ITC, Interest Section 36(4) Dangerous Provision of GST

Introduction

GST or Goods and Service Tax is a comprehensive tax levied on the supply of goods and services in India. It is a single tax that subsumes all other indirect taxes like VAT, excise duty and service tax. GST was introduced to simplify the tax system and to bring transparency to the entire process of taxation. However, there are certain provisions in GST that are complex and can be difficult to understand for small and medium business owners and startup founders.

Input Tax Credit (ITC)

Input Tax Credit or ITC is one of the most important aspects of GST. It is a mechanism through which a taxpayer can claim the tax paid on the purchase of goods and services that are used for business purposes. For example, if a business buys raw materials worth Rs. 1,00,000 and pays Rs. 18,000 as GST, then it can claim the entire Rs. 18,000 as ITC. This means that the business can reduce its tax liability by Rs. 18,000.

However, claiming ITC is not as simple as it seems. There are certain conditions that need to be fulfilled in order to claim ITC. The conditions are as follows:

1. Taxpayer must be registered under GST

2. Goods and services must be used for business purposes

3. Tax invoice must be in the name of the registered taxpayer and must contain certain details like GSTIN, name of the supplier, etc.

4. Taxpayer must have received the goods and services

5. Supplier must have paid the tax to the government

Interest on Late Payment

One of the main objectives of GST is to ensure that the tax is paid on time. To achieve this objective, the government has introduced a provision of charging interest on late payment of tax. The rate of interest is 18% per annum and is calculated from the due date of the return till the date of payment. This means that if a taxpayer files the return after the due date and pays the tax after the due date, then he will have to pay interest at the rate of 18% per annum.

Section 36(4) – The Dangerous Provision

Section 36(4) of the CGST Act, 2017 is considered to be one of the most dangerous provisions of GST. This provision basically states that if a taxpayer has claimed ITC in his return and the supplier has not paid the tax to the government, then the ITC claimed will be reversed along with interest. This means that even if the taxpayer has paid the tax to the supplier and has proof of the same, he will not be allowed to claim ITC if the supplier has not paid the tax to the government. This provision can lead to a lot of litigation and can be detrimental to the cash flow of small and medium business owners and startup founders.

Conclusion

ITC, interest and Section 36(4) are important provisions of GST that need to be understood by small and medium business owners and startup founders. It is essential to follow the conditions laid down by the government in order to claim ITC. Late payment of tax can attract interest at the rate of 18% per annum. Section 36(4) is a dangerous provision that can lead to a lot of litigation and cash flow problems. It is important to comply with the provisions of GST in order to avoid any penalties or fines.