Subsumationinto Dual GST :

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2 Subsumationinto Dual GST : UT-GST Service Tax Additional Excise Duties Countervailing Duties Entertainment Duty Octroiand Entry Tax Purchase Tax Central Excise Duty CGST Cesses Value Added Tax / CST SGST Luxury Tax IGST instead of CGST and SGST for Interstate Transactions Destination Based

3 Classification of Supplies Situation Classification Nature of Tax Location of Supplier and Place of Supplyin different States / UT or State & UT (Goods) Supply of Goods imported into the territory of India till they cross customs frontiers Location of Supplier and Place of Supplyin different States/ UT or State & UT (Services) Inter-State Imports Inter-State IGST IGST (CVD) Supply of Services imported into India Imports IGST (RCM) Location ofsupplier in India and Place of Supply outside India Supply of Goods and/or Services to/bysez Unit/Developer Exports Deemed Interstate Supply within taxable territory which is not intra-state Deemed Interstate* IGST Location of Supplier and Place of Supply in same State /UT (Other than above) Intra-State IGST IGST (Zero Rated) IGST (Zero Rated) CGST + SGST/UTGST

4 Complex Inter-dependencies Location of Supplier Place of Supply Location of Recipient Registration to be obtained Invoice to be raised from Tax to be paid Where the consumption takes place Where the credit can be claimed ab initio State which earns the revenue for B2C Transactions Whether establishment / address required? Links with PoS(Subject to exceptions) No Credit if POS not aligned with Location of Recipient

5 Location of Supplier Case Study CA firm has head office in Mumbai and branch offices in Ahmedabad and Delhi. The Mumbai office has entered into an audit engagement with a client located in Kolkatta. The junior members for the engagement will be deputed from Ahmedabad branch office to the client location in Kolkatta. The audit report will be reviewed by senior members located in Mumbai and ultimately signed off by an audit partner located in Delhi. What is the location of supplier?

6 Location of Supplier Place of Supply Ahmedabad Mumbai Kolkatta Kolkatta Delhi

7 Supplier / Location of Supplier Section2(105)oftheCGSTAct supplier in relation to any goods or services or both shall mean the person supplyingthesaidgoodsorservicesorbothandshallincludeanagentactingassuch onbehalfofsuchsupplierinrelationtothegoodsorservicesorbothsupplied Section2(71)oftheCGSTAct location of supplier of service means: (i) where a supply is made from a place of business for which registration has been obtained, thelocationofsuchplaceofbusiness; (ii) where a supply is made from a place other than the place of business for which registration has been obtained,(a fixed establishment elsewhere), the location of such fixed establishment; (iii) where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the provision of the supply; and (iv)inabsenceofsuchplaces,thelocationoftheusualplaceofresidenceofthesupplier;

8 Some Related Definitions Fixed Establishment Section 2(50) fixed establishment means a place (other than the registered place of business) which is characterised by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services,ortoreceiveanduseservicesforitsownneeds; PlaceofBusiness Section2(85) place of business includes (a) a place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods, supplies or receives goodsorservicesorboth;or (b)aplacewhereataxablepersonmaintainshisbooksofaccount;or (c) a place where a taxable person is engaged in business through an agent, by whatever name called;

9 Location of Supplier Place of Supply Ahmedabad Mumbai Kolkatta Kolkatta Delhi

10 Location of Recipient Case Study In the earlier example, the client has corporate office in Kolkatta, factory in Guwahati and registered office is located in Indore What is the location of recipient?

11 LoS Location of Recipient Ahmedabad Kolkatta Mumbai Guwahati Kolkatta Indore Delhi

12 Recipient / Location of Recipient Section 2(93) of CGST Act, recipient of supply of goods or services or both means- (a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration, (b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available,ortowhompossessionoruseofthegoodsisgivenormadeavailable,and (c)wherenoconsiderationispayableforthesupplyofaservice,thepersontowhomtheserviceisrendered, andany reference toaperson to whom asupply ismade shallbeconstrued asareference to the recipientof the supply andshallincludeanagentactingassuchonbehalfoftherecipientinrelationtothegoodsorservicesorbothsupplied Section 2(70) of CGST Act, location of recipient of services means: (i) where a supply is received at a place of business for which registration has been obtained, the location of such place of business; (ii) where a supply is received at a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment; (iii) where a supply is received at more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the receipt of the supply; and (iv)inabsenceofsuchplaces,thelocationoftheusualplaceofresidenceoftherecipient;

