Govt mulls star rating system under GST to curb illegal ITC

Posted on    08 October 2022

Aiming to decriminalise offences under GST, the government is working on a provision to raise the threshold limit for launching prosecution and lower charges for compounding of offence, an official said on 28 September.

According to the current law, the amount of Goods and Services Tax (GST) evasion or misuse of input tax credit is more than ₹5 crore for launching prosecution against offenders.


"We are working on making the provision under GST Act for prosecution more simpler and friendly for taxpayers. We have Section 132 under CGST Act which criminalises illegal credit for GST evasion. The threshold level (for launching prosecution) are being reconsidered," Finance ministry additional secretary (revenue) Vivek Aggarwal said at an Assocham.

This means commencement of legal proceedings against the offender. With this, the compounding charges for offences under GST would also be lowered, resulting in taxpayers being encouraged to compund their offences instead of going into litigation.

As per the GST Act, the amount payable for compounding of offences shall be 50 per cent of the tax amount involved subject to a minimum ₹10,000. Maximum amount for compounding is 150 per cent of the tax or ₹30,000, whichever is higher, said the official.

"The compounding provision in GST are prohibitive. It requires 50 per cent to 150 per cent as compounding fees which is impossible to pay. That's why there is zero compounding for all cases under GST. That is being relooked at so that it becomes affordable and compounding becomes a first or better choice for taxpayer," Aggarwal said.

Following the robust growth in tax collection both in direct and indirect tax collections, it has paved the way for bringing in more taxpayer friendly reform to ensure ease of doing business and decriminalisation of tax laws., Aggarwal added.

It is expected that the proposed changes in the GST law with regard to changes in prosecution threshold and compounding is likely to be placed before the GST Council in its next meeting.

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