A Presentation on Basic Conceptsof GST

By CA Jatin BakshiAssistant Manager

Internal Audit Deptt.

The most awaited constitution bill GST finally passed on August 3 rd, 2016. It has been the topic of discussion in the past couple of years and everyone was looking to it as a change that could bring some ease and transparency in the Tax structure in INDIA.

In my opinion, this GST law was majorly required because of three reasons, and those are:

1) To digitalize the working in the Industry 2) To make compliance easy 3) To remove the cascading effect of Central and State Taxes

Meaning of GST: -- GST is a comprehensive value added tax on goods and services. it is collected at each stage of sale or purchase in the supply chain. It is a tax collected on the supply of goods. So the erstwhile taxable events such as Manufactured, Produced, Sale, Provision of service will lose their relevance.

GST is going to bring Goods & Services under same platform. Both of these will be taxed in the same way.

Major Features that the Law coming up with are: -

i) Seamless input tax credit throughout the supply chain. ii) At all stages of supply chain, Input Tax will be passed on and will finally be borne by the final consumer. iii) As support to the Digital INDIA initiative. (Electronic Returns, Electronic payments, Electronic records) iv) The Law comprises of three Statutes : CGST, SGST, IGST v) Shifting from origin based taxation of destination based taxation. vi) Cross utilization of CGST/SGST between goods & services allowed. vii) All types of goods & services will be covered by the law except Alcoholic Beverages, Tabaco and Petroleum products.

GST Law basically comprises of three statutes: IGST, CGST, SGST.To understand the Law, we will first have to understand what are these.

SGST: It is the Tax levied and collected by the State Government. All the goods & services supplied on Intra-state transactions will attract SGST except some exempted goods and transactions below certain prescribed limit. The state from which the supply originates will charge SGST on the basic value of the goods or services and will transfer the collection to the state where the goods or services are being delivered for their supply.

CGST: It is the Tax levied and Collected by the Central Government. All the goods & services supplied on the Intra-state transactions will attract CGST except some exempted goods and transactions below certain prescribed limit. The state from which the supply originates will charge CGST on the basic value of the goods & services and will transfer the collection to the central government.

So, which means that in case of intra state supply of goods & services, both SGST and CGST will be charged on the basic value of the services whereby avoiding the cascading effect of taxes.

IGST: It is simply a combination of SGST & CGST which will be charged on Inter state transactions involving supply of Goods or Services. Rate of IGST will be the sum of Rate of CGST & SGST. It will be firstly collected by the Central Government which will then pass the SGST part to the respective state government.

1% Additional Tax: To compensate the loss pf revenue to the state government, 1% additional tax will be levied by the central government on Inter state supply of goods & services for 2 years which will be passed on to the state government. Period of 2years may be extended in deem fit by the GST council. It is not clear as of now that whether the credit of this additional duty will be available or not.

Compounding Scheme: - Assessee limited to one state and having turnover less that Rs. 5 lacs can opt for composition scheme and pay GTS@1% of turnover. In that case, neither he will charge any GST on his invoices nor he will take any credit.

Taxes subsumed by GST: -

State Taxes: - VAT/Sales Tax Entertainment Tax Luxury Tax Taxes on Lottery, Betting,

Gambling State Cess and Surcharges Entry Tax not in lieu of Octroi

Central Taxes: Central Excise Duty Additional Excise Duty Service Tax Additional Custom Duty (CVD) Special Additional Duty (SAD) Surcharges Cesses

Now we will have to understand how the place of supply will be decided in a transaction: -

Place of Supply of Goods: -

-- location of the goods at the time at which the movement of goods terminates for delivery to the recipient

--where goods are supplied to a person at the direction of some third person place of supply will be the location of that third person

--where supply doesn’t involve movement of goods, place of supply will be the location of such goods at the time of the delivery

Place of supply of Services: -

-- Excluding some specific services, place of supply of all other services will be the place of service receiver where service receiver is a registered person.

-- For non registered person, POS will be location of recipient if address of recipient exists on records.

-- Otherwise, POS will be location of service provider

Along with the term Place of Supply, another term is being used in the Law which is ‘Time of Supply’

Time of supply of goods will be considered as the earliest of the following: -

1) Date of removal for supply to recipient where goods are required to be removed, or, Date of receipt of goods where they are not required to be removed.

