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Navigating the Transformed GST Landscape: Analysing the Impact of Finance Bill, 2023 on Companies and Businesses

By - King Stubb & Kasiva on December 23, 2023

Introduction:

The Goods and Services Tax (GST) framework in India has reached a critical juncture as a result of the implementation of the Finance Bill, 2023.[1] In light of the fact that India’s GST Law Amendments made in Clauses 128 to 144 are now fully operational, companies and businesses are finding themselves navigating a landscape that has been significantly altered. The purpose of this in-depth analysis is to investigate the significant repercussions that the Finance Bill will have, providing insights into the ways in which the changes will affect various aspects of GST compliance.

Composition Scheme for E-commerce:

Registered individuals now have the ability to supply goods through electronic commerce operators as a result of the removal of the reference to "goods" from Section 10(2)(d) and Section 10(2A)(c) of the CGST Act, 2017. In addition to providing traders who are engaged in the supply of goods through e-commerce platforms with a simplified tax structure, the amendment makes it easier for them to adopt the Composition Levy for a seamless adoption process.

Change in Input Tax Credit Conditions:

The provisions (2) and (3) of Section 16(2) of the CGST Act, 2017, have been amended to include stringent conditions that must be met in order to be eligible for input tax credit programmes. The recipients who fail to pay their suppliers within the allotted time frame of 180 days are subject to repayment obligations, which are in line with the return filing system. This highlights the significance of timely compliance.

Restriction on ITC in Case of Exempt Supplies:

Exempt supplies have been expanded to include the supply of warehoused goods prior to clearance for home consumption as a result of the addition of an exception. This exception was included in Section 17(3) of the CGST Act, 2017. Input tax credit on such transactions is further restricted as a result of this post-enactment change, which ensures that specified transactions are treated in a consistent manner throughout the tax system.

No ITC on CSR Spends:

Input tax credit on Corporate Social Responsibility (CSR) expenditures is restricted as a result of an amendment to Section 17(5) of the CGST Act, 2017, which went into effect after the Finance Bill was passed into law. The availability of credit for goods or services that are used or intended for activities related to corporate social responsibility obligations is prohibited as a result of this change brought about by Section 135 of the Companies Act of 2013.

Non-Requirement of Registration under GST:

Individuals who are not required to register for the Goods and Services Tax (GST) gained the ability to do so as a result of amendments to Section 22, which granted Section 23 overriding effect over Section 22(1) and 24. This modification allows for greater clarity regarding the interaction between the sections that govern registration requirements, and it will take effect retroactively as of July 1, 2017.

New Time Lines for GST Returns:

More stringent deadlines have been imposed as a result of the introduction of new timelines for filing GST returns. These new timelines limit the period of time from the due date to three years (Clauses 132, 133, 134, and 135). GSTR-1, GSTR-3B, Annual Return (GSTR 9), and GSTR-8 are all subject to this post-enactment measure, which emphasises the significance of timely compliance with these regulations.

Refund of Tax under Section 56 of CGST:

The references to the provisionally accepted input tax credit have been removed from Section 56(6); these amendments bring the scheme of self-assessed input tax credit into alignment with the current scheme. This ensures that registered persons are treated in a consistent manner with regard to the input tax credit that they access.

Calculation of Interest on Delayed Refund:

An enabling provision is introduced in Clause 137, which specifies the manner in which the delayed period is computed for the purpose of calculating interest on delayed amounts. The calculation of interest on delayed refunds is addressed by this post-enactment flexibility, contingent upon the rules or notifications that are prescribed after the enactment of the legislation.

Penal Provisions for E-commerce Operators:

Clause 138, which was enacted after the law was passed, includes a new sub-section (1B) in Section 122, which outlines the penal provisions that are applicable to Electronic Commerce Operators (ECOs). ECOs are now subject to penalties for violations committed in relation to supplies made by composition taxpayers or unregistered individuals, highlighting the importance of adhering to stringent compliance standards.

Changes in Prosecution Law and Decriminalization under GST:

With the exception of certain offences, the minimum threshold for prosecution has been raised from one crore to two crores as a result of post-enactment amendments to prosecution thresholds and compounding amounts by the government. In order to strike a balance between proportionality and deterrence, the compounding amount range has been reduced. The burden that is placed on businesses is reduced as a result of the decriminalisation of certain offences, such as the obstruction of duties and the supply of false information.

Through the implementation of Section 158A, the sharing of information that is provided by taxable individuals is made possible on the basis of consent. This not only emphasises transparency but also makes it possible to share information on the common portal with other systems, provided that consent is obtained. This ensures compliance without compromising privacy requirements.

Retrospective Amendments to Schedule III:

Clause 142 proposes for retrospective amendments to be made to Schedule III, specifically paragraphs (7) and (8), as well as Explanation (2), after the legislation has been enacted. The implementation of this retrospective effect, which began on July 1, 2017, guarantees uniformity in the manner in which the supply of goods from one location within the non-taxable territory to another location within the non-taxable territory without entering India is handled.

New Definition of "Non-taxable Online Recipient":

This amendment to Section 2(16) of the Integrated Goods and Services Tax Act of 2017 brings about a revision to the definition of "Non-taxable Online Recipient." With the revision, the definition now encompasses any unregistered individual who is receiving online information and database access or retrieval services located in a taxable territory. Additionally, the condition that such services must be for a specific purpose has been removed.

Conclusion:

The Finance Bill, 2023 has now been fully implemented, and in order for companies and businesses to thrive in the new landscape of the Goods and Services Tax (GST), they need to adapt their strategies. A nuanced approach is required because of the myriad of implications that are associated with the input tax credit, composition scheme, social responsibility spending, and prosecution thresholds. Businesses have a responsibility to remain informed, to navigate the ever-changing landscape in a proactive manner, and to seek professional guidance in order to optimise their GST compliance strategies. This is because the government is working to streamline processes and increase transparency.

FAQs

What is the key change introduced by the Finance Bill, 2023, regarding the Composition Scheme for E-commerce?

The Finance Bill, 2023, has amended Section 10(2)(d) and 10(2A)(c) of the CGST Act, removing the reference to 'goods.' This change empowers registered individuals supplying goods through electronic commerce operators to opt for the Composition Levy. Traders engaged in goods supply through e-commerce platforms can now seamlessly avail the composition scheme, enjoying a simplified tax structure.

How have the amendments to Input Tax Credit conditions under the Finance Bill, 2023, impacted compliance for GST recipients?

post-implementation, the amendments to provisos (2) and (3) of Section 16(2) of the CGST Act, 2017, have introduced stringent conditions for input tax credit eligibility. If a recipient fails to pay the supplier within 180 days from the date of the invoice, an amount equal to the input tax credit availed must be repaid along with interest. This aligns with the return filing system, emphasizing the importance of timely compliance with payment obligations.

How does the Finance Bill, 2023, affect the prosecution thresholds and compounding amounts under GST laws?

The Finance Bill introduces amendments to prosecution thresholds, raising the minimum threshold from Rs. 1 crore to Rs. 2 crore, except for specific offenses. The compounding amount range is reduced, with the minimum reduced from 50 percent to 25 percent and the maximum from 150 percent to 100 percent. Certain offenses, including obstruction of duties and false information supply, are decriminalized, aligning with the broader goal of reducing the burden on businesses.


[1] https://www.indiabudget.gov.in/doc/Finance_Bill.pdf

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