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Goods and Service Tax (GST)

© EduPristine For [GST - Business Accounting & Taxation] 1

Agenda

1) Introduction

2) Concept of GST

3) Benefits and Flaws of GST

4) Current Indirect Tax Structure

5) GST – Story so far

6) GST Model

7) GST Registration

8) GST Payment and Refund

9) GST Returns

10) Fiscal Impact of GST

11) GST – Accounting Entries

12) Composition Scheme

13) GST Sector Impact

14) Penalty provisions

© EduPristine For [GST - Business Accounting & Taxation]

Introduction

Mr. Rakesh, being in the FMCG industry is concerned about the impact of GST regime on his company. He is very curious to chart roadmap to realign firm's strategy accordingly. He has hired Mr. Abhi, a renowned tax consultant, to advice him on streamlining operations and preparing the guidelines to be followed after the introduction of goods and services tax (GST).

He wants Mr. Abhi to help him in the following areas

• Understand key areas of impact in their business

• Prepare different scenarios for the design and application of GST

• Continually track policy development regarding GST and update prepared scenarios

• Identify any areas of adverse impact and prepare contingency measures

• Identify issues and concerns requiring representation to authorities and develop a strategy for effective advocacy

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Cont’d…

Abhi replied, Rakesh let me first given you a brief background of GST

GST is a value added tax, levied at all stages of the supply chain, right from manufacture to final consumption, where credit shall be allowed for taxes paid at previous steps as set-off

GST would be applicable on the supply of goods or services, as against the present concept of tax on the manufacture and sale of goods or provision of services

GST would be a destination based consumption tax ie, tax would accrue to the taxing authority which has jurisdiction on place of compsumption.

GST would apply to both goods and services barring a few exceptions

GST would be levied concurrently by both Centre and State. GST to be levied by the Centre on intra‐State supply of goods and / or services would be called the Central GST (CGST) and that to be levied by the States would be called the State GST (SGST).

However it is contemplated that the base and other essential design features would be common between CGST and SGST, across SGSTs for the individual States

Inter-State supplies within India would attract an Integrated GST (aggregate of CGST and the SGST of the destination State).

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Destination based Consumption type GST should be adopted as it contributes towards increased international competitiveness and sustainability of domestic industries – Under Destination based Tax, exports are not taxed but

imports are..


Cont’d…

Rakesh asks Abhi, whether GST shall replace all the indirect taxes?

Abhi replies, this new levy, GST would replace almost all of the indirect taxes. In particular, it would replace the following indirect taxes:

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Central taxes State taxes

Central Excise duty Duties of Excise (Medicinal and Toilet

Preparations) Additional Duties of Excise (Goods of Special

Importance) Additional Duties of Excise (Textiles and Textile

Products) Additional Duties of Customs (commonly known

as CVD) Special Additional Duty of Customs (SAD) Service Tax Central Surcharges and cesses so far as they

relate to supply of goods and Services

State VAT Central Sales Tax Luxury Tax Entry Tax (all forms) Entertainment and Amusement Tax (except

when levied by the local bodies) Taxes on advertisements Purchase Tax Taxes on lotteries, betting and gambling State Surcharges and cesses so far as they relate

to supply of goods and Services


Benefits and Flaws of GST


Benefits of GST

Rakesh asks Abhi, “But do we need GST, when we already have Indirect tax legislations?”

Abhi explains having GST in place of existing indirect tax legislations, can lead to following benefits:

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Benefits to Assesse

Reduction in multiplicity of taxes and thereby also mitigating cascading/ double taxation

Currently there is a lack of common integrated market in India, as different tax rates are levied on same product under existing VAT / Sales Tax under different States. With the implementation of GST it is possible to create one national market in India

With the implementation in GST it shall be possible to bring more certainty and equity in tax laws and thereby reducing litigations

Benefits to Government

Simpler Tax system Broadening of Tax base. GST to include almost all goods and

services barring a few exceptions Improved compliance & revenue collections Efficient use of resources.


Flaws under GST structure

Rakesh further asks Abhi, “Do you think there are any flaws under GST Model?”

Abhi states, “Yes even GST has few flaws, such as:

• Local dealers have to pay CGST in addition to SGST (earlier they had to pay just VAT).

• There shall be no differentiation between “goods & services” under GST model, services supply within the state would attract SGST at each stage in the supply chain ,but in the mean time Assesse have to pay CGST also.

• Introduction of GST model could affect negatively (than positively) to few Industries/sectors.

• Under the GST Model , the state should face heavy losses in terms of tax collection but they also get compensated on the other hand by the states. Infact some states are of the view that there should not be any time –frame for compensation scheme.

7


Current Indirect Tax Structure


Existing Tax structure in India

Abhi further illustrates the current tax structure in India and tax structure post implementation of GST

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Tax Structure

Direct Tax Indirect Tax

Income Tax Central Tax State Tax

Customs Excise Service Tax VAT Entry Tax,

Luxury Tax, Lottery Tax, etc.


Proposed Tax structure in India

10

Tax Structure

Direct Tax Indirect Tax

(Except Customs)

Income Tax Intra-State Inter-State

CGST (Centre)

SGST (State)

IGST (Centre)


GST – Story so far


GST – Story so far

12

SC tabled its report on GST

2013 2014

Revised Constitutional Amendment Bill tabled in Parliament

2015

Passage of Constitutional Amendment Bill in Lok Sabha

Joint Committee constituted by EC releases its business process reports on GST

2016*

Model draft law released in public domain in June 2016

Passage of Constitutional Amendment Bill in Rajya Sabha in August 2016

Lok Sabha passes bill with Rajya Sabha amendments

Finance Minister in the budget speech proposed 01.04.2010 as date for introduction of GST

2006

Empowered Committee (EC) of State Finance Ministers constituted Joint Working Group (JWG)

JWG submitted its report on GST to EC

CST rate reduced from 4 to 3%

2007

EC finalized its overall strategy for GST structure

CST rate further reduced from 3% to 2%

2008

First Discussion paper on GST was released

13th Finance Commission released its Report on GST

2009

IT strategy for GST released

Constitutional Amendment Bill, placed before the Parliament and referred to Standing Committee (SC)

2011

* Work still in progress


GST – Next Steps

Rakesh, “ So Abhi, now, since Rajya Sabha has pass the GST bill, GST shall be effective and we would be required to implement the GST instead of other indirect taxes?”

