Kharabanda Associates, Chartered Accountants A Peek into GST... Volume 1, Issue 1 Date : January 20, 2017 Inside this Issue : GST Demystified 2 Input tax credit, Supply & Liability GST Trend, VAT & Valuation How is your Business Impacted? Impact on consumption costs, thereby, affecting profitability, cash flow, pricing and procurement. Change in tax rates and credits. Compliance framework and control Registration, Returns, Accounting & Reporting, Contracts, Changes to IT/ERP systems. Restructuring of supply chain network for better efficiency. Change Management including imparting training to personnel. 3 4 Revised Model Law 5 Job work & E- commerce 5 About Us & FAQ s 6 Professional Services 7 GST is commonly known as Destination based tax on consumption of goods and services. GST is likely to be rolled out by July 1, 2017. DID YOU KNOW? GST Council has recommended an exemption threshold of gross annual turnover of INR 20 Lakhs for both goods and services except in North Eastern and special category States. Registration is mandatory in case of Inter-State supplies. Exemption Limit of upto Rs 50 Lakhs in case of Composition Scheme. GST@12% is proposed for Textiles and Garments Industry. Exports will be treated as zero rated supplies. Tax refund of 90% for manufacturing items for Export will be granted to EXPORTERS within seven (7) days. Air transport likely to get expensive under GST as at present there is no tax or duty on import of aircraft, air engines or spare parts. Lease rental of aircraft, engines and parts will be subjected to GST. Globally VAT/GST is not applicable on such leasing or import. GST payment options will be by way of Debit/ Credit card, NEFT, RTGS, Cheque. Currently, GST is not proposed on petroleum products and electricity. IS GST A WELCOME CHANGE? KNOW HOW SOME OF US FEEL : RAJESH KHARABA, MD, NIVIA GROUP, quotes as below : GST is one great step for helping the organized Indian Companies, at all levels, to grow. This is one big opportunity for all small and unorganized sectors as well to put their act together and become more competitive and progressive. Small manufacturing Companies were earlier not benefiting from input costs. Overall, this would bring a very positive impact to the manufacturing industry in India as focus would be towards growth. DR. S.P.S BAKSHI, MD, BAKSON DRUGS GROUP, quotes as below : GST will transform the way India has been functioning, The idea is to tax only the value addition portion. It will boost manufacturing and other industries. At the same time, we are hopeful for a smooth transition. We would love to know your thoughts too!! Write to us at : gst@kharabandaassociates.com
Page 2 A Peek into GST... GST BASICS : ILLUSTRATIONS GST RATES FINALISED BY COUNCIL IN NOV 16 Great step by Team India, Great Step towards Transformation, Great Steps towards Transparency, this is GST PM MODI Source : indianexpress.com 0 percent (Zero rated) Major food grains and 50% of Consumer Price Index items 5 percent Items of mass consumption by common people 12 percent ; 18 percent Standard rate - I and II respectively. 28 percent White goods and other similar products (Generally, goods presently attracting 12.5% excise duty and 14.5% VAT) 28 percent + Cess Luxury cars, aerated drinks, pan masala, tobacco and other products Note : Additional cess will be levied on luxury and sin goods (such as cigarettes, alcohol etc). Further, a clean energy cess on coal will be levied. The final classification list of products and services under each rate slab is yet to be released. DUAL GST MODEL EXPLAINED AS BELOW : Dual GST means that levy of tax will be both by Centre and the State Government. This model is in line with the Constitution as India is a federal country where power lies with both Centre and State to levy and collect taxes through appropriate legislation. Tax components will be Central GST and State GST. INTRA STATE SALE : Under Present Law : Levy of VAT Levy of Excise Levy of Service Tax Under GST : Levy of CGST and SGST INTER STATE SALE : Under Present Law : Levy of CST Levy of Excise Levy of Service Tax Under GST : Levy of IGST
