GST Council to Consider Big Compliance Reforms: Easier Registration for Online Sellers, Safer Credit for Honest Buyers, Fewer Small Disputes
The GST Council is expected to look at a set of procedural reforms (changes in the process of paying and filing tax, not in tax rates) as part of the "GST 2.0" updates.
Online sellers: Small sellers on e-commerce platforms could list the platform's warehouse as their registered place of business in states where they have no office. They would be verified physically and through Aadhaar only once, in their home state. About 9.5 lakh small sellers could benefit.
Genuine buyers: A buyer holding a valid invoice would keep its input tax credit (the right to subtract tax already paid on purchases) even if the supplier fails to pay the tax to the government. The tax department would recover the money from the defaulting supplier instead.
Small disputes: No GST demand notice would be issued for amounts below ₹10,000. Such cases are nearly 20% of all GST litigation but bring in very little revenue. For larger demands, officers would first send an intimation so the taxpayer can reply before a formal notice.
Other proposals include a simpler registration process, simpler annual returns, a quarterly tax payment option for consumer-facing small businesses, fewer checks on goods vehicles in transit, and a flat 5% GST (without input tax credit) on delivery charges for goods bought online.
The proposals were prepared through more than eight meetings of a joint Centre-State officers' working group and three sessions of the GST National Coordination Committee over the past year.
The GST Council (Article 279A)
The GST Council is a joint body of the Union Finance Minister and the finance ministers of all states. It recommends the main rules of the Goods and Services Tax: rates, exemptions, thresholds and procedures. Because GST is collected by both the Centre and the states, neither can change it alone. The Council is where both sit together and agree, which is why it is often called an example of cooperative federalism.
All the reforms in this news are proposals that need the Council's approval. Once the Council recommends them, the Centre and the states change their GST laws, rules and portals to put them into effect.
Input Tax Credit (ITC) Mechanism Under GST
Input Tax Credit is the heart of GST. When a business buys goods or services, it pays GST on them. When it sells its own product, it can subtract the GST it already paid from the GST it owes. This way, tax falls only on the value added at each step, and there is no "tax on tax".
Today, an honest buyer can lose its credit because of a supplier's default, which it cannot control. The proposal would protect the buyer and make the department recover the money from the defaulting supplier. This is expected to remove a large source of litigation and business uncertainty.
GST Demand and Recovery Mechanism
When the tax department finds that a business has paid less GST than it owed, it must follow a fixed legal process to collect the shortfall. This process is called demand and recovery. It starts with a written notice explaining what is owed and why, gives the business a chance to reply and be heard, and ends with an order. If the business still does not pay, the department can recover the money by force, for example by freezing bank accounts. The rules are mainly in Sections 73, 74, 74A, 75, 78 and 79 of the CGST Act, 2017.
The Council is considering a ban on demand notices below ₹10,000, a compulsory intimation before formal notices for larger amounts, standard rules separating fraud from short payment, and treating a settled amount as a "charge" rather than a penalty. All of these change the early stages of the demand and recovery process described above, with the aim of cutting small disputes and making the system more predictable.
- Proposed minimum for GST demand notices: ₹10,000 (could apply to pending cases at adjudication and appeal stages)
- Cases below ₹10,000: nearly 20% of GST litigation by number
- About 9.5 lakh small e-commerce sellers could use platform warehouses as their registered place in other states
- Proposed flat 5% GST (without ITC) on delivery charges for goods bought online
- Proposal to end the IGST exemption on gold, silver and platinum imports by nominated banks and agencies
- GST Council: Article 279A, 101st Amendment Act, 2016; three-fourths weighted majority; Centre one-third, states two-thirds
- ITC condition on supplier's payment: Section 16(2)(c), CGST Act, 2017
- Preparation: 8+ meetings of the Centre-State officers' working group; 3 sessions of the GST National Coordination Committee