Abhi, “No Rakesh, not yet, following steps are pending

• GST Bill needs ratified by at least half of the State assemblies^

• President’s assent for the enactment of GST

• After Presidential assent, a GST Council comprising representatives from Centre and State shall be set up

• GST Council will help codify Central and State GST laws which would be passes by Parliament and State assemblies

• GST Network, the online portal to facilitate registration, payment, return filing to be launched.”

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^As on 1-Sep-2016, 16 States have ratified the GST Bill, so now Bill shall be sent for President’s assent


GST Model


GST Model

Abhi further explains the levy of tax under GST regime

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Intra-state Transaction

In the GST system, both Central and State taxes will be collected at

the point of sale.

CGST /SGST shall be levied on all intra‐State supplies of goods and/or

services

Further CGST/SGST shall also be levied on specific categories of

supply of goods and/or services on which tax is payable on reverse

charge basis

Inter-state Transaction

On interstate transaction i.e, supply of goods/ services, Integrated

GST (IGST) shall be levied

IGST would be levied, administered and collected by the Centre

IGST collected, would be settled periodically between the Centre and

the States


GST Rate Structure

Rates for CGST and SGST should be common across the states and shared between Central & State.

There is no proper rate spelt till date, however, there are different rates suggested by different bodies.

Four rate structure for goods proposed:-

• Standard Rate

• Lower Rate – necessary items

• Special Rate – precious metals

• Exempted Items

Exempted List to be finalized considering the goods and services of national importance and local importance.

Exports of Goods and Services to be Zero-rated.

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It is likely that the GST rate should lie in the range of 16% to 20%


GST – Illustration

Illustration 1

Mr. X manufactures goods. He purchased goods locally for INR 100,000 and incurred expenses of INR 10,000. Manufactured Goods are sold for INR 125,000. Computed Sale Price. (Assuming CGST @ 8%, SGST @8% and IGST @16%)

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Intra-state sale Inter-state sale

Particulars Amount (Rs.) Particulars Amount (Rs.)

Cost of Goods 100,000 Cost of Goods 100,000

Add – Expenses 10,000 Add – Expenses 10,000

Add – Profit (Sales – T. Cost) Add – Profit (Sales – T. Cost)

Sales 125,000 Sales 125,000

CGST @ 8% 10,000 IGST @ 16% 20,000

SGST @ 8% 10,000

Total Sales 145,000 Total Sales 145,000


GST Set-off chain

Abhi further explains the set-off of taxes under GST regime

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Manufacturer

Manufacturer shall claim input credit of taxes paid on input goods

and services

After taking input credit, it pay the output liability on value additions

Wholesaler

Wholesaler shall claim input credit of taxes paid on input goods and

services from manufacturer


Retailer

Retailer shall claim input credit of taxes paid on input goods and

services from wholesaler


Consumer Ultimate tax liability borne by the Consumer


GST Set-off chain

Input tax credit on account of CGST can be utilized for CGST and IGST liability, in this order. However CGST input cannot be utilized towards payment of SGST output.

Input tax credit on account of SGST can be utilized for SGGT and IGST liability, in this order. However SGST input cannot be utilized towards payment of CGST output.

Input tax credit on account of IGST can be utilized for IGST, CGST and SGST, in this order.

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CSGT input CSGT output ISGT output

SSGT input SSGT output ISGT output

ISGT input ISGT output CSGT output SSGT output


GST Set-off chain (Some examples)

Case 1 -

A trader has purchased goods locally by paying CGST & SGST. He subsequently sells the goods within the state then he has to pay CGST & SGST.

At the time of payment of CGST, he can claim the set off of CGST (input) credit and also at the time of payment of SGST, he can claim the set off of SGST (input) credit. But CGST (input) credit cannot be set off with SGST and vice-versa.

Case 2 -

A trader has purchased goods locally by paying CGST & SGST. He subsequently sells the goods outside the state then he has to pay IGST.

At the time of payment of IGST, he can claim the set off of CGST & SGST (input) credit.

Case 3 -

A trader has purchased goods outside the state by paying IGST. He subsequently sells the goods within the state then he has to pay CGST & SGST.

At the time of payment of CGST & SGST, he can claim the set off of IGST (input) credit.

Case 4 -

A trader has purchased goods outside the state by paying IGST. He subsequently sells the goods outside the state then he has to pay IGST.

At the time of payment of IGST, he can claim the set off of IGST (input) credit.

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Example

Illustration 2

Mr. X manufactures 10,000 units of goods. He sold 5,000 units of goods within the state, 3,000 units outside the state and the balance 2,000 units is stock transfer outside the state. Goods were sold to wholesaler @ Rs. 10 per unit. (Consider ITC in the hands of Mr. X, Rs. 6,000 and Rs. 4,000 for CGST and SGST respectively

Wholesaler sold all the goods @ 14 per unit to retailer

Wholesaler sold all the goods @ 16 per unit to final consumer.

Compute GST Liability (Assuming CGST @ 8%, SGST @8% and IGST @16%).

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Solution

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Calculation of output GST in the hands of Manufacturer

Particulars Intra state sales Inter state sales Stock transfer Total (in Rs.)

Value of Goods sold/ transferred

50,000 [5,000*10]

30,000 [3,000*10]

20,000 [2,000*10]

100,000

Output CGST @ 8% 4,000 [50,000*8%]

- - 4,000

Output SGST @ 8% 4,000 [50,000*8%]

- - 4,000

Output IGST @ 16% - 4,800 [30,000*16%]

3,200 [20,000*16%]

8,000

Total Output liability 8,000 4,800 3,200 16,000


Cont’d…

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Calculation of GST payable in the hands of Manufacturer

Particulars CGST SGST IGST Total (in Rs.)

