Works Contract under GST This Presentation Contain Introduction to GST Registration Definition of Works Contract Composition Scheme Scope of Supply Valuation Exemptions & Valuation Input Tax Credit Taxability of TDR Payment of Taxes & TDS Time of Supply of Service Returns Place of Supply Existing Long Term Contracts
1. Introduction: The current Indirect tax regime in India provides for a complex tax environment due to multiplicity of taxes, elaborate compliance obligations and tax cascading. Under the proposed GST regime, all the key Indirect tax legislations would be subsumed (except for few taxes such as duty on Electricity, Stamp Duty, etc.). There has been significant progress on the GST front recently. With the release of the Revised draft Model GST Law, a major milestone has been achieved and India has certainly moved a step closer to GST. Infrastructure projects (including Power) currently enjoy various concessions and benefits from indirect tax perspective, and it is imperative to evaluate whether these benefits would continue under the GST regime. In light of the above developments, Industry would now need to analyze the provisions of the draft law in detail, and assess its impact on their business. This is essential to ensure that timely representations are made to the Government, as well as to identify key implementation requirements as part of the preparations for transition from the existing indirect tax regime to the GST regime. In the ensuing paragraphs, we have sought to identify the key aspects of the revised Model GST Law as may be relevant for the Infrastructure Sector. Introduction to GST: Under present indirect tax systems there re various taxes govern supply of goods and services which are excise, service tax, VAT, CST, entry tax, etc. Credit of tax paid at one stage is not available in 2 nd stage and therefore this creates double taxation which is born by ultimate consumer. Also under this system various compliances and complexity is there like multiple registrations, complex invoice, documentation, different points for taxations, Differenr rates of taxes, etc. To reduce this Burdon and complexity GST is introduced. In India there is Dual model of GST where both centre and state have power to levy taxes on goods and services. GST will be leviable on value addition at each stage. On intra-state i.e. within the state supplies of goods or services CGST (i.e. central goods and service tax which is revenue of central government) as well as SGST (i.e. State goods and service tax which is revenue of state government) is leviable. On inter-state supplies IGST i.e. integrated goods and service tax is leviable which is collected by centre but distributed to state where goods are consumed i.e. GST is Destination based taxation. Detail provision of how GST will be work in relation to works contract is given in this article. Before we start discussion on how GST will be there for construction industry/ works contract, we have to understand what is works contract under GST
2. Definition of Works Contract: Section 2 sub Section (110) defines - Works contract means a contract - Wherein transfer of property in goods is involved - In the execution of such contract - and includes contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property; What is not works contract: 1. The contract that is merely for supply of goods is not a works contract. Like supply of material only for construction is pure supply of goods which attracts provision of supply of goods 2. The contract that is merely for supply of labor is also not works contract which attract provision of supply of service. Therefore Architect who only provides design for construction is not works contract. Action to be taken: Identify component involve in your business and communicate with professionals to make sure whether you cover under works contract or not. 3. Scope of Supply: Problem under Existing Law: Currently, both VAT and Service tax is applicable on works contract service activities. This has not only resulted in higher tax burden but also in numerous litigations for infrastructure projects on the issue of whether different contracts have to be treated as supply of goods or provision of service contracts, or could they be treated as a composite works contract involving supply of both goods and services. Provision under Model GST law: Under GST this ambiguity has been comes to an end and now schedule II of Act specifies that works contract is treated as supply of service. Works contract under Schedule II entry no. 5 has been divided into two clauses which is explained here under: Clause (b) Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or before its first occupation, whichever is earlier.
