What is GST (Goods & Services Tax)? Goods and Services Tax is a comprehensive tax levied on the supply of goods and services across India. GST (Goods and Services Tax) is a Destination based Consumption tax, and the taxable event is Supply as against the existing taxable events of sale, manufacture or provision of service. Draft model GST law was first made public in June 2016, after which the Revised Draft Law was made public on 26th November 2016. It is high time that businesses, industry/trade bodies, professional associations and the like provide valid inputs at an early date, and ensures the final GST Law addresses all the concerns to make the transition smooth.
The indirect taxation regime in India has undergone many transformations over the past 5 to 6 decades. The introduction of MODVAT scheme in 1986, the fungibility of credit between Excise and Service Tax (2004), rollout of VAT (2005 onwards) have over the years increased transparency in tax administration, reduced hassles to taxpayers, and eliminated the cascading effect, thus benefitting the consumer. However, the federal structure of India has resulted in tax being administered by both Centre and State. Lack of facility to utilize credits across these two entities has resulted in partial cascading still being left in the system. Added to this, the burden of compliance has also increased due to the involvement of multiple agencies. GST precisely addresses these concerns by driving uniformity across India through a single tax and ensuring an unrestricted flow of tax credit. Conceptually, GST is similar to VAT, meaning tax will be applied only on the value addition at each point in the supply chain.
Some of the salient features of GST (Goods and Services Tax) are:
GST Registration threshold is Rs. 10 Lakh for special category states*, and Rs. 20 Lakh for Rest of India. Approximately 7-8 million businesses are likely to be registered under GST. Small dealers with turnover below Rs 50 Lakh have the option of adopting the Composition scheme and pay flat ~1 to 4% tax on turnover.
*Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
Dual GST (Goods and Services Tax):
In consideration of the federal structure of India, Dual GST has been chosen as the apt model wherein tax would be jointly levied by both Centre and the states on the supply of goods and services.
The components of Dual GST are:
- CGST: Central GST
- SGST: State GST
- IGST: Integrated GST
On intra-state transactions, CGST+SGST will be applicable and on interstate transactions, IGST will be applicable.
There are likely to be 3 sets of rates as below:
- Merit Rate
- Standard Rate
- De-Merit Rate
There is also likely to be a lower rate for precious metals and zero-rate for essential goods.
The taxes which will get subsumed under GST are:
|Subsumed in GST||Not subsumed in GST|
|Central Excise||Basic Customs duty|
|Service Tax||Alcohol for human consumption|
|VAT / Sales Tax||Petrol / Diesel / Aviation fuel / Natural Gas*|
|Entertainment Tax||Stamp duty and Property tax|
|Luxury Tax||Toll tax|
|Taxes on lottery||Electricity Duty|
|Octroi and Entry Tax|
*To be included only at a later notified date
The manner of availing input tax credit for setoff of tax liability is defined as under:
|Input Tax Credit||Set-off against liability of|
|CGST||CGST and IGST (in that order)|
|SGST||SGST and IGST (in that order)|
|IGST||IGST, CGST, SGST (in that order)|
Please note that CGST and SGST cannot be set off against one another.
Goods and Service Tax Network or GSTN is a Not for Profit Sec 25/Section 8 company incorporated under the public-private partnership (private companies, central and state government are the stakeholders) to roll out the IT backbone (Backend and Frontend) and portal for meeting all the e-filing requirements of GST. This would be the nodal agency which would control all the processes, forms, and also the data of all the trade that happens in the country.
The council to be formed within 60 days of getting presidential assent, would consist of 2/3rd representation of states and 1/3rd representation of Centre. The GST Council will take all decisions regarding tax rates, dispute resolution, and exemptions and so on. Recommendations of the GST Council (75% votes) will be binding on the Centre and states.
Existing dealers would be auto-migrated and given a 15-digit PAN based GSTIN with following structure.
|State Code||PAN||Entity Code||Blank||Check Digit|
The entity code will be applicable for taxpayers having multiple business verticals within the state.
The GST (Goods and Services Tax) regime introduces the following changes:
- The GST regime requires all businesses to mandatorily file monthly returns along with the requisite quarterly or annual returns. Even businesses which now file returns quarterly or half-yearly (such as returns for service tax etc.) now need to file returns every month.
