The Goods and Service Tax (GST) council of India has completed three years of the GST regime. Although, the government is still striving to address various issues and concerns to build a sound taxation system. On the other hand, the government was resolving downsides concerning the impact of GST on the Indian economy, the COVID-19 pandemic worsened it. Now we will tell you the impact of GST on the Indian economy in recent times.
GST impact during COVID-19
- The deadly COVID-19 pandemic has led to the loss of many innocent lives, steepening the economy globally. It also led to lots of poor people with no shelter, food, job, or hopes. The severe economic impact has collapsed various industries and businesses.
- This COVID-19 surge created a new world of uncertainty. The economic standstill is said to recess a large part of the world. Several countries were striving to recover from the low economic growth of 2019 in the current year. But COVID-19’s never-ending business-led individual countries to stand back again.
- Industries, large enterprises, and small businesses in India are hoping for a quicker economic recovery in this case as well.
- The Finance Minister, Nirmala Sitharaman, announced the extended due dates to file GST compliance.
- The government made it necessary for businesses to e-invoice the GST tax invoice format to simplify filing GST returns.
- It is important to note that when returns are filed after the beneficial dates given by the government, a late fee along with an interest rate of 18% will be charged. Also, the extended due dates are applicable only for the current fiscal policy.
Impact of GST on Ongoing Contracts
1. Goods: Credited Notes for Goods Returns
As per the announcement of newly notified GST, Income Tax Credit or Credit notes can only be claimed if the reverse ITC amount of the receipt is available on the GST portal in GSTR-2A. The taxpayers can issue credit notes within six months from the end of the fiscal year or on the date of filing annual returns. It is up to the convenience of the taxpayer. Though, a credit note cannot be issued if the taxation on specific supplies mentioned has been passed to some other person. If there is no tax liability, taxpayers can avail of the refund. A credit note against the same has to be adjusted accordingly.
2. Goods: Posts Sales Discount (PSD)
To avail PSD, several enterprises are joining the supplementary contract or agreements. Thus, customers demand negotiation before processing the final payments. Business owners must make a note that agreements applicable for any discounts must be pre-notified before or at the time of the supply of goods. As any negotiations or supplementary contracts made effective after the sales can be challenged by the department.
3. Services: Credit notes
For services, taxpayers can issue credit notes for taxable value or tax charged. The same must be issued under the tax invoice for deficiently supplied services. Enterprises must provide evidence before the department explaining the reason why they require a downward revision in prices. It should justify the circumstances that led them to the same. In such situations, small business owners can avail of a refund with the approval of the department.
4. Services: Advanced Received for Services on Contracts Cancelled
The GST liabilities must be discharged on advances received on services before receipt. In case the contract is cancelled after receiving the advance, the assesses can either claim refund or adjust the advance tax against liability. A tax refund is available in such situations.
Impact of GST on Income Tax Credit (ITC) implications
1. ITC incurred to rid from the COVID-19 surge
The enterprises have decided to incur their expenses to fight against COVID-19. The government has provided a directive for business owners to incur a particular expenditure along with expenses such as employee health insurance, personal protective equipment (PPE) and sanitisers, costs incurred for allowing employees to work from home and capital expenditure. It is important to note that the business owners must know that each expense will be examined before its allowability. For instance, health insurance is not allowed under GST Act unless provided as per the government’s notification. Also, the business owners must maintain documentation to justify the need for expenses incurred.
2. Reversal of ITC for not paying suppliers within 180 days
As the due dates are extended, the government has not provided clarification about the reversal of ITC if suppliers aren’t paid within 180 days. Although, if the government offers any such explanations, business owners will have to decide accordingly. If 180 days limit exceeds the due date, it is evident that no extension will be applicable concerning the terms and notifications mentioned above.
3. Reversal of ITC on obsolete inventory
Business owners must reverse the goods that are destroyed, disposed of, or written off. Enterprises must maintain accurate documentation for appropriate obsolete inventory form and reverse ITC at the same time when filing returns.
4. ITC on good sold at a loss
Due to the COVID-19 pandemic, many businesses had come to a standstill. they were selling under distress. If enterprises have accurate documentation on goods sold for a lesser price, they can claim a refund.
5. Good sent for job-work
When inputs are sent to job work without tax payment, the principal is liable to pay tax and applicable interest for the unpaid period. It is recommended that business owners apply for a time limit extension on reviewing the status of capital goods and inputs sent to job work.