Action points amidst COVID-19
COVID-19 has significantly impeded economic growth of the country. Due to changes in Indirect Tax laws, there are several points that the taxpayers need to take care. In this Aupdate, we are listing out some of the key points as under:
- Implications of extension in due dates to June 30, 2020
- The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (‘Ordinance’) dated March 31, 2020 read with Notification No. 35/2020 – Central Tax dated April 3, 2020 extended due dates (falling between March 20, 2020 to June 29, 2020) for completion or compliance of any action under the Central Goods and Services Tax Act, 2017 (‘CGST Act’) or Central Goods and Services Tax Rules, 2017 (‘CGST Rules’) till June 30, 2020.
- Resultantly, the due dates of making following compliances shall also be extended:
- Section 16(2) of the CGST Act provides for making payment to vendors towards value of supply and tax within 180 days of issuance of invoice. Hence, if due date (180th day) of making payment to vendor falls between March 20, 2020 to June 29, 2020, the recipient can pay its vendor till June 30, 2020.
- Section 143 of the CGST Act mandates the principal to receive back goods from job-worker within 1 year (inputs) and 3 years (capital goods). Hence, if due date (expiry of 1 year and 3 year) falls between March 20, 2020 to June 29, 2020, the principal can receive back the goods till June 30, 2020.
- Rule 42 and 43 of the CGST Rules mandates reversal of Input Tax Credit (‘ITC’) on inputs, input services and capital goods attributable to exempted supplies and non-business purposes. Such reversal needs to be made provisionally during the year and needs to be finalized till March 31, 2020 post which interest is applicable. Hence, date of finalization and reversal of ITC shall stand extended till June 30, 2020. Similarly, monthly reversal to be made between this period, can be made till June 30, 2020.
- Timely reconciliation of ITC under Form GSTR-2A
- Rule 36(4) of the CGST Rules restricts ITC on invoices and debit notes not uploaded by suppliers to 10% of ITC on invoices and debit notes uploaded by suppliers. A proviso was inserted in this provision that it shall apply cumulatively for the months February 2020 to August 2020. The cumulative effect / adjustment for these months needs to be done in Form GSTR-3B of September 2020.
NITYA Comments: Despite this relaxation, taxpayers should continue to undertake reconciliation on monthly basis since it may become difficult for taxpayers to undertake reconciliation for 7 months and pose timely action at vendors’ end. Else this may result in significant mismatch and need of substantial reversal of ITC in September 2020.
- ITC on medical insurance
- Section 17(5) of the CGST Act bars ITC on health insurance service. However, ITC is available where an employer is mandated under law to provide the same to employees.
- The Ministry of Home Affairs vide Order No.40-3/2020-DM-I(A) dated April 15, 2020 inter-alia prescribed Standard Operating Procedure (‘SOP’) to be followed by factories, offices, workplaces and other establishments. This SOP made medical insurance mandatory for workers. The said order and SOP was applicable only till May 17, 2020 and withdrawn by latest MHA Order dated May 17, 2020.
NITYA Comments: Notably, while insurance has been made mandatory for workers, SOP is meant for all type of establishments like factories, offices etc. Thus, the expression ‘workers’ under SOP should logically be read as employees and contractual workers.
Hence, taxpayers can claim ITC on medical insurance policy taken for its employees, contractual workers only if such policy was taken / renewed between April 15, 2020 and May 17, 2020. Notably, ITC will continue to be available on insurance undertaken for workers if mandated under any law.