Present Indirect Tax Structure in India composed of multiple taxes being administered by both Centre and State Governments. The taxation system in India is featured with a 3 tier federal structure that comprises of the following:
The Union Government
The State Governments
The Rural and Urban Local Bodies or Municipal Jurisdictions
According to the Constitution of India, three tiers of federal structure are empowered with the imposition of the different duties and taxes, which are prevalent in the country. Indirect taxes that are levied by the Central Government are mentioned below:
Central Excise Duty
The major taxes that are computed and imposed by the different State Governments within the boundary of the respective states in the nation are as follows:
Land Revenue (Generally levied on land, which is used for non-agricultural and agricultural purposes)
Sales Tax (For intra-state goods' sale)
Stamp Duty (Duty levied on property transfer)
State Excise (Duty imposed on alcohol manufacturing)
The local bodies are vested with the power of levying the below mentioned taxes:
In light of short comings and cascading effect of multiple taxes, Government of India proposes to introduce the comprehensive tax regime on Goods and Services, known as GST. Goods and Service Tax will be a tax applicable on "Taxable Supply", unlike old regime of tax on manufacturing, Sales, Services.
Since India is a federal country , there will be two components of GST called as CGST (Central GST to be levied and collected by Centre) and SGST (State GST to be levied and collected by States).In case of Interstate supplies, a combined tax of CGST and SGST i.e. IGST will be leviable.
Seamless credit of CGST and SGST would be available against CSGT and SGST respectively. IGST will be leviable with set off available for both in chain of IGST and then CGST and then SGST from IGST liability payable.
The Model Goods and Services Tax Law has been released by the Empowered Committee of State Finance Ministers on 14th June, 2016. The Act is named as the Central/State Goods and Services Tax Act 2016. It will extend to whole of India. The said Act comprises of Chapters I-XXV, Sections 1-162E, Schedules I-IV and GST Valuation (Determination of the Value of Supply of Goods and Services) Rules, 2016.
The draft Model Draft Act prescribes 109 definitions for the clarity and understanding of concepts. Various provisions have been provided regarding the administration, levy ,exemption, payment , registration, returns and refunds for the smooth functioning of GST Act. Special chapters on job work and electronic commerce and the applicability of GST on such transactions have been provided for.
Various provisions relating to assessment of tax, audit, demands and recovery, appeals and revisions, advance ruling have also been provided with some miscellaneous sections. The Act ends with transitional provisions which will be relevant for the tax payers to shift from the existing indirect taxation provisions to the Goods and Services Tax Act.
The provisions have been analyzed and summarized in a simpler manner for conceptual clarity of the provisions in a series of following write ups:-
GST Law # 1
The Model GST Law provides for levy and collection of Central GST(CGST), State GST(SGST) and Integrated GST(IGST) as under :-
On the Intra State sale of goods and services, there shall be levied CGST and SGST at the rate specified. The rate is likely to be 18% in aggregate. CGST and SGST would replace host of existing Taxes like Central Excise Duty, Additional Customs Duty, Service Tax, Entry Tax, VAT etc.
In case of Interstate trade and commerce levy is in the name of IGST. The rate of IGST would be equal to the aggregate mean of the CGST rate and the SGST rate. It means that it is also likely to be 18%. Full Input tax credit would be available for IGST paid. This is different from existing CST Law which provides tax @ 2% against C form against which no credit is available.
GST Law # 2
Composition Levy for supplies upto Rs.50 Lakhs :-
A registered taxable person whose aggregate turnover in an year does not exceed Rs.50 Lakhs may pay tax at a rate as may be prescribed. The rate is likely to be 1-2%.This would be called composition levy.
Taxableperson opting for this levy shall not charge or collect any tax from the purchaser. The levy would not be available for input tax credit to purchaser.
A person making interstate sale of goods or services is not entitled to opt for this scheme.
Aggregate turnover for calculation of Rs. 50 Lakhs means all the taxable and non taxable supplies,exempt supplies of a person on one PAN on all India basis.
GST Law # 3
Threshold limit for the taxable person is Rs.10 Lakhs of aggregate sale. Registration has to be taken when turnover exceeds Rs.9 Lakhs. However following categories of persons will mandatory be required to take registration irrespective of threshold limit, means registration is compulsory from beginning:-
Persons making any interstate taxable supply.
Casual Dealers: Means those dealers who are not registered on regular basis but desirous of conducting business in a particular state for limited period.
Persons required to pay tax under reverse charge.
