GST portal does not accept monthly returns until the entire tax is paid
In a landmark achievement, the monthly collection of Goods and Services Tax (GST) in India recently crossed the Rs 2 lakh crore mark for the first time. While this milestone reflects robust tax compliance and revenue generation, it also underscores the need to address persistent issues in the GST framework. One significant problem is the time-limit conundrum related to the input tax credit, which has become a major challenge for businesses, particularly small and medium enterprises (SMEs).
The Input Tax Credit Dilemma
At the heart of the GST system is the principle of “one nation, one tax,” which seeks to unify various central and state taxes into a single, streamlined process. This system promises the seamless availment of credit on taxes paid on inputs, thereby eliminating the cascading effect of double taxation. However, the practical implementation of this principle has been fraught with complications, particularly concerning the time limit for availing input tax credit.
Consider the case of a manufacturer required to pay a monthly tax of Rs 1,00,000. The manufacturer has already paid Rs 60,000 in GST on various inputs used in production. After claiming this input tax credit, the remaining tax liability is Rs 40,000. However, due to a cash crunch — a common issue as clients delay payments — the manufacturer only has Rs 10,000 available, leaving a shortfall of Rs 30,000.
The GST Portal Roadblock
Under current regulations, the GST portal does not accept monthly returns until the entire tax is paid. Consequently, if the manufacturer cannot meet the full tax obligation, they are unable to file the return. This situation exacerbates if the shortfall continues in subsequent months, leading to an accumulation of unfiled returns and mounting liabilities.
The critical deadline is November 30 of each year, by which the input tax credit must be availed. Failure to clear the outstanding tax by this date results in a permanent loss of the input tax credit. In our example, the manufacturer stands to lose Rs 60,000 in credits due to an inability to pay a Rs 30,000 shortfall. This discrepancy creates an undue financial burden, effectively turning a minor liquidity issue into a significant tax liability of Rs 1,00,000.
The Case for Reform
Taxes must indeed be paid promptly, and delayed payments should incur interest. However, refusing credit on already paid input taxes lacks justification when interest on delayed payments is already an established penalty. The GST portal should be modified to accept returns even if the full tax amount is unpaid, recording the shortfall and the corresponding interest due.
This adjustment would allow businesses to claim their rightful input tax credits while acknowledging their outstanding dues. It offers a balanced approach, ensuring tax compliance without unduly penalizing businesses facing temporary financial hardships.
The Broader Implications
The inability to file returns due to cash flow issues is a widespread problem, particularly among SMEs. Despite the Micro, Small and Medium Enterprises Development Act, 2006, mandating a 45-day payment period, many businesses face delayed payments, especially from government agencies. These delays exacerbate liquidity crises, leaving companies unable to meet their tax obligations on time.
Drawing a parallel with income tax, where liability is calculated on net income (total sales minus expenses), it would be unfair to tax gross sales while disallowing legitimate expenditure deductions. Similarly, manufacturers should be allowed to claim input tax credits on duty-paid inputs even if they can’t immediately pay the remaining tax in cash. Persistent defaults should attract interest and penalties, but denying credit for paid taxes only worsens the situation for struggling businesses.
Conclusion
The GST system’s refusal to accept returns without full tax payment affects thousands of taxpayers, often due to circumstances beyond their control. Reforming the GST portal to accept returns with recorded shortfalls and interest dues would alleviate undue pressure on businesses and ensure the system remains equitable. As GST collections reach new heights, addressing these practical challenges is crucial to sustaining long-term compliance and economic stability.
