Important GST Changes Applicable from 1st January 2021

1. Rule 86B, Restriction on use of ITC [Input Tax Credit] for paying GST 

As per GST Notification number, 94/2020-Central Tax dated 22nd Dec 2020, GST rule 86B has been introduced. This rule has imposed a 99% restriction on ITC (Input Tax Credit) available in the electronic credit ledger of the Registered Person. This means 1% of Output liability to be paid in cash. This limitation is applicable where the value of taxable supply other than exempt supply and zero-rated supply, in a month, exceeds fifty lakh rupees.

The Rule has been explained by the below-mentioned Chart:

GST Rule 86B misconceptions, How Taxpayers are interpreting it wrongly

2. QRMP Scheme [Quarterly Return Monthly Payment] for Small Taxpayers with turnover upto Rs 5 Crores

This scheme has been introduced with effect from 1st January 2021. As per this scheme, Small Taxpayers with turnover upto Rs 5 Crores are required to file only 4 Quarterly Return GSTR-3B instead of 12 monthly GSTR-3B. This means now small taxpayers have to file only 8 GST Returns in a year [ 4 GSTR-3B & 4 GSTR-1]. The payment of taxes, however, would be still required to be done on monthly basis.

3. Eway Bill

The period of validity of e-way bills under Rule 138 has been amended (with effect from January 2021) and e-way bill generation shall be restricted under Rule 138E during the period of suspension of registration under Rule 21A.

4. ITC (Input Tax Credit) Restriction under Rule 36(4)

ITC under Rule 36(4) shall be restricted to an additional 5 percent of eligible credits with effect from January 2021 (down from the earlier limit of 10 percent) in respect of invoices or debit notes not furnished by the suppliers.

5. Restriction on Filing GSTR-1

• Rule 59 has been amended to restrict the filing of GSTR-1 if GSTR-3B of two preceding months (preceding tax period for quarterly returns) has not been furnished
• The person restricted from using the amount available in electronic credit ledger to discharge liability towards tax in excess of 99 percent of the liability under rule 86B shall also be restricted from filing GSTR-1 till GSTR-3B for the preceding period has been furnished. [Newly inserted rule 86B has been discussed further.]

6. GST Registration

• Every application for GST registration shall be followed by Aadhar based authentication or biometric and KYC documents verification unless the applicant is exempted under Section 25(6D). (Amendment in Rule 8)
• The period for grant of registration has been increased to 7 working days. In case a person does not undergo Aadhar based authentication or where the proper officer deems fit, registration shall be granted within 30 days after physical verification of place of business. (Amendment in Rule 9)
• Registration may be canceled: (Amendment in Rule 21)
  • if ITC is availed in violation of Section 16, or
  • if the value of outward supplies furnished in GSTR-1 exceeds the value declared in GSTR-3B, or
  • on violation of Rule 86B (inserted with effect from January 2021).

7. Registration can be suspended without affording an opportunity of being heard if the proper officer has reasons to believe that that the registration of a person is liable to be canceled under Section 29 or Rule 21. (Amendment in Rule 21A)

• In case of significant differences or anomalies indicating contravention of the provisions leading to the cancellation of registration, the registration shall be suspended under clause (2A) of Rule 21A and the person shall be given 30 days to explain the cause of differences.
• Clause (3A) has been inserted in Rule 21A to restrict the refund on unutilized ITC on account of zero-rated supplies without payment of tax or inverted duty structure under Section 54 during the period of suspension of registration.

8. CBIC appoints January 1, 2021, as the date on which various sections of Finance Act, 2020 shall come into force

Click here to read the changes