Transferring efficiency Advancing new options Indirect Tax Seminar Issues and Prospects June 22, 2013 Anjlika Chopra
Contents Important obligations under VAT Registration Returns and payment of taxes VAT audit Obligations under works contract Deduction of tax at source Accounts and records Input tax credit mechanism Introduction Availability of input credit Negative list of input credit Input credit of capital goods Carry forward and refund of input credit Reversal of input credit Goods and Services Tax 2
Important obligations under VAT
Important obligations under VAT VAT Registration Returns Payment of tax Obligations under Works Contracts Deduction of tax at source Accounts and records Self assessment 4
Registration Types of Dealers Typically, the following are deemed to be dealers liable for registration: Manufacturer: Person who sells goods produced by manufacturing Trader: Person who sells goods produced by others Works Contractor: Person who transfers property in goods (whether as goods or in some other form) involved in the execution of a works contract Lessee: Person who is engaged in the business of transfer of the right to use any goods for any purpose Agriculturist: Person who is a company and is selling products like arecanut, pepper, cardamom, rubber, timber, wood, raw cashew or coffee grown on cultivated land, directly or otherwise (Karnataka) Casual Dealer: Person who undertakes occasional transactions in the nature of business involving buying, selling, supply or distribution of goods or conducting any exhibition-cumsale Non-resident Dealer: Who effects purchases or sales of any goods in the State, but who has no fixed place of business in the State 5
Registration Each State has prescribed a threshold limit in terms of taxable turnover for the dealers in that State to obtain registration Certain States require a particular class of dealers to obtain registration irrespective of their taxable turnover Dealer Every dealer (other than a casual trader) Andhra Pradesh Delhi Maharashtra Karnataka Fifty lakhs Five lakhs Five lakhs Five lakhs A Hotel dealer* No limit No specific provision Dealer under the CST Act Commission/ mercantile agent No specific provision No limit No limit No specific provision No limit Five lakhs (No specific provision) Five lakhs No specific provision No limit Five lakhs (No specific provision) Importer** No limit Nil One lakh No limit * Refers to Hotels supplying food and drinks for human consumption ** Refers to dealers importing goods into the relevant State 6
Returns and payment of tax Each State has prescribed the time limit and the manner in which a VAT dealer is required to file a Return and pay VAT for a tax period Different State VAT Acts may also prescribe different forms and time limits, for different classes of dealers along with penal provisions in case the Return is not filed in time by the dealer Return Andhra Pradesh Delhi Karnataka Form* VAT 200 DVAT 16 Form 100 Tax period One month One month A quarter / a month Time limit of payment of tax Within 20 days from the end of the tax period Within 21 days from end of the tax period Within 20 days from end of month Time limit for filing Return and payment of tax ** Within 20 days from the end of the tax period Within 25 days from the end of the tax period Within 20 days from end of month / 15 days from end of quarter * The Return forms for certain classes of dealers (casual trader, exporter etc.) may be different ** VAT Return for a tax period is required to be filed along with the proof of payment of VAT for the tax period 7
VAT audit Typically, VAT audit is applicable where the following conditions are satisfied: A person is a dealer Such dealer is liable to pay tax Turnover of sales or purchase exceeds the prescribed threshold limit Threshold limit varies from State to State Particulars Andhra Pradesh Karnataka Maharashtra Turnover limit for Audit No VAT Audit provision One Hundred Lacs Sixty Lacs Due date for submission of report Within 9 months of the end of the year to which the report relates Within 9 months and 15 days of the end of the year to which the report relates Audit report Form VAT 240 Form 704 8
Obligations under works contract Works contract is a contract involving the supply of goods as well as services Typically three schemes are available under VAT laws for payment of VAT on works contract Actual method: Payment of VAT on value of goods, determined by deducting costs in relation to labour and services from the gross value receivable Composition scheme: VAT calculated at a prescribed rate on the gross value receivable Standard deduction method: VAT payable at the normal rate on the gross value receivable post deduction of costs (prescribed percentage) in relation to labour and services In most States, the dealer has to notify the State Government in advance of the scheme opted for Particulars Andhra Pradesh Delhi Maharashtra Karnataka Registration for a dealer executing a works contract threshold limit Mandatory for every contractor opting for the composition scheme No specific provision No specific provision No limit Return No separate form specified No separate form specified Form 233 No separate form specified 9
