Need for consideration of instant tax credit

Instant access to online payments is now the new norm. But when it comes to taxes, businesses are still struggling to get instant confirmation. This creates inefficiencies that looses business confidence.

The issue is even more prominent in GST input tax credit (ITC), where far larger transactions are involved. Consider a buyer paying 11.80 lakh for a 10 lakh invoice (including 1.80 lakh GST). The buyers have to wait, to claim ITC, until the seller deposits the GST and files a return. If the seller defaults either willingly or unwillingly, the buyer loses the credit, an immediate effect of it is extending an interest-free loan to the seller for the GST amount.

This issue is common to all. Big or smart buyers often wait to pay until ITC shows in their Portal. Other buyers may need to wait for checking of the suppliers portal to be  tax compliant. Both scenarios restrict business growth and increase costs.

A system allowing buyers to pay taxes directly to the government with instant credit at the time of payment, would be game-changer for both parties. It would enhance trust in transactions, improve tax compliance, and accelerate tax collection.

Additionally, it would increase tax revenue by improving the economy’s transactional efficiency. More importantly, it would make the economy more dynamic.

Of course, implementing such a system won’t be easy. Many businesses don’t use an invoice-by-invoice payment model. Instead, payments are often paid together or partly, advances are adjusted, or payments are delayed on credit terms. Sometimes, goods are returned or rejected. Businesses have different complex situation.

But certainly, where every bill is paid immediately by the purchases or the reliability of the supplier is doubtful, or, if the supplier is irregular, such arrangement of tax payment can prove to be very effective.

Any new system that allows instant tax credits should have to be optional along with the existing Tax model. This way, it can fit different and complex business situations.

But with instant payments now a reality, our tax systems must also evolve. System enabling real-time tax payments and credits could transform India’s economy. It would make things fairer and simpler for smaller businesses.

Suresh Bahety
9050800888

 👇 Please Note 👇

Thank you for reading our article!

If you don’t received industries updates, News & our daily articles

please Whatsapp your Wapp No. or V Card on 8278298592, your number will be added in our broadcasting list.