The Goods and Services Tax (GST) was introduced to simplify India’s indirect taxation system, but for many businesses, it continues to throw up unexpected challenges. Beneath the surface of this unified tax lie several lesser-known rules that can catch even seasoned entrepreneurs off guard. Here are seven surprising GST provisions that every business owner must understand to stay compliant — and avoid unpleasant surprises.
- A “Supply” Can Happen Even Without a Sale
Under GST, the term “supply” isn’t limited to just selling goods or services. Section 7 of the CGST Act defines it broadly to include barter, exchange, lease, or disposal made for a consideration.
What’s more startling — Schedule I of the Act lists certain activities that are treated as supply even without any consideration.
For instance, supplies between related persons or between distinct persons (like branches in different states) are taxable, even if no payment is involved.
In short: You might be liable for GST even when money doesn’t change hands.
- You Might Pay GST on What You Buy, Not Just What You Sell
The Reverse Charge Mechanism (RCM) flips the traditional tax responsibility. As per Sections 9(3) and 9(4) of the CGST Act, the recipient — not the supplier — pays the tax in specific cases.
Examples include services provided by a company’s director or supplies received from unregistered vendors.
Additionally, Section 9(5) makes electronic commerce operators (ECOs) like online platforms liable to pay GST on specified services such as passenger transport or accommodation offered through their portals.
Bottom line: Sometimes, even when you’re the buyer, you’re the one footing the GST bill.
- Delay in Paying Suppliers Can Cost You Tax Credits
GST input tax credit (ITC) is one of the most powerful benefits for businesses — but it comes with a catch.
If your business fails to pay a supplier within 180 days from the invoice date, the ITC you claimed on that purchase must be reversed.
This ensures timely payments in the supply chain but can turn into a costly compliance oversight for businesses that delay vendor settlements.
- That “Gift” to Your Employee Could Be Taxable
Not every gift is tax-free under GST.
If an employer gives a voluntary gift to an employee (not part of the employment contract), it may be treated as a taxable supply.
However, gifts up to ₹50,000 per employee per financial year are exempt.
If the benefit forms part of the employment contract (like performance bonuses), it’s treated as salary — and not subject to GST.
Lesson: Think before giving that Diwali bonus hamper — it could carry a hidden tax cost.
- “For the Business” Doesn’t Always Mean “Tax Credit Eligible”
Section 17(5) of the CGST Act introduces the concept of blocked credits — cases where ITC is not available, even if the purchase is business-related.
Some key examples include:
- Motor vehicles for personal or non-transport use
- Membership of clubs, gyms, and fitness centers
- Works contract services used for constructing immovable property
These exclusions often surprise business owners who assume all business expenses qualify for ITC.
- The Taxman Can Freeze Your Bank Account — Even Before the Verdict
Perhaps one of the most intimidating powers under GST lies in Section 83, which allows provisional attachment of property or bank accounts.
If proceedings such as audit, inspection, or assessment are initiated, the Commissioner can freeze assets to safeguard revenue — even before the final tax determination.
The attachment can remain in effect for up to one year.
Translation: Even a pending investigation could temporarily lock your business finances.
- Staying Unregistered Doesn’t Make You Invisible
If you’re operating without GST registration despite being liable, don’t assume you’re off the radar.
Under Section 63, tax officers can assess unregistered persons to the best of their judgment, using available information.
This assessment can cover up to five years from the due date of the annual return, exposing unregistered entities to hefty backdated tax demands, interest, and penalties.
Conclusion
The GST law, while designed to streamline taxation, contains layers of rules that demand careful attention.
From the unexpected definition of “supply” to the risk of losing ITC or bank account freezes, these provisions emphasize the importance of proactive compliance and regular consultation with tax professionals.
Inputs By: Abhishek Raja Ram
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