Evolution of GST: Major Changes in the Union Budget over the years

The article discusses the evolution of India's Goods and Services Tax (GST) framework through successive Union Budgets since its implementation in 2017. It highlights key amendments and policy shifts that have addressed various challenges, streamlined compliance processes, and enhanced the overall efficiency of the tax system.

Introduction

The Goods and Services Tax (‘GST’) was implemented on July 01, 2017, marking a major step in reforming India’s tax system. Since the law is new and is in its evolving stage, the Union Budget, including the upcoming Union Budget 2024, has been crucial in the evolution and refinement of the GST framework. Each year, the Budget has introduced a range of amendments and policy shifts designed to address the dynamic needs of the economy and various stakeholders, including businesses, consumers, and State governments. These changes have aimed to streamline compliance, enhance revenue collection, and address sector-specific challenges..

In this blog, we will delve into the major amendments and policy shifts in the Union Budget over the years, highlighting their impact on the GST framework and the broader Indian economy.

1. Amendments in Section 50 of the CGST Act

1.1. Interest payable only on late payment of tax from cash ledger

Taxpayers faced confusion regarding whether interest on late payments should be charged on the gross tax liability or only on the amount which is debited through the electronic cash ledger. The Union Budget, 2019 clarified that interest for late payment shall be levied only on the portion of the tax paid by debiting the electronic cash ledger.

Furthermore, the Union Budget, 2021 extended this amendment to apply retrospectively from 01 July 2017. Consequently, interest on the late furnishing of Form GSTR-3B is now applicable only on the net cash liability from the date of GST implementation.

1.2. Interest is applicable only if wrongly availed ITC is utilized

The Finance Act, 2022 amended Section 50(3) of the CGST Act in relation to levy of interest on wrongly availed and utilized Input tax Credit (‘ITC’) under GST. This amendment provided that interest is leviable only when ITC has been wrongly availed and utilized, and not merely availed. Additionally, the interest rate for the same has been reduced from 24% to 18% per annum. This was made applicable retrospectively from 01 July, 2017.

2. Changes in the provisions relating to composition scheme

2.1. Exclusion of Interest income for turnover calculation for composition scheme

Making deposits of the surplus cash is normal business practice. However, exclusion of services from eligibility of composition scheme led to exclusion of manufacturers and traders from composition scheme who received interest income by such deposits etc.

The Finance Act, 2022 provided amendments that the value of exempt supply of services provided by way of extending deposits, loans, or advances, where the consideration is represented by interest or discount, shall not be considered when determining the composition scheme's turnover limit.

2.2. Composition taxpayers eligible to affect supply through ECOs w.e.f. 01 October 2023

Under the GST law, the persons who were supplying goods and services through E-Commerce Operators (ECOs) were not eligible to opt for the composition scheme.

Vide Union Budget 2023, these provisions were amended to allow the taxpayers to effect supply through ECO. This amendment was made effective from 01 October, 2023, which permitted the composition dealers to make supplies of goods through ECOs. This change aims to allow small businesses access to online marketplaces without putting additional compliance burden.

2.3. Simplified return procedure for composition taxpayer

The Union Budget 2019 introduced a simplified annual return filing system for taxpayers under the composition scheme. This system requires taxpayers to pay taxes quarterly and file a return annually, simplifying the compliance process for small businesses.

3. Amendment related to ITC

3.1. Time limit of ITC on debit note delinked to invoice w.e.f. 01 January 2021

Until 31 December 2020, the time limit for availing of ITC on a debit note was linked to the original invoice date. This created issues such as inconsistent time limits for availing ITC on debit notes and difficulty in tracking the linkage between debit notes and original invoices.

To address these issues, the Finance Act, 2020 provided an amendment de-linking the debit note from the original invoice date for Section 16(4). With effect from 01 January 2021, the time limit for availing ITC on the debit note is based solely on the date of its issuance. This amendment simplifies the process, eliminates inconsistencies, and makes it easier for taxpayers to manage their ITC on debit notes.

3.2. Eligibility to claim ITC only when invoice reflected by Supplier in GSTR-1

Until 01 January 2022, there was no provision under GST to deny the ITC based on matching the details declared by the supplier through Form GSTR-1 and the ITC availed by the recipient. However, the Union Budget 2021 introduced a condition for availing credit w.e.f. 01 January 2022, which requires that the details of the invoice or debit note must be furnished by the supplier in the statement of outward supplies. Furthermore, these details must be communicated to the recipient of such invoices and debit notes in the manner specified under Section 37.

3.3. ITC on CSR expenditure blocked w.e.f. 01 October, 2023

Section 17(5) of the CGST Act provides a list of a few items, ITC in respect of which is not available to the registered person.