Analysis Above entry cover works contract in relation to civil construction. Works contracts in relation to building, complex or any civil structure is treated as supply of service if it is sold before completion of construction. However if entire consideration on works contract has been received after issuance of completion certificate, where required, by the competent authority or before its first occupation, whichever is earlier than no GST is leviable on such supply as this become immovable property and GST can t be levied on sale of immovable property. Clause (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; Analysis This entry covers works contract where transfer of property in goods is involve and also services are involve in the execution of works contract. It is not necessary that goods should be transfer in the same form; it may be transfer in some other form. E.g. in case of works contract of installation of machinery require some material to fix the machinery and bring it into workable property of this goods is transferred to factory owner. In both the clause works contract is treated as service so now there will be no confusion remain about this; and thus will discuss provision only in relation to service now. Scope of Supply can be summaries as follow: Works contract Works Contract which Involve civil construction Works Contract which Does not involve civil construction Supply after Completion of construction Supply before Completion of construction It is supply of service It is sale of Immovable property It is supply of service GST Leviable NO GST GST Leviable
Action to be taken: Ascertain under which case your business covers i.e. o Sale of property before completion of construction o Sale of property after completion of construction o Other works contract It is very important to ascertain scope of supply because all the provisions will be very on that 4. Exemptions & valuation: Provision under Existing Law: Exemptions: Currently there are various abatements or exemptions have been provided under both service tax act as well as state VAT act. In service tax various exemptions & abatement has been provided which are: 1. Exemption as per Service Tax Mega Exemption Notification No.25/2012 entry no. 12, 12A, 13, 14, 14A in relation to specified construction services provided to specified persons 2. Abatement of 75% has been provided in abatement notification 26/2012 to construction of complex, building, civil structure where value of land is included in the transaction value. 3. Under Rule 2A of Valuation Rule deduction in transaction value is provided in case of works contract as follow: a. 40% of Transaction value in case of new original work b. 70% of transaction value in case of old work. In Maharashtra VAT Act there are various methods and composition scheme has been provided which are: 1. Composition Scheme under section 42(3) 2. Actual expense method under Rule no. 58 3. Standard deduction method under Rule no. 58 4. Composition Scheme under section 42(3A) Valuation: Under existing Tax structure valuation under both Service tax act and VAT act are different. Therefore valuation rules for both the act has to be understand also for different scheme under both the act different valuation rule given. This creates unnecessary ambiguity in the law.
Provision under Model GST Law: Exemptions: Under model law presently there is no abatement or exemption has been provided in relation to works contract. Valuation: Section 15 governs provision related to Valuation which is given as under: Value of supply of goods/or services shall be the transaction value i.e. price actually paid/payable if following condition satisfied: - Transaction has definite consideration i.e. it is not depend upon some future event. - Supplier and recipient are not related person - Price is sole consideration i.e. not a barter exchange Value of taxable supplies i.e. transaction value also includes following Clause Provision example a. Liability of supplier paid by recipient Architecture fees payable by supplier is paid by recipient and which is not included in transaction value b. Goods supplied by recipient free of cost of at reduced price c. Royalties or license fees or taxes other than GST payable by supplier in relation to contract paid by recipient d. incidental expenses, such as, commission and packing, charged by the supplier to the recipient of a supply on or before delivery of goods and which is not included in contract value Cement supplied by recipient free of cost which is used in the construction. Fees for obtaining sanction map paid by recipient Transportation charges for delivery of machine separately charge by supplier which is not included in the contract of assembling machinery There is no specific valuation provision has been given so far as works contract is concern; so as of now even value of land is also form part of transaction value on which GST at the standard rate (may be 6% or 12%) is leviable. Action to be taken: Before commencing new projects assess possible impact on agreements and prices of property should be consider if no deduction is provided under GST Review of existing contract and consider impact on prices of the property because of land value being included in aggregate consideration for taxability purpose.
