GST Council cuts tax rates on 29 items, discusses simpler return-filing process

Union finance minister Arun Jaitley addresses media after the GST Council Meeting in New Delhi on Thursday.

The Goods and Services Tax Council (GST Council) on Thursday cut tax rates on 29 products and 54 services at its 25th meeting and agreed to make the process of filing tax returns simpler.

At the meeting chaired by finance minister Arun Jaitley, the federal indirect tax body cut rates on products including pre-owned vehicles, household cooking gas cylinders from private suppliers and precious stones.

Services that will be taxed less include legal assistance provided to the government and its agencies, admission to theme parks and small housekeeping services provided by e-commerce firms such as UrbanClap. The revenue impact of these rate cuts will be to the tune of Rs1,100-1,200 crore.

The move to simplify the process of tax return filing comes amid revenue loss worries expressed by states, largely due to tax evasion. Easing the process could curb evasion.

Though a final decision is yet to be taken on the revamp of the return filing process, the GST Council is thinking of doing away with forms such as GSTR 2, dealing with purchases, and GSTR 3, a comprehensive return. Instead, the existing simpler summary return form GSTR 3B will continue, which will be supplemented with details from invoices to be uploaded by suppliers on the GST Network (GSTN). This will enable invoice matching and check tax evasion.

“Initially there will be GSTR 3B return and then suppliers’ invoices, which will be adequate. This will be a simple process,” Jaitley said.

He added that the Council thought that Infosys Ltd chairman Nandan Nilekani and the two committees under Bihar deputy chief minister Sushil Modi and GSTN chairman A.B. Pandey could finalize the proposals and circulate them among states for approval at the next meeting of the Council.

“Today it was discussed but not finally approved. But it is moving in that direction,” Jaitley said.

“If implemented, this may simplify the GST return filing process but at the same time keep any possible revenue evasion in check,” said Abhishek Jain, tax partner, EY.

The composition scheme, a flat tax payment and quarterly return filing scheme for businesses with less than Rs1.5 crore in sales, is also likely to be modified, with the Council giving its in-principle approval to make the scheme more attractive and reduce tax evasion while making the supply chain seamless.

“Revenue collections in composition scheme is a matter of concern,” Jaitley said.

The changes will enable large registered dealers to purchase from small composition scheme dealers and still avail of input tax credit, said a person familiar with the development.

Under the composition scheme, traders, manufacturers and restaurants can pay tax at 1%, 2% and 5%, respectively, in the new indirect tax regime. Businesses opting for the composition scheme also face a less onerous compliance burden as they have to file returns only once in a quarter as against monthly returns to be filed by other businesses

According to the framework discussed in the Council, large registered dealers can pay tax equivalent to the composition rate on purchases made from small unregistered dealers.

This mechanism, also known as reverse charge mechanism, will enable the buyer to avail of input tax credit.

At the same time, the composition dealer will be exempt from paying the tax on the purchases made by the registered dealers.

At present, 1.7 million traders are registered under the composition scheme and paid only Rs307 crore in taxes in the September quarter, reflecting large-scale under-reporting.

At its next meeting, the Council will also discuss inclusion of petroleum and real estate under GST, Jaitley added.

The council also reaffirmed its decision to roll out e-way bills for inter-state movement of goods from 1 February. In addition, 15 states will roll out e-way bills even for intra-state movement of goods from 1 February.

The minister said that revenue collection will pick up with the anti-evasion steps in place.