Goods And Services Tax [GST] - Tax Consultant In India

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Goods and Services Tax [GST]Edition10 2017 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.

Content GST vs the CurrentIndirect Tax Structure Why is GST a bigdeal? Time, Place, and Value of Supply Registering under GST GSTReturns-Howand When to File Them Mixed Supply and Composite Supply Composition Levy What is Aggregate Turnover Input Tax Credit in Detail Reverse Charge Whatis GST Compliance Rating? Impact of GST on Manufacturers and FMCG industryfor ReckittBenckinser 2017 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.

GST is a huge reform for indirect taxation in India, the likes of whichthe country has not seen post Independence. GST will simplify indirecttaxation, reduce complexities, and remove the cascading effect. Expertsbelieve that it will have a huge impact on businesses both big andsmall, and change the way the economy functions.This ebook will help you understand the basics of GST, importantterminologies and concepts, and how this might affect yourbusiness in the long run. Students of finance,businessprofessionals, entrepreneurs, tax practitioners and accountants willfind this e-book comprehensive and helpful in understanding GST. 2017 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.

GST vs Current Indirect TaxStructureTo understand GST, it is important that weunderstand the current indirect taxationsystem. Direct taxes such as income tax areborne by the person liable to pay the tax;this means that the tax burden cannot beshifted to anyone else. The liability of anindirect taxes on the other hand, can beshifted to another person. So, the personliable to pay the tax can collect the taxfrom someone else and then pay it to thegovernment; thus shifting the tax burden.The GST tax falls in this category.INDIRECT TAXCENTRAL TAXSTATE TAXExciseTaxEntry TaxThe current indirect tax structure, whichcomprises of so many different taxes, canbe classified as:Service TaxVAT/CST TaxCentral taxes: levied by the Central govt(includes Central Sales Tax, Excise Dutyetc.)Customs TaxTax on LotteryState taxes: levied by the various stategovts (VAT, Service Tax,Octroi)The current indirect tax has one majorproblem - the cascading effect. When youbuy something, you pay a tax on tax itself.Let’s understand this with ahypothetical numerical exampleLuxury TaxAdvert. Tax 2017 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.

STAGE 1Say a shirt manufacturer pays INR 100 to buyraw materials.If the rate of taxes is set at 10%, and there isno profit or loss involved, then he has to payINR 10 as tax. So, the final cost of the shirtnow becomes INR (100 10 ) 110.STAGE2At the next stage, the wholesaler buys theshirt from the manufacturer at INR 110, andadds labels to it. When he is adding labels,he is adding value. Therefore his cost increases by say INR 40. On top of this, he has to paya 10% tax, and the final cost thereforebecomes INR (110 40 ) 150 10% tax 165.STAGE 3Now, the retailer pays INR 165 to buy theshirt from the wholesaler because the taxliability had passed on to him. He has topackage the shirt, and when he does that, heis adding value again. This time, let’s say hisvalue add is INR 30. Now when he sells theshirt, he adds this value plus the VAT he has topay the government to the final cost. So thecost of the shirt becomes INR 214.5So, the customer pays INR 214.5 for a shirt thecost price of which was basically only INR 170.Along the way the tax liability was passed on atevery stage of transaction and the final liabilitycomes to rest with the customer. This is calledthe Cascading Effect of Taxes where a tax ispaid on tax and the value of the item keepsincreasing every time this happens.ActionCost10%TaxTotalBuys raw material10010110Manufactures @40%15015165Adds value @ 30%19519.5214.5Total17044.5214.5GST aims to solve this problem by introducingseam- less Input Tax Credit (ITC). Today, the taxthat you pay on material purchases cannot beclaimed from output tax. This is set tochange with ITC.Let’s see a breakup for this:Cost INR 165 Value add INR 30 10%tax INR 195 INR 19.5 INR 214.5 2017 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.

