Rule 36: Businessmen resent new GST amendment

A majority of the trading community took to social media platforms to condemn the amendment to Rule 36, which according to them reduces the claimable Input Tax Credit (ITC) for them.

Hyderabad: An amendment made to the Central Goods and Services Tax Rules, which supposedly is aimed at curbing fake invoicing, has raised quite a few eyebrows among the tax practitioners, while forcing the business community to raise a distress call. A majority of the trading community took to social media platforms to condemn the amendment to Rule 36, which according to them reduces the claimable Input Tax Credit (ITC) for them.

What happened so far?

The Central Board of Indirect Taxes and Customs has amended the Central Goods and Service Tax Rules, 2017, through a notification (94/202-Central Tax) on December 22. These changes were made on the recommendations of the GST Council. While there are many changes, the business community is worried about two aspects – changes to Rule 36 (4) and a new rule introduced – 86B.

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What are they?

Rule 36 (4) reduced the Input Tax Credit (ITC) from 10 per cent to 5 per cent, 86B mandates businesses with monthly turnover of over Rs 50 lakh to pay at least one per cent of their GST liability in cash.

What does Rule 36 (4) say?

Rule 36 has three parts- with part A and B talk about furnishing the details and about the form to be used while part C says “for the figures and words “10 per cent.”, the figure and words “5 per cent.” shall be substituted.” The business community has been going agog while trying to decipher what it means to the businessman.

This Rule 36 (4) pertains to Input Tax Credit- the tax that businesses pay on purchase of goods and/or services and is offset from the tax they will have to pay for the sales they make. In other words, businesses reduce their tax liability by claiming credit to the extent of GST paid on purchases. Previously, this was ten per cent and from Jan 1, it will be five per cent.

Under the current rules in force till yearend, Input Tax Credit can be availed if invoices are ‘uploaded’ by suppliers and are reflected in buyers’ GSTR-2A. GSTR-2A is a purchase-related tax return that is automatically generated for each business by the GST portal by taking information of goods and/or services that have been purchased in a given month from the seller’s GSTR-1, a monthly or quarterly return filed by registered dealers.

A businessman Mukesh Marda took to twitter to bitterly complain: “Rule 36(4), reducing input claims limit 10 to 5%, is this really ease of doing business? Daily changes by the GST department are making life difficult for taxpayers!”

Rule 36(4), reducing input claim limit 10 to 5 % , is this really ease of business doing ? Daily changes by gst department is making life difficult for tax payers! pic.twitter.com/KVpWLqtswo

— mukesh marda (@mukeshmarda) December 23, 2020

A chartered accountant Shridhar asked the World Bank to refer to the number of amendments in GST, Rule 36(4) and 86 B while issuing ease of doing business rankings for India. “..you might amend your criteria to include India in it,” he maintaned in his post.

The new rule – 86B- makes it mandatory for businesses with monthly turnover of over Rs 50 lakh to pay at least one per cent of their GST liability in cash. The move is expected to curb tax evasion by fake invoicing.

Why is the industry is against Rule 36?

T Sudhir Reddy, President, Telangana Industrialists Federations, said the Rule 36(4) should be scrapped as it is not helping honest tax payers. “The Input tax credit is given on the basis of our suppliers filing their returns. However, there are no mechanisms to find out who has paid their taxes or not and who has filed the returns or not,” he said. There could also be cases where suppliers have paid the tax but could not upload due to technical glitches and server issues, he added.

How will the new change impact the industry?

“Assume I have ten vendors and I paid Rs 1,00,000 as GST for the goods and services I purchased from them. If all the vendors file their returns, I will have the full Rs one lakh tax paid and I can use this to adjust against the taxes I will have to pay from the taxes I get when I sell my finished goods and/or services. But out of the ten vendors, say only eight file their returns. So for these eight people, I can offset Rs 80,000. The current ten per cent provision (of the tax filed) will add another Rs 8,000. In all, it will be Rs 88,000 that I can adjust when I have to pay the tax. But in the new scenario, only five per cent will be allowed. So, that will be Rs 4,000. In all, I can now adjust only Rs 84,000 against Rs 88,000 earlier,” he said stressing on the need for a mechanism to identify which vendor/supplier has paid tax and has filed the returns.

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