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Viraaj Vashishth

January 10, 2025

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GST Rules

GST Council's New Agenda: Registration For High-Risk Businesses To Be Made More Stringent

With the introduction of the Goods and Services Tax (GST) system in India in 2017, for businesses that cross a particular set turnover limit, obtaining GST registration is essential. This allows them to raise tax on behalf of the state and recover input tax credits. The system, however, has faced challenges including widespread registration of fictitious entities for the purpose of avoiding tax. The GST Council in this respect is mooting ideas on how to make changes to the registration processes with specific reference to high-risk businesses.

Overview

The Automatic GST registration guidelines established by the One Country One Tax (GST) principle and the use of Information Technology means that there is an automatic acceptance of the application for registration. But there are online and offline methods of submitting documents. As a result, physical verification is only done in a few instances. Nonetheless, the number of cases of fictitious registrations has grown out of control. Recently, responding to a campaign launched by CBIC, 68,903 high-risk taxpayers were investigated and it was found that almost 27% of them did not exist leading to Rs.26,543 crore as detected GST evasion.

You Can Also Read: Latest GST Trends: Key Updates and Highlights

Proposed Changes by the GST Council

To prevent the unscrupulous registrations and to bolster the GST system, the GST Council has been considering the following measures:

1. In Person Verification For High Risk Applicants: Setting up a procedure which involves in person verification of the taxpayers business address for high risk applicants before GST registration approval is given. The purpose of this procedure is to “protect” the system being misused by ensuring the reliability of businesses approaching the GST system.

2. Cutting Down On The Time Taken To Submit PAN-linked Bank Accounts: There is a proposal of reducing the time within which PAN-linked bank accounts are opened, which is currently set at 45 days, to 30 days from the time of registration. This adjustment is intended to speed up account verification and stop the certified fictitious enterprises.

3. Biometric Identification and Geo Tagging: Biometric identification of authorized signatory of high-risk business entities and geo-tagging of business locations also forms part of these measures. These technological changes are expected to help improve the quality of verification that is done.

Reason for Suggested Amendments

Concern of the existence of fake registrations which lead to fraudulent claims of input tax credit is the central point to this discussion. The GST Council aims to do the following by tightening controls over verification:

1. Improve Tax Compliance: Clearly stating that only eligible businesses will be able to get GST registration, will help improve compliance level and increase the overall tax revenue.

2. Reinforce the GST System: It is believed that appropriate mechanisms for verification will protect and enhance the integrity and transparency of the GST system, increasing confidence of the parties involved.

Consequences for the Businesses

The suggested measures are likely to affect businesses in different ways for example:

1. High Risk Businesses: Supply Chain Security Businesses falling under this category might be subjected to more inquisitions and therefore may take a longer time to get their application for GST registration approved. It will be the applicant’s responsibility to expedite these processes by abiding by the more stringent regulations.

2. Regular Businesses: While most compliant organizations may have to deal with more processes, these laws are meant to shield them from the arms of false and deceptive entities.

3. Administrative Challenge: The verifications which are going to be enhanced would mean that both the businesses and the tax authorities would have an increased administrative burden. This is however just a transitional problem as in the longer run, reduced tax evasion is expected to be of more benefit than these problems.

Implementation and Enforcement

It is anticipated (by economists) that the Indian leaders will take up these proposals during the forthcoming meetings of the GST Council. The onus for enforcing the new procedures will rest with the central as well as state GST officials. With the introduction of these measures, it will be important to establish monitoring and evaluation mechanisms so that the progress or lack of it regarding their effectiveness can be followed.

You Can Also Read: 54th GST Council Meeting: Key Updates and Latest News

Conclusion

Strengthening of the registration processes for businesses that are classified as high risk is a policy suggestion made by the GST Council which aims at being more proactive and of greater assistance solving issues in the GST system. The greater focus on the organization of verification also will serve as a protective measure against frauds, enhance compliance and strengthen the institutional framework of the GST regime. Companies should pay attention to these changes, as non-compliance will prevent them from being nimble in light of changing regulations.

FAQs

1. What plans does the GST council have regarding high-risk businesses?

The aim of the GST council is to enhance the rules concerning the registration of high-risk businesses under GST by introducing measures such as compulsory physical verification of business premises or owners and biometric verification.

2. Why is the GST council imposing tougher measures of GST registration on risky businesses?

This is because the GST council is seeking to curb, or at the very least reduce the amount of tax fraud, including the fraudulent claiming of input tax credits. This can be done by having a more rigorous process of registering businesses under GST.

3. Which businesses are considered high-risk according to the guidelines set forth for GST registration?

Entities flagged for high risk are those that have been found to have discrepancies between submitted documents such as figure mismatch, suspicious transactions or have been previously reported to have gone against GST regulations.

4. Why is it necessary to perform a physical verification for the registration of GST?

This mandatory physical verification ensures that only high risk businesses get registered and in this way there is a reduction of the incidence of fake GST registrations.

5. How does biometric verification become effective in the registration of GST?

Biometric verification confirms the identity of the respective signatories of the business which is required to prevent the misuse of GST registration.

6. What is the new deadline for submission of the bank account which is linked with PAN?

The GST Council recommends decreasing the period of submission of PAN linked bank account details from 45 days after registration to just 30 days instead.

7. How does an individual or a business ‘geo-tag’ in the process of securing GST registration?

A geo-tagging attests the exact address of the particular business, thus increasing the credibility of the details provided during the procedure of securing GST registration.

8. Will the stringent measures against illegal or fake registrations of GST affect the established or legal businesses?

There are genuine businesses that may face some hurdles but these hurdles are brought in place in order to defend these businesses from competition or frauds.

9. Fake GST registrations have penalties but what are these penalties?

The consequences of such acts range from heavy fines to suspension of the GST registration, and legal ramifications on the people or organizations responsible for fraudulent activities.

10. When does a high-risk business such as gambling come under or fall into the new GST registration rules?

Specific dates have not been determined but the same are expected to be finalised in meetings of the GST Council and certain amendments to the GST regime should follow post the dates.

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