As amended by the Finance Act, 2023, a restriction under Section 17(5) was inserted blocking the ITC on goods or services, or both received by a taxable person which is used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in Section 135 of the Companies Act, 2013 would be blocked.

3.4. Availment of ITC on self-assessment basis instead of provisional basis

The Union Budget 2022 introduced an amendment to avail the ITC on a self-assessment basis instead of a provisional basis. This change removed the provision for provisional ITC, allowing taxpayers to claim ITC only if it is reported by the supplier in Form GSTR-1/Invoice furnishing facility (IFF) and reflected in Form GSTR-2B.

4. Extension in time limit to avail ITC, for reporting the credit notes, rectifying the errors or omissions in GST returns

The Finance Act, 2022 provided the amendment in the extension of the time limit for the following:

• To avail the ITC under Section 16(4) of the CGST Act
• For reporting the details of credit notes under Section 34(2) of the CGST Act
• Rectifying the errors or omissions in GST returns

W.e.f. 01 October 2022 the said time limit is earlier of the following dates:

1. 30th November following the end of the financial year to which such invoice/debit note pertains, or
2. Furnishing of the relevant Annual Return

5. Inclusion of In-bond sales and High Sea sales under Schedule III w.e.f. 1 July, 2017

Earlier, high seas sales, supply of warehoused goods before clearance, and supply by endorsement of documents of title before clearance for home consumption were not excluded from the scope of GST. From 01-02-2019, the same was included in Schedule III. Further, via the Union Budget 2023, the said amendment was given retrospective effect from 01 July, 2017. So, these activities/ transactions are neither treated as a supply of goods nor a supply of services.

However, it was clarified that where the tax was already paid in respect of such transactions/ activities during the period from 01 July, 2017 to 31 January, 2019, no refund of such tax will be available.

6. Extending Scope of Online Information Database Access and Retrieval Services (‘OIDAR’)

The Union Budget 2023 introduced significant changes to the definition of OIDAR services. The Key changes include the removal of the term ‘essentially automated and involving minimal human intervention’. This broadens the scope of OIDAR services irrespective of whether any human intervention is involved in the services.

7. Mandating Input Service Distributor mechanism for distributing common ITC

The Finance Act, 2024 has amended the provision relating to the meaning of ISD and manner of distribution of ITC by ISD. The definition mandates that where an office receives input services on behalf of deemed distinct persons, it would be considered as ‘ISD’, and thus it would need to comply with the relevant provisions for distribution of common credit.

The impact of the amendment is as under:

• The person who receives common ITC for the deemed distinct persons would be required to obtain mandatory registration as ISD
• For the distribution of ITC of the services liable to RCM, tax is required to be paid by the normal registration in the State of ISD

8. Other Significant Changes

Apart from the above, other significant changes made via the Union budget are as under:

• Removal of the mandatory requirement of certified reconciliation statement in Form GSTR-9C by a Chartered Accountant or a Cost Accountant. Thus, a taxpayer can submit the annual return with a self-certified reconciliation statement from FY 2020-21 onwards.
• Not mandating unregistered persons affecting supply through ECOs to obtain registration.
• Allowing content-based sharing of information filed on GST portal w.e.f. 01-10-2023 and notifying ‘Public Tech Platform for Frictionless Credit’ for such sharing w.e.f. 22-02-2024.
• Providing a mechanism to calculate interest on payment of refund where the delay is beyond 60 days.
• Restricting filing of GST returns beyond 3 years from the due date of filing such returns. This is applicable w.e.f. 01-10-2023.
• Form GST PMT-09 introduced w.e.f. 21 April 2020 enabling registered taxpayers to transfer in an electronic cash ledger of any balance of tax, interest, penalty, fees, or other charges from one head to another.
• Inclusion of supply of services by an incorporated association or body of persons to its members for consideration w.r.e.f. 01 July 2017.

Conclusion

The evolution of the GST framework through successive Union Budgets has significantly shaped India’s taxation landscape, enhancing its efficiency and inclusiveness. Each amendment and policy shift has addressed specific challenges, streamlined compliance processes, and fostered a more robust economic environment. These changes underscore the government's commitment to continually refining GST to meet the evolving needs of businesses and stakeholders.

As we look forward to future Budgets, staying informed about these developments is crucial for businesses and individuals alike. For comprehensive and up-to-date information on Union Budget updates, Taxmann stands out as the premier source. With its detailed analyses and expert insights, Taxmann remains an invaluable resource for understanding the complexities of the GST framework and other critical tax reforms.

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