42nd GST Council Meet: Ease of GST Return Filing, Compensation Cess, and Other Issues Discussed

The 42nd GST Council meeting took place via video conferencing today. The meeting was chaired by Finance Minister Smt. Nirmala Sitharaman, Union Minister of State for Finance & Corporate Affairs Shri Anurag Thakur was also present at the meeting, besides the Finance Ministers of the States and Union Territories (UTs), and other senior officers of both, the Ministry of Finance and the States and UTs.

The long-pending issue of compensation cess was discussed, along with other pressing issues such as easing the GST return filing process and reducing the GST rates on certain goods. On the compensation cess issue, the Council has decided to extend the period of cess collections beyond five years, i.e. beyond June 2022. This extension has been announced to increase collections to meet the revenue gaps experienced by the states.

Of the cess collections this year amounting to Rs.20,000 crore, the same will be disbursed to the states tonight, for loss of revenue for 2020-21. On the other hand, Rs.25,000 crore will also be distributed to the states which received less than what they should have received in the past on account of IGST of 2017-18. The states which received more will not be asked to repay the same now, but the amount will be retrieved later. This amount will be disbursed in the coming week.

To ease business compliance, the Council has approved the future roadmap for GST return filing, which will significantly reduce the taxpayers’ compliance burden. It would, however, require taxpayers to file their GSTR-1 return on time. On-time filing by a taxpayer and his suppliers would enable them not just to view the input tax credit available in the electronic credit ledger, but also allows the system to auto-populate the GSTR-3B return. 

To reduce the compliance burden for small taxpayers, i.e. taxpayers with an annual turnover less than Rs.5 crore, quarterly filing of GSTR-1 and GSTR-3B will be allowed. The Ministry of Finance also announced that the GSTR-1 due date would be revised to the 13th of the month following the quarter, for quarterly taxpayers.

Also Read: The Centre clarifies about honouring the GST Compensation Dues

However, they will need to pay at least 35% of their tax dues for the first and second month of the quarter using an auto-generated challan, which will be calculated based on the previous quarter’s tax dues. In the final month of the quarter, the balance will need to be paid. This reduces the total returns filed by quarterly taxpayers to eight returns from twenty-four.

The requirements for reporting HSN codes have also been revised. From 1st January 2021, taxpayers with a turnover exceeding Rs.5 crore will need to report 6-digit HSN/SAC codes for supplies of both goods and services. Taxpayers with turnover up to Rs.5 crore can report 4-digit HSN/SAC codes for B2B supplies of both goods and services. The government will have the power to notify an 8-digit HSN on certain goods and services to facilitate better tracking.

The Ministry of Finance announced that refunds would henceforth only be given into bank accounts where PAN and Aadhaar validations have been done. An Aadhaar authentication facility (with OTP) is now allowed for refund applications. This move will discourage taxpayers from misusing the system. There have been various amendments to the CGST Rules and forms that have been recommended, which also includes the provision for furnishing of a nil Form CMP-08 through an SMS.

To encourage the domestic launching of satellites, especially by new start-ups, satellite launch services supplied by ISRO, Antrix Corporation Ltd. and New Space India Limited (NSIL), will now be exempted from the 18% GST rate they were previously charged. The issue of the GST rate on non-alcohol based sanitizers was also discussed, but no rate revision has been done. The GST charged will remain at 18%.

On the shortfall arising from the implementation of GST, the compensation cess issue was extensively discussed. The Finance Minister stated that 20 states have opted for the first option which was announced in the previous meet, i.e. that the states borrow the shortfall at a special rate of interest. However, not all states were on board with this decision. Hence, the Council will meet again on 12th October 2020 to further discuss this issue.

As the Council has now decided to extend the cess collection period beyond five years, the additional cess received will go towards three repayments. First, it will be used to pay off the interest on borrowings by the states. Second, towards the principal portion of these borrowings. Last, it will go towards the COVID-19 affected shortfall of the states’ GST collections.

The Finance Minister concluded by saying that nobody will be denied the compensation arising from the implementation of GST, and also the compensation arising out of the COVID-19 impact. The only decision that still needs to be taken is the amount of borrowing which needs to be done. 

For any clarifications/feedback on the topic, please contact the writer at athena.rebello@cleartax.in