The Indian government has concluded that the misuse of Input Tax Credit (ITC) by businesses is minimal, especially when considered against the vastness of the economy and the services sector. Most claims submitted by businesses are seen as genuine expenses, according to recent findings.
GST Council Defers Vehicle ITC Proposal
While the Centre generally holds a positive view on ITC claims, the Goods and Services Tax (GST) Council, in its latest meeting, postponed a decision on a proposal to permit ITC for motor vehicles with a seating capacity of 13 persons or more. This deferral falls under Section 16(2)(c) of the GST Act, 2017.
Several states voiced concerns regarding the authenticity of such claims. Consequently, an officers' committee is now tasked with thoroughly examining the issue before it can be revisited by the Council.
Analysis of ITC Claims on Vehicle Purchases
Sources familiar with the development indicated a low likelihood of misuse, citing a review of data from companies purchasing such vehicles as input supply. These companies are primarily employee-oriented, operating in sectors like services, manufacturing, and construction, where vehicles are used for employee transport.
Further analysis into smaller firms, where the risk of credit misuse might be perceived as higher, revealed that ITC on vehicle purchases by proprietorship-type companies constituted only 20% of such claims. States have requested additional time to review this matter, but the Centre intends to advance the issue in upcoming meetings.
Reconstituted Officers' Committee to Streamline GST Processes
As part of a rationalized structure for the GST Council, a standing committee of officers has been approved. This 12-member committee, with representation from different states, will now examine proposals to amend laws, rules, notifications, and forms. It will also prepare proposals for the GST Council, replacing previous bodies like the fitment committee and sectoral groups.
States have been categorized into three groups—big, small, and medium—based on their GST footprint. Five large states, including Maharashtra, Uttar Pradesh, Karnataka, Tamil Nadu, and Gujarat, will hold permanent membership on the committee, while membership for other states will rotate every two years, reflecting their relative size within the system.