rs 40 lakhs were given the option not to register under GST. Additionally, various States and Union Territories adopted revised threshold limits. Another major decision involved linking Aadhaar with GST taxpayer registration. Discussions were also underway regarding making the 12-digit unique identification number mandatory for claiming refunds.

Expanded Scope of the Composition Scheme

Following extensive discussions, the composition scheme was extended to include service providers. A new composition scheme was introduced for service providers with an annual turnover of up to Rs 50 lakhs, requiring a nominal tax payment of 6% on turnover. The tax filing process under this scheme was simplified with a single-page form, CMP-08, implemented from April 2019, while the GSTR-4 return transitioned to annual compliance.

Integrated GST Refunds System Implemented

An "Online Refund Processing and Single Disbursement" system was finally launched, enabling taxpayers to submit refund applications electronically and allowing tax officers to process them online. Furthermore, all communications between taxpayers and tax officers shifted entirely online, enhancing transparency and accelerating the resolution of long-pending GST refunds. This new system became effective on the GST portal from September 25, 2019. Moreover, the disbursement of GST refunds is now managed by a single authority. According to the decision, State tax administrations received administrative control over 90% of taxpayers with an annual turnover below Rs. 1.5 crore, while the Central tax administration managed the remainder. For taxpayers with an annual turnover exceeding Rs. 1.5 crore, administrative control was divided equally between the Central and State tax administrations.

Despite various system issues and glitches, 2019 was a year of significant reforms. Numerous due dates were extended, and forms were updated, with further changes anticipated for 2020. A decelerating economy and declining GST revenues are expected to maintain pressure on both the government and taxpayers.