Persons who supply goods /services on behalf of other registered taxable persons whether as an agent or otherwise.
Input service distributor
Persons who supply goods or services, other than branded services , through electronic commerce operator.
An aggregator who supplies services under his brand name or his trade name.
Such other persons who may be notified.
Voluntary registration also possible even if turnover is less than 10 Lakhs.
All existing registered persons would be allotted GSTIN on voluntary basis.
Registration required in every state from where taxable supply is made.
Multiple registrations within one state to business verticals of a taxable person.
GSTIN will be State wise PAN based15 digit number.
Blacklisting a dealer:-
There will be a GST compliance rating under which below a prescribed level will result into blacklisting of dealer.
Input tax credit paid on purchases made from such blacklisted dealer shall not be available to the buyers, till the rating improves to normal level.
GST LAW # 4
Value of taxable supply:-
Transaction Value Method:-The value of a supply of goods/services shall be transaction value, that is the price actually paid or payable for the supply of goods/services where the supplier and recipient are not related and the price is sole consideration for the supply.
The transaction value shall not include any discount allowed on or before or at time of supply provided the discount is allowed in the course of normal trade practice and has been duly recorded in the invoice.
It shall however include any discount or incentive that may be allowed after the supply has been effected. Provided that post supply discount established as per agreement and is known at or before the tome of supply and linkable to specific invoice shall not be included in the transaction value.
Transaction value of like kind:- Where value of supply cannot be determined by transaction value method, it shall be determined on basis of transaction value of goods/services of like kind supplied at or about same time to customers.
Computed value method:- Where value cannot be determined under previous methods, it shall be on computed method which shall include cost of production, manufacture or processing of goods or provision of services and charges if any for design and brand and amount towards profit and general expenses.
Residual method:- Where value cannot be determined under computed value method, the value shall be determined using reasonable means consistent with the valuation rules.
GST LAW # 5
Tax Invoice, Credit and Debit Notes
A registered taxable person supplying taxable goods or providing taxable services shall issue a tax invoice at the time of supply showing description of goods/ services, quantity and value of goods, tax charged thereon and such other particulars as may be prescribed.
A registered taxable person supplying non-taxable goods/services or paying tax under composition levy scheme shall issue a bill of supply instead of tax invoice containing prescribed particulars.
Amount of tax which form part of supply price shall be prominently indicated in the tax invoice.
Credit Notes :-
Where taxable value or tax charged in tax invoice is found to exceed the taxable value or tax payable in respect of any supply, the supplier may issue a credit note to the recipient containing prescribed particulars on or before 30th September following the end of the financial year in which supply was made or date of filing annual return whichever is earlier.
Provided no credit note shall be issued by the said person if the incidence of tax on such supply has been passed by him to any other person.
Where taxable value or tax charged in tax invoice is found to be less the taxable value or tax payable in respect of any supply, the supplier may issue a debit note to the recipient containing prescribed particulars on or before 30th September following the end of the financial year in which supply was made or date of filing annual return whichever is earlier.
Any registered taxable person issuing or receiving a credit or debit note shall declare its details in the return of the following month or any subsequent month but not later than 30th September following the end of the financial year in which supply was made or date of filing annual return whichever is earlier, and the tax liability shall be adjusted in the manner specified.
GST LAW # 6
A registered taxable person would have to file 36 to 49 returns per year and this is going to be a main compliance burden on every person. The government intends to match each and every item of output tax with input tax credit claimed against it which is going to be a cumbersome process. The recipient of goods/services would have to bear the repercussions of default by supplier in depositing the tax or filing wrong return.
Furnishing details of outward supplies:- Every registered taxable person, i.e supplier, shall electronically furnish the details of outward supplies of goods/services on monthly basis on or before 10th of the succeeding month and such details shall be communicated to the recipient of said supplies in manner as may be prescribed. It shall include details relating to credit notes, debit notes also.
Furnishing details of inward supplies:-
Every registered taxable person, i.e. recipient of goods/services, shall verify , validate , modify or, if required, delete the details relating to outward supplies communicated to him by supplier as per point 1) above to prepare the details of his inward supplies and credit or debit notes and may include therein the details not furnished by the supplier.
The recipient shall the furnish electronically , the details of inward supplies of goods/services including those taxable on reverse charge basis along with details of credit and debit notes , on monthly basis on or before 15th of the next month.