13 LoS Location of Recipient Ahmedabad Kolkatta Mumbai Guwahati Kolkatta Indore Delhi

14 State Specific Law: Fallout for service providers Registration Numbers Output Tax Input Tax Credit RCM Tax Invoice Series Payment & Returns Trial Balances Audits &Assessments

15 Concept of Supply GSTisapplicableonallformsofsuppliesofgoodsorservices for a consideration It includes deemed supplies(even without consideration) Free Supplies to related persons Interstate branch transfers Goods{Raw Materials, Finished Goods, Capital Assets, Collaterals, etc.} Services{Income/ Expenses} SuppliesofgoodsbyPrincipaltoAgents&vice versa

16 Supply of Services across branches : Case Study Ahmedabad Kolkatta Mumbai Guwahati Kolkatta Indore Delhi

17 Valuation Rules Related Party Transactions 1. Open Market Value 2.If Open Market Value not available, value of supply of like kind / quality goods / services 3.Cost plus 10% 4.Determination of value using reasonable means consistent with the principles 5.Sale Price minus 10% 6.Invoice Value if full input tax credit available to the recipient

18 Reverse Charge Mechanism Import of Services Not Applicable if POS outside India Services rendered by overseas branches/head office liable even if without consideration All Procurement from unregistered vendors [URD RCM] Procurement of Goods Procurement of Services Can be indirectly procured employees / directors Exempted / Non Taxable Supplies not covered Notified Goods or Services [RD RCM] Goods Transport Agencies Legal Services Sponsorship Services Government Related Services Directors Insurance Agents Original IPR Prepaid Import Freight Manpower Supply / Security Works Contracts Rent a Cab Scheme Operators

19 RCM Some Examples Refreshment Costs - Taxable Conveyance Costs Mostly Exempted / Registered Printing and Stationery Taxable Minor Repairs & Maintenance Taxable Miscellaneous Expenses Taxable Apprentices Pseudo Employment?? Payments to CPE Study Circles Whether Exempted??

20 RCM Compliance Requirements Raise a Self Generated Invoice at the time of receiving the services Issue a Payment Voucher at the time of making the payment Upload the details on GST Portal (invoice wise) at the time of payment If the payment is within 60 days, TOS is the date of payment Claim Credit if eligible

21 Rate of Tax & Classification Rate of Tax CESS HSN/SAC Classification Important Sr. No. Service Code Service Description Financial Consultancy Services Financial Auditing Services Accounting and Bookkeeping Services Corporate Tax Consulting and Preparation Services Individual Tax Preparation and Planning services Management Consulting Services Commercial Training and Coaching Services

22 Time of Supply Time of Supply to be earliest of multiple touch points Advances for Goods also becomes liable for tax Deposits not liable for tax until applied towards consideration Advances for Services Documentation Requirements Issue a Receipt Voucher at the time of receipt of advance and pay tax Issue Invoice at the time of rendition of service Issue Refund Voucher at the time of refund Upload the information in the return

23 Small Professionals : Impact Facility of payment of tax on receipt basis for small professionals no longer exists Moving Forward Will need to discharge tax at the time of invoicing or completion of service Need for discipline in raising invoices No adjustment on account of bad debts Need for ensuring proper engagement letters and pre-decision on fees Credit Notes for non provision/deficiency of services Transition Service Tax will be payable as and when amounts are realized

24 Valuation Value is generally the transaction value Arms Length Pricing in case of Related Parties Can you provide PRO BONO Services to relatives? Role of Credit Notes Non Provision of Service / Deficiency in provision of Service Subject to acceptance by the recipient of service on GST Portal Has to be issued by September of next financial year

25 Exemptions Threshold of Rs. 20 lakhs / 10 lakhs* Exemption not applicable if registered Auto Migrated Assesseesneed to apply for cancellation if they do not intend to continue (within 30 days) Not applicable if engaged in Interstate Supply Optional Composition Scheme uptors. 75lakhs (not for service providers)

26 IGST : Domestic Place of Supply Rules PoSRule for Services General Rule - Destination Principle Classification as B2B vs. B2C important Exceptions Source and Hybrid Principles Impact on Claim of Credit in B2B Cases Hotel Stay for Travel at Client Locations

27 Input Credit Essential Conditions You should receive Vendor should Credit should not be Goods/ Services Have Paid the tax Blocked Tax Invoice Pay the vendor within 180 days Have uploaded the tax to the customers account Subject to apportionment

28 Ineligible Input Credit Blocked Credits Apportioned Credits Motor Vehicles & Rent-a-Cab Food and Beverages Club, Life/Health Insurance Construction Related Goods lost/written off/ provided free Partly for Business and Partly for Other Purposes Partly for taxable and partly for exempted supplies Banking Service Provider

