Centre Proposes Comprehensive GST Reforms to Streamline Registration and Refund Processes

The Centre has unveiled plans for advanced GST reforms aimed at easing compliance for registered taxpayers. The proposal, shared with a panel of state ministers, suggests reducing the GST registration time to three days for most applicants. Additionally, it aims to expedite refunds for exporters and those with an inverted duty structure. A government source indicated that about 80% of refunds would be processed immediately upon application submission.

In December 2024, the GST Council, which includes Centre and state finance ministers, approved categorising businesses into three groups for GST registration: New/small businesses, Deemed Trusted Businesses, and Emerging Businesses. This classification aims to streamline the registration process. The Council also agreed in principle to grant GST registration within three days to small or new businesses that opt for limited or no input tax credit (ITC).

GST Registration Reforms

The proposal includes a time-bound registration process, especially targeting small businesses and startups. Nearly 95% of applicants would receive registration based on risk metrics through a mechanism similar to a green channel. The Council has also suggested pre-filled returns to minimise manual intervention and eliminate mismatches.

Deemed Trusted Businesses, such as public sector units or those paying high GST in cash or high income tax, may be considered low risk. These businesses could receive simplified registration without biometric Aadhaar authentication and physical verification and pass on unlimited ITC. Emerging Businesses wishing to pass on ITC beyond a specified limit but not classified as deemed trusted may face stricter registration processes.

Addressing Fraudulent Registrations

The Law Committee proposed simplified registration for new/small businesses not passing on ITC or doing so within Rs 5 lakh. Registration could be granted within three working days without biometric Aadhaar authentication and physical verification. Approximately 95% of new GST applicants fall into this category.

The rationale behind risk-based GST registration is twofold: simplifying the process for genuine taxpayers while preventing fraudulent entities from obtaining multiple registrations and passing on fake ITC, which leads to revenue loss. Tax officers have been dealing with fake registrations aimed at fraudulently claiming ITC.

Combating Tax Evasion

To counter fake entities, the GST Council has introduced biometric authentication for certain suspicious businesses. Applicants must visit an Aadhaar centre for biometric verification. Between April and October 2024, GST officers detected Rs 35,132 crore in ITC evasion by 17,818 fake firms and arrested 69 individuals.

Central GST field officers uncovered tax evasion of approximately Rs 7.08 lakh crore over five years until the 2024-25 fiscal year, including Rs 1.79 lakh crore in ITC fraud. In the 2024-25 fiscal year alone, CGST officers detected over Rs 2.23 lakh crore in GST evasions. Of the 30,056 cases of evasion identified in FY25, more than half involved ITC fraud amounting to Rs 58,772 crore.

The proposed reforms aim to simplify GST processes while addressing fraudulent activities effectively. By implementing these changes, the Centre seeks to balance ease of compliance with robust measures against tax evasion.

With inputs from PTI