Representation by us: Considering Existing provision under VAT & service tax Act it is our request that: 1. Exemptions as given in Mega exemption notification under service tax in relation to specified construction services to specified person should be continued under GST. 2. Composition Scheme similar to MVAT Composition Scheme under section 42(3A) or Abatement as provided in entry no. 12 of abatement notification 26/2012 of service tax should continued to be provided in GST for construction of building or complex where value of Land is included in transaction Value. 3. Specific Valuation rule for works contract services should be provided for bring more clarity in valuation rules. 5. Taxability of TDR It is a common practice for the landowner to transfer development rights in the land to the developer. In lieu of such rights, the developer may provide a fixed quantity of flats to the landowner or share in the revenue from sale of the flats. The Model GST Law defines supply in very wide terms, which also includes barter/ exchange of goods or services Ambiguity remains regarding taxability of such TDR as to whether the same are liable to tax, and at what value. Action to be taken: Consider impact of taxability of development right on your upcoming contracts. Representation by us: 1. If TDR is taxable, time of supply, the valuation of transfer of the development rights by the landowner to the developer, as well as credit eligibility of the developer needs to be clearly provided for in the GST law. If the current credit provisions remain, the developer may not be entitled to avail credit of GST paid on TDR, hence resulting in huge incremental cost. 6. Time of Supply of service: The liability to pay CGST / SGST on the goods/ services shall arise at the time of supply. As per section 13 sub section (2): Time of Supply of Service in case of Normal Charge: - The date of issue of invoice by the supplier or last date on which he is require to issue invoice or - the date of receipt of payment, - whichever is earlier
7. Place of Supply Place of Provision of service is very important as it will decide under whose jurisdiction particular service will come also to know whether particular supply is inter-state supply or intra-state supply. Place of supply of service in relation to Immovable Property Section 9(4) of IGST Act deals with the place of provision of service in relation works contract of construction of immovable property which provides: Place of provision of service in relation to immovable property will be the place of provision where the immovable property is situated which includes services of: - Architects - interior decorators - surveyors - engineers and - other related experts or estate agents - for carrying out or co-ordination of construction work However where the immovable property is located in more than one State, the supply of service shall be treated as made in each of the States in proportion to the value for services separately collected or determined, in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other reasonable basis as may be prescribed in this behalf. Place of supply in relation to other than Immovable Property: In the case of works contract services provided other than in relation to immovable property section 6(2) provides place of provision of services as follow: - If service is provided to registered taxable person o Place of provision shall be location of service recipient. - Where services provided to person other than a registered person o Place of provision shall be The location of the recipient where the address on record exists, and The location of the supplier of services in other cases.
This can be summarized as follow: Place of provision of service Place of Provision of service In relation to Immovable property other than Immovable property POP - where immovable property is situated If services provided to registered taxable person POPlocation of service reciver If address of recipient is avaialble on records I f services provided to other than registered taxable person If address of recipient is not available on records POPlocation of service reciver POPlocation of service provider Action to be taken: Indentify contracts where services are required to provide from different states which need to take different registration in each state to comply with GST requirements. 8. Registration: Problem under Existing Law: Under existing condition as works contract covered under both service tax act as well as VAT act. Therefore registration under both the act is required. Also if person has business in more than one state than he has to take registration under all the state as VAT act is different for each state. This increases unnecessary compliance cost of works contractor. Therefore if DLF has construction site in Maharashtra state Gujarat state and Delhi than DLF has to obtained registration under service tax act as well as VAT act under all the three states. However there is option for taking centralize registration under servicee tax act which somewhat reduce compliance for registration.
Provision under Model GST law: Under model GST section 19 deals with registration which is given as follow: Section 19 sub section (1)- - Every person who is liable to be registered under Schedule III of this Act - shall apply for registration in every such State in which he is so liable - within thirty days from the date on which he becomes liable to registration - in such manner and subject to such conditions as may be prescribed Schedule III entry 1: - Every supplier shall be liable to be registered under this Act - in the State from Where he makes a taxable supply of goods and/or services - if his aggregate turnover in a financial year exceeds Rs. 20.00 Lakh Analysis Section 23 read with schedule V provide liability of registration to a person whose annual turnover exceeds Rs. 20.00 Lakh in a financial year. It also provide that taxable person has to apply for registration in every state in which he is liable to registered i.e. in every state where he provide taxable supplies and has fixed place of business over there. This will again leads to multiple registrations same as in existing law. However where there are occasional taxable supplies in other state than instead of taking normal registration taxable person has to take casual Registration which is explain as below: What is Casual taxable person? Section 2 subsection (20) defines: casual taxable person means - a person who occasionally undertakes transactions - involving supply of goods and/or services in the course or furtherance of business - whether as principal, agent or in any other capacity - in a taxable territory where he has no fixed place of business; Analysis Casual taxable person is person who supplies goods or services in another state where he does not have any fixed place of business. So, if a engineer/architecture/ designer, etc of Maharashtra went to Gujarat for providing services and he does not have any fixed place of business over there than he has to take registration in Gujarat as causal taxable person.