29 Understanding Apportioned Credits.. Acronym What it denotes Impact T1 Inputs/Input Services other than business Not Eligible for Credit T2 Inputs/Input Services for exempted supplies Not Eligible for Credit T3 Blocked Credits Not Eligible for Credit C1 Intermediary Number T (T1+T2+T3) T4 Inputs/Input Services for taxable supplies Fully Eligible for Credit C2 D1 Residual Common Credit C1 T4 Proportionate Common Credit attributable to exempted supplies E/F * C2 To be reversed D2 Presumed Non Business 5% of C2 To be reversed E F Value of Exempted Supplies Value of Taxable and Exempted Supplies

30 Monthly Return Filing Process Step 4 GSTR-1A : The details of inward supplies added, corrected or deleted by the recipient shall be made available to the supplier Step 5 Supplier will accept or reject the modifications Step 6 GSTR-1 will be amended to the extent modifications are accepted by supplier Step 1 GSTR 1: Details of Outward supplies Step 2 GSTR-1: Details of Outward supplies of goods and/or services 11 Step 3 GSTR 2: On the basis of above GSTR-2A, details of inward supplies added, corrected or deleted by recipient to be disclosed under GSTR-2, including URD- RCM details GSTR 2A: Autopopulated in GSTR-2A of recipients Part A of GSTR 3 Part A of GSTR 3 Step 8 GSTR 3 20 Part B of GSTR 3 Step 7 Make Payment 20

31 Monthly Return Process : Caveats No Revised Return permitted Rectifications permitted In the same cycle only if sponsored by the recipient Only in the subsequent cycle if unmatched by the recipient Not permitted for matched transactions Section 37(3) Locking of GSTR1 between 10 th and 15 th Proviso to Section 37(1) Understanding the broad contents

32 Broad Contents of GSTR Returns GSTR1 : Outward Supplies B2B Line Level Upload B2CIL Line Level Upload Others Aggregate Upload (Rate/POS) GSTR2 Inward Supplies B2B (RD) including RD_RCM Line Level Upload (Matching Process) B2B (URD_RCM) Line Level Upload (Entry Process) Others - Aggregate

33 GSTR1 1A 2A GSTR2 GSTR3 4. B2B 5. B2CIL 6. Zero Rated 7. B2CS (Net of CN) 8. Nil/Exempt/Non GST 9. Amendments (incl CN) Amendments Advances 12. Document Summary 13. HSN Summary 3. B2B 4. RCM 5. Imports 6. Amendments 7. Composition/Exempt/Non GST 8. ISD Credit 9. TDS/TCS Credit 10. Advance RCM 11. ITC Reversal/Reclaim 12. Output Tax Addition/Reclaim 13. HSN Summary 3. Turnover of outward supplies 4. Breakup of Taxable Outward Supplies 5. RCM 6. Input Tax Credit 7. Output Tax Adjustments 8. Tax Liability (Total) 9-15 Payments and Adjustments

34 Input Credit Matching VENDOR VENDOR S SYSTEMS VENDOR S UPLOADING PROCESS GST-N SERVER CUSTOMER CUSTOMER S SYSTEMS CUSTOMER S UPLOADING PROCESS

35 Unilateral Errors and Rectifications.. An invoice 1 is issued in the name of ABC Limited. Immediately on issuance of the invoice, it is realized that the invoice is wrongly issued. But system does not permit cancellation of invoices. So a credit note 1 issued in the name of ABC Limited and another invoice 2 is issued in the name of PQR Limited Should Invoice 1 be uploaded? Should Credit Note 1 be uploaded? Should Invoice 2 be uploaded?

36 Input Credit Matching vis-à-vis ABC Limited VENDOR VENDOR S SYSTEMS VENDOR S UPLOADING PROCESS GST-N SERVER CUSTOMER CUSTOMER S SYSTEMS CUSTOMER S UPLOADING PROCESS

37 No Clarity on Place of Supply An invoice 1 is issued in the name of ABC Limited, Mumbai on 20-July instead of ABC Limited, Delhi. ABC Limited, Delhi does not see invoice 1 in its GSTR2A so self claims the credit. When the invoice is reflected in GSTR1A, it is realized that there was an error. The error is accepted in GSTR 1A. In accounts, a credit note 1 issued in the name of ABC Limited, Mumbai and another invoice 2 is issued in the name of ABC Limited, Delhi. Invoice 1 was already uploaded in favour of ABC Limited, Mumbai Through GSTR1A, the invoice is accepted (through rectification mode) for ABC Limited, Delhi Should Credit Note 1 be uploaded Should Invoice 2 be uploaded What happens if inadvertently ABC Limited, Mumbai accepts the transaction

