Changes in GST law: Finance Act 2022

Finance Minister of India, Smt. Nirmala Seetharaman on 1st February 2022 presented the 2nd digital union budget for the FY 2022-2023. Accordingly, the proposed amendments related to GST were covered within clauses (from Clause 99 to Clause 123).

The proposed amendments that were within clause 99 to clause 113 came into effect from the date of the notification itself. While, amendments proposed within clause 114 to clause 123 came into effect from the date of enactment of the Finance Act, 2022.

In this Article, all the GST amendments that were proposed and introduced through the Finance Act, 2022 are discussed.

Abstract

Hon’ble Finance Minister of India, Smt. Nirmala Sitharaman on February 01, 2022, presented the Finance Bill, 2022 in Parliament. It was notified on March 30, 2022, by the Central Government.

With the introduction of this Bill, several amendments came up in the provisions of the Goods and Services Tax Act and the Income Tax Act. 

Prospected Changes in GST Law

The key amendments that this bill introduced included taxation schemes for virtual assets, filing of updated returns, an extension of the timeline for claiming the ITC (Input Tax Credit) in respect of the debit note or the tax invoice, etc. 

Outline of GST Law Amendment by Finance Act 2022

Hon’ble Finance Minister while presenting the Finance Bill, 2022 highlighted that there were felt requirements in the regulation of concepts such as Input Tax Credit (ITC). 

Apart from this, there were some challenges with respect to GST that required to be corrected. The Finance bill, 2022 proposed various such changes under the GST Act. Some of the important changes and introductions are discussed below.

Availment of Input Tax Credit (ITC)

By the Finance Act, 2022, a new clause (ba) is inserted in section 16(2) of the CGST Act, 2017.  

This amendment states that Input Tax Credit regarding an Invoice can be availed only if such ITC (Input Tax Credit) is not previously restricted. This also needs to be communicated in detail to the buyers by an auto-generated statement within GSTR 2B under section 38 of the CGST Act, 2017.

The main objective of this amendment was to break the practice of fraudulent Input Tax Credit (ITC) by dealers. This chain of fraudulent ITC by dealers was causing loss to the economy. 

Although this would contrarily affect the buyers that are genuine and in cases where the supplier does not discharge their liability fairly. Several discussions were put forward with the conclusion that if the suppliers do not pay the taxes timely in such a situation the buyers would not be held responsible. 

Availment of ITC on Self-Assessment

Clause 105 of the Finance Act, 2022 was inserted to substitute a new provision for section 41 of the CGST Act, 2017. The objective of this insertion was:

• To avail of self-assessed ITC, and 
• To remove the concept of the claim of eligible ITC on a provisional basis. 

Therefore, now the taxpayers are entitled to avail credit of eligible ITC as self-assessed. And the same is liable to be reversed with interest if the payable tax is not paid by the supplier.

Additionally, if the supplier makes payment of the payable tax regarding supplies, it is now allowed that such person mentioned above may re-avail the credit amount that is reversed by him. 

Two-way communication for filing GST returns

The provision for Two-way communication to file GST returns was proposed to be removed by the Finance Act, of 2022. This proposal was mentioned in clause 106 of the Finance Bill, 2022. 

Clause 106 of the Finance Bill opposed section 42 which related to the reversal, matching, and reclaiming of ITC. Clause 106 is to be read in tune with Clause 105 of the Finance Bill. 2022.

The objective of Clause 106 is similar to Clause 105 and it also seeks the removal of;

• Reversals, subsequent matching, and reclaim of such credit, and
• Concept of claim on Input Tax Credit on a provisional basis. 

Also, it seeks to amend section 43 relating to reversal, reclaim of reduction, and matching in output tax liability. The purpose of this omission is to abolish the two-way communication process in filing returns. 

Apart from it, it also seeks the omission of section 43A.

Therefore, the bill proposed;

• Omission in the concept regarding two-way communication between recipient and supplier, and 
• With respect to GSTR-2 

Extension of Time limit for Certain provisions

Finance Bill, 2022 proposed an extension of the Time limit for certain Provisions for up to November.

This extension was provided to correct any omission or error or for issuing credit notes till 30th November of the upcoming year. 

Currently, it is allowed up to the month of September of the upcoming year (the due date to furnish the GSTR-3B).

Apart from it, amendments were proposed to amend sections: Section 16(4), Section 34 (2), Section 37 (3), Section 39 (9), and Section 52 (6) of the CGST Act, 2017 for the rectification of any error or omission and extend time-limit till 30 November of the next year subject to certain conditions.

Transfer of e-Cash ledger

Clause 107 amended sub-section (10) and provided that the cash ledger is transferable between different individuals. 

This amendment allowed the transfer of the amount that is available in the e-cash ledger or electronic cash ledger of a registered person. The available amount can now be transferred from the e-cash ledger of a registered person to the e-cash ledger of a distinct individual.

