Introduction

India's Goods and Services Tax (GST) system, introduced in 2017, was meant to simplify the country's complex tax structure. However, with four different tax slabs—0%, 5%, 12%, and 18%—it remains intricate. The GST rate for a particular product or service is determined by the GST Council, which includes the Union Finance Minister and the Finance Ministers of all states and union territories.

In recent years, numerous cases have emerged where businesses have paid GST under a lower tax slab than what the authorities deem applicable. This discrepancy can result from misinterpretation of GST laws, incorrect classification of goods or services, or, in some unfortunate instances, tax evasion.

The Consequences of Underpaid GST

When authorities discover that a business has paid GST under a lower slab than applicable, they can take several actions:

1. Issuing a Notice: GST authorities initiate the process by sending a notice to the business, alerting them to the perceived discrepancy and requesting an explanation.
2. Demand for Payment: Following the notice, the authorities demand payment for the underpaid GST, coupled with interest and penalties.
3. Initiating Prosecution: In severe cases, prosecution proceedings may be launched against the business and its directors.

E-Gaming Companies: A Recent Case

In the recent past, the GST authorities in India have issued notices to several e-gaming companies like Dream11 for underpaid GST. The authorities argue that these companies were paying GST at an 18% rate on their services, while they believe the correct rate should be 28%.

The e-gaming companies have put forth the argument that their services should be taxed at the lower rate of 18%, likening them to games of skill, such as cricket and football. In contrast, the GST authorities have classified e-gaming services as games of chance, subjecting them to the higher 28% GST.

This ongoing dispute is currently awaiting resolution in the courts. The outcome of this case is likely to have far-reaching implications not only for e-gaming companies but also for other businesses operating in the online gaming sector.

Mitigating the Risk of Underpaid GST

To avoid falling into the pitfall of paying GST on a lower slab, businesses should consider the following steps:

1. In-Depth Study of GST Laws: It's imperative for businesses to thoroughly study the GST laws and regulations to gain a comprehensive understanding of the correct GST rates for their products or services.
2. Accurate Classification: Correctly classifying goods and services under the GST Harmonized System of Nomenclature (HSN) code is essential. The HSN code, a six-digit classification system, is crucial for determining the GST rate.
3. Maintaining Robust Records: Maintaining meticulous records of all transactions, including invoices, purchase orders, and delivery notes, can significantly help businesses substantiate their claims for GST input tax credit and prevent disputes with the GST authorities.

Conclusion

The implications of paying GST under a lower slab than applicable are severe. For businesses to ensure they adhere to the correct GST rates for their products and services, a meticulous understanding of the tax system is essential. Seeking professional advice, proactively communicating with GST authorities to clarify doubts, and punctually filing GST returns are steps businesses should take to navigate the complexities of GST.

Additional Tips for Businesses

• Seek Professional Advice: If uncertainties persist about the appropriate GST rates for your goods or services, it is advisable to seek guidance from a chartered accountant or tax consultant. Dhanaay has been advising businesses on GST matters and can help you too. Feel free to connect with us.
• Proactive Engagement: In case doubts arise about your GST compliance, taking the initiative to contact GST authorities for clarifications is a prudent step.
• Timely GST Returns: Filing your GST returns on schedule reflects responsible taxpayer behavior and mitigates the likelihood of disputes with the GST authorities.