- World has already moved towards Goods and Service Tax (GST) which may be called as the tax of twenty first century.
- India is just a step behind from adopting this tax structure and that is likely to happen latest by April or October 2017.
- President of India has recently signed the 101st Constitutional Amendment Bill on 8th Sept 2016 post approval by both the houses of parliament and more than 50% of states/UT in India.
- Model GST Law is likely to become the Indian GST Act (IGST/CGST/SGST Act) and that has made very strong career opportunities for Chartered Accountants.
- “Model GST Law” issued by Ministry of Finance on 14th June 2016 raises certain questions like what all impacts (whether favorable or not) would be there of the GST especially on our CA profession.
- We are hereby discussing about some of the major impact on our professional firms including comparison of existing applicable tax structure vis-à-vis proposed GST structure:
Service Tax v/s GST
|2||Mandatory Registration|| |
Any provider of service(s) whose aggregate value of taxable service in a financial year exceeds Rs. 9 lakhs
*A receiver of taxable service who is required to pay service tax u/s 68(2) of the Act (RCM)
*Input Service Distributor
Person is liable to be registered in each State from where he makes a taxable supply of services/goods, if his aggregate turnover in a financial year exceeds Rs. 4lakhs(if business is done in any of the 8 NE States) or Rs. 9 lakhs (if business is done in other than 8 NE states)
**A receiver of taxable service who is required to pay GST on reverse charge basis or ISD or any notified person in Schedule III of GST Law
|3||Centralize Registration||Centralize registration allowed|| |
State and vertical wise registration allowed
Note: In case a business is operated through multiple business segments than registration may be obtained for each such business vertical, subject to certain conditions prescribed if any.
Composition Levy Scheme
Available only for Specific Services like works contract, money changing or supply of foods etc
Available if Aggregate Turnover does not exceed Rs. 50 Lakhs and no inter-state supply arise
|5||Tax Rate||15% |
(Including SBC& KKC)
|Expected:18 to 20% |
(If under composition levy scheme then minimum 1% without any Input Tax Credit)
|6||Input Tax Credit||Available on Input Services only||Available on Input services as well as on Input Goods also|
|7||Returns||Two Half Yearly Returns and one Annual return|| |
Three Monthly Returns for each registered business unit with one annually return
(If under Composition Levy Scheme then 4 Quarterly returns and one annual return)
|8||RCM Concept||Yes, however on Specific Services||Yes, however services not defined yet for RCM|
|9||Levy of Tax if no consideration||Consideration is must for levy of Tax|| |
Consideration is must for levy of Tax but except if covered in Schedule I of Model GST Law that prescribes for
*Temporary application of business assets to a private or non-business use
*Services put to a private or non-business use
*Supply of goods and / or services by a taxable person to another taxable or non-taxable person in the course or furtherance of business.
Overview: Impact of GST on CA Firms
New Opportunities for Chartered Accountants
|Tax rate increased from 15% to 18% or 20%|
Cost reduced as input tax credit available is not only on services but also on goods (earlier loss of ITC was happening for vat and excise duty)
Statutory compliance increased as state wise registration is mandatory
Composition Levy Scheme for small chartered accountants which have taxable turnover not exceeding Rupees 50 Lakhs(Rate of Tax Is minimum 1%)
Services without consideration is also covered under the definition of supply hence taxable
(Point 5 of Schedule I of Model GST Law)
Composition Levy Scheme for Small CA Firms
- Earlier in service tax “Composition Levy Scheme” was not available to service providers except few services discussed as above
- Hence a welcomed provision i.e. “Composition Levy” under ”MODEL GST LAW” is inserted under section 8 which reads out as follows:
(1) Notwithstanding anything said in Act except Section7(3), CG/SG can permit a registered taxable person, whose aggregate turnover in any financial year does not exceed [50 lakh of rupees] to pay tax under composition scheme i.e. at the rate to be prescribed subject to min. 1% of the turnover. However Composition scheme is not allowed for the taxable person effecting any inter-state supply.
Further Composition scheme can be applied if all taxable persons having same PAN opts for this scheme i.e. one person can either have normal registration or can have composition scheme for all his registered business verticals.
(2) Taxable person opted for composition scheme shall not collect tax on supplies made by him & avail Input tax credit
(3) Officer can penalize the taxable person in case of violation of Section 8(1) with an equal amount to tax payable in addition to tax payable subject to show cause notice and reasonable opportunity of being heard
Analysis of “Composition Levy Scheme” on Small CA Firms
- The “Composition Levy Scheme” is designed so that high value tax payers should not be spared and on the contrary small dealers should face a hassle free system for compliance procedures.
- The object of all such composition schemes is not to burden the small dealers from the provisions of record keeping.
- Here we are analyzing the merits and demerits of the composition levy scheme if so adopted by small CA Firms.
Service cost to recipient is very less as the rate of tax will be much lower than the normal GST rate
|Input Chain Break|
|Not required to maintain elaborate records|| |
Not eligible for inter-State supplies of services (Ex Bank Audits in other states)
|Less Returns need to file|| |
Tax is cost to small CA Firms as not eligible to collect any tax from the recipient of services
|Optional Scheme|| |
Not entitled to any credit of input tax (on goods/services), hence it will become part of cost
Ineligible for this scheme If turnover in afinancial year exceed 50 Lacks Rs.
Composition levy scheme not apply on services covered under Reverse charge mechanism [Section 7(3)], hence higher rate will be apply
All the registered taxable persons (Same PAN), also opt to pay tax under the provisions of this sub-section.
- Composition scheme is really very welcome provision for small firms where small CA firms by paying normal percentage on turnover, comply with GST provision
- CA firms should opt composition scheme (subject to demerits) as by this firms can compete in the market by serving low service cost
I Hope this article will be helpful in the understanding of provision of composition levy in GST and its impact on small C.A. firms.
(CA Akshay Kumar Jain, +91-99-5005-4004, email@example.com)