Volume 1, Issue 1 Page 3 INPUT TAX CREDIT TAXES TO BE SUBSUMED CONCEPT OF INTER STATE GOODS SERVICES TAX (IGST) : IGST shall mean the tax levied on supply of any goods and/or services in course of inter state trade/ commerce. IGST shall apply to the whole of India. IGST will replace the present levy of CST. WHEN IS INPUT OF IGST AVAILABLE? WHEN IS INPUT OF CGST AVAILABLE? Against CGST and IGST Output WHEN IS INPUT OF SGST AVAILABLE? Against SGST and IGST Output NO INPUT WHEN? SGST Output ; CGST Input CGST Output ; SGST Input GST WILL SUBSUME THE BELOW TAXES : Central and Additional Excise Duty Additional and Special Additional Customs Duty Service Tax CST, VAT, Entry Tax, Octroi Purchase Tax Entertainment, Luxury and Lottery Tax Against IGST, CGST and SGST Output Surcharge & Cess INCLUSIVE DEFINITION OF SUPPLY (Section 3 of Model Law) All forms of supply made for consideration in course of business, such as : Sale/Disposal Transfer, Exchange, Barter, License, Rental/Lease Importation of services, whether or not for consideration and whether or not in the course or furtherance of business. Items mentioned in Schedule I made without consideration and as per Schedule II to determine what is supply. Activities or transactions specified in Schedule III and IV + Notified transactions. Composite & Mixed supply. SUPPLY shall be the taxable event and tax to be paid at the time of Supply. Works Contract ; Principal Agent relationship is also covered under the definition of Supply under the Model GST Law. LIABILITY TO PAY GST TAX ON REVERSE CHARGE GOODS EARLIEST OF : Date of Receipt of Payment, or Issuance / Date of Invoice SERVICES EARLIEST OF : Date of Receipt of Payment, or Issuance / Date of Invoice REVERSE CHARGE : EARLIEST OF Date of receipt of Goods/Services, or Date of payment, or 30/60 days from Date of Invoice of Goods/Services respectively. REVERSE CHARGE Kindly Note : In case the events as mentioned under Reverse Charge, can not be determined, the date of entry in the recipient s books will be the Time of Supply.
Page 4 A Peek into GST... GST GLOBAL TREND (Source : UN ; August 2016) We must all obey the great law of change. It is the most powerful law of nature - Edmund Burke WHY GST WHEN VAT EXISTS? Credit of Input VAT is available under O u t p u t V A T. Credit of Excise/ Service Tax is available under their Output. However, credit of VAT is not allowed against Excise/ Service Tax and vice versa. VAT is computed on value including Ex- cise Duty indicating burden of Tax on Tax. GST is a progressive step to remove cascading effect. VAT does not subsume multiple state levies such as Luxury tax, Entertainment tax, Entry tax etc. Burden of tax on inter state movement has not been completely phased out, though tax has reduced from 4 % to 2 %. Requirement of a continuous set-off chain from point of origin till point of consumption. VALUATION UNDER GST Kindly Note : Any discount allowed at the time of supply or discount that was known before supply shall not be considered Value of Supply of Goods and/or Services = TRANS- ACTION VALUE, i.e., price actually paid or payable in the ordinary course of business by the recipient provided that supplier and recipient are not related and price is the sole consideration INCLUDING : Any tax, duty, cess, fees/charges levied (except under GST/CGST/SGST Act) + Interest/penalty for delayed payment. Incidental expenses + Price linked subsidies (only). Reimbursable expenses incurred by supplier + Amount paid by recipient on behalf of the supplier + Value of goods supplied by recipient for use in relation to supply. Any discount or incentive allowed AF- TER supply subject to conditions.