Deduction of tax at source TDS provisions in the States are typically applicable in respect to payment for works contracts Tax payment Haryana Delhi Kerala Karnataka Applicability Applicable if amount paid to a dealer in an year exceeds One lakh Applicable if value of works contract exceeds Twenty Thousand Rate of TDS 4% 4% for registered dealers; 6% for unregistered dealers Certificate of tax deduction Applicable to all Applicable to all Deduction equal to amount of tax liability of contractor Deduction equal to amount of tax liability of contractor VAT 156 DVAT 43 Form 20C VAT 156 10
Accounts and records Each State has prescribed the accounts and records required to be maintained by a VAT dealer and the provisions regarding preservation of such accounts and records e.g. dealers registered under Delhi VAT are required to preserve records and accounts for 7 years Some common accounts and records are: Tax invoices issued by the dealer Accounts and records required to be maintained Original tax invoices received by the dealer Challan evidencing payment of tax, interest, penalty or any other amount paid under the State VAT Act Details in the prescribed form for all purchases, reflecting the values of goods subject to each rate of tax under the VAT Act Details in the prescribed form for all receipts, sales and other disposals reflecting the values of goods subject to each rate of tax under the VAT Act Details in the prescribed form, for all production/ manufacture and stock, reflecting the value of goods subject to each rate of tax under the VAT Act Details of input tax paid and output tax payable 11
Accounts and records Typically, a dealer engaged in execution of a works contract has to maintain separate accounts and records for each contract executed In certain States (e.g.. Andhra Pradesh), the VAT laws of the State specify the accounts and records to be maintained by dealer executing a works contract: Accounts and records required to be maintained by a Works Contractor Dealer opting for composition scheme or standard deduction scheme Payments received from contractee Details of TDS Dealer opting for the actual method Details of purchases for execution of a works contract Details of goods to be used in the execution of works contract Details of payment received in respect of each works contract Details of labour charges Details of amount paid to sub-contractor Cost of consumables Architect s fee 12
Input tax credit mechanism
Input tax credit mechanism Input Tax Credit ( ITC ) Mechanism Introduction Refund of ITC Availability of ITC ITC on capital goods Negative list for ITC Reversal of ITC 14
Input tax credit An introduction Input tax credit can be utilized for setting-off against the output VAT liability payable by a dealer on sale of goods (whether inter-state sale or intra-state sale) Input tax credit is available to manufacturers as well as traders The benefit of set-off of input credit is available only to a registered dealer Input tax credit is allowed on the basis of a tax invoice only Each State provides a mechanism by which input tax credit may be availed and utilized by a registered dealer of that State 15
Input tax credit An introduction Customer VAT @ applicable rate VAT @ applicable rate CST @ 2 percent CST @ 2 percent Trader Manufacturer CST at applicable rate VAT @ applicable rate CST at applicable rate Customer State A State B Non creditable Creditable State C 16
Availability of input tax credit Exempt sales Dealer effecting sale of exempted goods is not eligible to claim ITC in respect of purchases Zero rated sales Different from exempt sales Dealer effecting zero-rated sales eligible to claim ITC in respect of the purchases made Exports are zero-rated sales under VAT laws Sale of taxable as well as exempt goods ITC allowed on a proportionate basis The manner of calculation of proportionate credit available, typically prescribed under VAT laws Total amount of ITC paid on purchases Sales turnover of taxable and zero rated sales Total sales turnover of taxable goods, exempt goods and zero-rated sales 17
Availability of input tax credit Composition scheme under works contract Dealer opting to pay VAT under the composition scheme is not eligible to claim ITC on purchases (except in Maharashtra) Input Tax Credit on vehicles Typically, input tax credit on motor vehicles is not available where the same are to be used as capital goods by the assessee In the State of Maharashtra, in case the dealer is engaged in the business of transfer of right to use vehicles, ITC on purchase of such vehicles was available, however, vide a recent notification, this credit was disallowed by amending Rule 54 18