Output Liability 4,000 4,000 8,000 [4,800 + 3,200]

16,000

Less – ITC claimed

CSGT 4,000 - 2,000 6000

SGST - 4,000 - 4000

IGST - - - -

Amount payable - - 6,000 6,000

Total CGST input Rs. 6,000. First utilized against CGST output Rs. 4,000 and balance

for IGST output Rs. 2,000

Total SGST input Rs. 4,000. First utilized against SGST output Rs. 4,000 and balance

for IGST output Nil


Cont’d…

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Calculation of output GST in the hands of Wholesaler



70,000 [5,000*14]

42,000 [3,000*14]

28,000 [2,000*14]

140,000

Output CGST @ 8% 5,600 [70,000*8%]

- - 5,600

Output SGST @ 8% 5,600 [70,000*8%]

- - 5,600

Output IGST @ 16% - 6,720 [42,000*16%]

4,480 [28,000*16%]

11,200



Cont’d…

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Calculation of GST payable in the hands of Wholesaler


Output Liability 5,600 5,600

11,200 [6,720 + 4,480]

22,400


CSGT 4,000 - - 4,000

SGST - 4,000 - 4,000

IGST - - 8,000 8,000

Amount payable 1,600 1,600 3,200 6,400

Output Liability in the hands of Manufacturer shall be claimed as ITC by wholesaler


Cont’d…

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Calculation of output GST in the hands of Retailer



80,000 [5,000*16]

48,000 [3,000*16]

32,000 [2,000*16]

160,000

Output CGST @ 8% 6,400 [80,000*8%]

- - 6,400

Output SGST @ 8% 6,400 [80,000*8%]

- - 6,400

Output IGST @ 16% - 7,680 [48,000*16%]

5,120 [32,000*16%]

12,800



Cont’d…

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Calculation of GST payable in the hands of Retailer


Output Liability 6,400 6,400 12,800 [7,680 + 5,120]

25,600


CSGT 5,600 - - 5,600

SGST - 5,600 - 5,600

IGST - - 11,200 11,200

Amount payable 800 800 1,600 3,200

Output Liability in the hands of Manufacturer shall be claimed as ITC by retailer


GST Registration


GST Registration

Abhi to Rakesh, please pay special attention to registration procedure as you will be require to follow the same. Abhi started explaining the registration procedure stating….

Who shall obtain registration?

• Every person who is registered or holds a registration certificate under Central Excise law, Service tax law, Central Sales tax or under State VAT law shall be liable to be registered under GST with effect from date of enactment of GST

• In Case of a person who is not registered under any of the above act shall be liable to be registered under this act if his turnover in financial year exceeds the taxable threshold.

– The threshold limit of turnover for the purpose of registration is kept Rs. 4 Lakhs for North East States including Sikkim and Rs. 9 Lakhs for other States.

– For this purpose turnover means all India Gross Annual turnover including turnover of exempted goods, exempted services and exports. So if any person is doing the business from more than one location, turnover of all such units shall be considered for this purpose.

• If the turnover is below the threshold limit, then the person can also apply for voluntary registration

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GST Registration Cont..

• Further, a person doing following activities, has to mandatorily apply for registration irrespective of his turnover:

• Inter-state supply; Person liable for payment of GST under reverse charge basis; Casual Taxable person; Non-resident taxable person; Person Supplying a goods on behalf of other person as an agent or otherwise; Input service distributor; Person supplying goods and/or services [other than branded goods] through electronic commerce operator; Electronic commerce operator; An aggregator supplying goods under his own brand name

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Time Limit for GST Registration

Time-limit for obtaining registration?

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Category Time Limit

Already registered dealer

Every Manufacturer or a Service provider or a dealer registered under Central Excise Act or under Service tax law or State Vat law will get automatic Pan based registration number without fresh application

New Dealer

Dealer crossing the specified threshold limit – Within 30 days from crossing of such limit

Other than above - Within thirty days from the date on which he becomes liable for registration


How to apply for registration GST Registration?

How to apply for registration under GST?

Every person who wants to obtain a registration needs to apply for registration through Goods and Services Tax Network portal (GSTN Portal).

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Procedure for fresh registration under GST

Application for registration

Person needs to apply online for registration either through GSTN Portal or through Facilitation Center along with prescribed form and documents

Confirmation message

Once a completed application is submitted online, a message asking for confirmation will be sent through e-mail and SMS to the authorized signatory of the applicant.

On receipt of such confirmation from the authorized signatory, Acknowledgement Number would be generated and intimated to the applicant.

Documents required for registration

Proof of Constitution (for example Certificate of incorporation for Cos)

Details & Proof of place of business such as copy of electricity bill, municipal tax receipt, etc.

Details of Bank account, authorized signatories, etc.


Fresh Registration under GST

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Procedure for fresh registration under GST

Verification of Filed Information

On receipt of the online application GSTN system shall carry out a preliminary verification of documents like PAN number, etc.

A copy of signed application along with the documents as stated above shall be sent to the GSTN portal

After primary verification GSTN portal shall forward such application to Central/State tax authorities for further verification

If all the details are found correct, registration certificate shall be granted to the applicant

If registration is refused reasons for the same shall be communicated

Grant of Registration Certificate (RC)

The Central/State authorities must respond on application to GSTN portal within 3 working days

In case of non-communication of approval or rejection, the application shall be deemed to be approved

In case if tax authorities raise any query, same shall be communicated to applicant. In case of non-communication the application will be rejected. Within next 7 working days, tax authorities will respond to the applicant and will grant the RC.


Migration of Existing Registrants

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Procedure for migration of existing registrants under GST

Migration of Data in GSTN

All existing registrants, who have registered themselves either under Central Law or with State Law or with both shall get automatically migrated into GST.

Collection of additional

information

Currently for the purpose of registration under Central & State Law,

50 to 107 fields are required to be filled in.

Under proposed GST, 120 fields are designed for registration. So for the balance gap fields, data will have to be collected from the taxpayer.

The GSTN shall provide a provisional registration The user name and password shall be communicated to tax authorities who shall communicate the same to taxpayer.

After getting user id and password, taxpayer will have to complete the remaining details of registration form along with the requisite document within the stipulated time.


Cont.

Multiple registrations in case of multiple locations

In case a person is doing business from multiple locations in a State, he has to apply separately for registration for each and every location of business

For each State, the taxable person will have to take a separate registration, even though the taxable person may be supplying goods or services or both from more than one State as a single legal entity.

