Only 45,000 taxpayers affected by 1% cash payment rule, government official says


New Delhi: Only a small fraction of the industry – around 40,000 to 45,000 taxpayers – will be covered by the new rule that prevents businesses from fully meeting their tax obligations by using tax credits, said a responsible for the Ministry of Finance.

The new rule requires that companies with more than ??50 lakhs of sales per month to pay 1% of their taxes in cash. It limits the use of the tax credit paid on raw materials and services to 99% of the tax output. This provision has been in effect since January 1. This decision aimed to control the practice of fraud involving false invoices. Scammers chose products based on tax rates so that they could redeem fake invoices without any cash payment of the tax involved, using fake credits.

Of the total goods and services tax (GST) base of 12 million taxpayers, only around 400,000 taxpayers have sales greater than ??50 lakh and only about 150,000 of them pay less than 1% in cash tax, the official said on condition of anonymity.

When the rule exclusions are applied, the 1% cash tax payment will only apply to approximately 40,000 to 45,000 taxpayers.

“This would represent about 0.37% of the total GST base of 12 million taxpayers,” said the official.

The clarification comes after a leading body of traders urged Finance Minister Nirmala Sitharaman on Friday to postpone the implementation of the anti-avoidance measure to a later date.

In a letter to the Minister of Finance, the Confederation of All Indian Traders (CAIT) said the requirement was “a counterproductive measure that will place more on traders the burden of compliance and a lot of financial obligations.” CAIT also said traders were not happy. with certain rules applied without consulting them, and to ignore their implications.

The finance ministry official quoted above said that the 1% cash payment should be calculated on the tax payable in a month and not on the monthly turnover.

Thus, on sales of ??100 per month and 12% GST payable on it, only 12 paisa need to be paid in cash under this rule. The net cash payment requirement will only be 0.12% of turnover in such a case. If a dealer has sold ??1 crore of goods taxed at 12% and if he pays his tax debt over 99% through input tax credits then he only has to pay ??12,000 under this rule, the official said.

“The rule clearly identifies where the risk to revenue is high and imposes a very reasonable cost to deter fraudsters in multi-level fraud of input tax credits,” the official said.

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