Pankaj Gupta

What ‘Transition’ is all about ?

Whenever a new levy or new scheme of taxation is introduced, it may completely overwrite the existing tax laws and rewrite rules of the game. That’s what has happened when GST is introduced.

Entire scheme of Indirect Taxation has undergone radical overhaul. So to cope up with that change, transitional provisions are created in new law to ensure smooth and hassle-free adoption of new scheme of taxation to safeguard interests of existing taxpayers.

More about Transition…..

Transition can be split into 2 parts:

1) Systemic Transition: It is about changes in System, process and business structure. A deep analysis needs to be undertaken to accommodate any anticipated changes on account of widening tax base, rationalization of tax rates, phasing out of tax exemptions, integrated credit structure and automated compliance system.

2) Regulatory Transition : It is governed by GST Law. Sections 139-142 of The CGST Act, 2017 read with consequent Draft Rules deal into Transitional provisions.

Migration of Existing Taxpayers (Section 139)

  • The migration of all the existing taxpayers into GST has already taken place.
  • Provisional IDs have already been issued to taxpayers from State VAT Authorities/ Excise Authorities/Service tax Authorities as the case may be.
  • One Provisional ID has been allotted for one PAN based registration for each State.
  • That is, if there are multiple locations in single state, only Single Provisional ID is being issued.

Migration of Existing Taxpayers(Section 139)

Migration can be explained with the help of following diagram:

Migration of Existing Taxpayers(Section 139)

Transitions- Input Tax Credit (Section140)

  • This is one of the most important transition because it is where money in form of Credits is involved.
  • It lays down provisions about credits which can be carried forward in different situations subject to conditions such as:
  • Assessee is registered person in GST law.
  • If someone applied for cancellation of registration post migration, no credits will be allowed.
  • Tax paid on such inputs or input services or capital goods is eligible as Credit in both existing laws as well as GST law .

How to take Input Tax Credit of stock of pre- GST regime

How to take Input Tax Credit of stock of pre- GST Regime

Applicability of Transitional Provisions

  • Transitional Provisions are applicable for all the existing assesses who have migrated from pre-GST regime to GST regime

Purpose of Transition :

  • To safeguard the interest of existing taxpayers by ensuring smooth carry forward of the eligible credit of tax paid under pre GST regime.

Key Points

  • As per section 140(8) of CGST Act 2017 read with rule 117 (2) (b), GST TRAN-1 shall be filed to for carry forward of transitional credit. Further for distribution of said credit shall be done by the way of Distribution document /invoice
  • Credit to be carried forward from the old regime must be eligible credit under GST as well.
  • Credits are allowed under GST only when you have filed past six months returns(VAT/ Excise/ Service Tax) under the old regime.

Form TRAN 1

Every registered person under GST who :

  • holds Closing stock on the appointed date (i.e. 1st  July 2017)
  • The person may be registered or unregistered
  • under the pre- GST regime.

Provided:

> The credit is being carried forward from the old regime must be eligible credit under GST as well.

> Credits are allowed under GST only when you have filed past six months returns.

> An unregistered service provider and manufacturer under pre- GST regime can use only Form TRAN 1 for claiming ITC.

> The person is not a composition dealer.

Form TRAN 2

Every registered person under GST who :

> was not a registered person under pre- GST regime.

> holds Closing stock on the appointed date (i.e. 1st  July 2017)

> the person doesn’t possess any document that acts as an evidence of payment of taxes.

> is not a manufacturer in Central Excise.

> is not a service provider under the Service Tax.
can fill the form TRAN 2 for taking ITC.

Conditions to claim input tax credit

The entitlement in case of finished goods will be subject to the following conditions:

  • The stock is to be used for making supplies that are taxable under this Act
  • The person is eligible to take ITC on inputs under this Act
  • The person should have the invoice or the prescribed documents
  • These documents or invoices should not have been issued earlier than 12 months from 1st  July
  • The supplier of the service is not eligible for abatement under this Act

Input tax credit limit on existing stock raised to support transition period sales

  • In a major relief to traders and businessmen across the country, the GST Council has increased the limit on input tax credit to 60% against excise payments from 40% earlier on items with tax rates at 18% and above without excise payment receipts, bringing some respite on sale of inventories stocked up before the implementation of the new tax regime on July 1.
  • The input tax credit refund against excise on items with tax rates below 18% would remain at 40% of the total GST liability. Further, the council also ruled that entire 100% input tax credit against excise can be availed on high-value items above Rs 25,000 with a chassis number. It must be noted that the input tax credit refund against is already at the full value in cases where the excise payment receipt is available.

