India Tax and advisory, business entry and consulting services

GST Explained in 10 simple Points

GST explained

What is subject to GST?

Goods or services Tax (GST) is applicable on “Supply”. Supply can be of Goods, Services, or a combination of the two. Supplies for this purpose includes:

  1. Transactions in the nature of sale, barter, transfer, exchange, license, rental, lease etc. made for a consideration by a person in the course or furtherance of business. This means that the activity should be carried on by the person as a profit-making enterprise.
  2. Import  of services for a consideration. The use of such services shall constitute supply and will be subject to GST even if such services are not imported for business purposes.
  3. Items covered in Schedule I of the act, being:
    1. Sale or disposal of business assets on which input tax credit has been availed
    2. Provision of goods or services between related persons
    3. Supply of goods by principal to agent or agent to principal
    4.  Import of services from a related person for business purposes

For this purpose, goods incl de all movable property, actionable claims, growing crops, grass etc. but does not include Money and securities

Services on the other hand means anything other than goods, money or securities. However, it includes money changing and forex services.

Who needs to register and comply?

Every person dealing in taxable supplies will have to register under GST if their turnover exceeds the specified threshold. The threshold for GST registration shall be 20 lakhs for all states other than special category states. Special category states for this purpose are Arunachal Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, and Uttarakhand. The threshold limit for these states shall continue to be INR 10 lakhs

Other than those who are above the threshold limit, the following category of people will have to mandatorily register and comply with GST provisions:

  1. Persons indulging in Inter-state supply of goods or services
  2. Persons engaging in casual supply
  3. Persons liable to pay tax under reverse charge
  4. Persons liable to collect tax at source
  5. Persons liable to deduct tax at source
  6. Persons making supplies on behalf of others, as agents
  7. Input service distributors
  8. Persons making supplies through eCommerce
  9. Providers of online Information and database access and retrieval services located outside India

Further, those who are operating in more than one state must bear in mind that they will have to obtain separate registrations in each state that they operate in. To facilitate this, multiple registrations are allowed under one PAN.

Those who are providing exempted supplies need not register under the act. Similarly, those indulging in supply of produce from land are also not liable to register under GST. This provides exemption to agriculturalists.

What Rates are applicable?

Rates applicable on goods can be found here, and here. While the list of rates applicable on Services can be found also on our website here.

The rate must be applied on the value of the supply as determined under GST regulations which include Valuation rules. The value of supplies for this purpose is the price paid for supplies where the supplier and recipient are not related and the price paid is the only consideration for the goods.

The price at which GST must be applied includes:

  • Other taxes and duties
  • Any reimbursement of expenses directly connected with the supplies
  • Incidental expenses (packing etc.)
  • Interest and penalties paid, if any
  • subsidies

The price however should be reduced by

  • the discount provided, if reduced from the invoice or mentioned in the contract.

How to invoice?

Invoice formats under GST are fairly simple and do not change much as compared to previous laws. IN the case of supply of goods, GST mandates the following details to be clearly mentioned on the invoice:

  1. GSTIN of the supplier
  2. Serial number of the invoice
  3. Date of issue of invoice
  4. The Details of the recipient, including GSTIN number if registered
  5. Details of the delivery address
  6. description of goods or services
  7. HSN code of the goods or services
  8. quantity of goods
  9. value of goods or services
  10. Taxable value of supply
  11. Rate of tax applicable
  12. Tax charged on such goods or services etc.

In a relaxation provided to small dealers, the GST rules provide an exemption from the raising of invoices where the amount charged is less than Rs 200.

In terms of timing of issuance of the invoice, in the matter of goods the invoice should be raised before or at the time of:

  1. Removal of goods for supply, or
  2. Delivery of goods or making available such goods to the recipient.

For services, the invoice should be raised either before the supply of the service or within a span of 30 days from the completion of the supply.

Guidelines have also been framed for timing of invoices in the case of continuous supply of services. You can Contact us for further details on the same. Â

When is GST payable?

GST is payable before the filing of the month end return. i.e. on the 20th of the month following the month in which the sales have been made.

Credits lying in the electronic cash ledger can be utilized to make payments of tax, interest penalties fee etc. Whereas credits in the electronic credit ledger can only be utilized for the payment of taxes.

As is expected, interest is payable on delayed payment of taxes. IN the case of delays, 18% interest is payable on the delayed amount. In the case of payments due to reversal of excessive input tax credit received interest is payable at the rate of 24%

Input tax credit, when is it available?

According to the GST regulations, input tax credit is available upon the fulfillment of several conditions which include but are not limited to:

  1. Possession of a tax invoice or valid GST debit note
  2. Has already received the goods or services as described in the invoice
  3. The tax due on such invoice should have been paid to the government
  4. A valid return should have been filed by the supplier of such goods/services

In case the recipient of the supply fails to make good the payment of consideration for the supply within a period of 180 days, the input tax credit received by him will have to be reversed.

Input tax credit shall be available on the entirety of GST paid on purchase of capital assets. The criterion for identification of capital assets in this case is simple. If such purchases have been capitalized in the books of the recipient they will be considered capital purchases for GST.  An important point to note here is that no input tax credit shall be allowed on such assets if depreciation has been claimed on the GST components for income tax purposes.

