The tax system in India is always changing, with new regulations being adopted on a regular basis to improve compliance and enforcement strategies. The Central Goods and Services Tax (CGST) Act will undergo major modifications as a result of the Finance Act of 2024, (Budget 2024).
A prominent modification is the establishment of a new section, 74A, which deals with the problems of incorrect refunds, underpaid or unpaid taxes, and inappropriate input tax credit (ITC) use. The purpose of this article is to simplify and make sense of the complicated requirements of Section 74A, emphasising the ramifications it has for taxpayers.
This new Section 74A will replace Section 73 and 74 of the Demand and Recovery from FY 2024-25. Wherever there is duty for FY 2024-25 onwards, the SCN will be issued under new Section 74A.
Synopsis of Section 74A
The CGST Act has been expanded by Section 74A, which is intended to strengthen the regulations governing tax payments and ITC use. In situations when tax responsibilities have not been sufficiently completed, it gives the appropriate officer the authority to issue notifications and impose fines. Both suppression of facts or fraudulent cases and non-fraudulent cases will be covered under new Section 74A only.
It is more like combining or merging the provisions of Section 73 and 74 and increasing the time limit for issuance of SCN, Adjudication etc., We will see the details of this new section.
Key Notes of Section 74A:
Notice for Unpaid or Underpaid Taxes: According to this clause, anybody in charge of incorrect refunds, overstated ITC claims, or unpaid or underpaid taxes may be given notice by the appropriate officer. The notice demands an explanation from the taxpayer for why they should not pay the stipulated amount plus any relevant interest and penalties.
Threshold for Issuance of Notice: To prevent the burdening of taxpayers and the administration with minor issues, no notice will be issued if the unpaid or underpaid tax, or the erroneous ITC, is less than ₹1,000 in a financial year.
Time Limit for Issuance of Notice: The officer will have to issue notice within 42 months after the incorrect refund date or the deadline for submitting the annual return for the applicable fiscal year.
Provisions for Penalties: Penalties for two possibilities are described in this section:
- The penalty for non-fraudulent causes of the issue is 10% of the tax owed, up to a maximum of ₹10,000.
- The penalty will be equivalent to the amount of tax owed if fraud or deliberate misrepresentation is present.
Conclusion of Proceedings: Taxpayers have the opportunity to pay the due tax along with interest before the issuance of the notice or within 60 days after receiving the notice. Depending on when the payment is made, penalties can be avoided or reduced, and proceedings can be concluded.
One year to issue Adjudicating order: Now, the department will have the time limit of 1 year from the issuance of show cause notice to pass the order, in both fraudulent and non-fraudulent cases.
Consequences for Taxpayers
The enactment of Section 74A affects both persons and corporations in the following practical ways:
- Enhanced Vigilance: When submitting taxes and claiming ITC, taxpayers must be more diligent. Due to the possibility of warnings and fines, careful record-keeping and adherence to GST laws are essential.
- Timely Compliance: The 42-month notice time highlights how important it is for companies to keep correct records for a minimum of four years. In order to avoid fines, any anomalies in tax payments or ITC claims must be immediately corrected.
- Possibility of Correction: Taxpayers who pay their dues prior to the receipt of a notification have the chance to make corrections and avoid fines. But to do this, proactive tax obligation monitoring is needed.
FAQ
1. How important is Section 74A of the CGST Act?
Section 74A establishes strict guidelines for ensuring that tax payment requirements are met and that the ITC is used appropriately. It includes mechanisms for sending notifications, imposing fines, and ending actions.
2. How do small enterprises get affected by Section 74A?
Small companies need to be careful when completing their taxes since even small inconsistencies might result in fines and notifications. Nonetheless, there is some respite for little mistakes thanks to the ₹1,000 notice issuance barrier.
3. How should I respond to a notice under Section 74A that I receive?
If you receive a notice, you must act quickly to prevent extra penalties. You can either pay the overdue tax amount plus interest or provide a good justification.
Read Also: How to Calculate Penalty: Section 73 & 74 under GST Act
Conclusion
An important step in improving tax compliance and reducing fraudulent activity is the addition of Section 74A to the CGST Act through the Finance Act 2024. The government wants to protect the integrity of the GST system by providing clear guidelines for handling underpaid or unpaid taxes, incorrect refunds, and false ITC claims.
This emphasises to taxpayers the significance of careful compliance and prompt adjustment of any inconsistencies to avert fines and legal issues.