In our example, when the wholesaler buys fromthe manufacturer, he pays a 10% tax on his costprice because the liability has been passed on tohim. Then he adds value of INR 40 on his costprice of INR 100 and this brings up his cost to INR140. Now he has to pay 10% of this price to thegovernment as tax. But he has already paid one taxto the manufacturer. So this time what he does is,instead of paying INR (10% of 140 ) 14 to thegovernment as tax, he subtracts the amount hehas paid already. So he deducts the INR 10 he paidon his purchase from his new liability of INR 14,and pays only INR 4 to the government. So theINR 10 becomes his input credit.When he pays INR 4 to the government, he canpass on its liability to the retailer. So, the retailerpays INR (140 14 ) 154 to him to buy the shirt.At the next stage, the retailer adds value of INR30 to his cost price and has to pay a 10% tax on itto the government. When he adds value, his pricebecomes INR 170. Now, if he had to pay 10% taxon it, he would pass on the liability to thecustomer. But he already has input credit becausehe has paid INR 14 to the wholesaler as thelatter’s tax. So, now he reduces INR 14 from his taxliabilityof INR (10% of 170 ) 17 and has to pay only INR3 to the government. Andtherefore, he cannowsell the shirt for INR (140 30 17) 187 to ys rawmaterial1001010110Manufacturesand addsvalue @INR40140144154Adds value @INR 30170173187Total17017187In the end, every time an individual was able toclaim input tax credit, the sale price for himreduced and the cost price for the personbuying his product reduced because of a lowertax liability. The final value of the shirt alsotherefore reduced from INR 214.5 to INR 187, thusreducing the tax burdenon the final customer.So essentially, GST is going to have a two-prongedbenefit. One, it will reduce the cascading effect oftaxes, and second, by allowing input tax credit, itwill reduce the burden of taxes and, hopefully,prices. 2017 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.

So,Big deal?Deal?So,whywhyisis GSTGST aa bigGST is a comprehensive, multi-stage,destination-based consumption tax on leviedat every stage of value addition in the lifecycleof a product. To understand this better, let uslook at each of the terms in detail:Comprehensive: GST will subsume all of thecurrent indirect taxes. Plus, by bringing in aunified taxation system, across the country, itwill ensure that there is no more arbitrariness intax rates.Multi-stage: GST is levied each stage in thesupply chain, where a transaction takesplace.Value-addition: This is the process of additionto the value of a product/ service at each stageof its production, exclusive of initial costs. UnderGST, the tax is levied only on the value added.Destination-based consumption: Unlike thecurrent indirect taxes, GST will be collected atthe point of consumption. The taxing authoritywith appropriate jurisdiction in the place wherethe goods/ services are finally consumed willcollect the tax.For example: Let’s say that cotton garments arebeing shipped from Karnataka to Maharashtra.Karnataka is the producer stateandMaharashtra is the consumer state. Tax revenueunder GST will go to Maharashtra.Let’s understand how this will impact importsand exports.Exports are not taxable,because the place of consumption is outsideIndia. Imports are taxable, because the placeof consumption is in India.The tax on imported goods will thereforebe just the same as domestically-producedgoods. Thus, the export industry will becomemore competitive when compared to itsinternational peers. Also, domestic goods willbe protected by making imports at par withdomestic goods. 2017 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.

What isWhatis SGST,SGST, CGST,CGST andand IGST?IGST?Suppose goods worth INR 10,000 are sold bymanufacturer A in Maharashtra to Dealer B inMaharashtra. B resells them to trader C inRajasthan for INR 17,500. Trader C finally sells toend user D in Rajasthan for INR 30,000.Suppose CGST 9%, SGST 9%. Then, IGST 9 9 18%Since A is selling this to B in Maharashtra itself, itis an intra-state sale and both CGST and SGST will apply,at the rate of 9% each.B (Maharashtra) is selling to C (Rajasthan). Since itis an inter- state sale, IGST at the rate of 18% willapply.C (Rajasthan) is selling to D also in Rajasthan.Once again it is an intra-state sale and both CGSTand SGST will apply, at the rate of 9% each.*** Any IGST credit will first be applied to set offIGST then CGST. Balance will be applied to setoffSGST.Since, GST is a consumption based tax, i.e., thestate where the goods were consumed will collectGST. By that logic, Maharashtra (where goods weresold) should not get any taxes.Rajasthan and Central both should have got(30,000 * 9%) 2,700 each instead of only2,250.Maharashtra (exporting state) will transfer to theCentre the credit of SGST of INR 900 used inpayment of IGST.The Centre will transfer to Rajasthan (importingstate) INR 450 as IGST credit used.ManufacturerAMaharashtraCGST SGSTDealer BMaharashtraIGSTTrader CRajasthanCGST SGSTUser DRajasthan**Note : Custom duties are not part of this taxstructure. 2017 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.

