GST Updates, Model GST Law and Way Forward

GST Updates, Model GST Law and Way Forward September 2016 14-09-2016 1

Agenda 1. Update on GST Developments 2. Overview of Model GST Law 3. Way Forward 14-09-2016 2

Update on GST Developments

Implementation of GST Next Steps for the Government and States Bill passed by Parliament GST Council to decide on key aspects Pilot test of GSTN key modules Pilot test of GSTN all modules Aug-16 Sep-16 Nov-16 Dec-16 Jan-17 Apr-17 O GST goes live? Ratification by > 15 states, followed by Presidential assent Formation of GST Council Centre to pass CGST and IGST Acts, advanced session possible States to pass SGST Acts Centre and States to enact subordinate legislation 14-09-2016 4

Concerns and Open GST Design Elements» Though 16 States have ratified Constitutional Amendment, some key States have not West Bengal dual control cited, also possible differences over autonomy and dispute resolution Karnataka rate issue Tamil Nadu GST design itself Concerns in Maharashtra about octroi» GST Council, comprising Union FM and State FMs, to make key design decisions Tax rate States asking for 20+, but industry wants reasonable rate Thresholds and exemptions Some States making Budget provisions for incentives promised, that are currently channelled through State Tax Department Dual control» Legal issues regarding need for registration, and place of supply of services.» States seeking assurance that the benefit of lower rates will be passed to the consumer» Revenue Secretary suggests postponement of switchover date for industry to prepare Industry associations asking for time to configure IT systems, and relaxation of penal consequences Many back-end accounting issues need to be addressed, including incorporation of the GST Network into the current Public Financial Management System 14-09-2016 5

Overview of Model GST Law

Meaning and Scope of Supply» Expanded definition to include: All forms of supply of goods and services such as sale, transfer, barter, exchange, license, rental, lease, disposal For consideration In course or furtherance of business Import of service Whether or not for consideration Whether or not in course or furtherance of business Specified supply, without consideration (Schedule I)» Schedule II specifies which transaction is to be treated as a supply of goods or a supply of services Entry 5(f): Works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract 14-09-2016 7

Levy and Collection of GST» Section 1: Extent CGST and SGST law extends to the whole of India (including J&K)» Section 7: Charging section CGST and SGST on all intra-state supplies of goods and services Rates will be specified in the Schedules Tax will be payable by taxable person Tax on specified categories of supplies of goods and services will be under reverse charge Intrastate Supply of Goods- Location of supplier and place of supply are in same state Intrastate supply of services- Location of supplier and place of supply are in same state» Section 4: Charging section IGST on all inter-state supplies of goods and services Rates will be specified in the Schedules Inter-state Supply of Goods- Location of supplier and place of supply are in different state Inter-state supply of services- Location of supplier and place of supply are in different state Imports shall be deemed to be supply of goods/ services in the course of inter-state trade or commerce» Section 8:Composition levy taxable persons with an aggregate turnover of Rs. 50 lakh Composition tax will be >=1%» Central and State Governments are empowered to exempt supplies of goods and services from GST 14-09-2016 8

Taxable Person and Registration» Taxable person is a person Who carries on any business at any place in India Who is registered or required to be registered under Schedule III Supplier whose aggregate turnover in a financial year exceeds Rs. 9 lakh ( Rs. 4 lakh in NE States) Person holding registration under earlier law Transferee of a business Compulsory requirement Inter-State supplies Casual taxable persons and non-resident taxable persons, irrespective of threshold Person liable under reverse charge, irrespective of threshold ISD Whose aggregate turnover in a financial year exceeds Rs. 10 lakh ( Rs. 5 lakh in NE States) Exclusions Services of employee to employer Business of exclusively supplying goods and services not liable to tax Person (otherwise liable under reverse charge) receiving services for personal use and for a value up to a limit to be specified 14-09-2016 9

