The Economic Survey 2023-24 highlights the crucial role of indirect taxes in India's economic framework. In FY24, gross GST collections soared to Rs 20.18 trillion, reflecting a 11.7% increase from the previous year. With over 13 million entities now GST-registered and consistently filing returns, the survey confirms that GST implementation has significantly reduced logistics costs and enhanced ease of doing business, benefiting trade and fostering growth.

The evolution of GST over the past seven years reflects the government's commitment to refining the tax landscape. In Budget 2024, Finance Minister Nirmala Sitharaman emphasised further simplification of tax laws and the adoption of technology. The following key measures proposed in the Union Budget 2024 signal that GST 2.0 will unlock substantial trade potential and further ease the business environment.

Amnesty scheme for initial 3 years of GST
While GST has proved to be a transformational reform, taxpayers faced teething issues in the initial years, including compliance and interpretational difficulties. To address these concerns and provide relief to businesses, the government has introduced an amnesty scheme specifically targeting the initial three years of GST. By waiving penalties and interest on certain tax demands, the scheme which seeks to resolve outstanding disputes and reduce the burden of litigation on businesses, is a positive initiative.

Furthermore, this benefit could also be extended to cases under Section 74, i.e. where fraud has been alleged, given that such allegations are sometimes made routinely rather than based on substantial evidence. This would ensure that taxpayers receive the deserved relief, given the overall intent of the scheme.

Extension of window of claiming input tax credit
Another notable amendment has been the extension of the deadline for availing input tax credit (ITC) for the initial 3 years i.e. FY 2017-18 to 2020-21 (up to November 30, 2021). This change acknowledges the hurdles faced during GST's initial years and is expected to alleviate the burden of numerous show-cause notices issued due to earlier restrictive timelines.

The amendment should also allow taxpayers to reclaim ITC reversed due to expired time limits. Denying this relief to compliant taxpayers who reversed ITC as good governance measure would be unjust. Provisions must also be incorporated to enable the reclaim of reversed ITC, ensuring equity and fostering greater compliance.

Reduction of pre-deposit requirements for filing Appeals
Amendments have also been proposed on reducing the pre-deposits required for filing appeals, easing cash flow and reducing working capital constraints for businesses.

The proposed reduction from 20% to 10% for appeals filed before the Appellate Tribunal will offer much-needed relief and smoother dispute resolution.

Industry is hopeful they will be entitled to refund of excess pre-deposits made for appeals filed till date under the earlier provisions.

Implementation of Section 74A
Section 74A of the CGST Act has extended the time limit for issuing show cause notices to 42 months and the timeline for issuing orders to 18 months from the notice date. Notably, the new provision standardises time limits across all cases, eliminating the restriction on availing input tax credit related to notices under Section 74.

While this extension provides tax authorities with additional time, it necessitates that taxpayers maintain extensive records for longer periods. To balance these interests, it might be beneficial to consider a review of the timeframe, possibly after a couple of years, to offer a more timely resolution of tax disputes. This approach could help alleviate the compliance burden for taxpayers while still supporting effective tax administration.

Acceptance of NIL value for free-of-cost (FOC), related party cross-border supplies, retrospectively
The Finance Bill 2024 also addresses a key GST compliance aspect, by prescribing that the date of self-supply invoice, would be the time of supply for FOC transactions under the reverse charge mechanism (RCM) when the supplier does not issue an invoice.

Additionally, prior to the Budget announcements, the CBIC had clarified that for services provided by a foreign company to its Indian subsidiary, where the subsidiary is entitled to full input tax credit, the value of such services recorded in the self-supply invoice may be deemed the open market value. If the subsidiary does not issue an invoice, the value can be considered NIL.

Accepting NIL value for free-of-cost (FOC) supplies provides amnesty for past cases where tax authorities claimed a taxable supply existed, even though taxpayers believed there was no real supply. This approach aims to ease the reverse charge burden on imported services in revenue-neutral situations. It aligns with global GST best practices, where non-payment of taxes under RCM on FOC transactions should not be considered a violation of GST law, if taxes are fully creditable.

Way ahead
As India embarks on GST 2.0, these reforms signify more than just updates to the GST law—they herald a more efficient, transparent, and business-friendly regime. By addressing long-standing issues and simplifying compliance, the government is establishing a robust foundation for growth, innovation, and global competitiveness. As India moves towards its vision of Viksit Bharat, GST 2.0 could propel the nation into its next phase of economic growth, driven by a modern and inclusive tax framework.