New GST Rules Under Consideration: Businesses to Explain Discrepancies in ITC Claims

The Goods and Services Tax (GST) regime in India has been evolving since its implementation in 2017. As part of ongoing efforts to streamline the tax framework and curb tax evasion, the government is now considering the introduction of new GST rules, PTI reported.

According to sources, the Law Committee, comprising tax officers from the Centre and states, has concluded that in cases of discrepancy, the registered person will be notified through the portal. They will be required to provide an explanation for the difference or make the necessary payment for the excess Input Tax Credit (ITC) along with applicable interest charges.

The Committee has recommended that the provision become effective if the disparity is greater than 20% and exceeds Rs. 25 lakh. At its 50th meeting on July 11, the GST Council is likely to make a final decision about the Committee's recommendation.

Currently, businesses use ITC, or Input Tax Credits, paid by their suppliers to offset their GST due when filing their GSTR-3B tax return.

Businesses are expected to provide an explanation for the disparity or make the requisite tax deposits in situations where the difference between the tax liability reported in GSTR-1 and GSTR-3B exceeds the prescribed threshold of Rs 25 lakh and 20%.

The GST Network creates the GSTR-2B form in the backend, which is an automatically generated ITC statement stating if the taxpayer is eligible to receive ITC for each document provided by his suppliers.

According to sources, the Law Committee believes that the registered person should not be permitted to file the monthly statement of external supplies, or GSTR-1, until he has satisfactorily addressed any discrepancies with the tax officer or deposited the excess ITC claimed.

The GST officers last month applied a similar anti-tax evasion measure in cases where the tax due reported in GSTR-1 and the tax paid in GSTR-3B did not match.

The action is intended to reduce cases of fraudulent invoicing. Fraudsters typically choose this approach to fraudulently obtain ITC without actually supplying any products or services.

The Goods and Services Tax (GST) officials have already started a two-month special effort to find fictitious registrations.

Such registrations are acquired only for the aim of forging invoices and robbing the exchequer.

In the fiscal year 2022-23, the Directorate General of GST Intelligence (DGGI) discovered double the amount of GST evasion than the prior year-over Rs 1.01 lakh crore-and reported 14,000 cases.

The action is intended to reduce cases of fraudulent invoicing. Fraudsters typically choose this approach to fraudulently obtain ITC without actually supplying any products or services.