Set-off of GST against Income Tax

I know many of you might have laughed at subject line of this blog. At first thought, I had also laughed. However while thinking on the GST structure again and again, I have started believing on this concept principally. I don’t know how this can be implemented as law, but surely this concept is very interesting and beneficial to Indian economy.

Thought regarding this concept have hammered my mind when I have purchased lunch at my office canteen. Before 1^st July 2017 (pre-GST regime), everything was going smooth. I used to purchase lunch for me at Rs. 42/- (inclusive of all taxes). However since 1^st July 2017 (post-GST regime), I used to purchase same lunch from same canteen at Rs. 50/- (Rs. 42.30 towards basic cost of lunch + Rs. 7.61 towards SGST & CGST both at the rate of 9% each). After payment at the cashier counter, I used to get the small invoices (mentioning of invoice no., invoice date, item description, SGST & CGST break-up and GSTN of canteen contractor), which I used to submit at food counter, where they take the invoice and give lunch plate. I am attaching the invoice copy for reference.

As end user, I know that I am not going to get back GST set-off which I have paid to canteen contractor, so I have never bothered to retain the invoice slip with me and used to submit back to canteen contractor while collecting the lunch plate. And I have never bothered in checking whether collected money under SGST & CGST head is really being deposited to Government of India (GOI).

One day suddenly thought stroked to my mind that I am purchasing lunch by cash payment almost every day as it is convenient to pay Rs. 50/- as cash instead of by paying through debit or credit card. Like me for many of the others also payment through cash is the convenient option. Approximate turnover of canteen contractor is Rs. 2 crores annually. So approximately GST revenue from canteen contractor is Rs. 36 Lacs annually (considering the rate of SGST & CGST at 9% each). Out of his total turnover of 2 crs., half of his business is running on cash.

Now take hypothetical situation, where this canteen contractor is showing only Rs. 1 cr. as his revenue in his books and pays GST to GOI accordingly i.e. Rs. 18 Lacs. As he is not recording balance business in his books (as he is receiving cash for the same), he will not pay the GST to GOI for this balance revenue. Which means approx. Rs. 18 Lacs will directly  go in to contractor’s pocket. And further Rs. 1 cr. will turn-out as black money in the economy system. Similar to this, there may be many cases where companies might be looting the money from end users on the name of GST and keeping that money with them only.

Now how to stop such cases and how to ensure that money being collected on the name of GST gets correctly deposited to GOI. As there is no set-off for end users in GST, GST loops get break here and correct details are not getting captured in system. So what if GOI allows all end users (individuals) to take set-off GST. Again question will come that how and against what end users will apply for GST set-off. One of the solution can be GOI should allow all end users to take set-off GST paid against Income tax returns. If in ITR, GOI should make the provision to make entry related to GST paid by end users (like Invoice no., Invoice date, GSTN of company, HSN code, name of the person who pays GST and GST amount). These ITR database can be verified/cross-checked from the GST database and for valid cases, GOI should provide rebate of x% of GST paid of available entries in ITR. For mismatch cases, end users should be allowed to take rebate in next 3 fiscal years. For cases where fraud GST invoice details entered, GOI should handover such cases to investigation authorities and take actions on such tax payers. This will complete end to end loop for GST and will help in clean the economy.

Of course this concept needs more evaluation from economist appointed by GOI and process needs to be established. I hope after going through the complete blog, all end customers like me will be waiting for such law to get implemented soon by GOI.