The GST Council has approved in principle a concept note for an optional Annual Return Quarterly Payment (ARQP) scheme for businesses with aggregate turnover of up to ₹5 crore in the preceding financial year that exclusively supply goods or services to unregistered persons.

The Council also recommended issuing circulars on five areas of GST compliance, including distribution of input service credit, credit entitlement of banks and financial institutions, payment of pre-deposits, demonstration vehicles and the retrospective omission of Rule 96(10) of the CGST Rules, 2017. The recommendations seek to address ambiguities arising from differing interpretations by field formations.

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Annual Return And Quarterly Payment Proposed For Small B2C Businesses

The proposed ARQP scheme would offer eligible businesses an optional framework combining annual return filing with quarterly tax payments.

The turnover ceiling would be determined with reference to the preceding financial year. Eligibility would also require businesses to engage exclusively in supplies to unregistered persons, commonly described as business-to-consumer or B2C supplies. Consequently, turnover of ₹5 crore or less would not, by itself, satisfy the proposed eligibility conditions.

The proposal could reduce recurring return-filing work for qualifying consumer-facing businesses while retaining periodic payment of tax. However, the Council has approved only the concept note in principle. The announcement does not establish an operational scheme or specify its commencement date, return forms, payment deadlines or procedure for exercising the option.

Clarification On Input Service Distributor Mechanism

The Council recommended a circular addressing issues concerning the Input Service Distributor (ISD) mechanism for distributing input service credit.

The proposed clarification is intended to improve consistency in the interpretation and application of the mechanism. Businesses awaiting guidance will need to examine the circular when issued to identify the precise transactions, procedures and credit-distribution questions covered.

ITC Guidance For Banks, Financial Institutions And NBFCs

A separate circular has been recommended on availment of input tax credit by banking companies and financial institutions, including non-banking financial companies, that opt for Section 17(4) of the CGST Act, 2017.

The recommendation specifically concerns institutions choosing the credit mechanism under that provision. The scope of the clarification and its treatment of particular credit claims will become clear from the circular’s final wording.

Pre-Deposit Payments To Receive Clarification

The Council also recommended clarification on various issues relating to payment of pre-deposits.

Pre-deposits are a significant procedural requirement in GST appeals. Clear guidance could help taxpayers and authorities apply payment requirements consistently and reduce disputes over procedural compliance. The announcement, however, does not detail the individual payment issues to be addressed.

Demonstration Vehicle ITC Under Consideration

Another proposed circular would clarify the admissibility of input tax credit on demonstration vehicles in certain situations.

The qualification “in certain situations” is significant: the recommendation does not announce an unrestricted entitlement to credit on every demonstration vehicle. The circumstances covered and the applicable conditions will need to be assessed against the circular once issued.

Retrospective Omission Of Rule 96(10)

The Council further recommended clarification concerning omission of Rule 96(10) of the CGST Rules, 2017, with effect from October 23, 2017, in accordance with the Supreme Court decision referred to in the recommendation.

The retrospective date makes this proposal relevant to disputes concerning earlier periods. However, the announcement does not itself prescribe how pending demands, concluded proceedings or individual refund claims will be handled.

The proposed circulars and ARQP concept reflect a focus on greater certainty and simpler compliance. Their practical effect will depend on the guidance and implementation measures issued following the Council’s recommendations.

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