Any registered taxable person , who has furnished the details of outward or inward supplies as above, and which have remained unmatched , shall upon discovery of error or omission rectify such error or omission and pay tax and interest in case of short payment if any.
Furnishing return of inward and outward supplies:- After the above mentioned exercise a monthly return of inward and outward supplies has to be furnished by 20th of the next month.
Every registered taxable person who has deducted tax at source has to furnish separate return by 10th of the next month.
Every Input Service Distributor has to furnish return by 13th of the next month.
Any person opting for composition levy has to file quarterly return by 18th of the next month after end of quarter.
Annual return:- In the end an Annual return has to be furnished by 31th December following end of the financial year.
GST LAW # 7
We have already discussed in our last message, the returns to be filed by registered taxable persons. We take our discussion further regarding consequences of filing defective or invalid return or issues in case of non-matching of input and output tax claim.
A return furnished under Section 27 without payment of full tax due shall not be treated as valid return for allowing input tax credit in respect of supplies made by such person.
It means that if supplier does not pay tax due from him as per return, the purchasers would not be able to claim ITC on purchases made from said supplier. This would cause undue harassment to the innocent purchasers.
The input tax credit in respect of invoices relating to inward supply that does not match with details of corresponding outward supply would be intimated to both the persons and if the same is not rectified by the supplier, the amount of discrepancy shall be added to the tax liability of the receiver of the goods.
The recipient in whose tax liability any amount has been added due to discrepancy shall be liable to pay interest also on the amount so added.
Hence the purchaser would not only have to pay tax for the default committed by the supplier but would have to pay interest also on it.
GST LAW # 8
Refund can be claimed by any person for any tax and interest paid before expiry of two years from the relevant date.
Refunds can be claimed in cases of exports or where credit accumulated on account of rate of tax on inputs being higher than rate of tax on outputs.
The application has to be accompanied by documentary evidence showing that refund is due and that incidence of tax has not been passed on to any other person.
No documentary evidence to be attached if refund claimed is less than Rs.5 Lacs.
The officer has to pass the order for refund within 90 days of receipt of application.
If any person to whom any refund is due, defaults in filing of return or payment of taxes, no refund shall be payable to him till the default stands corrected. Any tax payable by such person can be deducted from refund by the GST officer.
If refund not granted within three months, interest shall be payable to the person at rates prescribed.
GST LAW # 9
ACCOUNTS AND RECORDS
Every registered taxable person shall maintain a true and correct account of production of goods, of inward and outward supply of goods/services, of stock of goods, of ITC availed, of output tax and such other particulars as may be prescribed at his principal place of business mentioned in the registration certificate.
If more than one place of business is specified in the certificate of registration, the accounts relating to each place shall be kept at such place of business.
Where Commissioner considers that any class of taxable persons are not in position to keep and maintain the accounts in accordance with provisions of this Act, he may permit to maintain such accounts in such manner as may be prescribed.
Accounts shall be kept until the expiry of 60 months from the last date of filing of Annual return for the year pertaining to such accounts and records.
GST LAW # 10
Every electronic commerce operator shall collect tax at source before making payment to supplier of goods at the rates as may be prescribed.
The amount so collected has to be deposited to the credit of appropriate government within ten days of the end of the month in which collection was made.
A return for tax collected and paid has to be furnished within 10 days of the after end of such month.
The details of supplies and tax collected shall be matched with the corresponding details of outward supplies furnished by the concerned supplier in his valid return for the same month.
In case of any discrepancy, which is not rectified by the supplier, the liability for tax shall be added to the account of the supplier.
Any authority, not below the rank of Joint Commissioner may, by notice, either before or during any proceeding under the Act, require the electronic commerce operator to furnish details relating to :-
Supplies of goods/services effected through it during any period, or
Stock of goods held by suppliers making supplies through such operators in the godowns managed by such operators.
GST LAW # 11
GST COMPLIANCE RATING
Every taxable shall be assigned a GST compliance rating score based on his record of compliance with the provisions of the Act.
GST compliance score shall be determined on the basis of parameters to be prescribed in this behalf.
The compliance rating score shall be updated at periodic intervals and intimated to the taxable person and also placed in the public domain.
PUBLICATION OF INFORMATION RESPECTING PERSONS IN CERTAIN CASES
If in opinion of competent authority it is necessary or expedient in the public interest to publish the names of any person relating to any proceedings or prosecutions under the Act, it may cause to be published such names and particulars in such manner as it thinks fit.
In case of firm, company or other AOPs , the names of partners, directors, secretaries or managers may also be published.
