Government to consider GST relief package to aid with the impact of COVID-19.

India is considering a relief package for Goods and Services Tax (GST) to fight Covid-19’s effect and help support the economy, said people with knowledge of the issue. The package under consideration could include a six-month suspension of GST payments for the worst-hit sectors such as restaurants, aviation and hospitality and a lower rate for the real estate sector.

Other proposals involve a move to a cash-based principle by levying tax from the existing invoice-based system by offering GST relief on a transaction on which payment due to the lockdown is not obtained by considering them as bad debts.

These steps are supposed to reduce the liquidity burden on firms struggling for funds, the people cited above said. The GST Council, which is the apex decision-making entity for the tax, should make a final judgment on the proposals.

While there has been a demand for full GST exemption, the government is veering back to the view that it would work best to suspend the tax, the official said. Exempting a sector from the tax will involve cutting the credit chain, contributing to further downstream issues.

A cash-based system would entail companies paying GST when they receive the money and not when the invoice is raised, making sure they don’t have to spend the tax out of their wallet and get pressured on working capital. It is particularly important for services, where reimbursement after bills are raised, is received with a lag.