How to obtained registration as casual Taxable person? - Casual Taxable person has compulsory to obtained registration whether or not it exceed threshold limit of Rs.20.00 Lakh - Casual taxable person has to apply for registration before providing taxable supplies. - Along with application he has to make an advance deposit of tax of an amount equivalent to the estimated tax liability for the period for which the registration is sought i.e. prepaid tax system - On application, certificate of registration is provided which is valid only for 90 days from the effective date of registration. - However proper officer may, at the request of the said taxable person, extend the aforesaid period of ninety days by a further period not exceeding ninety days after deposit of an additional amount of tax equivalent to the estimated tax liability for the period for which the extension is sought. Action to be taken: Identify states where registration is now require to you and ensure required documents will be available with you before implementation of GST. Representation by us: Provision of section 19 leads to obtained registration in every states where there is fixed place of business and has to obtained registration as casual taxable person in the state where he does not have any fixed place of business. This will unnecessarily increases compliance for service provider by obtaining multiple registrations. Also provision of casual taxable person will leads to unbalanced input tax credit to them like it may be possible he has excess input tax credit in Maharashtra state however he can t use this credit while paying liability as a casual taxable person in Gujarat state. It is our suggestion to provide system of centralized registration at least for service providers so that there will be smooth flow of credit in all the state and they are free to provide services in all states and there will be same platform all over India. 9. Composition Scheme: Problem Under existing Law: Under existing Maharashtra VAT Act there is composition scheme for works contract under section 42 (3A) where 1% Vat is require to be paid on agreement value or value adopted by stamp duty authority for payment of stamp duty whichever is higher i.e. land component is also involved in agreement value on which tax as to be paid. There is abatement given under service tax law in which builder has to pay service tax only on 25% of value where agreement value includes value of Land.
Provision under Model GST law: Under Model GST law composition scheme is not applicable to service provider. Provision of composition scheme is given under section 9 which is as follow: - A registered taxable person, whose aggregate turnover in a financial year does not exceed Rs.50.00 - Is permitted to pay, in lieu of the tax payable by him, - an amount calculated at such rate as may be prescribed, but not less than one percent of the turnover during the year Conditions:- - inter-state supplies of goods and/or services are not permitted - Turnover will be turnover of all business in all states under single PAN - shall not collect any tax from the recipient on supplies made by him - he is not entitled to any input tax credit Rate:- - In case of Manufacturer @ 2.5% - In case of Traders @ 1% - Not Applicable to service Provider Analysis: Only taxable persons whose aggregate turnover does not exceed Rs. 50 Lakh in a financial year will be eligible to opt for payment of tax under the composition scheme. Turnover here means total of taxable supplies, non taxable supplies and also exempted supplies all over India. Also scheme is not applicable to service Provider i.e. works contractor can t opt for composition scheme. Representation by us: If we consider point of view of works contractor, Works contract is classified as service under Schedule III also generally where civil construction is involved value of taxable supplies are higher than Rs. 50.00 Lakh and thus this will exclude many works contractor for opting composition scheme. It is our suggestion to provide separate composition scheme for works contractors. Scheme should also specify what will be treatment of value of land included in the agreement value for the purpose of calculating limit for opting composition scheme.