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Procedure for migration of existing registrants under GST

Grant of Registration Certificate

After completion of form, tax authorities shall verify the same with the documents filled by the taxpayer and will communicate the same to the GSTN.

After approval from tax authorities, GSTN shall generate the registration certificate and shall communicate the same to the taxpayer

Registration Number

After successful completion of registration process, GSIN portal shall provide 15 digit alpha Numeric registration number.

The registration number will be known as Goods and Service Tax Identification Number (GSTIN).


GST Payment and Refund


Payment of GST

Payment of GST made towards tax, interest, penalties shall be paid online using debit /credit cards, NEFT etc. which will be credited to electronic cash ledger account.

Self-assessed ITC claimed in the return shall be credited to electronic credit ledger account.

Payment towards tax, interest, penalties can be made from electronic cash or credit ledger accounts

subject to the rules, conditions prescribed.

Interest period shall be calculated from the first day such tax was due to be paid.

TDS provisions:

Specified persons shall deduct TDS @1% of the contract value where it exceeds Rs.10 lakhs.

TDS deducted shall be paid within 10 days of the end of the month of deduction and the certificate to be furnished in 5 days of payment of tax.

The late fee for furnishing of the certificate is Rs.100/ day subject to Rs.5000.

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Refund process

Refund provisions have been simplified and made more taxpayer friendly under GST regime.

Refund for an amount can be claimed within a period of 2 years from the relevant date.

Refund to be granted on the principal of unjust enrichment. If amount claimed is less than Rs.5,000, then only self-declaration to be made, otherwise documentary evidences to be furnished to establish no unjust enrichment.

The said limitation does not apply in case of payments made under protest.

Un-utilized ITC can be claimed as refund in case of inverted duty structures and exports (accumulation of ITC)

Proper officer may grant provisional refund of 80% of the claim and the rest 20% can be refunded after due verification of the documents.

Order of refund shall be issued within 90 days of the receipt of application.

Interest at the prescribed rates will be paid for delay in case of refund beyond 3 months.

In cases of unjust enrichment, refund order shall be granted and the amount shall be credited to the Consumer Welfare Fund.

Refund of un-utilized credit is also allowed in case of export of goods/services except in cases where export duty is payable and inverted duty structure.

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GST Returns


GST Returns

Rakesh ask Abhi, What will be the procedure to fill return under GST Regime?

Abhi replied, let me explain you in detail how and when to fill GST Return

Under GST, every registered person would be required to file a GST return for the prescribed tax period.

Even those entities having a GST registration but no activity would be required to file a GST, Nil Return to stay compliant with GST regulations.

GST Returns must be filed online. There would also be a facility to prepare the returns offline and upload the same into an online portal.

Government entities / PSUs , etc. not dealing in GST supplies or persons exclusively dealing in exempted / Nil rated / non –GST goods or services would neither be required to obtain registration nor required to file returns under the GST law

GST returns should be filed after payment of self-assessed tax as per the return. In case of non-payment of taxes return would be treated as an invalid return

Abhi emphasized that

No returns can be furnished if return for last tax period not furnished.

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Type of GST Returns & Their Due Dates

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Sl. No. Type of return

Return for Due Date To be filed by

1 GSTR 1 Outward supplies made by taxpayer (other than compounding taxpayer and Input Service Distributor[ISD])

10th of the next month

All regular tax payers and casual/ non-resident tax payers

2 GSTR 2 Inward supplies received by a taxpayer (other than a compounding taxpayer and ISD)


3 GSTR 3 Monthly return (other than compounding taxpayer and ISD)


4 GSTR 4 Quarterly return for compounding taxpayer

18th of the month next to quarter

Compounding taxpayers

5 GSTR 5 Periodic return by Non-resident foreign taxpayer

7 days from last day of registration

Non-resident tax payers

6 GSTR 6 Return for ISD 13th of the next

month Input Service Distributors

7 GSTR 7 Return for Tax Deducted at Source 10th of the next

month Person deducting GST at source

8 GSTR 8 Annual Return 31st December of

next FY All regular tax payers


Steps for Return Filing

Abhi continued to explains the steps for return filing

Step 1: The taxpayer will upload the final GSTR- 1 return containing details of outward supplies . The increase / decrease (in supply invoices) would be allowed, only on the basis of the details uploaded by the counter-party purchaser in GSTR-2

Step 2: GST Common Portal (GSTN) will auto-draft the provisional GSTR-2 of taxpayer based on the supply invoice details reported by the counter-party taxpayer (supplier) on a near real-time basis.

Step 3: Purchasing taxpayer will accept/ reject/ modify such auto-drafted provisional GSTR-2.

Step 4: Purchasing taxpayer will also be able to add additional purchase invoice details in his GSTR-2 which have not been uploaded by counter-party taxpayer (supplier) as described in Step 1 and 2 above, provided he is in possession of valid invoice issued by counter-party taxpayer and he has actually received such supplies.

Step 5:Taxpayers will have the option to do reconciliation of inward supplies with counter-party taxpayers (suppliers) during the next 7 days by following up with their counter-party taxpayers for any missing supply invoices in the GSTR- 1 of the counter-party taxpayers, and prompt them to accept the same as uploaded by the purchasing taxpayer. All the invoices would be auto-populated in the ITC ledger of taxpayer. The taxpayer would, however, indicate the eligibility ! partial eligibility for ITC in those cases where either he is not entitled or he is entitled for partial ITC.

42


Cont.

Step 6: Taxpayers will finalize their GSTR- 1 and GSTR-2 by using online facility at Common Portal or using GSTN compliant off-line facility in their accounting applications, determine the liability on their supplies, determine the amount of eligible ITC on their purchases and then generate the net tax liability from the system for each type of tax. Cash details as per personal ledger/carried forward from previous tax period, ITC carried forward from previous tax period, ITC reversal and associated Interest/Penalty, taxes paid during the current tax period etc. would get auto-populated in the GSTR-3.

Step 7: Taxpayers will pay the amount as shown in the draft GSTR-3 return generated automatically at the Portal post finalization of activities mentioned in Step 6 above.