38 Invoices : Care to take Unilateral Errors and Cancellations Error Resolution through GSTR1A Already matched erroneous invoices on GSTR Portal Incorrect tagging / non tagging of RCM Wrong Amounts populated Delayed identification of B2B Nature of transaction

39 Credit Notes: Care to take Distinction between B2B and B2C (Role of netting out) All credit notes will not be recognized Delayed Credit Notes Post Supply Discounts Unilateral Credit Notes Acceptance of credit note by customer dependency Goods Rejection during transition period no credit note but a sale invoice to be raised Proviso to Section 142(1)

40 Reconciliations Turnover Financials GSTR Inventory Sales Revenue Outward Supplies Adjustments HSN Summary Microsoft Excel Worksheet

41 Indirect Tax Practice for CAs Advisory Services Compliance Outsourcing Audit Litigation Huge One Time Need Multi-locational Service Set ups complex Less Frequent Changes in Law Knowledge vs. Advise Balancing of 3R s. Use of Technology Less Department Interface No Documents Technology Volume People Skills Very Elaborate Understand Risks Fee Structure Conflict of Interest Onerous to keep track Niche Area Limitation of Practice Competition from Legal Fraternity

42 Compliance Practice for CAs : Way Forward ABC Limited has currently appointed separate excise consultant, VAT consultant and service tax consultant. Will he need three different consultants in GST? Can he keep three different consultants in GST? What will be the role of each of them? Will there be a need for state level consultants? Common Law across the country Most activities on common portal Law being State level, local nuances may still play a role What are the relevant skill sets in GST Regime?

43 Professionals : Skill Sets required Domain Knowledge Systems Approach Solutions Approach Network Approach Very Important, the differentiator between professionals and large businesses May otherwise lead to burn-out and eventual transition of clients Ability to understand business dynamics and upgrade to a business advisor May provide last leg execution support. May be critical in GST Regime

44 Evolving New Fee Structures Profession is and cannot be run like a business, but it cannot function like a charity either VALUE RISK COST Professional Fees

45 Compliance Practice Sr. Activity Role Time 1. Preparation of Basic Data Client NIL 2. Determination of Turnover CA 2 hours 3. Stratification of Data for GSTR1 SQA 4 hours 4. Summary of HSN Data SQA / CA 4 hours 5. Three Way Reconciliation Sr. CA 1 hour 6. Handling Taxation of Advances SQA/CA 2 hours 7. Filing of GSTR1 and Uploading Article 4 hours 8. Expense Credit Reconciliation SQA 4 hours 9. Decision on Reconciliation Items Client / CA 2 hours 10. Uploading of RCM Line Level Details SQA / Article 4 hours

46 Compliance Practice (Contd.) Sr. Activity Role Time 11. Decision on Claim of Credits Client / CA 2 hours 12. Uploading of GSTR 2 Article/SQA 2 hours 13. Income Reconciliation based on GSTR1A CA 1 hour 14. Decision on Reconciliation Items Client/CA 1 hour 15. Uploading of GSTR 1A Article/SQA 1 hour 16. Finalisation of GSTR 3 Article/SQA 1 hour 17. ITC Mismatch Report and Action Points thereon CA 1 hour 18. Reconciliation of Provisional Credits and Reversals and Re-credits CA/Sr. CA 2 hours 19. Review of Above Steps and Advisory CA/Sr. CA 4 hours

47 Indicative Cost Matrix [48 clients] Group Role Optimum Span Cost Article/Semi Qualified Assistants Fresh Chartered Accountant Sr. Chartered Accountant (4 years experience) Preparation of Raw Data and Follow up for obtaining information Important Financial Reconciliation and Credit Calculation, Simple Advisory and Review of Arithmetical Accuracy Review of all returns to be filed. Advisory and Strategic Role. 12 clients per resource 4 resources at average CTC of Rs clients per resource 2 resources at average CTC of Rs clients per resource 1 resource at average CTC of Rs TOTAL MANPOWER COST RECOMMENDED FEE STRUCTURE

48 Marrying Cost and Value Category No. of Clients Total Per Client Per Month A B C Total How to drive VALUE?? Learn to say NO, at least once in a while Always remember 50 x 20,000 > 200 x 4,000

49 What are the risks?? Successful GSTR Filing Dependent on Quality of Data Entry by Client Processing of Data at CA End Timely Confirmation by Client Network and Server Dependencies Any aberration to be known to Client s tax team Client s Sales team Client s Client s tax and procurement teams Who is the person to be blamed??

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