10. Input Tax Credit Problem in existing law: There are various inputs of goods and services in works contract which become major part of value of supply like; under works contract related to construction of building; cement and iron bar become the major portion of value of supply. On this input excise is levied but works contractor/ builders can t use this credit. Also under VAT act there is different option to discharge tax liability where credit of VAT paid on inputs is available subject to certain retention and therefore some or full value of VAT become cost for works contractor. Similarly in case of service tax: In case of abatement of 75% where applicable is opted for payment of service tax or in case of services tax is paid on 40%/70% of value of service as per valuation rule under both situation Credit of taxes paid on inputs used in providing services is not available Hence this all tax paid by works contractor become cost to him which breaks the chain of Input tax credit. Provision under Model GST law: As per section 17 sub section 4 clause (c) and clause (d) input tax credit of works contract service received will not be available if used for construction of immovable property(other than plant & machinery). However credit will be available if such service used for providing further works contract service (i.e. sub-contract). Similarly input tax credit on goods or services received by a taxable person for construction of immovable property (other than Plant & Machinery) on his own account, even when used in course or furtherance of business like renting, Commercial Complex, hotel, hostel, etc will not be available. This provision can be summaries as: Works Contract Resulted in Immovable property Other than plant & machinery Resulted in movable property Input Tax credit not available Input Tax credit not available
Transitional Provision of Input Tax credit: Transition provision is explain here considering GST will be applicable from 1 st of April 2017 Credit C/F in Return: In case of person registered under existing law i.e. VAT/service tax/ excise have excess input tax credit carried forward in return filed for 31 st march 2017 than he can carried forward this credit into GST. - As per section 167 - Amount of CENVAT credit or VAT Credit - Input tax credit as per VAT law, - carried forward in a return furnished under earlier law - in respect of period ending immediately preceding the date of applicability of GST - can be taken as credit of GST in the following manner o Credit of VAT as SGST o Credit of service tax or excise as CGST Credit on Capital Goods not carried forward in Return In case of excise and service tax credit of capital goods purchase during the year is available in two installments, 50% in the year of purchase and 50% in any subsequent year. Therefore in case capital goods purchase in year 2016-17, 50% credit can be taken in the year 2016-17 itself, to avail remaining 50% of credit section 168 is provided as follow: - As per section 168 - A registered taxable person shall be entitle to take input tax credit of - Un-availed CENVAT credit on capital goods, not carried forward in a return, - furnished under the earlier law by him - for the period ending with the day immediately preceding the date of applicability of GST Credit of inputs held in stock not carried in return There are inputs as on 31 st March 2017 on which excise or VAT has been paid on purchase of but credit of this input is not taken as taxable person is not liable to registered under old law (like turnover below Rs. 150.00 Lakh) or he is dealing in exempted goods only or he is paying taxes under composition scheme but now this goods are liable to tax under GST law. So on sale of this stock GST will require to be paid. Therefore to avoid double taxation on this goods, credit of duty paid on stock purchase should be made available for which provision is given under section 169 and 170 as follow: - In case of person who is not liable to register under earlier law (like Trader or or service provider providing Exempted service) - or who was engaged in the manufacture of exempted goods under the earlier law - or who is paying taxes under composition scheme in earlier law - but which are liable to tax under this Act,
- shall be entitled to take credit of taxes in respect of inputs held in stock provided: o Such inputs and / or goods are used or intended to be used for making taxable supplies under GST o The said taxable person was eligible for CENVAT credit/vat credit on receipt of such inputs and/or goods under the earlier law but for his not being liable for registration or the goods remaining exempt under the said law o The said taxable person is eligible for input tax credit under GST i.e. not cover under composition scheme or turnover is not below Rs.20.00 Lakh o The said taxable person is in possession of invoice in respect of such material not older than twelve month which clearly mention amount of tax paid by him. Action to be taken: Identify components involved in your supply and decided whether it is beneficial to opt for normal scheme and take the benefit of Input tax credit or opt for composition scheme under GST. Books of Account should be completed well before time in proper manner (Currently various credit may not be recorded) so that credit can be carried forward into GST by filing return under existing law on time. Plan your purchase of capitals goods directly from manufacturer so that you can get credit of taxed paid on it which is not available under earlier law. Plan your maximum purchase from manufacturer where you can get excisable invoice so that you can take the benefit of excise paid in respect of stock held on the date of applicability of GST. If you are planning to shift GST from normal scheme under existing law to composition scheme under GST; Plan your purchase in such way that liability to pay in respect of stock held on the day of conversion will be minimum. Representation by us: 1. Input Tax credit on works contract resulted into immovable property There are various components are involved in the execution of works contract in relation to civil construction like: Services 1. Engineers 2. Surveyor 3. Advocates 4. Builder 5. Designer 6. Architecture 7. Sub contractor 8. Man power supplier, etc Inputs 1. Cement 2. Iron bars 3. Sand 4. Aggregates 5. Pipe fitting 6. Bricks 7. Gravel (murum), etc