Step 8: Taxpayer will debit the ITC ledger and cash ledger and mention the debit entry No. in the GSTR-3 return and would submit the same.

Acknowledgement for returns:

On submission of return, an Acknowledgement Number will be generated. In case of submission of a return which has been prepared by using offline tools, acknowledgement of submission will take some time

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Fiscal Impact of GST


Fiscal Impact

Rakesh having good understanding of how GST works, questioned Abhi about fiscal impact of GST on different businesses. He wants to understand the impact on manufacturers, traders and service providers including the inter-state transactions.

Rakesh to Abhi, can you please explain the fiscal impact of GST on various stakeholders?

He also asked Abhi to use numbers to explain the impact on each of them.

Abhi replied, okay let me try putting numbers along with different scenarios the manufacturers, traders and service providers will deal with.

He further said, to better understand the impact lets first know the current (existing) tax structure and then take a hypothetical business scenario under which he would compare both existing and proposed GST situation.

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Current Indirect Tax Structure

46

Indirect Taxes Levied by Effective Rate Levied on

Customs Duty Central Government 29.44% Import of goods into India

Central Excise duty Central Government 12.5% Creditable against Central Excise duty & Service tax

Service tax Central Government 15% Provision/ Import of taxable

services

Central Sales Tax (CST)

Levied by Central Government,

administered by State Governments

2% to 15% Sale of goods inter-State

Value Added Tax (VAT) State Governments 5% to 15% Sale of goods within the State

Entry Tax (on entry of goods into State from

outside) State Governments 2% to 15%

Entry of goods within the State for sale, use or consumption

Others – Octroi, Entertainment tax, Luxury tax, professional tax, etc.

Remarks – No credit of a Central tax allowed against a State tax, and vice-versa


Hypothetical Business Overview of a Manufacturer

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Import of raw materials from outside India

Local Procurement of goods from

manufacturers / Traders

Procurement of services

Manufacture of goods at factory

& Repair and

Maintenance Services

Customers located within /

outside India


Fiscal Impact

48

Rate Card

Present Rate (percent) Applicable on

Proposed Rate (percent)

Central State CGST SGST

15 - Services 8 to 10 8 to 10

12.50 12.5 to 15 Goods (Standard) 8 to 10 8 to 10

12.50 5 Goods (Concessional) 8 to 10 8 to 10

Impact of rate change

Services Effective rate of tax ~ 15% Effective rate of tax ~ 16% to 20%

Goods (Standard) Effective rate of tax ~ 25 percent

Central Excise = 12.5 percent Value Added tax = 12.5 percent

Effective rate of tax ~ 16% to 20%

Goods (Concessional) Effective rate of tax ~ 17.5 percent

Central Excise = 12.5 percent Value Added tax = 5 percent

Effective rate of tax ~ 16% to 20%

Goods (MRP) Effective rate of tax ~ Variable Effective rate of tax ~ 16% to 20%

Present Proposed


GST Computation - Illustrative

49

Particulars Present Proposed

Manufacturer to Wholesaler

Base Price (A) 100 100

Excise Duty @ 12.50% on transaction price 12.50 -

State VAT @ 5% (on 112.50) 5.63 -

CGST @ 8% (on 100) - 8

SGST @ 8% (on 100) - 8

Total Collections 118.13 116

Wholesaler to Retailer

Wholesale price (assuming value addition of 20) 138.13 136

State VAT @ 5% (on value addition of 20) 1.00 -

CGST @ 8% (on value addition of 20) - 1.60

SGST @ 8% (on value addition of 20) - 1.60


Cont’d…

50


Retail sales price (inclusive of taxes) 139.13 139.20

Retailer to Customer

Retail sale price (assuming value addition of 20) 159.13 159.20

State VAT @ 5% (on value addition of 20) 1.00 -

CGST @ 8% (on value addition of 20) - 1.60


Cumulative tax price 160.13 162.40

Total Taxes 20.13 22.40


GST Impact – Stock Transfer

Illustration 3

Mr. X manufactures goods in West Bengal and transferred to its Maharashtra Depot and goods were sold from Maharashtra Depot. Calculate total tax payable and total sales price under current tax regime and proposed GST scenario (Assuming value of Goods Rs. 100,000, Profit Rs. 10,000 Excise Duty @ 12.5%, Maharashtra VAT @ 5.5%, CGST @ 8%, SGST @ 8% and IGST @ 16% )

51

Under Current Scenario Under GST Scenario

Under current system, stock transfer are exempt, hence no VAT/ CST payable. However there shall be input tax reversal on the same. Excise Duty being a levy on manufacture, is payable on stock transfer

Under GST, Stock transfer would be treated as supply and GST will be levied on it because definition of GST does not refer to consideration


Solution

Refer detailed calculations in the next slide

52



Stock transfer value 100,000 Stock transfer value 100,000

Add – Excise Duty @ 12.5% 12,500 Add – IGST @ 16% 16,000

Profit 20,000 Profit 20,000

Sale Price 132,500 Sale Price 120,000

VAT @ 5.5% 7,288 CGST @ 8% 9,600

SGST @ 8% 9,600

CGST Payable -

SGST Payable 3,200

Total tax paid to Government 19,788 Total tax paid to Government 19,200

Cost to Final Customer 139,788 Cost to Final Customer 139,200


Detailed Calculation – Stock Transfer

Current Scenario

Under current scenario, no credit of excise duty against VAT, hence VAT to be computed on Stock transfer value + Excise Duty + Profit ie, 5.5% of (100,000 + 12,500 + 20,000)

Further, no credit available for payment of VAT

Total tax payable = Excise Duty + VAT = 12,500 + 7,288 = 19,788

GST Scenario

Under GST scenario, input credit of IGST shall be available, hence, CGST and SGST to be calculated on Stock transfer value + Profit ie, 16% of (100,000 + 20,000)

CGST payable = Output CGST Less Input IGST = 9,600 – 9,600 = Nil

Balance IGST input after set-off of CGST = 16,000 – 9,600 = 6,400

SGST payable = Output SGST Less Input IGST = 9,600 – 6,400 = 3200

Total tax payable = IGST payable + CGST payable + SGST payable = 16,000 + 0 + 3,200 = 19,200