When is Tax Levied?A taxable event such as manufacture, sale and provision of a good has tooccur for tax to be collected. Under the current system, each taxable event issubject to multiple taxes such as excise, VAT/ CST and service tax. But underGST, products will no longer have multiple taxes, and will not incur exciseduty as well as VAT at different points of time. There will no longer be anydifference between goods and services in terms of taxation.An example of this is when we go out to eat at a restaurant. Earlier, thecustomer paid both VAT and service tax on a single bill, but after GST thereis single tax charged on the bill amount.This leads us to an important concept in GST - Time, Place, and Value ofSupply of goods and services. Let us look at these provisions in detail in thenext chapter. 2017 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.

Registering under GSTNow that we know the basics of GSTcalculation, the process of ITC claims andfiling of returns, let us look at how a taxpayer can register for GST.If you meet any of the conditions listedbelow, you should obtain your GSTregistration in following cases.Important Points to Remember Where a business which is registered has beentransferred to someone, the transferee shall takeregistration with effect from the date of transfer.Your aggregate turnover in a financial yearexceeds INR 20 lakhs (INR 10 lakhs forSpecial category states) Registration is mandatory for anyone who makesinter-state supply of goods and/or services. Registration is mandatory for:Casual Taxable PersonNon-Resident Taxable PersonAgents of a supplierTaxpayers paying tax under reverse chargemechanismInput Service DistributorsE-commerce operator or aggregator and theirsuppliersPerson supplying online information and databaseaccess or retrieval services from a place outsideIndia to a person in India, other than a registeredtaxable personIf your turnover includes supply of only thosegoods/services which are exempt under GST,this clause does not apply.To calculate this threshold, your turnovershould include the aggregate value of alltaxable supplies, exempt supplies, export ofgoods and/or services and inter-statesupplies of a person having the same PAN.When: Every person who is registered under an earlier lawwill take registration under GST too. 2017 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.

Other Notable PointsRegarding RegistrationWho is a Non- Resident TaxablePersonA person with multiple business verticals in astate will needto obtain a separateregistration for each business vertical.When you occasionally make supply ofgoods/services as a principal or agent or anyother capacity, in a taxable territory, whereGST applies but you don’t have a fixed placeof business in India. As per GST, you will betreated as a non-resident taxable person.PAN is mandatory to apply for GSTregistration (except for non-resident personwho can get GST registration on the basis ofother documents).A registration which has been rejected underCGST Act/SGST Act shall also stand rejectedfor the purpose of SGST/CGST Act.Who is a ‘Casual TaxablePerson?If you occasionally make supply ofgoods/services as a principal or agent or anyother capacity, in a taxable territory, whereGST applies but where you don’t have a fixedplace of business. As per GST, you will betreated as a casual taxable person.Here are the rules for registration for thesepersons: Registration shall be valid for 90 days. It can be further extended by 90 days. An advance deposit of tax liability for theperiod of registration must be made.Additional tax must be depositedifextension of registration is sought. This tax deposited shall be used like ‘inputcredit’ 2017 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.

Exemption from GSTRegistrationShould You Opt for VoluntaryRegistration?The following shall not be required to obtainregistration and will be allotted a UIN(Unique Identification Number)instead.They can receive refund of taxes on notifiedsupplies of goods/services received by them:A person may opt for voluntary registrationunder GST even if he is not liable to beregistered. All the provisions of GSTapplicable to a registered taxable person willsimilarly applyto such a voluntarilyregistered person also, i.e. he will be treatedas a normal taxable person. Any specialised agency of UNO (UnitedNations Organization) or any multilateralfinancial institution and organizationnotified under the United Nations Act,1947 Consulate or Embassy of foreign countries Any other person notified by theBoard/Commissioner The central government or stategovernment may bebased on therecommendation of the GST council,notify exemption from registration tospecific persons.For example, assume there is a small grocerydealer with a limited turnover of Rs. 12-15lakh. Such a dealer may not be required toregister under GST. However, he may be supplying inputs to a nearby restaurant which hasa turnoverexceeding Rs. 20 lakh, isregistered as a normal taxpayer, and is thuseligible for input credit. In such a scenario, asmall dealer may register voluntarily to passon the benefit of input credit to his buyer.Check the Positive and the Negative aspectsof Voluntary Registration 2017 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.

