India indirect tax update - Union Budget 2022 and mandatory e-invoicing with effect April 1, 2022

India indirect tax update - Union Budget 2022 and mandatory e-invoicing with effect April 1, 2022

The Union Budget of India is the annual budget and presented each year on the first day of February. India’s Finance Minister, Nirmala Sitharaman delivered the Union Budget 2022 on February 1, 2022. We have set out some of the key indirect tax (GST and customs duty) highlights that businesses with a footprint in India should know:

1. GST revenues are buoyant with record GST collection and returns filed

Gross GST collections for the month of January 2022 were confirmed as the highest since GST’s inception - with Rs 1,40,986 crores (around $18.8b) of tax collected. This represents a 15% growth compared to the previous year which the Finance Ministry linked with increased economic activity and the introduction of anti-evasion measures. The total number of GSTR-3B returns filed up to January 30, 2022 was 10.5m (including 3.6m quarterly returns).

2. Deadline for amendments and corrections extended

The deadline for the amendment, correction, or uploading of missed sales invoices or credit notes or for claiming missed input tax credits will change from September 30 to November 30 of the following year. This provides taxpayers with additional time to identify discrepancies and to correct the GST compliance position.

3. Cancellation of GST registration after failure to submit consecutive returns

Where a composition taxpayer (i.e. a qualifying taxpayer under the composition scheme) fails to file a return for three consecutive tax periods, or any taxpayer fails to file a return for six consecutive tax periods, then the GST registration can be cancelled. However, before the cancellation, a taxpayer should be given a reasonable opportunity to respond to the tax authority and have a hearing.

4. Input tax credit amendments

A number of changes to input tax credits (ITC) were announced or confirmed in the Budget:

  • ITC for a month is restricted to the extent supplies are communicated to the recipient by means of Form GSTR – 2B (the auto-generated ITC statement).
  • Enabling provisions are introduced in GST to limit the amount of ITC that can be used for the discharge of output tax liability.
  • Where the supplier fails to pay output tax within the prescribed time period, customers are required to reverse ITC along with an applicable interest of 18%.
  • The balance in the Central GST cash ledger is to be made transferrable to the electronic Central GST or Integrated GST cash ledger of different  Goods and Services Tax Identification Number (GSTIN) of the same PAN number.

5. Review of customs exemptions and tariff simplification

There is a proposal to gradually phase out more than 350 customs duty exemptions, for example on certain agricultural produce, chemicals, fabrics, medical devices, & drugs and medicines for which sufficient domestic capacity exists.

Mandatory e-invoicing extended

It was announced on February 25 that compulsory e-invoicing in India will be extended to all Indian businesses with annual sales of  ₹20 crore (c.$3m) with effect April 1, 2022 (i.e. the start of the new Financial Year). The official order said the decision has been taken on the recommendations of the GST Council. While one of the main drivers from the Government is to maximise GST revenues and reduce fraud, this is also a great opportunity for Indian SMBs to further embrace digitalization and the associated benefits. It has been reported that 180,000 businesses will need to implement a compliant e-invoicing solution by April 1, 2022.

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