Volume 1, Issue 1 Page 5 REVISED MODEL LAW : KEY CHANGES Revised Law has excluded Securities from the definition of GOODS. Introduction of concept of Composite and Mixed Supply. In case of a supply with various goods/ services, supply of the predominant goods/service will be considered for taxation. In such a case, ancillary supply should be naturally bundled with the principal supply. Mixed Supply refers to supply of multiple goods/services to be sold at a single price where all are individual supplies, without any one being predominant. The highest rate of tax will apply. Services to SEZ Developer or SEZ unit will attract NIL rate of tax under GST. Place of Supply Rules prescribed for services (Similar to POP rules under Service Tax) where location of supplier and recipient is in India or either of them is based out of India. Place of Supply rules prescribed for Import/Export of Goods. Proposal to limit CGST and SGST to tax@14% and IGST to tax rate of 28%. REVISED MODEL LAW : KEY CHANGES Exemption for business assets (such as Car, Laptop, Phone etc.) given to employees as Perquisites. The same was earlier specified under Schedule I, i.e., transactions without consideration. This was amended after a recommendation was given regarding their use by the employees for their personal purpose as well. GST not to be levied on FOC supplies except in specific cases such as related party transactions. One month window during transition for claiming credit of tax so paid on goods in transit under the present tax law. Inputs to be received from Job worker s premises within one year and Capital Goods within three years. Actionable claims is included in definition of GOODS. Interesting Change : For receipt of Advances, requirement to issue a receipt voucher has been introduced. JOB WORK E-COMMERCE TRANSACTIONS Registration by Job worker is required if aggregate turnover exceeds INR 18/9 Lakhs. Supply of goods by a principal, being a registered taxable person to a job worker, shall NOT be treated as SUPPLY (r.w SECTION 43A) Principal can send goods to a job worker and vice versa without tax payment subject to provisions u/s 43A of the Model law. Goods can be directly delivered from job worker s premises subject to certain conditions. MATORY GST REGIS- TRATION UNDER E- COMMERCE for persons supplying goods/services through E-commerce Operator (other than branded services), every E- commerce Operator and Aggregator providing branded services under his brand/trade name. INVOICE IS TO BE ISSUED WITHIN 30 DAYS FROM DATE OF SUPPLY OF SERVICES.
Kharabanda Associates, Chartered Accountants 112, RPS, Sheikh Sarai, Phase-1 New Delhi - 110017 We shall be pleased to add value to your business by providing our Professional services in relation to GOODS SERVICE TAX. T : +91 11 26017190, 94 M : +91 9811074282 E : info@kharabandaassociates.com Chartered Accountants since 1982 Assuring you of our best services and cooperation always. We are on the Web! www.kharabandaassociates.com FAQ S We would love to know your views on our GST edition. Was it helpful and what more would you like us to include in subsequent handouts. Email us at : gst@kharabandaassociates.com Edition by : Sunil Kharabanda, FCA Sakshi Kharabanda Dewan, ACA Team Kharabanda Associates Q1. Can an Individual receiving services from abroad for his personal use could be termed as taxable person under GST? A1: The said transaction will be exempt under GST up to an amount that is yet to be prescribed. Q2. Is there no GST on importation of goods as only importation of services has been mentioned in the definition of Supply? A2 : Import of goods is covered under the Customs Law that will continue to prevail along with the GST law. CVD and SAD portion of customs duty will be absorbed by the GST law. CVD and SAD will attract levy of IGST. Thus, in case of Import of Goods, IGST will be levied + Basic Customs Duty. Q3. What would be the treatment of Drawings and Designs under Model GST Law? A3 : In case the same is put on a media, paper or diskette, it would be treated as TANGIBLE GOODS. However, if it is not put on any media and is transferred over internet, it would be con- sidered as INTANGIBLE and will be taxable as supply of services. Q4. In case of transfer of business by P to Q on a going concern basis, will this transaction be a taxable supply under GST? A4 : NO! P and Q will be jointly and severally liable for tax or other levies up to the date of transfer and liability will be transferred to Q wef date of business transfer. Transfer or disposal of business assets is considered as a taxable supply, however, transfer of business has been kept out of the said scope.
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