VAT (value-added tax), sales tax, octroi, entry tax, excise duties, purchase tax, cess, entertainment tax, luxury tax – these are just a few names from a long list of taxes that Indian businesses had to pay before July 1, 2017. Taxation during the VAT regime was an enormous task in terms of cost and efforts. But with GST (Goods and Services Tax) implementation, things changed for the better.
GST replaced most of the earlier taxes. Under the new unified taxation system, businesses have to register and pay GST through a simple online process. Gone are the days of cumbersome paperwork and complicated procedures.
Other than simplifying the process, GST offered a lot of other benefits. The new law made special provisions for small businesses. It also took into account e-commerce, which did not get fair treatment in the earlier regime. For instance, the threshold for taxable turnover was increased to Rs 20 lakhs from the earlier limit of Rs 5 lakhs. After the GST amendment in April 2019, this limit was further increased to Rs 40 lakhs. Small businesses and startups could benefit from the composition scheme under GST. However, to benefit from the new tax laws, it is crucial to pay the correct taxes timely.
Incorrect Taxation – Rules and Implications
GST mandates registration for businesses with a turnover of more than Rs 40 lakhs. For service providers, the threshold limit is Rs 20 lakhs. Such businesses register through a simple online process on the GST portal. Enterprises opting for voluntary registration can also follow the same process.
Registered entities have to file regular returns through the portal and pay taxes as per the law. A business registered as ordinary taxpayer will have to pay two monthly returns and one yearly return. The timeline may vary for companies registered under the composition scheme or any other special scheme.
Not filing returns on time and paying incorrect taxes is an offence under the GST laws. Such offences call for punitive action such as monetary penalties and imprisonment, in some cases. Some of the offences which attract strict action from the authorities are listed below:
- Not registering for GST even when mandated by law
- Not filing returns as required by the law.
- Charging incorrect GST rates
- Making and issuing incorrect invoices
- Submitting false documents or records to evade tax
- Reporting incorrect turnover to evade tax
- Claiming incorrect ITC (Input Tax Credit)
- Disclosing incorrect tax due to the government
- Claiming incorrect GST refund by submitting false documents/evidence
Offences under the Act are categorized as minor and major breaches. Minor breaches usually involve offences where the tax amount is less than Rs 5000. Submitting incorrect documents or minor errors in documents also fall under the category. Under the current law, minor breaches are not charged any penalty. But the offence goes on record along with a warning issued to the erring entity.
Major breaches of offences involving tax amounts over Rs 5000 attract stricter penalties depending on the amount of tax under consideration and severity of the offence. For instance, not filing mandatory GST returns attracts a fine of Rs 10,000 or 10% of the due tax amount, higher of the two. A similar amount is charged as a penalty if incorrect (higher) GST rates are charged, and the tax collected is not remitted to the government. Issuing an incorrect invoice attracts a penalty of as high as Rs 25000.
GST law also provisions stricter punishments such as confiscation of goods or imprisonment for up to 5 years for severe offences such as committing frauds or abetment to commit frauds. At the same time, the law is considerate towards minor errors like charging GST under the incorrect head, incorrect filing of returns, or charging a lower GST rate. Such offences do not attract any penalty but may attract an interest rate of 18% on the amount overdue.
The tax system in India has undergone many reforms to suit the changing needs of the businesses. It has a lot of benefits for those who comply with the law. But at the same time, it also deals strictly with offenders. As a business owner, especially of small businesses and startups, it is recommended that you keep yourself updated and pay correct taxes on the income.