Considering the impact of Covid-19 on the economy, India is considering a goods and services tax (GST) relief package to counter this issue. This package might include a six-month suspension of GST payments for the adversely impacted sectors such as restaurants, aviation, and hospitality including a lower rate for the real estate sector.
Other government proposals include a shift to a cash-based principle of levying tax from the current invoice-based system and providing GST relief on sales for which payment is not received due to the current lockdown situation by treating them as bad debts. Since most service providers have been facing delays in payments from clients but are impeded with GST liabilities. Another option could be exempting these from GST and treating them as bad debt.
These measures are anticipated to ease the liquidity pressure on businesses that are strapped for cash. The GST Council will be making a final decision on these proposals. According to the officials, there has been a demand for complete GST exemption, the government is swerving around to the view that suspending the tax will work better. Moreover, exempting a sector from tax would result in breaking the credit chain further leading to problems down the line.
While there has been a demand for complete GST exemption, the government is still swinging around to the view that suspending the tax will work better, according to the experts. With the implementation of the cash-based system, the businesses can pay GST when they get the money and not when the invoice is raised. This will further ensure they don’t have to pay the tax out of their pocket. This will be more relevant for services where payment received is often delayed after bills are raised.
The idea behind this practice is to provide some help to businesses to sail through this unprecedented economic situation.