53


GST Impact – Inter State Sale

Illustration 4

Mr. X manufactures goods in West Bengal and sales the same to a Buyer in Maharashtra. Calculate total tax payable and total sales price under current tax regime and proposed GST scenario (Assuming value of Goods Rs. 100,000, Profit Rs. 10,000 Excise Duty @ 12.5%, Maharashtra VAT @ 5.5%, CGST @ 8%, SGST @ 8% and IGST @ 16% )

54


Under current system, CST is payable when goods are sold from one state to another Excise Duty is payable on manufacture

Under GST, IGST is payable on inter state sale


Solution

Current structure - CST paid is cost to the Buyer

GST regime - IGST can be claimed as input credit by the Buyer

55



Stock transfer value 100,000 Stock transfer value 100,000

Add – Excise Duty @ 12.5% 12,500 Add – IGST @ 16% 16,000

Profit 20,000 Profit 20,000

Sale Price 132,500 Sale Price 136,000

CST @ 2% 2,650

Total tax paid to Government 15,150 Total tax paid to Government 20,000

Cost to Buyer 135,150 Cost to Buyer 136,000


GST Vs Current Indirect Tax – Inter State Sale

56

State X

VAT = 110

Excise = 100

Total Invoice A Value = 1000.00 Excise = 100.00 Vat = 110.00 Total = 1210.00

Excise payable = 110 Less – ITC = 100

Net payable = 10

Total Invoice B Cost = 1000.00 Value = 1100.00 Excise = 110.00 CST = 24.20 Total = 1234.20 (1100+110+24.2)

State X tax = 110 (110+0)

CST = 24.2, ITC = 24.2 Payable = 0

Input Manufacturer Product

Manufacturer Dealer Consumer A B C

Total Invoice C Cost = 1244.2

Value = 1368.62 VAT = 136.86

Total = 1505.48 (1368.62+136.86)

Total Excise paid = 110 (100+10)

Entry Tax = 10 VAT = 136.86

State Y tax = 146.86

(136.86+10)

The final price to be paid by the Consumer is Rs.1505.48

Illustration 5

Current Scenario – Inter State Sale

State Y

Assumptions - Excise = 10% ; Value Addition = 10% ; VAT =

10% ; CST = 2% ; ITC = Input Tax Credit


GST Impact – Inter State Sale

57

Assumptions - CGST = 10% SGST = 10% ; IGST = 20%

State X

SGST = 100

CGST = 100

Total Invoice A Value = 1000 CGST = 100 SGST = 100

Total = 1200

IGST = 220 Less – CGST = 100 Less – SGST = 100 Net payable = 20

Total Invoice B Cost = 1000

Value = 1100 IGST = 220

Total = 1320 (1100+220)

State X tax = 0 (100-100)

Input Manufacturer

Product Manufacturer

Dealer Consumer A B C

Total Invoice C Cost = 1100

Value = 1220 CGST = 122 SGST = 122

Total = 1464 (1220+122+122)

Centre Tax total = 122

(100+20+100-98)

SGST = 122 Less - IGST = 98

State Y = 24

State Y tax = 122 (24 + 9)

The final price to be paid by the

Consumer is Rs. 1464.00

Illustration 5

GST Scenario – Inter State Sale

State Y


GST Impact – Service provider

58

Sl. No.

Issue Under Current Scenario Under GST Scenario

1

Tax Rate Services are subject to service tax at an effective rate of @ 15%

Services would be subject to dual GST (SGST and CGST for intra state) in the range of 16% to 20%

2

Import of services

Service tax is payable on remittance by the respective office i.e. head office

Services to be taxed in the State of consumption Supply rules to determine the place of consumption for cross-border services

3

Supply of services involving multiple states

Subject to single central levy Determination of actual place of effective use / enjoyment of services required to levy State GST

4

Registration Presently, assesse has the option to either hold individual registrations for each office or hold a centralized registration from one office either on the basis of centralized accounting or centralized billing

CGST should provide for centralized registration of assesse with more than one offices in different states In case of business in different states, separate registration may be required under SGST


Current Indirect Tax Vs GST – Service Provider

59

State X

Services Service Tax – ITC can be claimed

Local purchases Excise duty – ITC can be claimed VAT – No ITC available

Consultancy Services Service Tax payable

Import of goods BCD & SAD – No ITC available CVD – ITC can be claimed

Inter-state purchases Excise duty – ITC can be claimed CST – No ITC available

1

4

3

Service provider

Supplier

Supplier

Supplier

Service provider

Outside India India

Customer

Customer

Export of services No tax payable

6 5

2

Current Scenario – Service Industry State Y


GST Impact – Service provider

60

GST Scenario – Service Industry

State X

Services CGST & SGST – ITC

can be claimed

Local purchases GST – ITC can be claimed

Consultancy Services GST payable

Import of goods BCD –No ITC available Import GST – ITC can be claimed

Inter-state purchases IGST – ITC can be claimed

1

4

3

Service provider

Supplier

Supplier

Supplier

Service provider

Outside India India

Customer

Customer

Export of services Likely no tax payable

State Y

6 5

2


GST Impact – Importer

Abhi further explains the impact of GST on imports i.e, when goods are purchased from outside India

61


Under current system, when goods purchased from outside India then Basic Custom Duty (BCD), Countervailing Duty(CVD), Special Additional Duty (SAD), Education Cess (EC) & Secondary & Higher Education Cess (SHEC) are levied

Under GST, when goods purchased from outside India BCD and IGST shall be levied


Illustration of GST Impact on Importer

62



Assessable value (A) - assumed 100,000 Assessable value(A) - assumed 100,000

Add – BCD @ 10% (B) 10,000 Add – BCD @ 10% (B) 10,000

Value [(C) = (A) + (B)] 110,000 Value [(C) = (A) + (B)] 110,000

CVD @ 12.5% (D) 13,750 IGST @ 20% on value (since BCD is not creditable (D)

22,000

EC on CVD @ 2% Nil

SHEC on CVD @ 1% Nil

Customs Duty for Cess [(E) = (B) + (D)]

23,750

EC on Customs Duty @ 2% (F) 475

SHEC on Customs Duty @ 1% (G) 238

Value for SAD [(H) = (A)+(E)+(F)+(G)]

124,463

SAD @ 4% (I) 4,979

Total Duty [(E)+(F)+(G)+(I)] 29,941 Total Duty [(B)+(D)] 32,000


GST Impact – Importer

63



Landed cost including BCD 110,000 Landed cost including BCD 110,000

Cenvat Credit – CVD 13,750 IGST credit 22,000

Cenvat Credit – SAD 4,979



Landed cost including BCD, CVD (+ EC & SHEC)

124,463 Landed cost including BCD 110,000

Cenvat Credit – SAD 4,979 IGST credit 22,000

Imported by Trader:

Imported by Manufacturer:


Cont.

