ECONOMIC SURVEY, TAX PROPOSALS AND GST -A GLIMPSE

[Dr. Sanjiv Agarwal]

The Economic Survey was presented in Parliament which draws a blue print of Indian economy. It advocates at fiscal expansion and suggests of a calibrated fiscal policy (India’s fiscal stimulus as a percentage of GDP in Covid times). Economic survey highlights expansion in Government spending and borrowing. It defends farm laws and even comments positively on India’s handling the Covid pandemic.

The Union Budget for financial year 2021-22 has been laid in Parliament today by the Finance Minister. This is the first budget of the new decade and the first amid Covid pandemic with focus on unconventional areas.

The Budget revolves around three themes i.e., inspirational India, economic development and caring society. FM further asserted that India is now the fifth largest economy of the world. India’s foreign direct investment got elevated to the level of US$ 284 billion during 2014- 19 from US$ 190 billion in that came in during the yea₹ 2009-14. The Central Government debt that has been the bane of our economy got reduced, in March 2019, to 48.7% of GDP from a level of 52.2%in March 2014.

The Budget made a statement that fundamentals of the economy are strong and that has ensured macroeconomic stability. Inflation has been well contained. Banks saw a thorough cleaning up of accumulated loans of the past decade and then they were recapitalized.  Of the structural reforms, the Goods and Services Tax (GST) has been the most historic in our country.

The Goods and Services Tax has been gradually maturing into a tax that has integrated the country economically. It has consolidated numerous taxes and cesses to one tax and facilitated formalization of economy. It has resulted in the efficiency gains in logistic and transport sectors. The turnaround time for trucks has witnessed a substantial reduction to the tune of 20% due to abolition of check posts in GST. The dreaded Inspector-Raj has also vanished.

It further states that an average household now saves about 4% on its monthly spends on account of reduced GST rates. During the phase of maturing, GST did face certain challenges. This was natural as transition was daunting. GST Council has been proactive in resolving issues during transition. In the last two years India had added more than 60 lakh new taxpayers, a total of about 40 crore returns were filed, 800 crore invoices were uploaded, and 105 crore e-way bills were generated. There has been extensive engagement with stakeholders. A simplified new return system is being introduced.

On GST, the budget states that simplification is ongoing. A simplified return shall be implemented which is under pilot run. It will make return filing simple with features like SMS based filing for nil return, return pre-filling, improved input tax credit flow and overall simplification. Refund process has been simplified and has been made fully automated with no human interface.

Deep data analytics and AI tools are being used for crackdown on GST input tax credit, refund, and other frauds and to identify all those who are trying to game the system. Invoice and input tax credit matching is being done wherein returns having mismatch more than 10 percent or above a threshold are identified and pursued. Significant policy level changes have also been made. GST rate structure is also being deliberated so as to address issues like inverted duty structure.

A new cess called Agriculture cess shall be levied w.e.f. 2^nd February, 2021 on diesel @ ₹ 4 per liter and petrol @ ₹ 2.50 per liter.

GST Collection in January, 2021 have been buoyant and reported to be ₹ 1.19 lakh crore, highest ever since inception. It crossed ₹ 1 trillion for 4th month in succession. It grew by 8% as compared to ₹ 1.15 trillion on YoY basis. The GSTR-3B returns also rose to 9 million as against 8.7 million in December, 2020.

The GST revenues during January, 2021 are the highest since introduction of GST and has almost touched the ₹ 1.2 lakh crore mark, exceeding the last month’s record collection of ₹ 1.15 lakh crore. GST revenues above ₹ 1 lakh crore for a stretch of last four months and a steep increasing trend over this period are clear indicators of rapid economic recovery post pandemic. Closer monitoring against fake-billing, deep data analytics using data from multiple sources including GST, Income-tax and Customs IT systems and effective tax administration have also contributed to the steady increase in tax revenue over last few months.

Economic Survey (2021-22)

• Expansion in Government spending
• Economy to grow @ 11% in financial year 2022
• Higher liquidity and lower interest rates expected to drive credit flow.
• Consumption to rise
• Economy may take two years to reach pre-pandemic levels.
• Need for simple regulation and more supervision in economy
• Suggest to end regulatory forbearance, improve asset quality review and strengthening recovery laws.

Proposed changes in Union Budget 2021-22 in relation to Goods and Service Tax

Amendments in the CGST Act, 2017

(As contained in Clause No. 99 to 113 of Finance Bill, 2021)

Section 7: New clause (aa) in sub-section (1) of Section 7 of the CGST Act, 2017 is being inserted, retrospectively with effect from the 1st July, 2017, so as to ensure levy of tax on activities or transactions involving supply of goods or services by any person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.

Section 16: New clause (aa) to sub-section (2) of the section 16 of the CGST Act, 2017 is being inserted to provide that input tax credit on invoice or debit note may be availed only when the details of such invoice or debit note have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note.

Section 35(5): Omitted so as to remove the mandatory requirement of getting annual accounts audited and reconciliation statement submitted by specified professional.

Section 44: Substituted so as to remove the mandatory requirement of furnishing a reconciliation statement duly audited by specified professional and to provide for filing of the annual return on self-certification basis. It further provides for the Commissioner to exempt a class of taxpayers from the requirement of filing the annual return.

Section 50: Amended, retrospectively, to substitute the proviso to sub-section (1) so as to charge interest on net cash liability with effect from the 1st July, 2017.

Section 74: Amended so as make seizure and confiscation of goods and conveyances in transit a separate proceeding from recovery of tax.

