The Centre has proposed ‘next generation’ GST (goods and services tax) reforms in registration, refund and return processes as it looks to ease the compliance burden for GST-registered taxpayers.
As per the proposal shared with a panel of state ministers, the Centre is looking at bringing down the time taken to grant GST registration to three days for the majority of GST applicants and also fast-track issuance of refunds for exporters and those with an inverted duty structure.
The proposal, which will be taken up in the next GST Council meeting, likely in September, entails that a substantial majority or about 80% of refunds will be processed as soon as the application is filed.
Although there would be some time lag, refunds would be processed faster, a government source said.
The Centre has also proposed to the Council a time-bound registration process, especially for small businesses and startups. Registration to almost 95% of the applicants would be granted based on “risk metrics”, and it will work on the mechanism like a “green channel”.
With regard to returns, the Council has proposed implementing pre-filled returns, thus reducing manual intervention and eliminating mismatches.
With regard to simplifying the registration process, the GST Council, comprising Centre and state finance ministers, in December 2024, had given its in-principle nod to segregate businesses into three categories— new/small businesses, deemed trusted businesses, and emerging businesses—for the purpose of GST registration.
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It had also given its in-principle approval to a proposal to provide GST registration to small or new businesses within three days, if they wish to pass on only a limited input tax credit or no ITC.
As per the proposal, ‘deemed trusted’ businesses, which include public sector units, or businesses, which pay high GST in cash or pay a high income tax, may be considered “low risk and granted simplified registration without biometric-based Aadhaar authentication and physical verification. Such businesses will also be eligible to pass on unlimited ITC.
The category of ‘Emerging Businesses’ will be for those who wish to pass on ITC, exceeding a specified limit, but do not fall under the ‘deemed trusted business’ category. As per the proposal of the law committee, such businesses may face a more stringent registration process, including application fees, security deposits, and physical verification.
The Law Committee proposed a simplified registration for ‘new/small businesses’ that do not wish to pass on ITC or wish to pass on a limited ITC. For such businesses, registration may be granted within 3 working days without biometric-based Aadhaar authentication and physical verification.
As per data, about 95% of applicants for new GST registration would fall in the category of new/small businesses, who either do not pass on ITC or do so within the limit of Rs 5 lakh.
The rationale behind coming out with GST registration based on risk assessment is, on one hand, to simplify GST registration for genuine taxpayers, while on the other hand, to make it difficult for fraudulent entities to obtain multiple registrations and pass on fake ITC, thereby resulting in revenue loss.
Tax officers have been grappling with fake registrations, which are taken with the sole purpose of fraudulently claiming ITC and defrauding the exchequer.
To check fake entities, the GST Council has already brought in a biometric authentication for certain suspicious businesses, under which the person seeking GST registration will be asked to go to an Aadhaar centre to have their biometrics verified.
Between April and October 2024, GST officers have detected cases of ITC evasion of Rs 35,132 crore by 17,818 fake firms and arrested 69 persons.
Central GST field officers have detected tax evasion of about Rs 7.08 lakh crore in the last five years till 2024-25 fiscal, including input tax credit (ITC) fraud of about Rs 1.79 lakh crore.
In the 2024-25 fiscal year alone, over Rs 2.23 lakh crore of GST evasions were detected by CGST field officers, according to the data shared by the finance ministry in Parliament.
Of the 30,056 cases of GST evasion detected in FY25, more than half or 15,283 cases, pertained to ITC fraud, where the evasion was to the tune of Rs 58,772 crore.