64



Value 100,000 Landed cost including BCD 100,000

Service tax under reverse charge [14% + 0.5% (SBC) + 0.5% (KKC)]

15,000 IGST assumed @ 20% 20,000

Cenvat Credit (No credit for SBC)

14,500 IGST credit 20,000

Tax outflow 15,000 Tax outflow 20,000

Imported by Service Provider:

* Under Reverse Tax Mechanism


GST Impact on Financials

Now, Rakesh wants to understand the GST impact on financials.

Abhi, draw the following chart and tried to explain the impact.

65

Particulars Rs. Particulars Rs.

Raw material consumption

XXX Sales XXX

Purchases XXX

Depreciation XXX

Other expenses XXX

Profit & Loss Account

Saving in cost due to removal of non-creditable taxes

Rationalization in overall cost on account of seamless credit flow of

goods & services

Impact on sale revenue may vary from industry to industry


GST Impact on Financials

66

Liabilities Rs. Assets Rs.

Capital XXX Fixed assets XXX

Current liabilities XXX Current assets XXX

Tax payable XXX Credit receivable XXX

Balance Sheet

Reduction in capitalized value on account of possible input

credits

Changes on account of seamless credit flow


GST – Accounting Entries


Dealing with Business Transactions

After having high level of understanding of impact on financials, Rakesh wants to know how daily business transactions will be recorded under GST regime.

Rakesk, “Abhi please explain how journal entries related to business transactions will be recorded having said that GST is in action.”

Knowing Rakesh desire to understand how books of account will be maintained, Abhi replied

Let’s look at examples having few business transactions

68



Illustration 6 –

1) Mr. X purchased goods for Rs. 100,000 locally

2) Mr. X sold goods for Rs. 150,000 locally

3) Mr. X received consultancy services for Rs. 20,000 locally

4) Mr. X purchased capital goods for Rs. 50,000 locally

Abhi explained the detailed Journal Entries (assuming CGST @ 8% and SGST @ 8%, amount above exclusive of taxes) of the above transactions

69



70

S. No. Particulars Dr. – Amount Cr – Amount

1

Purchase A/c……………….Dr. Input CGST A/c……………….Dr. Input SGST A/c……………….Dr.

100,000 8,000 8,000

To Creditors A/c 116,000

2

Debtors A/c……………….Dr. 174,000

To Sales A/c To Output CGST A/c To Output SGST A/c

150,000 12,000 12,000

3

Consultancy services A/c……………….Dr. Input CGST A/c……………….Dr. Input SGST A/c……………….Dr.

20,000 1,600 1,600

To Creditors for services A/c 23,200

4 Capital goods A/c……………….Dr. Input CGST A/c……………….Dr. Input SGST A/c……………….Dr.

50,000 4,000 4,000

To Creditors for capital goods A/c 58,000



71

Total CGST input = 8,000 + 1,600 + 4,000 = 13,600 ; Total SGST input = 8,000 + 1,600 + 4,000 = 13,600 Total CGST output = 12,000; Total SGST output = 12,000 Hence, no output tax payable, as input tax greater than output tax

5 Output CGST A/c……………….Dr. Output SGST A/c……………….Dr.

12,000 12,000

To Input CGST A/c To Input SGST A/c

12,000 12,000

Balance Input credit shall be carried forward to next period

Abhi, let me add one more example having set-off against GST output



Illustration 7 –

1) Mr. X purchased goods for Rs. 150,000 from outside the state

2) Mr. X sold goods for Rs. 150,000 locally

3) Mr. X sold goods for Rs. 100,000 outside the state

4) Mr. X received consultancy services for Rs. 20,000 locally

5) Mr. X purchased capital goods for Rs. 50,000 locally

Pass Journal Entries (assuming CGST @ 8%, SGST @ 8% and IGST @ 16%, amount above exclusive of taxes)

72



73


1

Purchase A/c……………….Dr. Input IGST A/c……………….Dr.

150,000 24,000

To Creditors A/c 174,000

2

Debtors A/c……………….Dr. 174,000

To Sales A/c To Output CGST A/c To Output SGST A/c

150,000 12,000 12,000

3

Debtors A/c……………….Dr. 116,000

To Sales A/c To Output IGST A/c

100,000 16,000

4

Consultancy services A/c……………….Dr. Input CGST A/c……………….Dr. Input SGST A/c……………….Dr.

20,000 1,600 1,600

To Creditors for services A/c 23,200



74

5

Capital goods A/c……………….Dr. Input CGST A/c……………….Dr. Input SGST A/c……………….Dr.

50,000 4,000 4,000

To Creditors for capital goods A/c 58,000

Total CGST input = 1,600+4,000 = 5,600; Total SGST input = 1,600+4,000 = 5,600; Total IGST input = 24,000 Total CGST output = 12,000; Total SGST output = 12,000; Total IGST output = 16,000 CGST output after set-off of CGST input = 12,000 – 5,600 = 6,400 (A) SGST output after set-off of SGST input = 12,000 – 5,600 = 6,400 (B) IGST input after set-off of SGST output = 24,000 – 16,000 = 8,000 (C) IGST input after set-off of CGST output = 8,000 (C) – 6,400 (A) = 1,600 (D) SGST output after set-off of IGST input = 6,400 (B) – 1,600 (D) = 4,800


Calculation of GST Payable

75

Calculation of GST payable

Particulars CGST SGST IGST

Output Liability 12,000 12,000 16,000


CSGT 5,600 - -

SGST - 5,600 -

IGST 6,400 1,600 16,000

Amount payable - 4,800 -



76


6

Set-off of against CGST output Output CGST A/c……………….Dr.