Time of Supply and Rate Changes Time of supply is to be the earliest of the following: Category Goods Services Forward charge Date of removal of goods (where required to be removed) / date goods are made available to the buyer* Date of issuance of invoice Date of receipt of payment Date on which recipient shows receipt of goods in books of account Date of issuance of invoice / Date of completion of service (if invoice not issued within prescribed period) Date of receipt of payment Date on which recipient shows receipt of service in books of account (where there is no invoice or payment) Reverse charge *(where not required to be removed physically not capable of being moved / supplied in assembled or installed form / supplied by supplier to agent or principal) Date of receipt of goods Date of receipt of invoice Date of making payment Date of debit in the books of accounts Date of receipt of services Date or receipt of invoice Date of making payment Date of debit in the books of accounts 14-09-2016 10

Time of Supply and Rate Changes For the following cases the time of supply is as specified: : Category Goods Services Continuous supply Specific scenarios Where successive statements of accounts/ payments are involved date of expiry of period to which such statements relate Where no such statements of account are involved date of issuance of invoice or receipt of payment, whichever is earlier Where it is not possible to determine when the supply will take place (e.g. sale on approval basis) when it becomes known that the supply has taken place or, 6 months from date of removal, whichever is earlier Where due date of payment is ascertainable from the contract date on which payment is liable to be made by recipient, whether or not invoice issued or payment received by supplier Where due date of payment is not ascertainable from the contract each time when the supplier receives payment or issues an invoice, whichever is earlier Where payment is linked to completion of an event time of completion of event Where supply of services ceases under a contract before the completion of the supply when the supply ceases Residuary Where a periodical return is to be filed, the date on which such return is to be filed In any other case, the date on which CGST/ SGST is paid 14-09-2016 11

Place of Supply Goods» Provisions relating to place of supply are contained in section 5 of the IGST Act» Where supply involves movement of goods Location at which movement of goods terminates for delivery» Where goods are delivered before or during their movement either by way of transfer of documents of title to the goods or otherwise, to a recipient or any other person on the direction of a third person Principal place of business of third person» Where supply does not involve movement of goods Location of such goods at the time of delivery» Installation / assembly at site Place of such installation or assembly» Where the goods are supplied on board a conveyance, such as a vessel, an aircraft, a train or a motor vehicle Location at which such goods are taken on board» In any other case (not covered above) Determined by law made by the Parliament in accordance with the recommendations of the Council 14-09-2016 12

Place of Supply Services» Provisions relating to place of supply are contained in section 6 of the IGST Act Nature of Service Place of Supply of Service Services in relation to immovable property including ancillary services Lodging accommodation by a hotel, inn, guest house, homestay, club or campsite, by whatever name called and including a house boat or any other vessel Accommodation in any immovable property for organizing any marriage or reception or matters related therewith, official, social, cultural, religious or business function including services provided in relation to such function at such property Restaurant and catering, personal grooming, fitness, beauty treatment, health services, cosmetic and plastic surgery Location at which the immovable property is located Location at which the immovable property, boat or vessel is located Location where the services are actually performed Services in relation to training and performance appraisal In case of registered person location of such person Other than registered person location where the services are actually performed 14-09-2016 13

Place of Supply Services Nature of Service Admission to a cultural, artistic, sporting, scientific, educational, or entertainment event or amusement park or any other place and services ancillary thereto Place of Supply of Service Location of the event or park or other place, as the case may be Services provided by way of organization of a cultural, artistic, sporting, scientific, educational or entertainment event including supply of service in relation to a conference, fair, exhibition, celebration or similar events Services ancillary to organization of any of the above events or services Assigning of sponsorship of any of the above events When provided to a registered person location of such person When provided to other than registered person location where the services are actually performed Transportation of goods including mail or courier When provided to a registered person location of such person When provided to other than registered person location at which the goods are handed over for their transportation Passenger transportation service When provided to registered person location of such person When provided to other than registered person place where the passenger embarks on the conveyance for the continuous journey Other than above as specified 14-09-2016 14