GST LAW # 12
Migration of existing taxpayers to GST
Every person registered under any of earlier laws shall be issued a certificate of registration on provisional basis.
Such certificate shall be valid for the period of six months.
Every person to whom provisional certificate has been issued shall furnish such information as may be prescribed.
On furnishing such information, the certificate of registration shall be issued on final basis.
The provisional certificate shall be cancelled if he fails to furnish prescribed particulars or he files an application intimating that he is not required to get registration under GST.
GST LAW # 13
CENVAT credit carried forward under earlier law and unavailed Cenvat credit on capital goods
Credit for CENVAT carried forward in a return, furnished under the earlier law by registered taxable person, in respect of the period ending with the day immediately preceding the appointed day, shall be allowed .
The credit shall be allowed both under GGST Law and SGST Law, means credit shall be allowed for ITC pending both under Excise and Customs Act and VAT Act.
Credit shall be admissible only when it was admissible under earlier law and is admissible under GST also.
Further a registered taxable person shall be entitled to take credit on unavailed CENVAT credit in respect of capital goods , not carried forward in a return furnished under the earlier law. Credit shall be allowed both under CGST Law and SGST Law.
GST LAW # 14
Goods and Services Tax Network (GSTN)
GSTN is a non profit company, which will provide IT infrastructure and service to all the stake holders including Central and State Government and taxpayers and other stakeholders. It will be interface between government and the taxpayers.
The frontend services of registration, Returns and payments to all taxpayers will be provided by GSTN.
Currently Central and State Indirect Tax administrations work under different laws and have independent portals.
GSTN would provide common platform with strong IT infrastructure and Service back bone which enables capture, processing and exchange of information amongst the taxpayers, States, Central Government, Banks and RBI.
GSTN will render the following services through common GST portal:-
Registration (including existing taxpayer master migration and issue of PAN based registration number);
Payment management including payment gateways and integration with banking systems;
Return filing and processing;
Taxpayer management, including account management, notifications, information, and status tracking;
Tax authority account and ledger Management;
Computation of settlement (including IGST settlement) between the Centre and States;Clearing house for IGST;
Processing and reconciliation of GST on import and integration with EDI systems of Customs;
MIS including need based information and business intelligence;
Maintenance of interfaces between the Common GST Portal and tax administration systems;
Provide training to stakeholders;
Provide Analytics and Business Intelligence to tax authorities; and
Carry out research, study best practices and provide training to the stakeholders.
GST Law # 15
Goods and Services Tax Network (GSTN)
Role of GSTN in registration:-
The application for registration will be made online on GST Portal.
Some of the key data like PAN, Business Constitution, Aadhar, CIN/DIN etc. will be validated online against respective agency i.e. CBDT, MCA, UID etc., thereby ensuring minimizing documentation.
The application form data, supporting scanned documents shall be sent by GSTN to states/Centre which in turn shall send query, if any, and then approve or reject application. In case of approval, digitally signed registration would be sent to GSTN by officials for eventual download by the taxpayer.
Role of Infosys in GSTN:-
Infosys has been engaged as a single Managed Service Provider (MSP) for the design, development, deployment of GST system, including all application software, tools and infrastructure and operate and maintain the same for a period of 5 years from Go-Live.
Concept of GST Eco-System:-
A common GST system will provide linkage to all State Tax Departments, Central Tax Authorities, Taxpayers, Banks and other Stakeholders.
The ecosystem consists of all stakeholders starting from taxpayer to tax professional to tax officials to GST portal to Banks to accounting authorities.
GST Law # 16
Goods and Services Tax Network (GSTN)
Use of GSTN for Tax Payers:-
Application for registration as taxpayer, and profile management.
Payment of taxes and other dues.
Uploading of Invoice data and filing returns.
Status review of return/tax ledger/cash ledger.
Invoice data can be uploaded on day to day basis by the taxpayer as GST portal will have functionality to take invoice data on day to day basis.
The purchaser of goods/services can see the ITC in his purchase register any time.
GSTN will provide spreadsheet like tools to taxpayers to enable them to compile invoice data and upload it in one go.
GSTN would be providing mobile App for all smartphones. Thus ledgers like cash ledger, liability ledger, ITC ledger etc. can be seen on mobile phone.
GSTN would provide separate user ID and password to Tax Professionals to enable them to work on behalf of their clients without asking for their userid.
GSTN would have Computer based training materials with videos embedded into them for each process to be performed on the GST portal.