What is GST?
Basically “GST is one indirect tax for the whole nation, which will make India one unified common market.” GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
At the Central level, the following taxes are being subsumed:
- Central Excise Duty,
- Additional Excise Duty,
- Service Tax,
- Additional Customs Duty commonly known as Countervailing Duty, and
- Special Additional Duty of Customs.
At the State level, the following taxes are being subsumed:
- Subsuming of State Value Added Tax/Sales Tax,
- Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States),
- Ontario and Entry tax,
- Purchase Tax,
- Luxury tax, and
- Taxes on lottery, betting and gambling.
Structure of GST:
GST in India can be classified as
- CGST (Central GST)
- SGST(State GST)
- IGST(Integrated GST)
As the name suggests the GST to be levied by the Centre on intra-State supply of goods and/or services is Central GST (CGST) and that by the States is State GST (SGST), On inter-state supply of goods and services, Integrated GST (IGST) will be collected by Centre. IGST will also apply on imports.
Both Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except on exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, both would be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of Central Excise.
Cross utilization of credit of CGST between goods and services would be allowed. Similarly, the facility of cross utilization of credit will be available in case of SGST. However, the cross utilization of CGST and SGST would not be allowed except in the case of inter-State supply of goods and services under the IGST.
In case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services. The IGST would roughly be equal to CGST plus SGST. The IGST mechanism has been designed to ensure seamless flow of input tax credit from one State to another. The inter-State seller would pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST and SGST on his purchases (in that order). The exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The importing dealer will claim credit of IGST while discharging his output tax liability (both CGST and SGST) in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST. Since GST is a destination-based tax, all SGST on the final product will ordinarily accrue to the consuming State.
Various terms and concepts related to GST:
GSTIN- All existing registered persons, whether with the Centre or State under any of the tax statues being subsumed in GST, would be allotted a GST registration number called Goods and Services Tax Identification Number (GSTIN) on voluntary basis. Dealers who are below the GST threshold will have option to remain in GST chain. Each taxpayer will be allotted a State wise PAN-based 15-digit Goods and Services Taxpayer Identification Number (GSTIN). First 2 digits will be for state code; next 10 digits equal to PAN, 13th digit will be assigned based on the number of registration within a state. 14th digit has kept for future use and last digit will be for check digit. Share and receive GSTin from your vendors and suppliers easily here
HSN Codes- In Indian Context, a taxpayer having a turnover exceeding Rs 5 crore is required to follow the HSN code of 4 digits. In return form, rate of tax shall be auto populated based on the HSN codes used in furnishing invoice level purchase or sale information. After completing first year under GST, the turnover for previous year will be considered as baseline for using HSN codes of 4 digits. The use of HSN codes below its standards is to make GST systematic and globally accepted.
For taxpayers with turnover between Rs 1.5 Crores and Rs 5 Crores in the preceding financial year, HSN codes may be specified only at 2-digit chapter level as an optional exercise to start with. From second year of GST operations, mentioning 2-digit chapter level HSN Code will be mandatory for all taxpayers with turnover in previous financial year between Rs. 1.5 Crores and Rs. 5.0 Crores. HSN code at 2 digit will be little easy for taxpayers and make GST an international compatible tax as well.
Indian authorities have further categorized six digits HSN into another two digit sub chapter, thus making total number of digit to be eight. This eight digits code will be mandatory in case of export and imports under the GST regime.
Input Tax Credit- Input credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs.
Say, you are a manufacturer –
Tax payable on output (FINAL PRODUCT) is Rs 450
Tax paid on input (PURCHASES) is Rs 300
You can claim INPUT CREDIT of Rs 300 and you only need to deposit Rs 150 in taxes.
Input Credit Mechanism is available to you when you are covered under the GST Act. This means if you are a manufacturer, supplier, agent, e-commerce operator, aggregator or any of the persons mentioned here, registered under GST, You are eligible to claim INPUT CREDIT for tax paid by you on your purchases.
Time of supply– Point of taxation means the point in time when goods have been deemed to be supplied or services have been deemed to be provided. The point of taxation enables us to determine the rate of tax, value, and due dates for payment of taxes.
Under GST the point of taxation, i.e., the liability to pay CGST / SGST will arise at the time of supply as determined for goods and services. There are separate provisions for time of supply for goods and time of supply for services.
So how can we determine time of supply? :-
The time of supply of goods shall be the earlier of the following dates –
(a) The date of issuing of invoice (or the last day by which invoice should have been issued)
(b) The date of receipt of payment
-whichever is earlier
If the supplier receives an amount up to Rs. 1000 in excess of the invoice amount, the time of supply for the extra amount shall be the date of issue of invoice (at the option of the supplier).
For (a) and (b)- The supply shall be assumed to have been made to the extent it is covered by the invoice or the payment (as the case may be).
For (b)- the date of receipt of payment shall be earlier of-
1. The date on which he entered the payment in his books
2. The date on which the payment is credited to his bank account
(a) Date of invoice 15th May 2018
(b) Date of receipt of payment 10th July 2018
(c) Date when supplier recorded receipt in books 11th July 2018
Time of supply will be 15th May 2018
Composite and Mixed Supplies – Composite supply means a supply is comprising two or more goods/services, which are naturally bundled and supplied in with each other in the ordinary course of business, one of which is a principal supply. The items cannot be supplied separately.
Conditions for composite supply-
Any supply of goods or services will be treated as composite supply if it fulfils both the following criteria:
- Supply of 2 or more goods or services together,
- It is a natural bundle, i.e., goods or services are usually provided together in normal course of business. They cannot be separated.
Mixed supply under GST means two or more individual supplies of goods or services, or any combination, made together with each other by a taxable person for a single price. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.
For tax under GST, a mixed supply comprising two or more supplies shall be treated as supply of that item which has the highest rate of tax.
Reverse Charges- Reverse charge, where the recipient is liable to pay tax, Normally, the supplier pays the tax on supply. In certain cases, the receiver becomes liable to pay the tax, i.e., the chargeability gets reversed which is why it is called reverse charge.
In India, this is a partly new concept introduced under GST. The purpose of this charge is to increase tax compliance and tax revenues. Earlier, the government was unable to collect service tax from various unorganized sectors like goods transport. Compliances and tax collections will therefore be increased through reverse charge mechanism.
The concept of reverse charge mechanism is already present in service tax. In GST regime, reverse charge may be applicable for both services as well as goods.
GST Compliance Rating- Business registered under the goods and services tax (GST) regime will be assigned a rating, based on how promptly they upload invoices, pay taxes and file returns.
The ratings will be made public on the GST Network (GSTN) website as tax authorities seek to build peer pressure among companies to ensure compliance. The rules that govern the new indirect tax regime require the matching of invoices for claiming input tax credit. For example, a manufacturer procuring goods from a supplier will not be able to claim credit for the tax paid until the seller uploads the invoices and the claims of the manufacturer and supplier are matched. This means that in case two suppliers offer the same price to the manufacturer, the company may opt for the one that has a better compliance rating.
GST Returns- A return is a document that a taxpayer is required to file as per the law with the tax administrative authorities. Under the GST law, a normal taxpayer will be required to furnish three returns monthly and one annual return. Similarly, there are separate returns for a taxpayer registered under the composition scheme, taxpayer registered as an Input Service Distributor, a person liable to deduct or collect the tax.
The returns are required to be filed digitally online through a common portal to be provided by GSTN, non-government, private limited company promoted by the central and state governments with the specific mandate to build the IT infrastructure and the services required for implementing Goods and Services Tax (GST).