Is GST about to hurt genuine businesses - well it seems like
So far, businesses have been claiming input tax credit based on their own invoices. For instance businesss ‘A’ would claim credit for Rs 100 based on its own accounts even though its vendor ‘B’ has uploaded invoices for supply worth Rs 80 only. This would get reconciled at the annual return filing stage – here too businesses were required to disclose only the unmatched credit amount; their ability to avail full credit based on their own accounts wasn’t restricted.
That freedom has now been curtailed.
The amended rules say that input tax credit on unreported invoices should not exceed 20 percent of credit on eligible invoices.
The math is incredibly complex, this is how it would work.
Assume ‘A’ has purchased inputs with Rs 1,000 in GST paid, that is ‘A’ has Rs 1,000 in input tax credit on its books. Its vendor ‘B’ has uploaded invoices with GST payments of only Rs 700, and Rs 300 worth are unreported invoices. To reiterate, so far, ‘A’ could’ve claimed the full Rs 1,000 as input tax credit and offset it against GST to be paid on the output. But now only 20 percent of eligible credit i.e. Rs 700 can be claimed on the unreported invoices. In this example, ‘A’ would only be able to claim Rs 840 as credit (Rs 700 + Rs 140).
So far, reconciliation of invoices between buyers and their suppliers was an annual exercise—now it would need to be done on a monthly basis. Small businesses startups MSMEs even big traders aren’t geared for this level of compliance—in which case they would be able to claim much lower input tax credit, hence have to pay more tax, resulting in cash-flow constraints and lost business.
LocalCircles kindly take up this matter. If my understanding is misplaced someone correct me. This will lead to more cash flow issues for businesses and can even break many small businesses. more
Yes, dishonest people always make life difficult for honest people.
But in my vendor interactions, I find a new generation of businessmen coming up, who don't want to continue the dishonest practises of their fathers. So once the rate of cheating goes down the Govt will automatically make life easier for GST tax payers, as has happened in the case of Income Tax. more