In the intricate web of financial transactions between the government and contractors in Jammu and Kashmir, integrating the GST Network with the Treasury Payment System marks a significant stride towards enhancing transparency and curbing tax evasion.

The economy of Jammu and Kashmir heavily relies on public sector spending, making GST collections from works contractors executing government contracts a pivotal revenue stream. To streamline this process, the GST system incorporates a monthly GSTR7 return mechanism, obligating departmental Drawing and Disbursing Officers (DDOs) to file returns detailing GST numbers (GSTINS) of taxpayers receiving government payments exceeding 2.5 lakhs. These officers are mandated to deduct 2% of the payment value and report these deductions in their GSTR-7 returns, with taxpayers expected to settle the remaining tax liability through their monthly GSTR-3 returns.

However, discrepancies arise when DDOs fail to make deductions accurately or omit them entirely from the GSTR-7 returns. Such lapses enable taxpayers to evade tax liabilities, as the tax department lacks visibility into payments made to specific GSTINs.

To address this challenge, the J&K State Taxes department made it compulsory for DDOs to deduct GST and furnish GSTINS of deductions in the state treasury’s payment system, PAYSYS, during the previous fiscal year. This ensured that payments could not proceed without the requisite deductions, yet a potential loophole remained: incorrect or canceled GSTINs used during payment processing on PAYSYS.

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The J&K GST department integrated the GSTN and PAYSYS systems to rectify this vulnerability. Before authorizing any payment, the PAYSYS system automatically verifies the GSTIN’s status in real-time through the GSTN, permitting payments only to active and accurate GSTINs. This pioneering initiative stands as a unique innovation in the country, aligning the GST system with the Treasury Payment system to bolster accountability and combat tax evasion in government contracts.

By intertwining these systems, Jammu and Kashmir anticipates a substantial reduction in tax evasion within this sector. This strategic move and other reforms and innovations underscore the region’s commitment to fostering a transparent and compliant financial ecosystem.

Views expressed by Shakeel Maqbool, Additional Commissioner, State Taxes(Administration and Enforcement), Jammu and Kashmir

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