Place of Supply Services Nature of Service Service on board a conveyance such as vessel, aircraft, train or motor vehicle Place of Supply of Service Location of the first scheduled point of departure of that conveyance for the journey Telecommunication services including data transfer, broadcasting, cable and direct to home television services: Services by way of fixed telecommunication line, leased circuits, internet leased circuit, cable or dish antenna; Mobile connection for telecommunication and internet services provided on post-paid basis; Mobile connection for telecommunication and internet services are provided on pre-payment through a voucher or any other means Location where the telecommunication line, leased circuit or cable connection or dish antenna is installed Location of billing address of the service receiver on record of the service provider Location where such pre-payment is received or such vouchers are sold. If prepaid service is availed through electronic network the location of the service recipient as per the record of the service provider Banking or other financial services including stock broking Location of the service receiver on the record of the service provider Where the service is not linked to the account of the recipient of services, the place of supply shall be location of the supplier of services 14-09-2016 15

Place of Supply Services Nature of Service Place of Supply of Service Insurance services In case of registered person location of such person Other than registered person - location of the service receiver available on the records of the service provider Advertisement services to the central government, state government, a statutory body or a local authority meant for identifiable states Each such State Services not covered above When provided to registered person location of such person When provided to other than registered person - location of the service receiver available on the records of the service provider or location of the service provider 14-09-2016 16

Tax Credits under GST» Credit of input tax available to registered taxable person, subject to conditions and restrictions as may be prescribed» Credit to be taken within one year from date of issue of tax invoice relating to supply» Credit restricted if goods and services used partly for business and partly for other purposes, and used partly for taxable supplies and partly for non-taxable supplies (including exempt supplies but excluding zero-rated supplies)» List of goods and services on which credit will not be available similar to present list of exclusions from capital goods, inputs and input services, and now includes exclusions under present VAT law» No input tax available unless Tax paying document available Goods and services actually received Tax has actually been paid to the credit of the Government Return has been filed» ISD provisions to continue in similar form as present 14-09-2016 17

Valuation» Complex valuation provisions have been introduced» Tax payable on transaction value, the price paid or payable, where the parties are not related, and price is the sole consideration for the supply» The transaction value shall include Any amount payable by the supplier in relation to the supply that has been incurred by the recipient Free / reduced cost supplies by the recipient Royalties and licence fees Taxes and duties (except CGST, SGST, and IGST) Incidental expenses, incurred before delivery of the goods or services Subsidies Reimbursable expenses (but pure agent exception continues) Post facto discounts» Valuation can be challenged Named circumstances Significantly higher value for like kind and quality Significant difference from market value Mis-declaration Alternative methodologies introduced, viz. determination of value by comparison (transaction value of goods and services of like kind and quality supplied at or about the same time, adjusted for differences in (i) date, (ii) commercial level, (iii) composition, quality and design, and (iv) freight and insurance costs) or computed value (cost + charges for design and brand + profits and general expenses) or other reasonable means 14-09-2016 18

Payments, Returns and Refunds» New concepts of electronic cash ledger and electronic credit ledger» Details of outward supplies to be furnished electronically by 10 th of the following month» Details of inward supplies to be furnished electronically by 15 th of the following month» Monthly return to be furnished electronically by 20 th of the following month Return will contain details of outward and inward supplies, input tax credit availed, tax payable, tax paid and other details as may be prescribed Return for tax period cannot be filed if return for earlier tax period has not been filed Tax payments to be made before filing of return» TDS return to be furnished electronically by 10 th of the following month» Annual return to be furnished electronically by 31 st December of the following year» ISD return to be furnished electronically by 13 th of the following month» Filing will undergo a matching process Discrepancies will be communicated, based on which rectification to be made in subsequent return» Refunds only for export of services 14-09-2016 19

