The recent proposal of the GST Council to allow a concessional GST rate if B2C customers pay through the digital mode is intended to increase digital transactions and thus check tax evasion. But how will this incentive be delivered? We spoke to some experts to find out.

The proposal

The 27th GST Council meeting has proposed concession of 2 per cent in GST rate on B2C supplies on which the GST rate exceeds 3 per cent. The concession is proposed to be equally borne by the Centre and the States with 1 per cent deducted from CGST and SGST rates.

This concession is however applicable on supplies of goods or services for which payment is made through cheque or digital mode. There is also a limit of Rs 100 per transaction so that the loss to the exchequer is limited.

Implementation

The execution of this proposal is however going to be tricky. One, retail outlets will have to re-calibrate their sales software to take note of the transactions that are paid for digitally. Those at the sales counter will have to make sure that the mode of payment – whether cash or digital – is captured in the bill. For the concession will have to be delivered only for digital transactions.

Two, if different GST rates are to be applied for cash and digital transactions, then the compliance burden while filing returns will increase for retailers. Uncertainty on revenue collections will also increase.

“The possibility of two separate pricing models for digital and cash payment may arise,” says Archit Gupta, Founder & CEO, ClearTax.

“Since this will be applicable to B2C transactions, of small value (concession per transaction not to exceed Rs 100), it may be allowed as a separate disclosure in the return form. However, how this will be passed on by composition dealers and small dealers will be clear once, more details are available,” he adds.

Sachin Menon, Partner and Head, Indirect Tax at KPMG in India , also thinks that there could be differentiated rates for cash and digital transactions.

“While the mechanics of the proposal are awaited, it seems government is considering differentiating the GST rate for purchases by cash and digital payment by 2 per cent where the rate of GST is more than 3 per cent. It is not clear whether this proposal will be implemented by cash back to the payer or through differentiated GST rate structure, while both are possible,” he notes.

Abhishek Jain, Partner, Ernst & Young, however thinks that differentiated rates for cash and digital payments are unlikely and the government could use the cash-back method to deliver the incentive.

“Since the bank account or e-wallet number would be captured at the point of sale, the Government may explore to give the 2 per cent GST concession as a cash-back to the customers’ accounts. Implementing two GST rates – one for digital transactions and another for cash transactions could get very complicated as this will result in many more tax slabs, making compliance difficult,” says Jain.

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