Usage of Electronic Ledger (e-credit ledger)

Clause 107 also proposed an amendment in Section 49 of the CGST Act, 2017 to provide restrictions in utilizing the amount that is available in the e-credit ledger.

Therefore, Section 49 was solely amended with the objective to prescribe the maximum output tax liability proportion which may be discharged for certain classes of persons through the e-credit ledger.

Levy of interest on ITC wrongly utilized and availed

Clause 110 of the Finance Bill 2022 inserted a sub-section for section 50(3) in the CGST Act to provide a levy of interest on Input Tax Credit (ITC) that is wrongly availed and utilized further, along with the specific manner for calculation of interest.

Amendments with respect to a Refund claim 

Certain amendments were also proposed regarding the Refund claim. By Clause 112 of the Finance Bill 2022, an amendment in the proviso of section 54(1) of the CGST Act was proposed. 

This proposal was made with the objective to expressly provide a claim of refund of any such balance which is available in the e-cash ledger (Electronic cash ledger).

Apart from it, Sub-section 2 was also proposed to be amended for the reason to provide a time limit of 2 years, counted from the last day of the quarter in which the supply was received. And when such supplies were received on inward supplies for claiming refund of tax paid.

This clause also proposed the inserting of a new sub-clause (ba) in clause (2) of Explanation for providing a clear view regarding the date for filing a refund claim regarding supplies made to SEZ (Special Economic Zone), Special Economic Zone unit, or a developer. 

The relevant date prescribed in such cases is the due date to furnish GSTR-3B.

Rate of Interest under section 50(3)

Notification number G.S.R. 661(E) dated June 28, 2017, was amended by Clause 115 of the Finance Bill 2022 for notifying an 18% rate of interest under section 50(3) of the CGST Act, 2017.

This notification came into effect on July 1, 2017. Earlier the rate of interest was 24%. Therefore, this proposal would come as a relief in case of wrong utilization and availment of ITC.

Cancellation of GST Registration

The Finance Bill, 2022 introduced several effective changes which included amendments in Section 29 (2) (b) of the CGST Act.

Clause 100 of the Finance Bill, 2022 was proposed to amend Section 29 (2) (b) for providing the cancellation of registration of a tax-paying person if the return is not furnished for the financial year and three months from the due date to furnish such return has passed.

Therefore, it was proposed that GST Registration of the Composition Tax Payers would be liable to be canceled if GSTR-4 returns are not furnished within 3 months from the due date.

Payment of dues through GSTR-3B

Clause 104 of the Finance Bill, 2022 proposed substitution in the first proviso of section 39(7) for providing an alternate option to the individuals to either pay an amount that is prescribed in GSTR-3B or pay self-assessed tax.

Filing Return by Non-Resident Taxable Persons

Since the introduction of Clause 104 of the Finance Bill, 2022, an amendment under section 39(5) of the CGST Act was provided. This amendment was provided with respect to the NR (non-resident) taxable person.

Therefore, after the introduction of this clause, non-resident taxable persons shall now furnish the return within 13 days for a month or within 7 days after the last day of the registration period that is specified under sub-section (1) of section 27, or whichever is earlier.

Thus, this proposal specified that for the non-resident taxable persons the due date for filing returns is now prescribed as the thirteenth (13th) day of next month instead of the 20th day of next month.

Late fees for TCS return

Clause 107 of the Finance Bill 2022 proposed amendment in Section 47(1) of the CGST Act, 2017 to eliminate reference to section 38 as furnishing GSTR-2 is not required and also for providing a levy of late fees under section 52 for delayed filing of return.

Therefore, it was proposed to amend Section 47 of the CGST Act, 2017 for providing a levy of late fees in TCS returns for delayed filing.

Amendment in 2017 Notification

Notification No. 13/2017 was amended in respect of the Rate of Interest. The extracts of this amendment can be understood as follows; 

• The rate of interest under section 50(3) of the CGST Act, 2017 is changed now to 18%,
• The effect of such a Rate of Interest would be retrospectively operative (from July 01, 2017),
• Earlier the Rate of Interest was 24%,
• A similar amendment was made within Notification No.6/2017 with respect to Integrated Tax, and
• Amendment was made within Notification No.10/2017 with respect to Union Territory Tax

Conclusion

The introduction of a specific tax regime with respect to virtual digital assets is a good indication for bringing digital currencies. The amendments proposed in the indirect taxation laws were introduced with the objective to strengthen the ease of doing business and overcoming the challenges in compliance processes. 

Further, this amendment would facilitate taxpayers as it prospects to extend the timeline for Availing the Input Tax Credit, debit notes or credit notes, issuance of tax invoices, and rectification of errors in the tax collected or returns at the source.

It would be right to say that the Finance Act, of 2022 aims toward the growth of the economy and a rise in the tax regime of the country.

Few of the welcoming amendments would directly impact simplifying the tax system, reduce of litigation, and promoting voluntary compliance by taxpayers. Conclusively, enabling a stronger nation and a stronger economy.