What is 1% Cash Payment Norm in GST?

The Department of Revenue recently announced that the GST tax payers should compulsorily pay at least 1% of their tax in cash. This is to come into effect from January 1, 2021.

1% Cash Payment Norms

  • The 1% Cash Payment norms is applicable to all the 45,000 taxpayers. This is being introduced to curb tax evasion by fake invoicing. The CBIC has so far booked 12,000 cases of Input Tax Credit fraud. Around 365 persons have been arrested.
  • The norm was introduced by the Central Board of Indirect taxes and Customs (CBIC).
  • It has been made mandatory for businesses with monthly turn over of over Rs 50 lakhs.
  • Also, the new rule restricts the use of Input Tax Credit (ITC) to discharge GST liability.
  • These norms are not applicable to taxpayers where the registered person has received a refund amount more than Rs 1 lakh or if the partner has paid more than Rs 1 lakh as income tax.
  • The 1% cash payment norms have been included in Rule 86B of the GST.
  • The new norms will help to identify the risk to revenue and imposes deterrence to the fraudsters in multi-layered fraud of passing fake ITC.

Background

According to CBIC, out of the total GST taxpayer base of 1.2 crores, only 4 lakh taxpayers have monthly supply value greater than Rs 50 lakhs. Of these 4 lakhs, only 1.5 lakh taxpayers pay less than 1% of their GST liability in cash. When the new rule is applied, the 1% tax payment in cash will apply only to 40,000 to 45,000 tax payers. This will be 0.37% of the total tax payers of 1.2 crores.

Misconceptions

There is a wide misconception that large tax payers will be affected. However, in reality, the new norms provide several exemptions such as exporters, etc.

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