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India's Union Budget 2022–23: A summary of significant changes

According to Dhruva Advisors' Ranjeet Mahtani, Saurabh Shah, and Meetika Baghel, there were a number of significant changes made in the Indian Union Budget that will have an impact on taxpayers.

The 2022 Union Budget was anticipated to bring about economic growth and recovery in the face of the pandemic. The country of India has been independent for 75 years. The Finance Minister presented the Union Budget for the fiscal year 2022–23 with the intention of guiding the Indian economy over the next 25 years—from India at 75 to India at 100—while the economy was rebounding in the midst of a COVID–19 omicron wave.

The Amrit Kaal, the term used by Prime Minister Narendra Modi to describe his 25-year road map for India, and revitalizing the economy through trust-based governance were major areas of focus for this udget.

The Budget is in line with the goal of making India a digital powerhouse and self-sufficient. In order to ensure that the advantages of digital banking are available throughout the entire nation and to commemorate the 75th anniversary of India's independence, the Budget announced the opening of 75 new digital banking units in 75 districts. Additionally, it is proposed to launch a blockchain-based digital rupee in 2022–2033, which will give digital payments a major boost.

The Budget also included provisions for infrastructure investment and capital expenditures, including those related to Prime Minister Modi's Gati Shakti initiative (a plan to create a digital platform connecting 16 government ministries). There is an inclusive, futuristic vision for the country.

ITC rule modifications

Some tax proposals, however, are meant to promote stricter tax administration and governance. Increased GST collections in January 2022 were lauded and provided the foundation for the introduction of much stricter restrictions on input tax credit (ITC). As a result, it falls more on the recipient of the supply to verify the veracity of a transaction made by the supplier.

The development of the GST reporting system has received a lot of attention recently in order to help recipient taxpayers and government agencies identify dishonest taxpayers. This process included the introduction of the GSTR-2A and GSTR-2B forms, which detail the tax paid on transactions between a supplier and a recipient.

The purpose of GSTR-2B, which will contain specific time-stamped information, is to streamline the procedure and make it possible for the recipient of a supply to access ITC, it was explained during the 39th GST Council meeting.

Section 43A of the 2017 Central Goods and Service Tax Act gave the government the authority to limit ITC access to only those transactions where tax had been paid by the supplier from the beginning of the GST regime (CSGT Act). However, because it was inextricably linked to the return filing system, which was unable to be implemented due to a number of issues, this section was never put into effect.

Due to this, even though replacement systems like the GSTR-2A and GSTR-2B were implemented, they did not have the necessary legal and practical support to uphold the government's intended scheme of matching. The government made an effort to simplify things for taxpayers in the 2022 Budget by laying the groundwork for a recipient taxpayer to claim ITC.

Form GSTR-2B, which now has a legal foundation under the modified Section 38 of the CGST Act and mandates an automatically generated statement, details precisely which ITC will be offered to recipient taxpayers.

Access limitations to ITC

However, recipient taxpayers will not be eligible for ITC if any of the following apply: 

- Supplies were made within a certain time frame after registering; 

- The supplier is in default on tax payments and the default continues for a set amount of time; 

- The tax payable declared by the supplier in Form GSTR-1 (a monthly return disclosing outward supplies) exceeds the tax paid by them in Form GSTR-3B (a monthly return for payments made)

However, recipient taxpayers will not be eligible for ITC if any of the following apply:  - The ITC availed by the supplier exceeds the eligible ITC by a prescribed limit and during a prescribed period;

- A supplier has defaulted in discharging their tax liability by utilising the credit balance in excess of a prescribed limit (the limit will be introduced for a specific registered person);

This suggests that the government is becoming more restrictive regarding taxpayers' access to ITC. The recipient taxpayers would not receive the ITC if the supplier violated the law by failing to disclose or pay their tax liability. If the recipient taxpayer's ITC is reversed, the reversed amount must be accompanied by interest. However, after the supplier has paid the tax, the recipient may reclaim the ITC.

The supplier may experience immediate registration cancellation as well as limitations on filing returns for the subsequent and upcoming tax periods if they do not file their returns on time.