Under GST law, tax to be first charge on property except under IBC

Under the Goods and Services Tax (GST) law, tax will become the first charge on property, except under the Insolvency and Bankruptcy Code (IBC). This means that in the event of a property sale or transfer, GST authorities can recover unpaid taxes from the proceeds of the sale or transfer. This change has been brought about through the introduction of the Finance Act, 2021, which has amended the CGST Act, 2017.

This article takes a closer look at what this new provision means for businesses and property buyers, and how it will be implemented.

What is the First Charge on Property?

The first charge on property refers to the right of a creditor, such as a bank or a tax authority, to recover their dues from the proceeds of the sale of that property. This means that if a property is sold, the first charge holder will have the right to recover their dues before any other creditor or person.

What is the Implication of GST Becoming the First Charge on Property?

With the introduction of this new provision, GST authorities will have the right to recover unpaid GST from the proceeds of the sale of a property, in case the property is sold or transferred. This means that if a person owes GST to the government, and they sell their property, the GST authorities can recover their dues from the sale proceeds, before the person can receive any money.

This change has been brought about to tackle the issue of non-payment of GST by businesses. The government has been cracking down on GST evasion, and this new provision is expected to give GST authorities more teeth to recover unpaid taxes.

How Will the First Charge on Property be Implemented?

The first charge on property will be implemented through the creation of a new provision in the CGST Act, 2017. This new provision will state that in case of a sale or transfer of property, the tax due under the GST law will be the first charge on the property, except under the IBC.

It is important to note that this new provision will not apply to cases where the sale or transfer is made under the IBC. This means that in case of a sale of property under the IBC, the tax authorities will not have the right to recover unpaid GST from the sale proceeds.

What Does This Mean for Businesses and Property Buyers?

For businesses, this new provision means that they will have to ensure that they are compliant with the GST law and pay their dues on time. Failure to do so can result in the tax authorities recovering their dues from the proceeds of the sale of their property.

For property buyers, this means that they will have to ensure that the property they are buying is free from any unpaid GST dues. They can do this by obtaining a certificate from the seller stating that all GST dues have been paid. This will ensure that they do not have to bear the burden of paying the unpaid GST dues of the seller.

Conclusion

The introduction of the provision making GST the first charge on property, except under the IBC, is a step towards ensuring compliance with the GST law and reducing tax evasion. While this may cause some inconvenience to businesses and property buyers, it is a necessary step to ensure that the government can recover its dues and continue to provide essential services to the citizens of the country.