Positives of VoluntaryRegistrationNegatives of VoluntaryRegistrationIn spite of composition levy, many smallorganisations are planning to voluntarilyregister themselves under GST. This isbecause composition levy has certaindrawbacks. Voluntary registration willmitigate such drawbacks and give thefollowing advantages:We discussed the benefit of gettingregistered under the Goods and ServicesTax, however, there is a flip-side to it.Businesses registering voluntarily underGST may have to face extra complianceand working capital liquidity. Some ofthese consequences are: Provide input tax credit to customers:Since your business is legally recognised,you can issue taxable invoices. Buyers, inturn, can take input credit on theirpurchases. This will help expand thecustomer base and make it morecompetitive. Multiplereturnfiling:Businessesregistered under Goods and ServicesTaxes are required to file three returnsevery month. These returns are GSTR-1,GSTR-2, GSTR-3 and include the details ofall purchases, sales, and final tax liabilityafter setting off Input Tax Credit. Failure tofile these returns will not only deny theinput credit to buyer but also attractpenalty. Further Compliance rating will getaffected negatively. Take input credit: Voluntarily registeredpersons can take input credit on theirown purchases and input services likelegal fees, consultation fees etc. This willeventually increase their business marginand profitability. Make inter-state sales without manyrestrictions: Businesses registered underGST can make inter-state sales withoutmany restrictions. Thus, it widens thepotential market for SMEs. These SMEscan also opt for selling their goods onlinethrough the e-commerce platform. Be compliant and have good rating:Registration for GST will ensure that thebusiness is compliant and scalable withoutany barrier of future registration. Alsounder GST, compliance rating will bemaintained and if this is done correctly, itcan attract additional business. Payment of tax liability: Once registeredunder GST, the supplier will have theadditional responsibility of collecting anddepositing taxes with the authorities. Thiswill not only inflate the cost for the buyerbut also leverage similar sellers who arenot registered under GST. Registration in every state of businessactivity: Further under the new law,obtain registration in each state ofbusiness activity. Return needs to be filedin the jurisdiction of the state wheregoods are stored for consumption. 2017 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.

Time, Place and Value of Supply under GST ExplainedAccording to the law, the point of taxationmeans the point in time when goods havebeen deemed to be supplied or services havebeen deemed to be provided. The point oftaxation enables us to determine the rate oftax, value, and due dates for payment oftaxes.The liability to pay CGST / SGST will arise at thetime of supply as determined for goods andservices. There are separate provisions fortime of supply for goods and time of supply forservices. The liability to pay CGST / SGST onthe services shall arise at the time of supplyas determined by GST provisions.How to Determine Time of SupplyThe time of supply of goods/services shall bethe earlier of the following dates:For both the above clauses, the supply shallbe assumed to have been made to theextent it is covered by the invoice or thepayment (as the case may be).For the second clause, the date of receipt ofpayment shall be the earlier of: the date on which the dealer enters thepayment in their booksOR the date on which the payment is creditedto their bank accountFor example, if the date of invoice is 15thMay 2018, and date of receipt of payment is10th July 2018. The date when the supplierrecorded the receipt in his books is 11th July2018.Thus, the time of supply will be 15th May2018. the date of issuing invoice (or the last day bywhich invoice should have been issued)OR the date of receipt of payment, whichever isearlierIf the supplier of taxable goods/servicereceives an amount up to INR 1000 in excess ofinvoice amount, the time of supply for theextra amount shall be the date of issue ofinvoice 2017 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.

How to Determine Place of Supply‘Place of Supply’ under GST is an importantfactor as it defines whether the transactionwill be counted as intra-state (i.e within thesame state) or inter-state (i.e. between twostates) and accordingly the changeability oftax. While determining the levy of taxesbased on place of supply, two things arec

GST vs Current Indirect Tax Structure The current indirect tax structure, which comprises of so many different taxes, can be classifiedas: Central taxes: levied by the Central govt (includes Central Sales Tax, Excise Duty etc.) The current indirect tax has one major problem - the cascading effect. When you buy something, youpaya tax on tax itself.

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