Topics Covered: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Businesses with monthly turnover of over ₹50 lakh to pay at least 1% GST liability in cash:
Central Board of Indirect Taxes and Customs (CBIC) has introduced Rule 86B in Goods and Services Tax (GST) rules which restricts use of input tax credit (ITC) for discharging GST liability to 99 per cent.
- As per the new rule, Businesses with monthly turnover of over ₹50 lakh will have to mandatorily pay at least 1 per cent of their GST liability in cash.
Exceptions under the new rule:
This restriction will not apply where the managing director or any partner have paid more than ₹1 lakh as income tax or the registered person has received a refund amount of more than ₹1 lakh in the preceding financial year on account of unutilised input tax credit.
Rationale behind this move?
The idea remains to prevent misutilisation of credit by businesses taking fake credits.
What’s the issue now?
There are fears that the mandatory cash payment would adversely affect small businesses, increase their working capital requirement and make GST a more complex indirect tax system.
What is Input Tax Credit (ITC)?
- It is the tax that a business pays on a purchase and that it can use to reduce its tax liability when it makes a sale.
- In simple terms, input credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs and pay the balance amount.
Exceptions: A business under composition scheme cannot avail of input tax credit. ITC cannot be claimed for personal use or for goods that are exempt.
- What is GST?
- What is composition scheme?
- What is Input tax credit?
Discuss the significance of Input tax credit.