Negative list of input credit Each State has prescribed certain purchases, the tax paid on which does not qualify as input credit. Some typical examples of such purchases are: Negative list of ITC Goods purchased from unregistered dealers Goods purchased for personal consumption Goods purchased from dealers opting for composition scheme Goods purchased in the course of inter-state sale Purchases from a dealer exempt from tax Goods given away by way of free sample or gift specific disallowance in Orissa and Assam Goods not sold due to theft, loss or destruction Petrol, diesel, aviation turbine fuel, liquefied petroleum gas and condensed natural gas 19
Input credit of capital goods Input tax credit of inputs is available immediately, in a single installment Each State has its own definition and scope of capital goods In case of capital goods, ITC may be available either in a single installment or on a deferred basis. Examples are: State Andhra Pradesh Bihar Delhi Haryana Maharashtra West Bengal Uttar Pradesh Input Tax Credit availability period Can be availed in a single installment 36 monthly installments 3 equal yearly installments Can be availed in a single installment Can be availed in a single installment Purchase Price up to 1 crore - single installment Exceeding 1 crore - four half yearly installments Can be availed in a single installment 20
Carry forward and refund of excess ITC In most States, excess ITC is first to be adjusted against any outstanding VAT leviable in that State and thereafter for payment of CST Balance ITC may be carried forward to the subsequent period Excess unadjusted VAT at the end of a specified time period is eligible for refund State Andhra Pradesh Delhi Haryana Karnataka Maharashtra West Bengal Andhra Pradesh Refund Available at the end of the second year Can be availed at the end of the tax period at the option of the dealer Refund is available only to exporters. Other dealers eligible only to adjust the excess against future tax liability Available at the end of the financial year Available at the end of the financial year Available at the end of the second year Available at the end of the second year 21
Reversal of input tax credit Stock transfers A specific percentage of input tax credit is required to be reversed Tamil Nadu Himachal Pradesh Jharkhand Bihar Delhi 3 % 4 % 4 % 100 % / 4% Section 16 Rate of reversal specified according to goods Sales returns In some States (e.g.. Tamil Nadu, Bihar), the selling dealer has to reverse credit where the purchaser returns the goods within a specified time period (e.g. for Tamil Nadu and Bihar, where purchaser returns the goods within 6 months) Selling dealer entitled to take credit where: Sale was included in the return and tax was paid Price of the goods (including tax thereon) is returned fully to the purchaser 22
Reversal of input tax credit Sale price of the goods lesser than purchase price In case a dealer sells goods at a price lesser than the price paid for purchasing the goods, amount of input tax credit over and above the output tax of those goods shall be reversed Goods unsold at the time of closure of business In some States (e.g. Tamil Nadu, Himachal Pradesh), input VAT credit shall be reversed at the time of closure of business where: Goods remain unsold as on date of closure Dealer has availed ITC on such goods 23
Goods and Services Tax
Goods and Services Tax The proposed Goods and Services Tax ( GST ) is based on a dual mode of taxation: Central GST, levied by the Centre State GST, levied by each State Exempted goods and services Currently, 96 items are exempt under VAT and 243 items are exempt under Excise It is proposed that the list of exempted goods and services should be common for CGST and SGST Challenges foreseen: More than 200 items currently exempt from Excise will become liable to CGST Items currently exempt under VAT but not exempt under Excise (e.g.. Charcoal, handloom fabrics, bottled drinking water) would be exempt from CGST and SGST, resulting in loss of revenue Threshold limit There is proposed to be a common threshold limit for SGST and CGST It is proposed to be increased from INR 10 lakhs to INR 25 lakhs Threshold for inter-state dealers is proposed to be NIL 25
Goods and service tax Goods attracting concessional tax Currently under State VAT certain goods (capital goods, declared goods, industrial inputs, etc.) attract a lower rate of duty The new GST proposes to have a common list of goods attracting lower duty for CGST and SGST Challenges due of dual control Under GST, both the Centre and the States would get the power to levy tax on goods and services CGST to be administered by the Central Government SGST to be administered by the State Government This would result in dual control on dealers Suggestions made to reduce the adverse impact of dual control: Single return to be filed through Goods and Service Tax Network ( GSTN ) portal accessible by Central and State authorities Dealers with turnover up to INR 15 lakhs to be under control of State authorities only Dealers with turnover exceeding INR 15 lakhs to be under control of both Centre and State Dealers engaged in inter-state supply of goods to be under control of both Centre and State 26
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