GST: Double whammy for SMEs; new rules for ITC refund may aggravate the cash flow problem

Input Tax Credit: The new rule notified on October 9 may aggravate the cash flow of SMEs.

GST, GST News, GSTN, GST Circular, GST Latest News, GSTR 1, GSTR 3B, Nirmala Sitharaman
Big relief for GST taxpayers.

GST Return: The Union government’s new circular to restrict the reimbursement of input tax credit to 20% of the total amount claimed in GSTR 3B return will aggravate the problem of SMEs that have already been grappling the issue of delayed payments. This 20% limit will apply in the case of those buyers whose suppliers have not uploaded the correct invoice details in the GSTR-1 form uploaded on the GSTN portal.

The move is aimed to curb the use of fake GST invoices to claim the input tax credit under the GST. The Union government has unearthed a large number of cases wherein GST’s inbuilt mechanism of input tax credit to avoid cascading of taxes was misused by some companies to fraudulently claim the input tax credit.

However, the move will also aggravate the problem faced by small assesses under the GST who were already facing the problem of delayed payments against the bills raised by them and belated reimbursement of the input tax credit from the government.

Industry bodies representing the small and medium enterprises have already made several representations to the ministry of finance to allow them to deposit the GST tax on rrealisationof the bills raised by them. Under the present mechanism, the companies are required to file GSTR-3B returns within 20 days of the next month.

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They are also required to pay GST to be collected from a buyer to the government at the time of filing the return even if the buyer delays the payment. Although companies and government undertakings are required to clear the bills raised by the SME sector firms within 45 days of the receipt of the bill.

However, the payment of SMEs is delayed in the absence of stringent penal provisions. Section 37 of the CGST Act, 2017 which deals with the furnishing of the details of outward supplies in form GSTR-1 mandates that a registered person shall furnish the details of such supplies within 10 days of the completion of the tax period.

This week the government has restricted reimbursement of input tax credit under the GST to 20% of the total claimed amount in case a supplier has not uploaded the details on GSTN portal or if there is a mismatch.

This new rule will adversely affect the cash flow of smaller companies that were already facing the delays in payment after the generation of invoices and also delayed reimbursement of the input tax credit from the government.

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First published on: 11-10-2019 at 23:41 IST