After the announcement of errors in input tax credit claims, the government is keeping an eye on the activities of some companies such as Insurance, Technology, Telecom, and Banks. The government wants that these companies must rectify their tax credit claims, said tax officials.
According to the tax officials, “There are instances where the transitional credit has jumped by more than 50% from the period before GST (goods and services tax). The government wants these companies to return transitional credit either erroneously claimed or inflated”. By adding that, some of the FMCG companies as well durables sectors are under investigation.
A tax credit is the amount of money that could be deducted from a taxpayer’s total amount of tax that the taxpayers have to pay to the government. Before the implementation of GST, many companies had already paid tax on their old stocks. They had also set off tax credit but now they have to again settle their taxes according to the amount of tax to be paid in GST regime. Transitional tax credits can be set off against the amount need to be paid as per GST tax rules. Transitional credits have built up before 1st July on those stocks for which tax has been paid by the companies before the implementation of GST.
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Some of the tax officials said that in a few cases the enhancement of transitional credit could be authentic. MS Mani Partner at Deloitte India, said, “Several businesses are evaluating the transition credits taken and whether there is any need to revise the credits in either direction. Many businesses have rightfully availed large credits, as permitted by the legislation, and it is necessary for them to provide adequate documentation and linkages in order justify that it is appropriate.”
Under the GST compliance, some of the companies such as banks, insurance, telecom, and technology can now avail tax credit on capital expenditure- as such no concept was available in the previous tax regime and these companies use the capital expenditure to offset the GST liability.
“Many banks and companies had put their expansion plans on hold until GST was rolled out July 1 to benefit from input credit,” said tax experts. In this way, Tax credit claimed by banks and such companies has led to an immense increment. In several cases, especially Telecom Companies some machines and technology were purchased before the implementation of GST, but not transported to India. Tax officials said, “Such goods were brought on the balance sheet only after GST, to claim credit.”
Abhishek A Rastogi, Partner, Khaitan & Co said, “If a company revises the transitional credit number, it could be construed as an admission of guilt so most companies may not revise the credit details unless there is a blatant error. The government could issue show-cause notices to companies which may have taken high transitional credit and can levy penalty and interest and seek reversal of transitional credit.”
According to the Media Reports, On 21st September, the government and the tax department has started queries from the manufacturing companies which includes banks, insurance, technology and financial institutions on transitional credits. A month later a summon had been issued by the tax department to these companies
“The government views transitional credit as leakage of tax. The worry in the government is that in the coming months, credits on excise, service tax and VAT would also be given to companies”, said tax official. By adding that, “The bigger worry is, if states have a shortfall (in their tax collections), the Centre is required to compensate it. All this would happen just before the budget.”