A slew of changes in tax rate and procedural modifications in the Goods and Services Tax regime will come into effect from January 1 next year. The Government has notified several alterations to the GST laws which will be effective from 2022. The recent GST council meetings had emphasized the new measures to keep a check on the evasion of tax.
The CBIC (Central Board of Indirect Taxes and Customs) has notified the following changes in GST regulations from the 1st of January, 2022 –
- Correction of inverted duty structure in footwear and textile
- GST liable on E-comm operators for providing services
- Mandatory Aadhaar Authentication for claiming GST Refund
- Blocking of GSTR-1 for non-filing of GSTR 3B
- Direct Recovery Action
Let us read about these changes in detail.
1. Textiles and Footwear to get costlier
A GST hike was announced from January 1st, 2022 on textiles, garments, and footwear from 5% to 12% to correct the inverted duty structure in these sectors. Under an inverted tax structure, the rate of tax on inputs used is more than the rate of tax on output for sale. This resulted in taxes accumulating at various stages in the value chain. Since unused ITC (Input tax credit) always existed in the taxpayer’s account, it led to blocking of working capital and loss of resources.
The increase of 7 percent in GST (from 5 to 12 percent) will be applicable on all finished goods including apparel, footwear, and textiles, except cotton. Previously, a 5% GST was applicable on all garments up to Rs. 1000 whereas footwear up to Rs. 1000 had a tax rate of 5 percent. Now, a Goods and Services Tax of 12 percent will be levied on apparel and textiles including synthetic yarn, fabrics, and other man-made items. Moreover, the new GST on footwear of any value will be 12 percent.
Complicated laws relating to GST, refunds, and ITC led the government to change the tax rules in its 45th Council Meet in September while keeping in mind the compliance issues and increase in manufacturing costs faced by taxpayers. However, the textile and footwear manufacturers believe that raising GST on these products will raise prices and trigger inflation.
2. Swiggy, Zomato, and others to now collect and deposit GST
Come January 1, 2022, E-commerce companies such as Swiggy, Zomato, Uber, Ola, and other E-commerce operators will be liable to pay GST on services provided by them such as passenger transport services and restaurant services. The rate of tax on passenger transport services will be 5%. However, it will exclude manual passenger transport services by autorickshaw drivers.
These food delivery apps will have to collect and deposit GST with the CBIC on services provided by them and also issue invoices related to such restaurant services.
This decision of transferring the burden of tax on startups was taken in the 45th Council Meeting held on September 17th, 2021 where it was decided that 5% GST will be charged on cloud kitchens and food delivery platforms. The GST will be charged at the point of delivery.
This means that these food delivery apps will collect GST from consumers instead of collecting from the restaurants. However, no extra tax burden will be levied on the end consumers as currently, the restaurants collect this tax from the consumer. This change in GST collection point may affect small restaurants with an annual turnover below ₹20 lakh who were earlier not registered under the GST regime.
The move was taken after government estimates showed that nearly ₹2,000 crore worth of GST revenue was unrecovered in the last 2 years.
3. Aadhar authentication mandatory for GST Refund and Revocation Application
From January 1, 2022, Aadhar Card authentication of taxpayers will be compulsory for filing a claim for a GST refund and application for the revocation of cancellation of GST registration.
Aadhar authentication and GSTIN (Goods and Services Tax Identification Number) will be necessary for claiming all types of refunds irrespective of what the amount of claim is. The CBIC has brought in new rules in an effort to control the avoidance of taxes. In the meeting held in September, the Council suggested that businesses who have defaulted in filing the summary return and monthly pay of GST cannot file the GSTR-1 sales return of the next month. Moreover, it was decided that the disbursal of GST funds will only be in the bank account which has the same PAN as the one with which the GST registration was obtained.
4. Cannot file GSTR -1 if last month GSTR-3B not submitted
In another step to curb tax evasion, the Government has notified that from January 1, 2022, the facility of filing GSTR-1 will not be available if the taxes and GSTR-3B for the previous month have not been submitted. Prior to this, the GSTR-1 was blocked if the return was not filed for the last two months.
Companies submit GSTR-1 of a particular month by the 11th day of the next month, such as the GSTR-1 of November 2021 is filed by December 11th. However, taxes through form GSTR-3B, are filed between 20th-24th day of the subsequent month.
5. GST officers can visit premises without prior show cause notice
In a step that will curb the problem of fake bills where the businesses showed higher sales in GSTR-1 to enable purchasers to claim Input Tax Credit (ITC) but lower sales in GSTR-3B to decrease their GST liability, the government has notified that officers can now take a “direct recovery action”. Under this, the GST officers can directly visit the premises of businesses that have made such false claims without any previous show-cause notice. For businesses that claim higher sales in GSTR-1 than GSTR-3B, it is now necessary that both forms should match with each other, without showing any difference in the number of sales.
All these changes in GST rules will be effective from January 1, 2022.
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