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6 October 2020
Decisions of the 42nd GST Council meeting

The compensation payments to States was the foremost agenda of the 42nd GST Council meet with the Centre announcing immediate release of compensation amounting INR 20,000 crores to States. The Centre will release an additional INR 25,000 crores towards compensation of IGST pertaining to the financial year 2017-18, which was short-paid to States earlier. Besides the release of compensation payments, the GST Council also made certain other announcements which are as follows:

Enhancement in return filing features

It has been decided that the present return filing system consisting of GSTR-1 and GSTR-3B will be extended till 31 March 2021, and the GST law will be amended to include these in the default return filing system thereafter. Against this backdrop, the following roadmap for auto-generation of GSTR-3B from GSTR-1 has been announced:
 
From 1 January 2021
  • Auto-population of GST liability from GSTR-1;
  • Auto-population of Input Tax Credit (ITC) from supplier’s GSTR-1s, through the newly developed FORM GSTR-2B [for quarterly filers this would be done from 1 April 2021]
From 1 April 2021
  • GSTR-1 would be mandatorily required to be filed before filing of GSTR-3B.
 
Ease in compliance burden for small taxpayers
 
The facility to file quarterly GST returns would be extended to taxpayers with an aggregate annual turnover of less than INR 5 crores, with effect from 1 January 2021. The key features of the same will be as follows:
  • Taxpayers can file quarterly GST returns with a monthly payment of tax;
  • Such quarterly taxpayers would, for the first two months of the quarter, have an option to pay 35% of the net cash tax liability of the last quarter using an auto-generated challan;
  • Due date of furnishing quarterly GSTR-1 by quarterly taxpayers will be revised to 13th of the month succeeding the quarter.
 
Revised requirement for declaring HSN of supplies
 
The requirement for declaring HSN of goods and services will undergo the following revision from 1 April 2021:
  • Businesses with an aggregate annual turnover above INR 5 crores – Declare HSN/SAC at 6 digits for supplies of both goods and services.
  • Businesses with an aggregate annual turnover of up to INR 5 crores – Declare HSN/SAC at 4 digits for B2B supplies of both goods and services
Further, it has been decided to empower the government to notify such class of supplies for which taxpayers would be required to disclose the HSN at 8 digits level.
 
Other announcements
  • The Council has recommended various amendments in the CGST Rules and forms;
  • GST refund to be disbursed in a validated bank account linked with the PAN and Aadhaar of the applicant with effect from 1 January 2021;
  • The satellite launch services supplied by ISRO, Antrix Corporation Ltd. and NSIL would be exempted from GST.
Our Comments
  • In a relief to businesses, it appears that despite the heavy shortfall in GST collections due to the pandemic, the GST Council will not be increasing the rate of Compensation Cess. However, it has been decided to extend the levy of Compensation Cess beyond the transition period of 5 years which expires in June 2022.
  • Given the familiarity achieved by businesses with the current return filing system (GSTR-1 and GSTR-3B) over the past 3 years, the decision to continue with them is a welcome move, which will prevent avoidable disruptions that would have been caused while migrating to a new return filing mechanism. However, with the introduction of GSTR-2B and its linkage with GSTR-3B, it will be interesting to see whether the Council ultimately decides to restrict the ITC eligibility of businesses to invoices appearing in GSTR-2B.
  • With the Council deciding to empower the government to notify the class of supplies for which 8 digits of HSN would be required to be disclosed, businesses should revisit their ERP systems to ensure that their billing and accounting systems are equipped to disclose and record the HSN of their outward supplies at 8 digit level.
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