CA Deepak Jauhari
Highlights of 4 GST bills passed in Loksabha on 29.03.2017 and and Rajya Sabha(05.04.2017)
1. Lok Shaba has passed Four Bills on 29.03.2017 namely CGST, UTGST, IGST, Compensation (to State) relating to Goods and Service Tax (GST). Rajya Sabha also passed these 4 bills on 05.04.2017.
2. GST is proposed to be applicable from 01.07.2017:The Central Government has already announced that the GST Law will come into effect from 1st July, 2017.
3. GST is a destination based/ consumption based Tax: GST is said to be destination-based or consumption-based tax. Hence, the place of consumption will decide the State to which, tax would accrue. For example: Material is transferred from Maharashtra to U.P. Presently the Tax revenue would accrue to origin state i.e. Maharashtra but now in GST regime, it will accrue to destination state i.e. U.P.
4. Applicability of GST: GST is applicable to whole of India except to the state of J&K.Meaning thereby that if goods/services are supplied from a place other than J&K to J&K, it will be exempted as the GST is consumption/destination based tax.However if goods or services are supplied from J&K to any other place in India then the same will be subject to GST.
5. Change in Business Model:Earlier we have opened variousdepots in different states and stocks are transferred based on form “f”to avoid the levy of CST. Now all the supply will be taxable even stock transfer.Presently the Credit of VAT is not available for set off against liability of service tax and vice versa.But now in the GST regime such set off is available and this will impact the pricing of the goods or services and finally the business decision.
6. Constitutional amendment bill passed: The bill was passed by LokSabha on 6 May 2015, and bythe RajyaSabha on 3 August 2016. The bill received assent from the President of India on 8 September 2016, which become the101st constitutional amendmentAct, 2016. Constitution amendment was necessary because there was no power to the central or State Government for levy of such a dual taxation system( GST) in India.
7. Biggest Tax reforms after independence: This is a biggest tax reform in Indirect Tax, since a large number of Central Taxes and State Taxes would be merged in GST.
8. Taxes to be subsumed/Merged in GST:
9. Taxes not tosubsume: Alcohol for human consumption,Basic Custom duty (BCD),Stamp duty,Motor vehicle Tax&Electricity. Petroleum products to be brought under GST at later date to be notified by the Government on the recommendation of the council.
10. Taxable event is ‘Supply’:In the GST regime concept of Tax on manufacturing (i.e. Excise Duty), Tax on provision of Service (i.e. Service Tax), tax on sale of goods (i.e. VAT/CST) etc. will be abolished. Only one taxable event under GST will be that is “Supply” of Goods and Services. Therefore, supply will hold the greatest significance and shall be an important event in determining the taxability of all transaction whether commercial or otherwise under the GST regime.
11. Meaning of Supply: itincludes Sale, Transfer, Barter, Exchange, Lease, Rental, License, Disposal made for a consideration by a person in the course or furtherance of business.
12. Inter State stock transfer would be taxable: Inter-state stock transfers would be taxable as the stock transfersare coveredunder the definition of supply. On Inter StateStock Transfer,tax would be levied but Input Tax credit of such stock transfer can be taken, if stock transfer is made within one year of purchase.
13. Intra state &Interstate supply: In case of supply within the State/UT, GST (i.e. CGST and SGST/UTGST) will be applicable, suppose GST rate for a particular goods is 18%, then share of CGST & SGST/UTGST would be as i.e.. CGST 9% +SGST/UTGST 9%. But in caseif supply is interstate then IGST ratewould be 18%, which would be shared between the Central and State/UT based upon the place of consumption.
14. Input Tax Credit Mechanism: Input Tax Credit can be utilized against the payments of Taxes as under:-
A) IGST: would be utilized in the order IGST CSGT SGST
B) CGST: would be utilized in the order CGST
C) SGST: would be utilized in the order SGST
D) UTGST: would be utilized in the order UTGST
Cross utilization between the CGST and SGST/UTGST is not allowed.
15. Registration under GST:One registration in one state is permissible. However if there is more than one business verticals then separate registration in a state can be taken. For example in company say XYZ Ltd., there are two segment say Transmission&Telecom. Therefore in these situation two registrations is allowed at the option of the assessee. Each registration will be considered as distinct / separate person (having same PAN) under the GST Act.
