18th May 2024 (11 Topics)
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Ease the Compliance
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Context
The monthly collection of GST reached an all-time high, crossing the Rs 2 lakh crore mark for the first time. Despite this achievement, there are ongoing issues with the implementation of GST laws, particularly the complications related to the time limits for availing input tax credit (ITC).
Input Tax Credit Challenges
- Core Philosophy of GST: The GST system aims to merge multiple central and state taxes, allowing seamless credit for tax paid on inputs. This prevents the cascading effect of taxes.
- Illustrative Example: A manufacturer with tax liabilities may face issues if unable to fully pay taxes, losing ITC on inputs already paid for, exacerbating financial strain.
- Practical Solution: The GST portal should accept returns even if the full tax is unpaid, recording arrears and charging interest, enabling businesses to claim ITC and maintain cash flow.
Impact on Small and Medium Enterprises
- Cash Flow Issues: Many SMEs struggle with delayed payments from clients, including government agencies, complicating timely tax payments despite input taxes already paid.
- Legal Recourse: The MSME Development Act imposes a 45-day payment limit, often ignored, leaving SMEs without effective legal solutions.
- Comparative Injustice: Similar to income tax laws, where tax is on net income, GST should not penalize businesses by disallowing ITC due to cash shortfalls, but rather impose interest on unpaid taxes.
Proposed Adjustments and Urgent Action
- GST Portal Modification: Allow acceptance of monthly returns with tax shortfalls recorded, charging interest until dues are cleared, thus permitting ITC claims.
- Practical Redress: The GST Council should address this issue to support SMEs, considering the non-deliberate nature of most defaults due to adverse business conditions.
- Extended Deadlines: Until the GST Portal is updated, the November 30 deadline for availing ITC should be flexible to prevent undue hardship on taxpayers.
Mains Question:
Discuss the implications of the GST input tax credit time limit on small and medium enterprises (SMEs) in India.
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