Forward-looking Budget eases tax compliance; ball in GST council's court

Budget can be viewed as a positive and a forward-looking in line with promoting the vision of an 'Atmanirbhar Bharat', coupled with continued efforts to ease compliance and check tax evasion.

First ever paperless budget, presented using a ‘Made-in-India’ tablet, focussed primarily on six pillars: Health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and R&D, and minimum government and maximum governance. Finance Minister Nirmala Sitharaman proposed many measures in Union Budget 2021 to prop up the development agenda for flagging economy amid the COVID-19 pandemic and boost spending across sectors. 

In her Budget speech, the Hon’ble Finance Minister highlighted painstaking hard work undertaken by the GST Council towards removing difficulties from GST as well as various measures undertaken to further simplify nuances of GST. These measures have included filing of ‘nil’ return through SMS, quarterly filing of returns along with monthly payment of taxes by small taxpayers, successful roll out of e-invoicing system, pre-filled automated GST return filing mechanism etc. Furthermore, the promise made in previous Union Budget 2020 was fulfilled by the government by deployment of artificial intelligence for identification of tax evaders, fake billers and execution of numerous raids for identifying miscreants. 

While the changes pertaining to GST are primarily decided outside the Parliament by the GST council, the Budget fine print shed light upon few important changes in the finance bill which would be implemented at a later stage. One of the major changes seen includes removal of mandatory certification of annual accounts and filing self-certified annual return. While it appears that this change has been introduced to ease the compliance burden on taxpayers, tax practitioners as well as the Government, however, this has also resulted in introduction of pure self-assessment regime. This would not only lead to more diligence on taxpayer’s behalf but may also result in higher vigilance by the Government by way of initiation of departmental audits and scrutiny. With the penal provisions getting stringent under GST and the increasing focus on data analytics, the onus casted upon taxpayers self-declarations in filing of returns and self-certified reconciliations would become even more critical.    

GST was introduced to ensure seamless automated flow of input tax credit. However, in absence of automation, the burden of ensuring correct availment always lied with the buyer. While multiple amendments were introduced with respect to restricted input tax credit availment in last couple of years, this Budget has now ensured complete automation by allowing availment of input tax credit to recipient only when details of outward supplies have been furnished by the supplier thus resulting in tighter tolerance measures in claiming such credits by recipients beyond what is declared and available from their vendors. 

While most of the changes aim to simplify GST compliance procedures as well as ease the compliance cost/ burden of taxpayers, several other expectations of the industry seem to have been left unaddressed. For example, India Inc. has been eyeing for rationalization of GST tax rates for a long time now and was hoping for some concrete announcement on the roadmap on this front. Further, inclusion of petroleum and related products in GST ambit has been in the wish list of businesses ever since GST implementation. However, it appears that owing to current fiscal deficit and revenue pressures that Government is facing, these changes would have to stay in abeyance for the time being. 

On sectoral front, the Finance Minister introduced various measures for improving healthcare infrastructure in the wake of COVID-19 pandemic, however, no specific tax rationalisation has been introduced as was expected by the Indian healthcare industry. Even for the hospitality and tourism industry which has taken a lot of beating during Pandemic, no specific interim tax  sops were announced unlike many other countries, except for a disbursement of INR 300 crores to State of Goa, owing to its diamond jubilee of its liberation from rule of Portuguese. Some specific concessional measures to aid revival of these sectors would have lifted the spirits of taxpayers.

On the Customs duty front, with the aim to promote domestic manufacturing as well as provide India a level playing field globally, tax rates under Customs law have been rationalized thereby boosting the ‘Make in India’ programme along with ensuring duty rationalisation on import of essential raw materials. Furthermore, various changes have been proposed for providing trade remedial measures.
 

Additionally, the government has introduced Agriculture Infrastructure and Development Cess (AIDC), as a duty of Customs and Excise, on certain items to finance the improvement of agriculture infrastructure and other development expenditure. Further, to ensure that no additional burden is imposed on the consumers on this account, rates of Basic Customs Duty (BCD) and Central Excise Duty on these products has been lowered/ neutralised. The government has also prescribed that all conditional exemption notifications issued under the Customs law shall now automatically expire on 31st March falling two years after the date of exemption unless otherwise stated or rescinded earlier which clearly shows the intent of a minimal exemption based Indirect tax regime. 

With an intention to promote “Make in India” initiative and protect domestic industry from injury, Government has proposed to amend rules to further strengthen check on import of goods imposing additional safeguard measures. Further, as a step towards affixing accountability on timely completion of adjudication by Customs authorities, it has been proposed that investigation related to evasion of Customs duties has to be completed within two years which could be extended for one more year.

To sum up, this Budget can be viewed as a positive and a forward-looking Budget in line with promoting the vision of an ‘Atmanirbhar Bharat’ coupled with continued efforts to ease compliance and check tax evasion. While the government has laid out roadmap for economic recovery for the disruption caused by COVID-19 pandemic, it will be interesting to keep an eye on GST council for introduction of various other measures for recovery and upliftment of the overall business sentiment in the country.

 

(Krishan Arora is partner, Grant Thornton Bharat LLP. Views are his own.)

(Contributions by: Karan Kakkar, associate partner; Devika Dixit (Associate Director), Pragya Sharma (Manager) and Aditya Jain (Assistant Manager) at Grant Thornton Bharat LLP)