16. Threshold limit: If the Aggregate turnover exceeds Rs. 20 Lacsin a financial Year then compulsory registration has to be made in GST. However threshold is Rs.10 Lacs for special category state like Arunachal Pradesh, Assam, Meghalaya, Manipur, Mizoram, Nagaland, Sikkim, Tripura, J&K, Himachal Pradesh and Uttarahand.
17. Shortcoming regarding cascading effects in the existing tax system removed in GST:
1. Excise is levied by Central Government whereas State Government levies VAT on sale of goods. The state does not permit credit of excise Duty against VAT.
2. No credit of Swatch Bharat Cess (SBC) in service Tax.
3. Credit of krishikalyan Cess (KKC) only to service providers, no Credit of KKC to the manufacturer.
4. No credit of Central Sales Tax (CST)
5. Basic custom Duty/Excise form part of the price in supply chain as VAT/CST is levied on the value inclusive of Excise /Custom.
18. GST rate in India:4-tier GST tax structure of 5%, 12%, 18% and 28%, with lower rates for essential items and the highest for luxury and de-merits / sin goods. In respect of luxury goods &sin goods additional Cess is also to be levied. Rate in respect of services is yet to be decided.
19. GST on Import& Export:
Import would be treated at par with Inter-state transactions and integrated goods and service tax (IGST) would be levied on imports. The incidence of tax will follow the destination principle and the tax revenue will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the IGST paid on import on goods and services.Exports would be zero-rated and no tax will be charged, however the ITC will be allowed.
20. Supply received on Reverse Charge Mechanism (RCM):
In general, the supplier of goods or services is liable to pay GST. However, in specified cases like imports and other notified supplies, the liability may be cast on the recipient under the reverse charge mechanism. If supplier is registered under GST, recipient has to discharge the liability, whereas if the supplier is unregistered then the registered recipient has to prepare the invoice and discharge the liability.
In the normal case registered person has to file 3 returns in a month i.e. return for outward supply by 10th of the next month, return of inward supply by 15th of the next month and a return by 20th on the next month for each GSTIN. Apart from this other return such as Annual return reconciled with the books of account.
22. GST Council:
It would comprise Union Finance Minister (he would be the chairman of the council), State Finance/Taxation Ministers and Minister of State (Revenue). The mechanism of GST Council would ensure harmonization on different aspects of GST between the Centre and the States.
23. Composition Scheme for Small Tax Payer:
A Small taxpayer having an aggregate turnover in a preceding financial year up to [Rs. 50 lakhs] would be eligible for composition levy. Under the scheme, a taxpayer required to pay tax on a percentage of his turnover in a state during the year without availing the benefit of ITC.
The floor rate of tax for CGST would be1% for manufacturer, 0.5% in other cases and 2.5% for serving of food or any other article for human consumption. A tax payer opting for composition levy shall not collect any tax from the customers.
24. Compliance Rating:
It would be an online mechanism/ system, where every registered person shall be assigned a rating based on the record of compliance in respect of specified parameters. Such ratings would be placed in the public domain. And the public would able to see the compliance ratings of the supplier and can take a decision whether to deal with a particular supplier or not.
25. Meaning of Goods and Services:
Goods means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply. In the definition of goods immovable property is not covered.
Service means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.
For example,suppose a DD is issued by the bank by depositing the cash and no commission is charged on the same, such transaction cannot be termed as service but a separate commission is charged for making the DD, then this would amount to service and GST would apply. Say a DD of Rs. 50000 is issued by the bank
debiting the client bank account by Rs. 50100 ,here GST will be applicable on Rs.100 @ 18% ( supposing rate of GST on service contract as 18% )
26. Time of Supply:
The time of supply fixes the point when the liability to charge GST arises. It also indicates when a supply is deemed to have been made.
The time of supply of goods shall be the earlier of the following namely:
(i) the date of issue of invoice by the supplier or the last date on which he is required, to issue the invoice with respect to the supply; or
(ii) the date on which the supplier receives the payment with respect to the supply.
