GST

GST – A Birds Eye View

Goods & Service Tax (GST), which is set to roll to witness see Eight Million Taxpayers come under the new tax regime, with more than 2 billion invoices expected to be filed every month. India’s biggest tax reform in history is also set to make its small to medium businesses more transparent.
July 1, as India rolls out its landmark National Sales Tax, It will bring in “One Nation One Tax” Regime.
For businesses that make less than 100 million rupees which the government refers to as micro, small and medium enterprises (SME / MSME or SMB) will all have to invariably digitize.
The GST filings are expected to be one of the most significant data points for flow based lending, given the authenticity and complete information of an SME’s financial health. Flow based lending entails lending based on cash flows of a company as opposed to collateral or asset based lending. “GST data will become the largest repository of verifiable cash flows and transactions of business.
Small businesses are the backbone of Indian economics. They drive the velocity of country’s economics, industrial growth, and catalyst for job creation. However, a large number of businesses in the country are unorganized and irregular in filing returns and paying taxes.
GST is expected to simplify and harmonize the indirect tax regime in the country. This would lead to reduced cost of production and inflation in the economy, thereby making the Indian trade and industry more competitive, domestically as well as internationally. On the eve of GST launch Indian PM Narendra Modiji said that the GST is just not a tax reform but an important economic reform. "The law says that GST stands for Goods and Services Tax but according to me it stands for good and simple tax." Thus India is marching towards One Nation ; One Tax & One Market.

What is Goods & Service Tax (GST) ?

The biggest indirect tax reform since 1947, GST bill is expected to bring about an economic integration of the Indian economy. GST will help consolidate and streamline the process of indirect taxation and make it easier and more effective. The tax payers will pay one consolidated tax instead of the plethora of taxes including State Value-Added Tax (VAT), Central Excise, Service Tax, Entry Tax or Octroi, Luxury Tax and a few other indirect taxes.
GST, a comprehensive indirect tax system is all set to subsume a host of existing indirect taxes and with its implementation, compliance will become a key factor for the success and credibility of a business. GST works on a self monitoring mechanism, which is matching the concept of invoice between supplier and recipient of goods and services.

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Levy of GST

The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, seeks to amend the Constitution of India to facilitate the introduction of Goods and Services Tax (GST) in India. The proposed amendments in the Constitution will confer powers both to the Parliament and the State legislatures to make laws for levying GST on the supply of goods and services on the same transaction. Article 246A of the Constitution, which was introduced by the Constitution (101st Amendment) Act, 2016 confers concurrent powers to both parliament and state legislatures to make laws with respect to GST. However, Clause 2 of Article 246A read with Article 269A provides exclusive power to the Parliament to legislate with respect to inter-state trade or commerce.

What is excluded from GST?

Tax Goods: These items include grains, non-mineral water, poha etc. No tax will be imposed on items like Jute, fresh meat, fish chicken, eggs, milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, prasad, salt, bindi. Sindoor, stamps, judicial papers, printed books, newspapers, bangles, handloom & other notified goods.

Composition Scheme

The registered taxable person who has aggregate turnover in preceding financial year not exceeding Rs. 75 Lakhs may opt to pay Composition Tax calculated at prescribed rate, instead of regular rate of tax. The rate is expected to be-

  • 1% of turnover in State / Union Territory for manufacturer
  • 2 ½ % of turnover in State / Union Territory for hotel
  • ½% of turnover for other suppliers in State / Union Territory
  • Basic Exemption Limit

    The GST council, at its first meeting, agreed on a revenue threshold of Rs20 lakh below which the traders will be exempted from GST. This limit will be Rs10 lakh for the north-eastern and hill states. It is Rs. 20 Lakhs pa aggregate turnover limit on all India basis. Limit is Rs. 10 Lakhs pa in special category states including the North Eastern states.
    The The following points should be noted to claim the basic threshold limit:

  • GST Registration is State Wise but aggregate turnover is to be verified PAN India wise.
  • The basic exemption limit shall not apply to you in the following cases:
  • If you are selling outside the state then the basic exemption limit does not apply to you.
  • If you are a seller and selling your goods via e-commerce portal then also the basic exemption limit does not apply to you.
  • Tax Rate

    The Goods and Services Tax (GST) has been one of the key things that has caught the attention of the market given its implications on earnings of companies. The government has kept a large number of items under 18% tax slab. Broadly the tax rates under GST are pegged under 5% ; 12% ; 18% & 28% .