As per model GST law input tax credit on this inputs as well as input service can t be taken where this input used in construction of immovable property other than plant and machinery even used for furtherance of business. This provision will block the credit of all components as mention above. This will also break the chain of Input Tax credit. This will ultimately again comes to existing VAT/service tax flaw. This break of chain will leads contractors or factory owner undertaking construction to purchase from unregistered dealers all the main inputs involve in the construction mainly Cement & Iron bars which is major portion of input. Also they will prefer services involved in the execution of construction from the unregister service provider or not to take invoices. This whole thing will result in creation of black money which adversely affect to our economy. As infrastructure is very necessary for any manufacturer or dealer to start or develop there business. Blockage of credit will increase cost of their infrastructure by amount of tax paid by them which will form nearly about 10-15% of their total project cost. It is our suggestion to make illegible credit of this input to registered taxable person who can use this credit for his taxable supplies. This will reduce their cost of immovable property and thus they will promote to invest in factory building and like infrastructure cost to develop and expand their business, an off course this will also develop our economy. If this credit has been provided to them they will always prefer to purchase from registered dealer instead of purchasing unregister dealer. This will helps to curb transaction through unregistered dealer and also to reduce black money which is also one of the objects of introduction of GST. 2. Input Tax credit on Administrative Expenses As per Section As per Section 17 sub-section 4 clause (a) & (b) credit will not be available on a. motor vehicles and other conveyance purchase except when they are used for making the following taxable supplies, namely - further supply of such vehicles or conveyances ; or - transportation of passengers; or - imparting training on driving, flying, navigating such vehicles or conveyances; - For transportation of goods.
b. Input goods or service when used for, - food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where such inward supply of goods or services of a particular category is used by a registered taxable person for making an outward taxable supply of the same category of goods or services; - membership of a club, health and fitness centre, - rent-a-cab, life insurance, health insurance except where the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; and - Travel benefits extended to employees on vacation such as leave or home travel concession. This in-illegibility of input tax credit will restrict Taxable supplier to provide attractive service to employees and only paying higher package to them. This will lower administrative expenses of organization and will restrict development of standard of living of employee i.e. youth of employees. It is our request to provide smooth flow of credit on all the expense incurred by taxable person for his business whether it is used for development of employee or not as development of employee is development of organization. 3. Transition provision in respect of inputs held in stock: As per section 169 & 170 a registered taxable person can take credit of inputs held in stock as on date of applicability of GST. It is not specifically clear whether in case of trader credit of Excise paid on purchase of goods held in stock as on appointed date will be available or not. It is our request to provide whether section 169 is applicable to Traders or not. 4. Transition provision for Credit of Input service used: As per section 169 credit of inputs held in stock is available if person is not liable to register under existing law or manufacturer manufacturing exempted product under existing law but liable to register under GST law. However provision is not applicable for services received before appointed date for which taxable supplies is to be made after appointed date on which GST is leviable. It is our suggestion that credit should be available of service tax paid on such input service received on or before applicability of GST but output service for which has been provided after applicability of GST and on which GST is payable. 5. Transitional Provision of Input Tax credit on capital Goods: As per section 168, input tax credit which is not carried forward in return as per earlier law can be availed under GST only if he is eligible to take such credit. However let suppose a taxable person is not eligible to take credit on Machine (capital goods) purchase in the year 2016-17 because manufacturer manufacturing exempted goods or his turnover is below taxable limit of Rs. 150.00 Lakh.