Further, no input credit of GST paid on the following items will be available on the purchase of:

  1. Motor vehicles and other conveyances, unless used in the business of transportation of goods and materials, for further supply, or for imparting training etc.
  2. Supply of food and beverages or outdoor catering, Beauty treatment and health services, Cosmetic surgeries etc. except when used to make outward taxable supply in the same category of goods
  3. Membership of Club or fitness center
  4. Rent-a-cab, life insurance and health insurance except when mandated by the government or as travel benefits provided on vacations to employees
  5. Works contract service, unless received as input for further supply of works contract services
  6. Goods or services for construction of immovable property on own account
  7. Goods and services on which tax has been paid under composition scheme
  8. Goods and services received by a non-resident taxable person
  9. Supply of goods and services for personal consumption
  10. Goods which are lost, stolen, destroyed, or disposed as gifts or free samples!

Returns to be filed

For a tax regime that promises to make doing business easier GST surely is very heavy of compliance.

Businesses will have to file a return of output supplies by the 10th of the month following the month in which such supplies were made. This return will have to be filed in form GSTR-1.

Following this a return on inward supplies received and applicable input tax credit will have to be filed in GSTR-2 by the 15th of the following month. This will be based on part A, B, and C of form GSTR- 2A which shall be auto populated on basis of the returns filed by the supplier in form GSTR-1

Following this process of reconciliation, a monthly return will have to be filed in form GSTR-3 by the 20th day of the month succeeding the tax period for which the return pertains.

This process will have to be separately accomplished for each state in which the person has a business unit and consequently a registration. Along with the annual return to be filed by 31st December of the following year this amounts to a whopping 37 returns per year per state per unit. That surely will keep many a people occupied!

Input service distributors will have to file a monthly return within 13 days from the end of the month. Nonresident taxable persons will be liable to file their returns within 20 days from the end of the month in form GSTR- 5 on the common portal of the GSTN.

Persons enjoying the benefits of the composition scheme shall have to file their returns in form GSTR-4 on a quarterly basis within 18 days from the end of the quarter.

Persons required to deduct tax at source shall have to file an additional return in form GSTR-7 by the 10th of the next month. Whereas eCommerce operators required to collect tax at source will have to file a return in form GSTR-8.

Any delay in filing of monthly returns will attract a penalty of Rs 100 per day subject to a maximum of Rs 5000. Delays in filing of annual returns shall be subject to a similar penalty of Rs 100 per day but the upper ceiling for such penalty has been set to 0.25% of the annual turnover of the assessee.

Composition schemes

To help smaller businesses comply without breaking their bank or their backs, a scheme of composition levy has also been announced.

Under this scheme manufacturers and traders whose annual turnover is less than Rs 75 lakhs will be able to comply with the GST regulations by paying 1% and 2.5% respectively of their total turnover as their output tax liability.

For this purpose, they will not be allowed any input tax credit and will not be allowed to pass on the tax liability to their customers. This implies that such persons will have to bear the cost of GST for the added benefit of lower compliance costs. However, the following category of persons will not be eligible to claim benefits under this section:

  1. Casual taxable persons and non-resident taxable persons
  2. Persons dealing in goods obtained by way of interstate trade or imported from outside India
  3. Persons making inter-state sales
  4. Persons undertaking supplies through an e-commerce operator
  5. Persons undertaking supplies in works contract services
  6. Persons undertaking supplies of food and beverages
  7. Manufacturers of notified goods, etc.

Such persons will have to clearly indicate the words composition taxable persons on their invoices as well as their places of business.

Managing the transition

There are many aspects to the transition from the current indirect systems to a GST driven system. Prominent changes will be in terms of accounting, compliance and payment of taxes. A very significant factor shall be availing input tax credit on goods already in stock.

In this regard, the law provides that input credit of excise, VAT and service tax paid shall be provided upon transition to registered persons even if they were not liable to be registered under these laws earlier. Such input credit will be provided on:

  • Inputs held in stock
  • Inputs contained in semi-finished goods, and
  • Finished goods held in stock

This credit shall be provided the following conditions are satisfied:

  • Such inputs are used or will be used to make taxable supplies
  • The person is eligible for input tax credit under GST
  • The person is in possession of an invoice or any similar document evidencing the payment of taxes on such inputs
  • The invoices or other documents prescribed documents were issued not more than 12 months prior
  • No abatements are in place for suppliers of services looking to benefit from this rule.

The law also contains similar provisions to allow for credit of central excise to second stage deals etc. who are not in possession of an excise document. The rules allow for credit of up to 60% of the central tax payable on such inputs.

We are here to help!!

We understand GST is a new concept and awareness on the provisions of this new law is this. Worry not, we are here for you. Our team is ready and has helped many businesses become GST ready. We have published many articles on GST and our views and opinions on the subject have been featured in many prominent dailies.

We are ready for GST and we can help you comply with the requirements of this new regime. Feel free to reach out to us should you need any help, we promise to be of help. Always.

Comments are closed.