goods and services tax – AN OVERVIEW
CENTRAL
BOARD OF EXCISE & CUSTOMS
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Goods
and Services Tax (GST)
1.
Benefits:
- GST is a win-win situation for the
entire country. It brings benefits to all the stakeholders of industry,
government and the consumer. It will lower the cost of goods and services,
give a boost to the economy and make the products and services globally
competitive. GST aims to make India a common
market with common tax rates and procedures and remove the economic barriers
thus paving the way for an integrated economy at the national level. By
subsuming most of the Central and State taxes into a single tax and by
allowing a set-off of prior-stage taxes for the transactions across the
entire value chain, it would mitigate the ill effects of cascading,
improve competitiveness and improve liquidity of the businesses. GST
is a destination based tax. It follows a multi-stage collection mechanism.
In this, tax is collected at every stage and the credit of tax paid at the
previous stage is available as a set off at the next stage of transaction.
This shifts the tax incidence near to the consumer and benefits the
industry through better cash flows and better working capital management.
- GST is largely technology driven.
It will reduce the human interface to a great extent and this would lead
to speedy decisions.
- GST will give a major boost to the ‘Make
in India’ initiative of the Government of India by making goods and
services produced in India competitive in the National as well as
International market. Also all imported goods will be charged integrated
tax (IGST) which is equivalent to Central GST + State GST. This will bring
equality with taxation on local products.
- Under the GST regime, exports will
be zero-rated in entirety unlike the present system where refund of some
taxes may not take place due to fragmented nature of indirect taxes
between the Centre and the States. This will boost Indian exports in the
international market thus improving the balance of payments position. Exporters
with clean track record will be rewarded by getting immediate refund of
90% of their claims arising on account of exports, within seven days.
- GST is expected to bring buoyancy
to the Government Revenue by widening the tax base and improving the taxpayer
compliance. GST is likely improve India’s ranking in the Ease of Doing
Business Index and is estimated to increase the GDP growth by 1.5 to 2%.
- GST will bring more transparency to
indirect tax laws. Since the whole supply chain will be taxed at every
stage with credit of taxes paid at the previous stage being available for
set off at the next stage of supply, the economics and tax value of
supplies will be easily distinguishable. This will help the industry to take
credit and the government to verify the correctness of taxes paid and the
consumer to know the exact amount of taxes paid.
- The taxpayers would not be required
to maintain records and show compliance with a myriad of indirect tax laws
of the Central Government and the State Governments like Central Excise,
Service Tax, VAT, Central Sales Tax, Octroi, Entry Tax, Luxury Tax,
Entertainment Tax, etc. They would only need to maintain records and show
compliance in respect of Central Goods and Services Tax Act and State (or
Union Territory) Goods and Services Tax Act for all intra-State supplies
(which are almost identical laws) and with Integrated Goods and Services
Tax for all inter-State supplies (which also has most of its basic
features derived from the CGST and the SGST Act).
2.
Salient
Features of GST
The salient features of GST are as under:
(i)
The
GST would be applicable on the supply of goods or services as against
the present concept of tax on the manufacture or sale of goods or provision of
services. It would be a destination based consumption tax. This
means that tax would accrue to the State or the Union Territory where the
consumption takes place. It would be a dual GST with the
Centre and States simultaneously levying tax on a common tax base.
The GST to be levied by the Centre on intra-State supply of goods or services
would be called the Central tax (CGST) and that to be levied by the States
including Union territories with legislature/Union Territories without
legislature would be called the State tax (SGST)/ Union territory tax (UTGST)
respectively.
(ii)
The
GST would apply to all goods other than alcoholic liquor for human
consumption and five petroleum products, viz. petroleum crude, motor spirit
(petrol), high speed diesel, natural gas and aviation turbine fuel. It would
apply to all services barring a few to be specified. The GST would replace the
following taxes currently levied and collected by the Centre:
a.
Central
Excise Duty
b.
Duties
of Excise (Medicinal and Toilet Preparations)
c.
Additional
Duties of Excise (Goods of Special Importance)
d.
Additional
Duties of Excise (Textiles and Textile Products)
e.
Additional
Duties of Customs (commonly known as CVD)
f.
Special
Additional Duty of Customs (SAD)
g.
Service
Tax
h.
Central
Surcharges and Cesses so far as they relate to supply of goods and services
(iii)
State
taxes that would be subsumed under the GST are:
a.