2) Date when supplier issues invoice

3) Date on which supplier receives the payment

4) Date on which recipient shows the receipt of goods in his books

Time of supply of services: -

a) If invoice is issued within the prescribed time: - Invoice date or Payment Date whichever is earlier

b) If invoice is not issued within time: - Completion of service or Date of payment whichever is earlier

In case of continuous supply of service: -

1) Where contract defines date of payments, each date of payment whether actually received or not

2) Where contract doesn’t defines the date of payments, where service provider receives payments or issues invoice whichever is earlier

Reverse Charge Mechanism: Time of Supply will be earliest of the following: -

1) Date of receipt of service 2) Date on which payment is made 3) Date of receipt of invoice

4) Date of debit in the books of accounts of service provider

GST working in Intra state transactions: -

Tax Invoice A

cost of goods sold=Rs. 100

SGST @10%=RS. 10CGST @10%=Rs. 10

Total=Rs. 120

Tax Invoice B

cost of goods sold=Rs. 200

SGST @10%=RS. 20CGST @10%=Rs. 20

Total=Rs. 240

Tax Invoice C

cost of goods sold=Rs. 300

SGST @10%=RS. 30CGST @10%=Rs. 30

Total=Rs. 360

BakerFlour Maker Bread Retailer Final Consumer

State

SGST@10%

Centre

CGST@10%

SGST paid Rs 10

SGST paid RS 10(Rs 20-10 Credit)

SGST paid RS 10(Rs 30-20 Credit)

CGST paid Rs 10

CGST paid RS 10(Rs 20-10 Credit)

CGST paid RS 10(Rs 30-20 Credit)

GST working in Inter State transactions: -

Tax Invoice A

cost of goods sold =Rs 100

SGST(G)@10% = Rs 10CGST @10%= Rs 10

Total=Rs. 120

Tax Invoice B

cost of goods sold =Rs 200

IGST @20% = Rs. 40Total = Rs 240

Tax Invoice C

cost of goods sold=Rs. 300SGST @10%=RS. 30CGST @10%=Rs. 30

Total=Rs. 360

Centre

CGST@10%

IGST@20%

BakerFlour Maker Bread Retailer Final Consumer

CGST paid @10%

State X

SGST@10%

State Border

Payment of IGST

IGST payable = Rs 40Less CGST ITC = Rs 10Less SGST(G) ITC = Rs

10IGST paid = Rs 20

Payment of SGST

SGST(M)payable= Rs 40

Less CGST ITC= Rs 10Less SGST(G) ITC = Rs

10IGST paid =Rs 20

SGST paid = Rs10

State Y

SGST@10%

Payment of CGST

CGST payable = Rs 30Less CGST ITC = Rs 00Less IGST ITC = Rs 30

CGST paid = Rs 00

Mechanism for Availement of credit: -

IGST

IGST

CGST

SGST

CGST

IGST

CGST

IGST

SGST

SGST

Transfer of Credit in case of Inter state transactions: -

Center would levy IGST in case of Inter State transactions.

The seller in state-X will pay IGST to the CenterWhile paying IGST seller will adjust IGST, CGST or SGST

State government-X will have to transfer the credit of SGST used by the seller for the payment of IGST to the center

Now when buyer in state-Y sells goods intra state, he will have to pay CGST & SGST

For that he will avail credit of IGST paid while purchasing from state-X

Now center have to transfer the credit of IGST used for payment of SGST to state government-Y

Imports & Exports: -

IGST will be charged on all imports in to the country.

There will be no tax on Exports.

Invoice System: -In this system, credit of GST paid is claimed on the basis of invoice.It is claimed when the invoice is receivedIt is immaterial whether the payment is made or not.

GST is accounted for when the invoice is raisedThe time of receipt of payment is immaterial

The advantage of invoice based system is that the input can be claimed without making the payment

The disadvantage of the invoice system is that GST has to be paid without receiving the payment

Registration: -

As per draft law, every person who is liable to get registered under this law should apply for registration within 30 days from the date when he becomes liable to.

All the existing assessees will be given a time frame of 6 months to submit the required documents for registration.

Assessee having business verticals at multiple locations are required to take a separate registration for each business vertical.

NSDL has been appointed to maintain an online portal named as ‘GST PILOT PORTAL’

Here, every tax payer will be given a 15 digit identification number to be called as ‘Goods & Service Tax Identification Number (GSTIN)’

Online application forms will be available for dealers to provide their details and to upload documents

Registration would include basic steps like registering yourself on enrolment page, and then login using the given ‘User ID’ and ‘Password’, filing the application form by uploading the requisite documents related to Excise, Service Tax, IEC, CIN, Professional Tax Number, Shops and Establishment Number and any other state specific registration number, contact numbers, postal address and E-mail address of business entity, Bank account details including MICR code, place of Business, details of goods & services, scanned signed photographs.