12,000

To Input CGST A/c To Input IGST A/c

5,600 6,400

7

Set-off of against SGST output Output SGST A/c……………….Dr.

8,000

To Input SGST A/c To Input IGST A/c

5,600 1,600

8

Set-off of against IGST output Output IGST A/c……………….Dr.

16,000

To Input IGST A/c 16,000

9

Payment of SGST Output IGST A/c……………….Dr.

4,800

To Bank 4,800


Composition Scheme


Composition Scheme

Rakesh further questioned that is there any composition scheme available under GST as available under other Indirect tax laws?

Abhi answered, Yes for small dealer composition scheme is available

Composition scheme permit a registered taxable person, whose aggregate turnover in a financial year does not exceed Rs. 50 lacs, to pay tax at the rate not exceeding 1%, of the turnover.

Aggregate turnover’ = ‘Value of all (taxable and non-taxable supplies + Exempt supplies + Exports) – (Taxes + Value of inward supplies + Value of supplies taxable under reverse charge) of a person having the same PAN.

This scheme would be applicable only to taxable person whose supplies are restricted to a particular State. In other words, a person effecting inter-State supplies cannot opt for this scheme.

The taxable person should make an application exercising his option to pay tax under this scheme. Once granted, the eligibility would be valid unless his permission is cancelled under law or he becomes ineligible.

78


Composition Scheme

Conditions for availing the options of composition scheme

79

The taxable person should not effect any inter-State supplies of goods and / or services

Would be applicable for all transactions under the same PAN

Person opting to pay tax under the composition scheme is prohibited from collecting tax

Taxable person opting to pay tax under the composition scheme will not be eligible for any input tax credit.

There may be other conditions or restrictions which may be prescribed under the Rules.


Composition Scheme

Example

A taxable person is engaged in the following business, all separately registered:

• Sale of garments

• Sale of electronics

• Restaurants

In the above scenario, the composition scheme would be applicable for all the 3 business verticals in total. Taxable person will not be eligible to opt for composition scheme say for sale of garments and sale of electronics and opt to pay taxes under the regular scheme for Restaurants.

80


GST Sector Impact


GST Sector Impact

Abhi further briefly explained the impact of GST on various sectors

82

Nature of Impact Possible impact

Automobiles Industry

Rate of Tax is expected between 16-20% as compared to 30-47% in current scenario.

Drive overall demand & reduce cost for end user by about 10%.

Transportation time & overall cost will be reduced.

Cost of Logistics will be curtailed by almost 30-40%.

Consumer Durables

Reduction of the Price gap between organized & unorganized sector.

Warehouse/logistics costs will be curtailed.

Improve the operational profitability by almost 300-400 bps.

Logistics

Boost demand for high tonnage trucks.

Overall reduction in transportation costs.

Improving growth opportunities for the organized players.

Facilitate seamless inter-state flow of Goods.

Cement

Tax rate expected to decline to 18-20% as compared to 27-32%.

Able to save their logistics costs/transportation costs.


GST Sector Impact

Abhi further briefly, explains the impact of GST on various sectors

83

Nature of Impact Possible impact

Banking & Financial services

Under GST , effective tax rate is expected to increase to 18-20% as 15% earlier.

Moderate increase in the cost of financial services like loan processing fees, debit/credit charges, insurance premium etc.

IT

Tax Rate is expected to increase to 18-20%.

Litigation around taxability of canned software will probably end under GST Regime

Textile /Garments

May be negatively impacted in case the output tax rate is high.

No clarity whether a lower rate will continue in the proposed Tax regime.

No clarity about the duty drawback benefits

Taxability of inter-State stock transfers including transfers to / from job worker

Media Tax rate of around 18-20% as compared to 20-21%.

Post GST, we expect concessional rate in news & Print sector.


Penalty Provisions


Penalty Provisions

Rakesh further questions under what circumstances can there be penalties charges in GST?

Abhi replied, following table shows the conditions for penalty

85

Sr. No. Nature of Default Penalty Amount

1.

Penalty for not applying for registration

Where a taxable person who is liable to be registered under this Act but fails to obtain registration, he shall be liable to penalty of higher of the following:

• Rs. 10,000/‐ or an amount equivalent to the tax evaded or the tax not deducted or short deducted or deducted but not paid to the Government or

• Input tax credit availed of or passed on or distributed irregularly, or

• Refund claimed fraudulently

2.

Penalty of late filing of returns

• Annual return: Rs. 100 /day for each day of default (max to 0.25% aggregate turnover)

• Other than annual return: Rs. 100 /day for each day of default (max to Rs.5000)

3. Tax collected but not deposited

Officer shall issue a show cause notice as to why said amount be not deposited to the State or Central Govt. and the penalty equivalent to the amount be not levied


Cont.

86


4.

Penalty for wrong availment of ITC

Where a taxable person takes and/or utilizes ITC without actual receipt of goods and/or services either fully or partially, he shall be liable to a penalty of higher of the following:

• Rs. 10,000/‐ or

• an amount equivalent to ITC availed of.

5.

Penalty for default in furnishing TDS certificates

If any deductor fails to furnish to the deductee the certificate, after deducting the TDS within 5 days of crediting the amount so deducted to the appropriate Government, the deductor shall be liable to pay, by way of a late fee, a sum of Rs. 100/‐ per day from the day after the expiry of the five day period until the failure is rectified. However, the amount of fee shall not exceed Rs. 5,000/‐.

6.

Short payment of tax repeatedly (short payment in three return for last six consecutive tax periods)

Higher of the following

• Rs. 10,000/‐ or

• 10% of tax short paid.


Cont.

87


7.

Aids or abets in contravention of the law, fails to issue an invoice or fails to account an invoice in books, fails to appear before CGST/SGST officer when issued a summon for appearance to produce a document in a an enquiry.

Extend up to Rs.25,000

8. General penalty Extend up to Rs.25,000

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