CA Umesh Sharma
Arjuna (Fictional Character): Krishna, Honorable President of India has given ascent to the GST and so it seems that GST will come into force from 1st July 2017 and the landmark is set for further steps. Presently VAT is applicable to all the business dealers and now GST will be levied, so please explain the difference between VAT and GST?
Krishna (Fictional Character): Arjuna, GST is the biggest change in the indirect tax laws. Excise, VAT, Service tax etc. will be subsumed in GST. VAT is levied on all types of goods leaving some exceptions. VAT is charged on all stages right from manufacturing till the goods reach the final consumer. Therefore the traders to whom VAT is applicable have to understand the difference between VAT and GST. VAT is only charged on goods while GST will be charged on goods and services both. Just like all the matches in this IPL are very interesting, let us see how the match between GST and VAT will go.
Arjuna: Krishna, when VAT and GST is levied?
Krishna: Arjuna, VAT is levied when goods are sold, while GST is based on the fundamental of supply. In VAT if sale takes place within the state then VAT is charged and if it is an inter-state sale then CST is charged. But in GST, central GST and State GST will be charged on intra-state supply and IGST will be charged on inter-state supply.
Arjuna: Krishna, When registration in compulsory in GST and VAT?
Krishna: Arjuna, In VAT if turnover of sales or purchase within state goes above Rs. 10 Lakhs or if the inter-state sales goes above Rs. 1 Lakh then it is mandatory to take registration of VAT. While in GST the Sales turnover goes above Rs. 20 Lakhs then registration is compulsory.
Arjuna: Krishna, What are the differences between rate in VAT and rate in GST?
Krishna: Arjuna, there are 5 schedules in VAT specifying different rate for different commodities. In VAT the major rates are 0%, 6%, 13.5%, and 20% whereas the rates given by central council of GST are 0%, 5%, 12%, 18%, and 28%. Which commodity will be taxed at which rate is not specified yet. In VAT the rate are specified as per schedules while in GST rate will be given according to HSN code (as specified in excise law).
Arjuna: Krishna, what is the difference between filling return in VAT and GST?
Krishna: Arjuna, In VAT the periodicity of filing return is monthly or Quarterly. While in GST every taxpayer will have to file monthly return except for the person who has opted for composition scheme. The composition dealers will have to file quarterly return. In GST there are strict provisions relating return filing procedure. Every dealer has to file return giving bill wise sales details every month before 10th of the next month, than the dealer has to give confirmation of purchases till 15th of the that month and is required to pay tax and file the return before 20th of that month.
Arjuna: What are the main difference for taking credit by dealer under VAT and GST?
Krishna: Arjuna, under VAT dealer can take credit of goods purchased by him. In GST the dealer can take credit of goods as well as services. But the credit of CGST and SCGT cannot be set off against each other. The dealer can take credit of IGST. In VAT the dealer has to furnish the details of purchases while filing return and same information is the basis of credit to be taken by him. But in GST, the dealer could not take the credit until our purchases is matched with the sales of supplier. That means, In GST the transactions will be reconciled bill wise. For example, “A” has purchased goods worth Rs 1 Lakh from “B” and there is GST of Rs. 10,000/- and while submitting return “B” is showing a sale of Rs. 80,000/- and a GST Amount of Rs. 8,000/- than “A” could get a set off of Rs. 8,000/- only.
Arjuna: Krishna, what is the concept of RCM?
Krishna: Arjuna, RCM means “Reverse Charge Mechanism” which means the tax is to be paid by the person who is purchasing or is taking services rather than the person who is making sales or giving services. This concept does not exist in VAT. In GST, if purchases is made from unregistered dealer than the registered dealer is liable to pay GST on such transactions. Like that, special transactions are mentioned under RCM.
Arjuna: Krishna, is GST applicable on advances?
Krishna: Arjuna, if goods are purchased or sold against advance than no VAT was levied on such advances. But GST will be levied on such transactions.
Arjuna: Krishna, What is the meaning of Compliance rating?
Krishna: Arjuna, the concept of compliance rating was not there in VAT. It’s a new concept in GST and this rating will be done against each and every dealer. This rating is based on the sincerity of person to pay tax and furnish their returns on time. And this rating will be displayed on GSTN network. There will be problems while doing transactions in GST if this compliance rating is low.
Arjuna: Krishna, what dealer should learn from leaving VAT and coming GST laws?
Krishna: Arjuna, till now procrastination was possible in many things. But now it is must to understand the provisions of law. It will be easy for that dealer who pay taxes on time and furnish appropriate information otherwise it will be difficult to do business. Next time we’ll see the difference between tax provisions of GST and service tax.