Section 75: An explanation to sub-section (12) of section 75 of the CGST Act is being inserted to clarify that “self-assessed tax” shall include the tax payable in respect of outward supplies, the details of which have been furnished under section 37, but not included in the return furnished under section 39.

Section 83: Amended so as to provide that provisional attachment shall remain valid for the entire period starting from the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV till the expiry of a period of one year from the date of order made thereunder.

Section 129:  Amended to delink the proceedings under that section relating to detention, seizure and release of goods and conveyances in transit, from the proceedings under section 130 relating to confiscation of goods or conveyances and levy of penalty.

Section 130: Amended to delink the proceedings under that section relating to confiscation of goods or conveyances and levy of penalty from the proceedings under section 129 relating to detention, seizure and release of goods and conveyances in transit.

Section 151: Substituted to empower the jurisdictional commissioner to call for information from any person relating to any matter dealt with in connection with the Act.

Section 152: Amended so as to provide that no information obtained under sections 150 and 151 shall be used for the purposes of any proceedings under the Act without giving an opportunity of being heard to the person concerned.

Section 168: Amended to enable the jurisdictional commissioner to exercise powers under section 151 to call for information.

Schedule II: Consequent to the amendment in section 7 of the CGST Act  paragraph 7 of Schedule II to the CGST Act is being omitted retrospectively, with effect from the 1st July, 2017.

Amendments in the IGST Act, 2017

(As contained in Clause No. 114 of Finance Bill, 2021)

Section 16: It is proposed so as to:

1. zero rate the supply of goods or services to a Special Economic Zone developer or a Special Economic Zone unit only when the said supply is for authorised operations;
2. restrict the zero-rated supply on payment of integrated tax only to a notified class of taxpayers or notified supplies of goods or services; and
3. link the foreign exchange remittance in case of export of goods with refund

Note: These amendments proposed in the Finance Bill, 2021 will come into effect from the date when the same will be notified in Official Gazette.

Direct Tax and other proposed changes in Union Budget 2021-22

• Relief to senior citizen: Individual (Resident) having age of 75 years or more and is having only pension and interest income from any account maintained by such individual in the same specified bank in which he is receiving his pension income is exempt from filing ITR. However, specified bank after allowing deduction under Chapter VI A and Rebate u/s 87A of Income Tax Act, 1961 shall compute total income and deduct tax accordingly.
• Re-opening of Assessment to be reduced to 3 years from 6 years. Only where evidence of concealment of Income of ₹ 50 lakhs or more – re-opening can be made upto 10 years & only with approval of Pr.CCIT.
• Dispute resolution committee: Constitution of Faceless Dispute Resolution Panel for people with Total Income upto ₹ 50 lakh and disputed income of ₹ 10 lakh can approach this committee.
• Faceless ITAT: Faceless ITAT centre will be set where personal hearings will be conducted through VC. Only electronic communication will be done.
• Tax Audits: Tax Audit Limit to be increased to ₹ 10 crores from ₹ 5 crores for those having less than 5% cash transactions.
• Dividend will be exempt from TDS. Advance tax liability on dividend income will arise only after declaration or payment of dividend. For Foreign Investors – lower treaty rate benefit will be given.
• Vivad Se Viswas Scheme Last Date of filing extended to 28th February, 2021.
• Affordable Housing – Additional Interest deduction (Sec 80EEA) of ₹ 1.5 lakhs to be extended for loans taken till 31st March, 2022.
• Tax holiday for Start-Ups extended to 31st March, 2022. Capital Gains exemption on investment in startups also extended to 31s March, 2022.
• Pre filled income tax returns will have pre filled data regarding Dividend, post office interest income, salary etc.
• Relief to Trusts – Charitable trusts running Hospitals and Educational Institutions relief increased from ₹ 1 crore to ₹ 5 crore.
• Late deposit of employee contribution of PF will not be allowed as deduction.
• Various amendments has been made in custom tariff.
• An Agriculture Infrastructure and Development Cess (AIDC), as duty of customs has been proposed [Clause 115 of the Finance Bill, 2021]. Enabling provisions has been made for levy of this cess on all imported goods at the rate not exceeding the rate specified in the First Schedule to the Customs Tariff Act, 1975. However, it would be levied only on specified goods. All other items are being exempted from this Cess. Further, the BCD rates have been simultaneously lowered on items on which cess is being imposed.
• An agriculture Infrastructure and Development Cess (AIDC) of ₹ 2.5 per litre has been imposed on petrol and ₹ 4 per litre on diesel as an additional duty of excise [Clause 116 of the Finance Bill, 2021]. Accordingly, Basic Excise Duty and the Special Additional Excise Duty have been calibrated so that there would be no additional burden on the consumer. The table below summarizes the change in various duties applicable to Petrol and Diesel:

[BED: Basic Excise Duty; SAED: Special Additional Excise Duty; RIC: Road and Infrastructure Cess; AIDC: Agriculture Infrastructure and Development Cess.]

• Non-resident individuals with entrepreneurial potential are now enabled to set up One Person Companies (OPC) with no paid up capital and turnover restrictions, reducing registration timeline from 182 days to120 days. Earlier only Indian resident citizens were permitted to set up OPCs.
• Changes in definition of small companies under the Companies Act: Companies with paid-up capital up to ₹ 2 crore and turnover up to ₹ 20 crore will fall under small companies. Previously, this threshold held the limit of paid-up capital to ₹ 50 lakh and turnover up to ₹ 2 crore.