    Valuation & Its Components

    This is the key ingredient for charging GST. Value of Supply shall be transaction value which is the price actually paid or payable for the said supply of goods / services or both where the supplier and recipient of supply are not related and price is the sole consideration for the supply.
    Transaction Value includes amount which has been incurred by the receiver, incidental expenses, interest or late fee penalty for delayed payment of consideration for supply, Subsidies directly linked to price, Discount after supply and All taxes other than CGST/SGS/UTGST, Goods and Service Tax(Compensation to States) Act levies. Discount given after supply is permitted to be excluded if it is linked to the invoice and known at the Time of Supply.

    Credit under GST

    Inputs refer to materials or services that a manufacturer procures or avails in order to manufacture a product or services which is the output. The Taxes paid by a manufacturer, while buying the raw material or services, are known as input tax and similarly the tax collected on the sale of the product or services is called the output tax. Given that GST is charged on both goods and services, input credit can be availed on both goods and services. GST provides for setting off “Input tax credit against the Output Tax” that a Business Establishment has to deposit to the Exchequer,”

    Registration

    The Business registered with GST will be assigned a unique Goods and Services Tax Identification Number.
    In any tax system, registration is the most fundamental requirement for identification of tax payers ensuring tax compliance in the economy. Registration of any business entity under the GST Law implies obtaining a unique number from the concerned tax authorities for the purpose of collecting tax on behalf of the government and to avail Input Tax Credit for the taxes on his inward supplies after due enrollment. Preamble to this is that without registration, a person can neither collect tax from his customers nor claim any input Tax Credit of tax paid by him.

    Records and Returns

    The GST filings are expected to be one of the most significant data points for flow based lending, given the authenticity and complete information of an SME’s financial health. Flow based lending entails lending based on cash flows of a company as opposed to collateral or asset based lending. “GST data will become the largest repository of verifiable cash flows and transactions of business.
    Since GST is going to be technology based, all the transactions relating to GST is required to be uploaded into GST portal on periodical basis.
    There is requirement of matching of Tax Credits to the suppliers output tax to get the benefit of input tax credit, otherwise the tax credit will be denied. A cautious note to remind is that it is proposed that the tax credit will not be permissible unless the vendor deposits appropriate taxes into Government Exchequer.

    Monthly Statutory Returns under GST

    Based on the category of registered person such monthly return is to be filed by Regular, Foreign Non Residents, ISD and Casual Tax Payers whereas Compounding/Composite Tax payers have to file quarterly returns:

    Export Benefits Under GST

    Export benefit schemes for export of goods and or services such as refund and rebate scheme would be available. The drawback scheme can be opted for the goods manufactured in India and exported.

    Are Startups / SME’s & MSME’s (SMB) excited about GST / How will GST help Startup / SME Entrepreneurs -

    Even as the government is still deliberating on the list of over 5,000 goods that will be taxed under the upcoming Goods and Services Tax (GST), Indian startups have welcomed passage of the Bill, which they feel will simplify conduct of business.
    Startups believe it will simplify taxation in the long term and let them claim the credit on taxes paid on expenses in their companies.

