Basics of GST – Part 1 – Overview of GST

What is GST?

GST is Goods and Service Tax. Common tax on supply of all Goods and/or Services.

Why GST?

To make India as One nation – One Tax – One market.

To reduce cascading effects (tax on taxes), tax evasion by using more technology for governance, Reduce Cost and complications of Compliances…etc

Will there be no other taxes, after introducing GST?

Yes, to some extent.

All the major indirect taxes of State and Central Governments shall be subsumed by GST. Following are the taxes subsumed:

Central Taxes: Domestic: Excise Duty, Service tax, Central Sales tax; Imports: CVD and SAD

State Taxes: VAT, Entry tax, Entertainment tax, Luxury tax and Octroi/LBT

Will GST be the one tax in lieu of all the above taxes?

Yes, Only one tax, GST. But levied and collected as three different components which are

CGST: Central Goods and Services tax     – Central govt. portion of the revenue

SGST: State Goods and Services tax         – State govt. portion of the revenue

IGST: Integrated Goods and Services tax– Common revenue, total of CGST and SGST, levied and Collected by Central Govt. State’s portion shall be re distributed among states, at a later point of time.

When to charge and collect tax under GST?

Under GST, tax should be charged on Supply of Goods or Service or Both.

No concept of Manufacture under GST. Sale of goods, Provision of Service and all other transactions shall be subsumed by treated as Supply.

GST is applicable for all the Supplies?

Yes, except for Liquor and Electricity.

Currently Petroleum Crude, Diesel, Petrol natural gas and ATF are also out of GST. But soon provision made to bring these into GST.

How to determine on which component of tax to be charged?

Though these are three components, there would be only one bifurcation Inter-state Vs Intra state.

For all the Intra-state (within the state) supplies CGST and SGST of respective state should be charged.

For all the Inter -state (Outside the state) supplies IGST should be charged

Eg. If the dealer of Santoor soaps located in Hyderabad supplies to a retailer in Telangana, He should charge CGST and SGST of Telangana.

If the same dealer supplies Santoor soaps to another dealer / retailers in Andhra Pradesh, He should charge IGST (Total of CGST and SGST of Andhra Pradesh).

Note: CGST & SGST shall always be charged together for Intra state supplies and IGST alone for all inter-state supplies.

How to determine a transaction as Interstate or Intra state supply?

There are two concepts, Location of Supplier and Place of Supply, to be compared for determining this.

Location of Supplier (LOS): Place/State from where the supply is made

Place of Supply (POS): Place/State to where the supply is made

If LOS and POS are in same state: Intra-state supply – CGST and SGST of that state should be charged.

If LOS and POS are in different states: Inter-state supply – IGST should be charged.

Note: Detailed discussion on POS and LOS shall be made in the next article.

Is every supplier liable to be registered under GST?

No, a person/organization shall be registered under GST, only if his aggregate t/o in a financial year exceeds Rs20 Lakhs.

Aggregate t/o: Means total value of all the businesses of a person with same PAN.

Eg 1: If a person is having 5 different businesses, operating with his name (PAN), with 5 Lakhs annual t/o in each business, he is liable to be registered in GST.

Eg 2: For the same person, of 3 businesses are operating with his name (PAN) and two businesses are operating with his wife’s name (PAN), he and she shall not be liable for registration under GST.

Only one registration is sufficient?

Yes, one registration for each state in which the person has the business.

In the above example, if the person is having 5 branches in same state, he has to obtain only one registration. If the branches are in 5 different states, 5 registrations should be obtained.

Note: No concept of Centralized registrations under GST

Is there any option of paying TOT / Composition scheme under GST?

Yes, if the aggregate t/o is less than Rs.75 Lakhs. Then the person can opt to register under Composition scheme and to pay fixed % (2%/1%/5%) of total turnover as tax.

However, this scheme applicable for supplier of Goods and Restaurants. A Service provider doesn’t have an option of paying tax under Composition scheme.

When to pay tax under GST?

A registered person shall be liable to pay tax on monthly basis, before filing the return for the month.

For Composition scheme, tax shall be paid and returns to be filed on quarterly basis.

What are all the returns to be filed under GST?

Every registered person shall be liable to file a minimum of 3 returns on monthly basis

1. Outward Supplies – by 10^th of the following month
2. Inward supplies – by 15^th of the following month
3. Final return – by 20^th of the following month

And one annual return, by 31^st December of the following financial year.

For composition scheme, Quarterly returns to be filed by 18^th of the 1^st month of the following quarter.

Reverse charge Mechanism (RCM) continues under GST?

Yes, RCM continues under GST also. For specified goods and services, Recipient shall be liable to pay tax, instead of supplier.

Also, if any purchases are made / services are availed by a registered person from an Unregistered person, such registered person shall be liable to pay tax under RCM.

However the same can be availed as Input credit.

Does the MODVAT / Input tax credit (ITC) Mechanism continues under GST?

Yes, ITC mechanism is the Back bone of GST. GST paid on all the Purchases made and Expenses incurred in the course or furtherance of business shall be allowed as credit.

Note: There are few restricted expenses, for which credit shall not be allowed.

How can we use the credit among the three components of tax?

IGST can be used for payment of IGST, CGST and SGST in that order

CGST can be used for payment of CGST and IGST in that order

SGST can be used for payment of SGST and IGST in that order

Cross utilization of CGST and SGST is not allowed

Note: Input taxes of one state can’t be utilized for discharging tax liability of other state.

What is the matching concept under GST?

Under GST, for allowing the input tax credit, all the inward supplies declared by taxable person shall be matched with the outward supplies declared by the supplier. Credit shall be allowed to the recipient, to the extent of taxes paid by the supplier only. If the supplier doesn’t pay tax / fails to file the return, recipient shall not get the ITC for the purchases made from that supplier.

This matching is done in the GST network, on the basis of Invoice number and TIN provided by the supplier and recipient. Mismatch report shall be communicated to each of them and sufficient time is given for reconciling the same, before filing the returns.

Eg.: If the purchases declared by us from a supplier as 10lacs with an input of 1.8lacs, but our supplier erroneously declared the Sale value as 1lac with output tax of 18K, then we will be eligible for credit of 18K only. Balance shall be eligible, after the same is rectified by the supplier.

Note: Concept of Provisional credit is not discussed here. Same shall be discussed in the article for detailed discussion of Input tax credit.

Thank you for your patient reading. Hope this added some value to you.

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