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India Retail Sector, in recent years has caught global attention very rapidly. It is proven to be the most dynamic and fast paced industries, due to the entry of several new organized players.

Indian Retail Sector also emerged with various innovative formats to capture the market:

  • Supermarket
  • Hypermarkets/ Shopping Malls
  • Speciality Stores
  • Fashion Stores
  • E- Commerce

Let us discuss how GST brings in the win- win situation for Retail Sector

Under Old Tax Structure

Under old tax structure, retailer charges from consumer either VAT (in case of Intra- State) or CST (in case of Inter- State sale).

VAT (Value added Tax)

VAT is a multi-stage tax on goods that is levied across every stage of sale within a particular State (Intra-State Sale), with credit given for tax paid at each stage of Value Addition. VAT rates vary product to product and from State to State.

Central  Sales Tax (CST)

CST is payable on the sale of goods by a dealer in the course of inter-state trade or commerce. CST is levied under the Central Sales Tax Act, 1956. However the tax is collected by the goods originating State. Currently, the applicable CST rate is 2% against Form C. If C Form cannot be issued by the buying dealer, CST rate applicable would be equal to the VAT rate leviable in the State from which the goods are sold.

S. No. Taxable event Tax/ duty charged Eligibility of CENVAT / Input tax Credit
1. Intra-State Purchase of merchandise goods from Manufacturer Excise Duty Not Available
VAT Available
2. Inter-State Purchase of merchandise goods from Manufacturer Excise Duty Not available
CST Not available
3. Intra-State Purchase of merchandise goods from trader (excise duty / CVD embedded in the product would be cost for the trader, which he would factor in his sale price to Retailer) VAT Available
4. Inter-State Purchase of merchandise goods from trader (excise duty / CVD embedded in the product would be cost for the trader, which he would factor in his sale price to Retailer) CST Not available
5. Import of merchandise goods Customs Duty and CVD Not available
SAD (Special Additional Duty) Either upfront exemption or refund available
6. Capital Goods – domestic procurement Excise Duty Not available
VAT Not available (except in Maharashtra)
7. Capital Goods – Imports Basic Customs Duty, CVD and SAD Not available
8. Entry of merchandise goods into the State Entry Tax Available, except in Orissa, M.P, Chhattisgarh and West

Bengal

9. Entry of capital goods into the State Entry Tax Not available
10. Entry of goods in to a Municipality or Local Body Octroi / LBT Not available
11. Domestic procurement / import of mobile

Handsets

NCCD Not available
12. Various input services received by Retailer for carrying out trading activity (Example: Lease Rentals, Warehousing and Logistics Services, Security Services, Housekeeping & Cleaning Services, Maintenance Services, etc.) Service Tax, SBC, KKC Not available

Cascading of Taxes

As most of the taxes paid by the retailers are not eligible for input tax credit in the current regime as stated above, cascading of taxes results in cost going up for the retailer. Ultimately the consumer bears the tax burden by paying higher price for the product.

Under GST

Two taxes levied (CGST & SGST)

Under GST, two types of taxes are levied i.e. SGST or UTGST and CGST as the case may be. In the case of inter-State supply tax (IGST) would be payable to the Central Government.

Registration under GST

If a retailer whose turnover exceeds Rs.20 lakh in a financial year has to register under GST (in case of North –Eastern States, threshold limit is Rs. 10 lakh). Retailer can also go for voluntary registration.

Composition Scheme

Under GST, Retailers may opt for Composition scheme whose turnover is upto Rs. 75 lakh (in case of Special Category States, the limit is Rs. 50 lakh, except Uttrakhand).

Retailers selling their products through e- commerce operators has to pay SGST/UTGST and CGST or IGST, as the case may be.

Compliances/Conditions under GST

  • Conditions imposed for entitlement of input credit
  • Additional document to be prepared (over and above tax invoice) for verification by Proper Officer during movement of goods
  • GST is leviable at the time of receipt of advance payment from customers

Conclusion 

Inspite of increased compliances after GST, but it brings in significant benefits to the retail sectors. Earlier retailers pay huge amount of Service tax on many services which are net cost for the retail business presently. In GST, taxes paid for renting of premises as well as to other service providers are available for set off against taxes payable on outward supply of goods/services.

Unlike earlier, following taxes (which were cost for the business) are available for set off under GST.

– Taxes paid on purchase of capital goods;

– Taxes paid on purchase of non-merchandise goods such as printing and stationery, packing materials and several other  consumable items used in retail stores, warehouses and office premises;

– Taxes on freight amount paid for transportation of goods;

– Taxes paid on various services used for operation and maintenance of retail stores, warehouses and office premises;

– Taxes paid on services used for marketing and sales promotion of goods

– Taxes paid any other services which are used for conducting retail business

Hope this information will help you in your Professional endeavors. For further assistance/query, feel free to write to us.

Author: C S Ekta Maheshwari is the Author of this article and is Company Secretary by profession. The Author can be reached at csektamaheshwari14@gmail.com 

Disclaimer: The entire contents of this article is solely for information purpose and have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation.. It doesn’t constitute professional advice or a formal recommendation. The author has undertook utmost care to disseminate the true and correct view and doesn’t accept liability for any errors or omissions. You are kindly requested to verify & confirm the updates from the genuine sources before acting on any of the information’s provided herein above.

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