- There will now be ‘3 compliance events every month’ compared to 1 event today. This means, businesses will now need to comply with the requirements of filing Form GSTR-1, Form GSTR-2 and Form GSTR-3 (as mentioned below) as against filing 1 return today.
- The first compliance event (filing Form GSTR-1) has a due date of 10th of the subsequent month as against the deadline of 20th in the current VAT regime.
- Composition scheme will no longer be a favorable option since returns need to be filed quarterly and the details in those returns need to be filed relating to purchases, though sales would be lump sum like earlier. Another big deterrent in the scheme would be non-availability of input credit to the chain below which would increase the selling price for the composite dealers. This would mean that businesses would reduce their purchases from these dealers.
Regular Dealer: Monthly filing
- Form GSTR-1: Upload all sale invoices (By 10th)
- Form GSTR-2A: Auto-populated details of inward supplies made available to the recipient on the basis of Form GSTR-1 furnished by the supplier (on 11th)
- Form GSTR-2: Addition (Claims) or modification in Form GSTR-2A should be submitted in Form GSTR-2 (on 15th)
- Form GSTR-1A: Details of outward supplies as added, corrected or deleted by the recipient in Form GSTR-2 will be made available to supplier ( On 20th)
- Form GSTR-3: Submit the auto-populated GSTR-3 by 20th
- Form GSTR-9: Annual Return – furnish the details of ITC availed and GST paid which includes local, interstate and import/exports. (31st Dec of next fiscal )
Composition Dealer: Quarterly filing
- Form GSTR-4A: Details of inward supplies made available to the recipient registered under composition scheme on the basis of Form GSTR-1 furnished by the supplier (Quarterly )
- Form GSTR-4: Furnish all outward supply of goods and services. This includes auto-populated details from Form GSTR-4A, tax payable and payment of tax (submit by 18th after quarter-end)
- Form GSTR-9A: Furnish the consolidated details of quarterly returns filed along with tax payment details (31st Dec of next fiscal).
- Mandatory e-payment for amount > Rs 10,000
- Online: NEFT/RTGS/IMPS
- Offline: Cash/Cheque/DD/NEFT/RTGS etc.
- Challan is auto-populated and can be downloaded
The refund process will be automated and wherever applicable 90% refund will be granted provisionally when applied without scrutiny.
Major Impact Areas
Principal areas of impact for business will be:
- Adoption of Technology is imperative: As all the processes will be online, and return filing is of granular nature (invoice-wise), the taxpayer will have to adopt suitable technology to ensure efficiency and effectiveness. Unlike earlier, the paper filing will not be an option.
- Access to Pan-India market: Intrastate and interstate trades would become tax neutral, and the whole of India will open up as a market for both sourcing vendors and customers without hassles of compliance.
- Cash flow planning: Input tax credit on purchase will be provided only provisionally during return filing, and will be confirmed only after the corresponding sale has been uploaded and after the liability is discharged by the supplier. Hence, cash flows WILL get impacted in case of a mismatch. As any supply would be taxable, branch transfers would result in tax liability leading to cash blockage. GST will also be applicable on advances received and reverse charge is extended to goods as well. Businesses will need to rethink how to effectively do business and structure deals.
- Easier Compliance: GST requires businesses to provide a granular level of data (invoice-wise), that needs to be reported with HSN codes. The good news is that compliance is going to get easier with GST replacing most of the prevalent indirect taxes and with the support of technology. With GST, the government has shifted its burden of following up with vendors who have not uploaded their returns by cutting out the input credit.
- Branch / Supply chain re-engineering: Businesses having multi-state presence due to tax considerations (to avail concessional CST rate) need to re-plan their warehouse and branch networks and locate them nearer to markets rather than state-wise.
- Pricing strategy: Due to the elimination of cascading effect, prices of products are likely to come down. Hence, businesses need to re-align to the new realities in procurement and sale.
- Re-negotiate contracts: Work contracts and other multi-year supply deals have to be renegotiated to absorb GST rates. As tax would be payable in advance, such conditions need a relook.