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The Finance Bill, 2022, brings several revisions to GST law, customs, and central excise. Section 49 of the CGST Act is an important section that deals with the payment of taxes and other liabilities. Besides other amendments, this section has also been subject to changes, and these amendments will take effect from a date that will be notified, unless otherwise specified, by the Government.
Section 49 of the CGST Act relates to tax payment, interest, penalty and other amounts. It talks about how a taxpayer must discharge his GST liabilities, including the following:
The amendments in section 49 imply changes in the way taxpayers can claim an input tax credit.
The amendment in section 49(2) involves changes in the rules regarding how much ITC a taxpayer can avail. Section 43A provided an option to the taxpayer to claim a provisional ITC of 5% above the eligible ITC as per GSTR-2A. The reference to section 43A is omitted from section 49(2). This amendment aims to ensure that taxpayers avail credit only to the extent of what is available in GSTR-2A and GSTR-2B. This means that taxpayers can no longer claim provisional ITC even if the input does not reflect in the portal.
Taxpayers need to adhere to various conditions for availing ITC. Many cases where ITC has been fraudulently claimed have come to light in recent times. With this regard, the Government also, from time to time, makes necessary changes to the provisions for claiming ITC.
Earlier, section 49(4) stated that the balance in the electronic credit ledger must be utilised to pay output tax liabilities as per conditions and within the given time. This section has been amended to subject ITC claims to further limitations that the Government may impose from time to time. The aim is to ensure that a taxpayer avails ITC only to the extent that they are fully entitled to.
Under GST, distinct persons refer to persons of the same entity (under the same PAN) with different GSTINs situated within the same state or in two different states. It could so occur that GST liability payments are made to the wrong GSTIN or another distinct person. To mitigate this issue, Section 49(10) has been amended. Section 49(10) had initially allowed taxpayers to transfer the balance of tax, interest, penalty, or other amounts in the electronic cash ledger towards CGST, SGST/UTGST, IGST or cess liabilities, subject to conditions.
The amendment now allows taxpayers to transfer such balances between distinct persons in the electronic cash ledger. This means that a registered person with a GSTIN can now transfer their balance in an electronic cash ledger to another GSTIN under the same PAN. Taxpayers with cash balances can transfer to another person who has output tax liability.
Rule 86B of CGST Rules was made effective from 1st January 2021, which restricted the use of ITC to pay an output tax liability. As per Rule 86B, applicable taxpayers with aggregate outward taxable supply (i.e., excluding exempt and zero-rated supplies) greater than Rs.50 lakhs can utilise ITC up to 99% of their output tax liability, subject to exceptions.
The balance liability (a minimum of 1% of total output tax liability) must be paid by cash. This implies that these taxpayers cannot use ITC to pay off their entire output tax liability. Section 49(12) has been inserted concerning the above rule. Section 49(12) states that the Government can specify a maximum limit of output tax that can be paid using balances in the electronic credit ledger. This insertion gives rule 86B legal backing.
Section 49 is an important provision for taxpayers in how ITC can be utilised. The aim has been to ensure seamless credit and lawful claims of ITC by taxpayers. While some amendments may seem restrictive for the taxpayers, they are made to ensure claims are made in compliance with the provisions and rules.