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GST : In simple terms

May 02, 2017

The Goods and Services Tax (GST) is going to be implemented in India very soon. It is a very significant step towards the indirect tax reforms in India and will combine a large number of Central and State taxes in to a single tax. One of the important advantages of it for the consumers would be the reduction of overall tax burden and for the traders; it supposes to create a level playing field and will give them a competitive advantage in domestic as well as in international market.

Some of the Important features of GST :

  1. GST would be applicable on “supply” of goods or services as against the present concept of tax on the manufacture of goods or on sale of goods or on provision of services.
  1. GST would be based on “destination based consumption” taxation principle as against the present principle of “origin based” taxation
  1. It would be a dual GST with the Centre and State/Union Territory levying it simultaneously on a common base
  1. GST will be collected by Centre on Interstate supply of goods and services including stock transfer
  1. Import of goods and services will be treated as interstate supplies
  1. GST would replace Central Excise duty, Service Tax, Additional ED, Cess, State VAT, CST, Entry tax, etc. There are some exceptions like tobacco products on which GST as well as Central Excise duty may be levied

 Types of GST

  1. CGST – Central GST – to be charged by Centre
  2. SGST – State GST – to be charged by the States and UT having legislation i.e. Delhi & Puducherry
  1. UTGST – Union Territory GST – to be charged by the UTs having no legislation i.e. Andaman and Nicobar Islands, Chandigarh, Dadra and Nagar Haveli, Daman and Diu & Lakshadweep
  1. IGST – Integrated GST – to be collected by the Centre on Interstate transactions of goods and supplies which includes stock transfers

Rates of GST

Though the final rates are yet to come out, it is anticipated that there may be four tax rates namely 5%, 12%, 18% and 28%. Cess may be paid over the peak rate (28%) on specified luxury and sin items

Time and Value of the Supply

  1. Date on which Supplier issues the invoice or the date on which the Supplier receives the payment, whichever occurs earlier will be considered for tax due date
  1. Tax is to be paid on the actual Transaction value

Threshold limit for Exemption

  1. The limit will be Rs.20 lakhs(Rs.10 lakhs for special category states like Mizoram, Manipur, Meghalaya, Arunachal Pradesh, Nagaland, Sikkim, Tripura, Himachal Pradesh & Uttarakhand)
  1. The Compounding threshold will be Rs.50 lakhs( not available for interstate suppliers, service providers except restaurant services and specified category of manufacturers

Input Tax Credit for GST

 

 

 

 

 

 

GST Council

GST Council is a body constituted by Hon’ble President of India to make recommendations on GST laws and procedures. Union Finance Minister is the chairperson of the Council and the finance ministers from all the states and the MoS Finance are the members of the Council. The council takes decisions by majority of 75% of weighted votes of members.

 Goods and Services Tax Network (GSTN)

GSTN is a non-Government, private limited “not for profit “ company. It was incorporated on March 28, 2013. The Company has been set up primarily to provide IT infrastructure and services to the Central and State Governments, tax payers and other stakeholders for implementation of the Goods and Services Tax (GST). GSTN has appointed 34 GSPs.

 GST Suvidha Provider (GSP)

A GSP is considered as an enabler for the taxpayer to comply with the provisions of the GST law through its web platform (essentially an online compliance platform such as TCS, Tally, E&Y LLP, CDSL, Karvy, NSDL, etc)

Application Service Provider (ASP)

ASPs will act as a link between the taxpayers and the GSPs. ASPs will focus on taking taxpayers’ raw data on sales and purchases and converting it into the GST returns. These GST returns, or GSTRs, will then be filed on behalf of the filer with GSTN via the GSP.

ASPs can come up with an application to provide GST filing facility in existing software, or, with the help of ASP partners, they can develop an end-to-end solution with which corporates, consultants, and taxpayers can manage their sale/purchase and GST filing: e.g., an offline utility-like spreadsheet; taxpayers could fill out their invoice details and then upload it on the GST portal for processing. Companies like SAP are ASPs.

Current Tax Structure Vs GST

As we know the final rates are yet to be out and a couple of days back, there was a news item claiming that the Services may be taxed only with 2 slabs (12% & 18%) while goods may be taxed with 5 different rates. Since no rate is officially out yet, lets take an example with a common rate of 10% and try to understand how it will impact the final price of any product.

GST Bill India

So the difference in price in the above example is 1000.

Value Flows under GST system

Lets see how value flows under GST system assuming that the GST rate is 10%

GST India

Depositing the Tax and filing of Returns

Once the transactions are completed, its time to inform the Tax department through upload of the data in GSTN. Lets try to understand it through the below diagram

Assume B Ltd. And C Ltd. , both GST registered entities, trying to file the GST return for the above transactions made during August 2017. Here B Ltd. Is the Seller and C Ltd. Is the buyer.

GST India News and Updates

Hope the above illustration will be helpful in understanding the basic flow. As the final rule has not been out yet, there may be some change in the process. Will try to come up with a changed and updated flowchart once the rule comes in public domain.

This article was first published on LinkedIn by Ramesh Das

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