The time of supply of services shall be the earliest of the following dates, namely:
(i) the date of issue of invoice by the supplier, if the invoice is issued within theperiod prescribed under sub-section (2) of section 31 or the date of receipt of payment,whichever is earlier; or
(ii) the date of provision of service, if the invoice is not issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier; or
(iii) the date on which the recipient shows the receipt of services in his books of account, in a case where the provisions of clause (i) or clause (ii) do not apply.
27. Place of Supply:
The basic principle of GST is that it should tax the consumption of supplies at the destination thereof or at the point of consumption. So place of supply provision determines the place i.e. taxable jurisdiction where the tax should reach. The place of supply determines whether a transaction is intra-state or inter-state. Place of Supply of Goods or services is required to determine whether a supply is subject to SGST plus CGST in a given State/UT or else would attract IGST, if it is an inter-state supply. Further, the place of supply in respect of goods depends on various situation such as whether the goods involve movement or goods are assembled /installed etc. In case of supply of service, it depends whether supply is made to a registered person or to a unregistered person .
28. Time limit for issuing tax invoice
The invoice in case of taxable supply of services, shall be issued within a period of thirty days from the date of supply of service but where the supplier of services is an insurer or a banking company or a financial institution, including a non-banking financial company, the period within which the invoice is to be issued is 45 days. The invoice in case of taxable supply of goods depends whether it is supply involving movement of goods or other situation as given in section 31 of GST act.
29. Meaning of Consideration:
In relation to the supply of goods/services or both it includes any payment made or to be made in money or otherwise for supply of goods/service or both by recipient or any other person, it also includes monetary value of any act. But it shall not include subsidy given by the Central Government or a State Government further any deposit given in respect of the supply would not be regarded as Consideration.
30. Composite supply and Mix Supply:
Composite Supply means supply consisting of two or more taxable supplies of goods/services or both which are bundled in natural course and are supplied with each other in the ordinary course of the business where one of which is the Principal Supply. For example: when a consumer buys a machine he also gets warranty and a maintenance contract with the machine, this supply is a composite supply. In this example, supply of machine is the principal supply & warranty and maintenance service are ancillary. Composite supply shall be treated as supply of the principal supply.
Mixed supply is a combination of more than one individual supply of goods or services made in conjunction with each other for a single price which usually can be supplied separately. For example, a shopkeeper selling storage water bottles along with refrigerator. Bottles and the refrigerator can easily be priced and sold separately. Mixed supply would be treated as supply of that particular goods or services which attracts the highest rate of tax.
31. Tax Deducted at Source (TDS) and Tax Collected at Source (TCS):
TDS provision is meant for Government and Government undertakings and other notified entities making contractual payments where total value of such supply under a contract exceeds Rs. 2.5 Lakhs to suppliers. While making any payments under such contracts, the concerned Government/authority shall deduct 1% of the total payment made and remit it into the appropriate GST account.
TCS provision is applicable only for E-Commerce Operator. Every E-Commerce Operator, not being an agent, needs to withhold an amount calculated at the rate not exceeding one percent of the “net value of taxable supplies” made through it where the consideration with respect to such supplies is to be collected by the operator. Such withheld amount is to be deposited by such E-Commerce Operator to the appropriate GST account by the 10th of the next month. The amount deposited as TCS will be reflected in the electronic cash ledger of the supplier.
32. Non Resident Taxable person:
It means any person who occasionally undertakes transactions involving supply of goods and/or services whether as principal or agent or in any other capacity, but who has no fixed place of business or residence in India. He has to take registration to be valid for a period specified in the application for registration or 90 days from the effective date of registration, whichever is earlier.
33. Exempt supply and Zero rated supply:
Exempt supply means supply of any goods or services which are not taxable in GST law. Zero rated supply means export of goods and/or services or supply of goods and/or services to a SEZ developer or a SEZ Unit or other notified supplied. In case of Zero rated supplies, input tax credit is available but not against exempt supplies.
34. Anti-Profiting Measure: Government has introduced anti profiting measure. The objective of such measure is that any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in the prices of goods and services.
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