Online Payments & Credits: -

Any deposit made under this law will be deposited in to an Electronic Cash Ledger which will be maintained online.

Balance in this ECL shall be used to pay Taxes, Fees, Penalties, Interest etc.

ITC will be transferred in to an Electronic Credit Ledger which shall be used to pay Taxes only.

Returns: -

Type of returns under GST Law: -

GSTR 1   Outward supplies made by taxpayer (other than compounding taxpayer and ISD)     10th of the next month 

GSTR 2   Inward supplies received by a taxpayer (other than a compounding taxpayer and ISD) 15thof the next month 

GSTR 3   Monthly return (other than compounding taxpayer and ISD) 20thof the next month 

GSTR 4   Quarterly return for compounding Taxpayer     18thof the month next to quarter 

GSTR 5   Periodic return by Non-Resident Foreign Taxpayer     Last day of registration 

GSTR 6   Return for Input Service Distributor (ISD)     15th of the next month 

GSTR 7   Return for Tax Deducted at Source     10th of the next month 

GSTR 8   Annual Return     By 31st December of next FY 

A Normal/ Regular Taxpayer would have to file GSTR-1 with Annexure-II (detail of outward supply), GSTR-2 with Annexure-III (detail of inward supply), GSTR-3 with Annexure-IV (monthly return) for each registration.

Also GSTR-8 would be required to be filed by all Normal/Regular Taxpayer. It will be based on financial records.

Normal / Regular taxpayers with multiple registrations (for business verticals) within a State would have to file GSTR-1, GSTR-2 and GSTR-3 for each of the registrations separately.

Procedure for Filing of GST return: -

Step 1: The taxpayer will upload the final GSTR-1 return form either directly through data entry at the GST Common Portal or by uploading the file containing the said GSTR-1 return form through Apps by10thday of month succeeding the month during which supplies has been made. The increase / decrease (in supply invoices) would be allowed, only on the basis of the details uploaded by the counter-party purchaser in GSTR-2, up to 17th day of the month. (i.e. within a period of 7 days). In other words, the supplier would not be allowed to include any missing invoices on his own after 10th day of the month.

Step 2: GST Common Portal (GSTN) will auto-draft the provisional GSTR-2 of taxpayer based on the supply invoice details reported by the counter-party taxpayer (supplier) on a near real-time basis.

Step 3: Purchasing taxpayer will accept / reject/ modify such auto-drafted provisional GSTR-2. (A taxpayer will have the option to download his provisional purchase statement from the Portal or through Apps using Application Programming Interface (APIs) and update / modify it off-line).

Step 4: Purchasing taxpayer will also be able to add additional purchase invoice details in his GSTR-2 which have not been uploaded by counter-party taxpayer (supplier) as described in Step 1 and 2 above, provided he is in possession of valid invoice issued by counter-party taxpayer and he has actually received such supplies.

Step 5: Taxpayers will have the option to do reconciliation of inward supplies with counter-party taxpayers (suppliers) during the next 7 days by following up with their counter-party taxpayers for any missing supply invoices in the GSTR-1 of the counter-party taxpayers, and prompt them to accept the same as uploaded by the purchasing taxpayer. All the invoices would be auto-populated in the ITC ledger of taxpayer. The taxpayer would, however, indicate the eligibility / partial eligibility for ITC in those cases where either he is not entitled or he is entitled for partial ITC.

Step 6: Taxpayers will finalize their GSTR-1and GSTR-2 by using online facility at Common Portal or using GSTN compliant off-line facility in their accounting applications, determine the liability on their supplies, determine the amount of eligible ITC on their purchases and then generate the net tax liability from the system for each type of tax. Cash details as per personal ledger/ carried forward from previous tax period, ITC carried forward from previous tax period, ITC reversal and associated Interest/Penalty, taxes paid during the current tax period etc. would get auto-populated in the GSTR-3. 

Step 7: Taxpayers will pay the amount as shown in the draft GSTR-3 return generated automatically at the Portal post finalization of activities mentioned in Step 6 above. Step 8: Taxpayer will debit the ITC ledger and cash ledger and mention the debit entry No. in the GSTR-3 return and would submit the same.

Thank You