Transition Provisions» Treatment of long term construction / works contracts The goods and/or services supplied on or after the appointed day in pursuance of a contract entered into prior to the appointed day shall be liable to tax under the provisions of this Act» Treatment of retention payments Notwithstanding anything contained in section 12 and 13, no tax shall be payable on the supply of goods and/or services made before the appointed day where a part consideration for the said supply is received on or after the appointed day, but the full duty or tax payable on such supply has already been paid under the earlier law 14-09-2016 20

Comparison of Key Elements Key areas Present taxes GST Areas of concern Registration Centralized registration under service tax Registration in each State from where supply is to be made Return Payments Exemption Half-yearly return under service tax for service provider, ISD Monthly payment by 6 th of next month 31 st March for the month of March Exemptions prescribed by way of notifications Returns to be filed for each registration of: (1) Outward supplies by 10 th (2) Inward supplies by 15 th (3) Monthly return by 20 th (4) ISD return by 13 th (5) TDS return by 10 th (6) Annual Return by 31 st December Monthly payment before due date of filing return No exception for the month of March Exemption to be notified by Governments on recommendation of GST Council Compliance and controls Working capital complexities Multiplicity in terms of complying with return requirements of all States Grandfathering of exemptions provided under the present laws 14-09-2016 21

Comparison of Key Elements Key areas Present taxes GST Areas of concern Time of supply Point of taxation is earliest of (1) date of invoice, (2) date of completion of service, if invoice not issued within 30 days, or (3) receipt of advance For continuous supplies, date of completion of event as per contract In addition to prevailing service tax law, date on which the recipient shows receipt of services in his books will become relevant For continuous supplies, if due date not ascertainable, only invoice and receipt dates relevant Place of supply Location of service recipient If made to registered person, location of such person Otherwise, location of the recipient where the address on record exists, and location of supplier in other cases Tax credits Valuation CENVAT credit available VAT, SAD adds to the cost Simpler valuation provisions with more discretion for differential pricing Cross credit between goods and services will be available More complex valuation provisions and differential pricing challenges Updating databases to incorporate registration of service recipients MIS tracking requirement Changes in policy Documentation requirement 14-09-2016 22

Comparison of Key Elements Key areas Present taxes GST Areas of concern Refunds Available under rule 5 of CENVAT Credit Rules Allowed for exports Specific provisions for accelerated refunds Reverse charge Challenged given definitions of service Revised definition Conditions to be seen 14-09-2016 23

Way Forward

Way Forward VoxLaw Methodology Project Steering Committee Senior Management VoxLaw Partner Program management Deliverable review and facilitation Issue and risk management Operational issue resolution and sign-offs Project Management Project Manager VoxLaw Project Manager Legal Execution Operations VoxLaw personnel Finance & Controlling Information Systems Strategy HR 14-09-2016 25

Way Forward VoxLaw Methodology Phase-1: Impact Analysis Phase-2: Implementation and Transition Phase-3: Post GST Support» Baseline Mapping 1. Sourcing pattern analysis 2. Tax mapping of procurement and supply 3. Analysis of tax credits» Overlay of GST Law and numerical impact analysis 1. Tax cost 2. Tax credits 3. Working Capital 4. Pricing» Identifying operational impact areas 1. IT 2. Supply Chain 3. Finance & Accounts 4. Legal 5. HR» Conducting gap analysis» Analysing GST Impact on various What If scenarios» Scoping and delivering on operational impact areas 1. IT 2. Supply Chain 3. Finance & Accounts 4. Legal 5. HR» Managing Transition Issues legal analysis 1. Registrations 2. Credits» Managing Transition Issues operational changes 1. System changes 2. Contractual arrangements 3. Pricing 4. Invoicing» Training and preparation of SOPs/Manuals» UATs» Post-Transition Issues 1. Advisory on operations 2. Compliances 3. Optimisation 14-09-2016 26

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