But now this machine (capital Goods) will produce taxable goods under GST. Therefore he should be eligible to take credit of Taxes paid on such capital goods. In the case manufacturer is not getting credit as he is not registered because his aggregate turnover does not exceed limit of Rs. 150.00 Lakh than in such case manufacturers will unnecessarily rush into getting voluntary registration in the month of March so that they will get the credit of this input paid on purchase of capital goods. However in case of dealers of works contractor they can t take registration under Excise so in any case they will not be able to take credit of excise duty paid by them in the purchase of capital goods which they will use in providing taxable supplies under GST. So it is our suggestion that credit of Excise duty paid on capital goods purchase during last 1 or 2 year should be made available to taxable person who is making taxable supplies out of such capital goods whether or not he is eligible to take registration under Excise Act. 11. Long term construction / works contracts Contract made earlier now liable to GST - As per section 186 - The goods and/or services supplied on or after the applicability of GST - in pursuance of a contract entered into prior to the application of GST - shall be liable to tax under the provisions of GST Act - irrespective of any terms and condition given under contract Service provided after applicability of GST But payment has been received before applicability of GST - As per section 187 - no tax shall be payable on the supply of goods and/or services - made on or after the applicability of GST - if the consideration for the said supply has been received prior to the applicability of GST and - the duty or tax payable thereon has already been paid under the earlier law Service provided before applicability of GST but payment received after applicability of GST Section 188 This Section applies in the following situations: - Where the supply of goods and / or services was made prior to the introduction of GST and - Where full tax / duty payable is paid under the earlier law; and - Where a part of the amount (referred to as retention amounts) is paid after the introduction of GST. - Than no tax is require to be paid under GST
Deduction of tax source under earlier Law - As per section 196 - Where the supplier had sold any goods under the earlier law; and - TDS applies on such transactions; and - the supplier had issued the invoice before the introduction of GST and - the payment is made to the supplier after the date of introduction of GST - no tax would be deductible at the time of making payment to the supplier. Action to be Taken: Review of existing Contract with customers well as contractors/ vendors to analyze impact of change in taxability of works contract- tax clause and change inn law clause to be analyzed Future Contracts to be framed in light proposed GST provision for tax optimization. Structure point of taxation of your transaction near to transition period in such manner to take benefit out of that like if GST have negative impact on transaction than receive consideration earlier even for supplies to be undertaken post GST and deferred payment if it has favorable impact of GST. Simplifying Transitional issue: Contract Made before apl. of GST Service provide after appl. of GST GST will be leviable Service Provided After App. GST Payment recieved before appl of GST GST will not be leviable Service Provided before App. GST Payment recieved after appl of GST GST will not be leviable TDS deductible inder under earlier law & Invoice issued as per earlier law Payment recieved after appl of GST No TDS would be dedutible under GST
12. Return: Existing Law: Currently works contractor has to get registration under both servicee tax and VAT therefore for return under both the act is required to be filed quarterly or annually as the case may be. Provision under Model GST law: Under Model GST law every registered taxable person has to follow procedure given below: 1 Upload the detail of outward supplies-including taxable supplies, exempt, export, deemed supplies, etc BY 10 TH OF NEXT MONTH under GSTR-1 2 3 4 Auto-draft of provisional GSTR-2 based on the detail uploadedd under GSTR-1 by supplier. Accept/reject/modify such auto-drafted provisional GSTR-2 By 15 th of next month Add additional purchase detail in GSTR-2 which has not been uploaded by the supplier 5 Reconcile the GSTR-1 & GSTR-2 & finalize using online/offlinee facility 6 7 GSTR-3 automatically generated on finalization as in Step:5 Pay the amount as shown in payable under GSTR-3 & file the return by the 20 th of next month. Representation by us: Return process under Model GST law is too much lengthy. Also detail required in forms provided for output detail, input detail and return are so much that it will unnecessarily increase compliance cost also this will consume too much time. It is requested to provide single day filing for output supply, input supply and filing of monthly return. Along with that provision to revises return should be provided in the law to avoid litigation in future. Action to be taken: IT systems/ accounting system would need to be revamped to record all the transaction on real time basis so that your returns would get filed on time.