42nd GST Council Meeting

Key Highlights Of 42nd GST Council Meeting

The 42nd GST council meeting was held on 5 October 2020. Finance Minister, Smt. Nirmala Sitharaman chaired the meeting.

As expected, the council has decided to extend the levy of compensation cess beyond June 2022. The other recommendations of the 42 GST Council Meeting are:

• The due date of furnishing GSTR-1 by quarterly taxpayers will be revised to 13th of the month succeeding the quarter, from 1 January 2021.
• From 1 January 2021, tax liabilities will be auto-populated from taxpayers own GSTR-1.
• To ensure the correct details are available in the auto-populated GSTR-3B, taxpayers will have to file their GSTR-1 before filing FORM GSTR-3B from 1 April 2021.
• Input Tax Credit (ITC) from the supplier’s GSTR-1 will be auto-populated and visible to the taxpayers in the newly introduced FORM GSTR-2B from 1 January 2021 for monthly filers and from 1 April 2021 for quarterly filers.
• The existing GSTR-1/3B filing system will be extended up to 31 March 2021.
• Small taxpayers having an aggregate annual turnover of less than INR 5 crores can file their GSTR-1 and GSTR-3B quarterly from 1 January 2021. This will reduce the number of returns to be filed to 8 (from 24).
• Small taxpayers filing returns quarterly will have to pay tax on a monthly basis. However, the council has given the taxpayers an option to pay 35% of the net cash tax liability of the last quarter using an auto-generated, simplified challan in the first two months of every quarter.
• HSN/SAC for goods and services will have to be disclosed in invoices and FORM GSTR-1 from 1 April 2021 in the following manner:
  • HSN/SAC" target="_blank" rel="noopener noreferrer">HSN/SAC at 6 digits for supplies of both goods and services for taxpayers with aggregate annual turnover above INR 5 crores;
  • HSN/SAC at 4 digits for B2B supplies of both goods and services for taxpayers with aggregate annual turnover up to INR 5 crores;
  • Government has the power to notify 8 digit HSN on the notified class of supplies by all taxpayers.
• Provision for furnishing of ‘Nil’ FORM CMP-08 through SMS is also recommended.
• From 1 January 2021, refunds will be paid/disbursed only into the validated bank accounts linked with the PAN & Aadhaar of the taxpayers.
• Aadhaar authentication facility (with OTP) will be allowed for refund applications.
• To encourage domestic launching of satellites particularly by young start-ups, the satellite launch services supplied by ISRO, Antrix Corporation Ltd. and NSIL will be exempted.

Furthermore, to council has taken a stand to:

• Disburse the Compensation cess collected until 5 October 2020 amounting to INR 20,000 crores to the states by 5 October 2020, night.
• Resolve the IGST devolution issue of 2017-18. For this, it is decided that INR 24,000 crores that have to be paid to few states (that had received a lesser amount earlier) will be paid by mid-October 2020. However, for now, it is decided that the states that were paid in excess will not be asked to repay the amount. The adjustment will be made in the future.

The council will meet again on 12 October 2020 for a brief discussion on the options available to meet the compensation gap. The options presented to the states in the 41st GST council meeting are modified based on the inputs received from various states. These suggested changes include:

• Increase of the borrowing amount under option 1 from INR 97,000 crore INR 1,10,000 crores.
• The cess which will get collected after June 2022 can be used by the states as follows:
  • 1st charge to be on the interest to be paid on the borrowed amount,
  • 50% of the remaining amount to be used to pay the principal amount and
  • The next 50% can be used to mitigate the COVID-affected compensation gap.

Note: There has been no change in the tax rate for Non-Alcohol based sanitizers. That means, non-alcohol based sanitisers will continue to be taxed at an 18% GST rate.

Expectations From The 42nd GST Council Meet

• The 41st GST council meeting gave the states two options:
  • Borrow INR 97.000 crores (estimated shortfall due to the implementation of GST) with a 0.5% relaxation in the borrowing limit under the FRBM Act. The principal and interest for this borrowing can be paid from the cess collected.

or

• • Borrow INR 2,35,000 crores (estimated compensation gap due to Covid-19 and shortfall due to the implementation of GST) with no relaxations. The interest burden here will be on the states.

This council meeting may bring closure to the discussions between the opposing states and centre on the option most suitable to all, to compensate the GST shortfall. As per sources, 21 states have already opted for Option 1. The opposing states may demand an alternative mechanism to meet the shortfall. None of the states have opted for option 2 yet.

• The duration of the levy of compensation cess on luxury, demerit and sin goods may be extended beyond 2022.
• Rate rationalisation on non-alcohol based sanitizers may be considered.
• The council may also look into simplifying procedures for GST compliance.