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Good news for India Inc as GST Council may consider raising input tax credit
June, 03rd 2017

India Inc., looking to scale down inventory ahead of the expected rollout of the goods and services tax (GST) on July 1 to overcome the tax credit problem, may have something to cheer about. The GST Council will consider raising input tax credit from the current 40% at its meeting on Saturday.

“There is a proposal to raise it... the council will take it up," said a government official. It could be pegged higher at 50-60%. According to the draft transition law, companies can get credit of up to 40% of their central GST liability against excise duty already paid on stocks lying with traders or retailers when GST is implemented.

This has prompted many in the consumer goods sector to cut down on inventory lying with distributors, dealers and stockists. Industry had lobbied the government and the GST Council on the issue seeking an increase.

The government is keen to ensure that transition to the new tax framework--which seeks to replace multiple central taxes such as central excise duty, services tax, cesses and state taxes including value added tax, central sales tax, octroy, entry tax with a single levy--be smooth for both businesses and consumers. “Possible loss of tax on transition stock is a key concern of the industry leading to de-stocking in many industries,” said Pratik Jain, leader, indirect tax, PwC India.

Jain said if the percentage of deemed credit increased, it would be a big relief for industry, particularly where the GST rate on products is 28%. “It would minimise the impact on sales in the last month before introduction of GST," he said.

The draft transition rules had provided that credit would be given once the central GST has been paid on the supply and the applicant provided evidence of purchase of these goods. For those items that enjoyed exemption under excise duty, the same principle would apply.

The transition rules will be taken up by the GST Council at its meeting along with other crucial issues including setting the rate of gold and six other items including textiles, leather footwear, packaged foods and biscuits. Some states such as Kerala have proposed a 5% rate on gold while others want it pegged lower at 4%. The Centre is not inclined toward creating new slabs for items or going in for differential rates for the same goods. The council will also take stock of preparedness of the GST Network, the mechanism for implementing the anti-profiteering provision and rules for return forms

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