New Delhi: The government has tightened GST rules, curtailing the use of tax credits and tweaking the electronic permits required to transport goods to check tax evasion amid a sharp shortfall in revenue.
Under the new rules, the Finance Ministry halved the extent of tax credits that can be claimed by businesses where the vendors have not uploaded invoices to 5% of their eligible tax credits. The new threshold comes into effect on January 1.
The Central Goods and Services Tax (Fourteenth Amendment) Rules, 2020, notified late on Tuesday, also tightened the norms to seek GST registration and ensure that only genuine companies are registered.
Rajat Mohan, a senior partner at AMRG and Associates, said the new rule on the input tax credit will further squeeze the liquidity, pushing them to enhance their working capital limits.
In the case of businesses with sales of over ₹50 lakh a month, tax credit from raw materials and services could be used for only up to 99% of the final tax liability.
The rules also extended the distance that goods can be transported with electronic permits with a day’s validity.
Consequently, e-way bills will be valid for a 200 Km transport from January 1, instead of the existing100 Km. In other words, only two days will be granted to cover a distance of 400 km, against four days now.
Abhishek Jain said businesses will now need to ensure that the movement of goods is completed within the revised timelines; Otherwise, they will have to extend the validity of their electronic bill of lading before it expires.
The move signals the tax enforcement drive is getting scaled up amid a shortfall in tax receipts. After the holding businesses to transition to the GST regime, central and state authorities are now on a drive to enforce compliance.
Officials have also held nationwide searches since November in a crackdown on fake invoice rackets. GST authorities are now adding new anti-evasion features to the technology-driven tax system, which flags discrepancies in compliance.
Fake invoices are used in frauds, such as GST and income tax evasion, business fund transfers, and book manipulation to obtain loans from banks.
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