  • Increased threshold limit for registration
  • Tax credit on their purchases
  • Simpler taxation
  • Tax burden for Manufacturing Startups
  • Reduction in logistics cost and time across States
  • Respite for businesses in both sales and services
  • Second Hand Products / Goods Industry - An Overview

    The industry of second hand goods in India is substantially growing since last many decades. There is a huge market of traders dealing in only second-hand commodities which include four wheelers, two wheelers and electronic items like mobiles, laptops, gaming consoles, wrist-watches, women hand bags, jewellery etc. Most of these businesses involve luxury items. Even small group commodities like books, clothes, etc. are gaining attention over the period. There are a lot of re-commerce websites, selling pre-owned luxury items including high-fashion apparel, footwear, clothing accessories, mobiles, imported stuff, etc.
    The GST Rates for these goods will be the same as if they were new goods.

    Information Technology - An Overview

    It is said that uncertainty in law is the greatest tyranny. Software or Information Technology sector has been struggling with uncertainty in taxation matters for long. Firstly an issue was raised whether software is a goods or service. The issue was always contentious. Other issue was raised as to whether Service Tax or VAT is payable on IT services. The issue could not be decided by most of the Information Technology companies, and they ended up paying both Service Tax and VAT.
    Proposed GST provisions are likely to remove these uncertainties. GST provisions have clarified such issues and this article is an attempt in answer various issues under GST Framework.
    The model GST law recognizes at least 111 points of taxation which means IT companies providing services all over India will have to seek registration in as many as 37 jurisdictions that will include 29 states, seven union territories and the Centre. This means that IT companies will have to register and file compliance reports at as many as 111 points.

    E-Way Bills – Need & Necessities - An Overview

    E-way bill is an electronic way bill for movement of goods which can be generated on the GSTN (common portal). A ‘movement’ of goods of more than Rs 50,000 in value cannot be made by a registered person without an eway bill. The Law also provides for a registered person or the transporter may choose to generate and carry e-way bill even if value of goods is less than Rs 50,000/=.
    Unregistered persons or his transporter may also choose to generate e-way bill. Which means eway bill can be generated by both registered and unregistered persons. Regards to compliances on E Way Bills the important point to take note is that where a supply is made by an unregistered person to a registered person, the receiver will have to do all the compliances as if he’s the supplier.

    E-Commerce and Other Online Startups / SMB’s - An Overview

    As per the study conducted by Internet and Mobile Association of India India’s e-commerce market is estimated to have crossed INR. 211,005 crore in December 2016 further that India is expected to generate $100 billion online retail revenue by the year 2020.
    The uprising of Electronic Commerce in India has also resulted in conception of online marketplaces. A Marketplace is an E-Commerce platform owned by the E-commerce Operator.
    Salient Features for GST Registration applicable to E-Commerce Companies :

  • No threshold limit for GST Registration:.
  • No Benefit under Composition Scheme
  • Registration solicited in each & every Individual State:
  • Tax Collection at Source by Marketplace Operator:
  • Format of Invoice

    The roll out of GST in the year 2017 will necessitate changes in the Invoice format for millions of Business Establishments. The format for issuing GST Invoice has been laid out in the related rules of GST Invoice Rules (Rule 5), 2016 issued by the Central Government. Specifically there are two kinds of invoices can be issued under GST namely Tax Invoice(For Goods) and Bill of Supply (For Services).
    Find here GST invoice format as per the GST Authority in the link below : https://www.aces.gov.in/Documents/draft-formats-under-invoice-rules.pdf

    GST – A Way Forward

    With the right practice & systems of Accounting Process & Technology in place will no doubt help better interface with the online GST Systems & Practice. The technology should help you to seamlessly prevent, detect and correct the exceptions before the filing of return and reconcile your books with GSTN.

    Disclaimer

    The material and the information contained herein is intended for clients to provide updates under indirect tax and is not an exhaustive treatment of such subject. We neither intend to solicit any work, or advertise for any work.
    As the GST Updates are happening day to day & still going on; We advise to seek professional opinion. We are not, by means of this material, rendering any Professional Advice or Services. It should not be relied upon as the sole basis for any decision which may affect you or your business.