Registered persons who wish to claim the transitional credit:

  • Calculate the tax payable as per the following formulae:
  • Tax payable = (output tax liability + tax payable under reverse charge) – (transitional credit + input tax credit availed for the month of July, 2017);
  • File Form GSTR TRAN-1 (to be made available on the common portal from 21st August, 2017) before filing the Return in Form GSTR-3B;

Registered persons who opt not to file TRAN-1

  • Calculate the tax payable as per the following formulae:
  • Tax payable = (output tax liability + tax payable under reverse charge) – input tax credit availed for the month of July, 2017;
  • Tax payable as above to be deposited in cash on or before 25th August, 2017 which will be credited to the electronic cash ledger;

Amount of CENVAT credit carried forward in a Return

  • The amount of Cenvat credit claimed on inputs, capital goods and input services carried forward in the last return filed for Excise and Service Tax immediately before the appointed day shall be transferred to the electronic credit ledger of the business concerned, provided the amount of credit is admissible under the existing laws as well as in GST.
  • On the same lines, credit of VAT and Entry tax reported in the last respective VAT/Entry Tax returns shall also be allowed to be carried forward.

Settlement of GST liability

> Last date for payment of GST liability for the month of July,2017 is 20th August, 2017.

> This date is applicable even for those who have to claim ITC of pre- GST regime.

> For payment of GST:-

> Taxpayer has to estimate the tax liability after estimating the amount of transitional credit as per form TRAN 1.

> Full payment has to be made after adjustment of settlement of tax liability.

Settlement of GST liability

  • Due date for filing return of July, 2017 for GST is 20th August, 2017.
  • However, in the case where transition form has to be furnished:
  • Assesses have time up to 28th August, 2017 to submit Form TRAN 1 and Form 3B.
  • In case of shortfall in the amount already paid and the amount payable on submission of Form 3B, the same will have to be paid with interest @ 18% for the period between 21stAugust,2017 till the payment of such differential amount.

Certain Practical Issues

Issues Possible answers
Identification of stock on which deemed credits are to be claimed Carry out inventory count as on 30.06.2017, segregate this stock and maintain separate inventory ledger for the same.
Accounting of services in transit On receipt of invoice ensure invoice is dated prior to 30.06 and account it within 30 days from 01.07.2017 in books of accounts.
Non availability of immediate transition credit for payment of taxes under GST To forecast net taxes liability and make proper working capital arrangements.
Capital goods in transit as on 01.07.2017 with taxes paid under earlier laws To avoid receipt of capital goods after 01.07.2017 on which taxes under earlier laws are paid, as no credit is available on capital goods in transit. – To receive capital goods with GST and avail GST credit. Attempt can be made to avail the credit u/s 140(2).

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(Author can be reached at pkjca999@gmail.com)

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3 responses to “PPT on Transitional Provisions governed by section 139 to 142 of CGST Act, 2017 and Form TRAN 1 and Form TRAN 2”

  1. V.V. Sriram says:

    Sir,can i get a detail discussion about systematic and regulatory Transition?

  2. shreyansh shah says:

    Dear Sir…thank for your valuable information, I want to know one thing that below calculation whether we can adjust tax paid in RCM in same months

    Registered persons who wish to claim the transitional credit:
    •Calculate the tax payable as per the following formulae:
    •Tax payable = (output tax liability + tax payable under reverse charge) – (transitional credit + input tax credit availed for the month of July, 2017);

  3. Amit Patel says:

    I am doing business of wooden saw mill. I have to purchase wood from farmer who known as unregistered dealer as per gst. How can I pay tax on urd purchase and when will I get itc back of that tax, same month or next month

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