State
VAT
b.
Central
Sales Tax
c.
Luxury
Tax
d.
Entry
Tax (all forms)
e.
Entertainment
and Amusement Tax (except when levied by the local bodies)
f.
Taxes
on advertisements
g.
Purchase
Tax
h.
Taxes
on lotteries, betting and gambling
i.
State
Surcharges and Cesses so far as they relate to supply of goods and services
(iv)
The
list of exempted goods and services would be common for the Centre and the
States.
(v)
Threshold Exemption:
Taxpayers with an aggregate turnover in a financial year up to Rs.20 lakhs
would be exempt from tax. Aggregate turnover shall be computed on all India
basis. For eleven Special Category States, like those in the North-East and the
hilly States, the exemption threshold shall be Rest. 10 lakhs. All taxpayers
eligible for threshold exemption will have the option of paying tax with input
tax credit (ITC) benefits. Taxpayers making inter-State supplies or paying tax
on reverse charge basis shall not be eligible for threshold exemption.
(vi)
Composition levy: Small
taxpayers with an aggregate turnover in a financial year up to Rest. 50 lakhs
shall be eligible for composition levy. Under the scheme, a taxpayer
shall pay tax as a percentage of his turnover during the year without the
benefit of ITC. The rate of tax for CGST and SGST/UTGST each shall not exceed -
·
2.5%
in case of restaurants etc
·
1%
of the turnover in a state/ UT in case of a manufacturer
·
0.5%
of the turnover in state/UT in case of other suppliers.
A taxpayer
opting for composition levy shall not collect any tax from his customers
nor shall he be entitled to claim any input tax credit. The composition
scheme is optional. Taxpayers making inter-State supplies shall not be
eligible for composition scheme. The government, may, on the recommendation of
GST Council, increase the threshold for the scheme to up to rupees one crore.
(vii)
An
Integrated tax (IGST) would be levied and collected by the Centre on
inter-State supply of goods and services. Accounts would be settled
periodically between the Centre and the States to ensure that the SGST/UTGST
portion of IGST is transferred to the destination State where the goods or
services are eventually consumed.
(viii)
Use of Input Tax Credit:
Taxpayers shall be allowed to take credit of taxes paid on inputs (input tax
credit) and utilize the same for payment of output tax. However, no input tax
credit on account of CGST shall be utilized towards payment of SGST/UTGST and vice
versa. The credit of IGST would be permitted to be utilized for payment of
IGST, CGST and SGST/UTGST in that order.
(ix)
HSN (Harmonised System of Nomenclature) code
shall be used for classifying the goods under the GST regime.
Taxpayers whose turnover is above Rs. 1.5 crore but below Rs. 5 crore shall use
2-digit code and the taxpayers whose turnover is Rs. 5 crore and above shall
use 4-digit code. Taxpayers whose turnover is below Rs. 1.5 crore are not
required to mention HSN Code in their invoices.
(x)
Exports and supplies to SEZ
shall be treated as zero-rated supplies. The exporter
shall have an option to either pay output tax and claim its refund or export
under bond without tax and claim refund of Input Tax Credit.
(xi)
Import of goods and services
would be treated as inter-State supplies and would be subject
to IGST in addition to the applicable customs duties. The IGST paid shall be
available as ITC for further transactions.
3.
GST
Council
The mechanism of GST Council would ensure
harmonization on different aspects of GST between the Centre and the States as
well as among States. It has been specifically provided that the GST Council,
in its discharge of various functions, shall be guided by the need for a
harmonized structure of GST and for the development of a harmonized national
market for goods and services. The GST Council shall establish a mechanism to
adjudicate disputes arising out of its recommendation or implementation
thereof.
4.
Minimal
Interface
The physical interface between the taxpayer and
the tax authorities would be minimal under GST. Certain important
provisions in this regard are illustrated as under:
a) There
will be cross-empowerment of officers belonging to Central and State
Governments. Officer of CGST will be empowered to act as proper officer of
SGST and vice versa.
b) Registration
will be granted on line and shall be deemed to have been granted if no
deficiency is communicated to the applicant within 3 common working days by the
tax administration which has been allotted the examination of the application.
Such allotment is to be done one each alternately between the Central and the
State Tax administration.
c) Taxable
person shall himself assess the taxes payable (self-assessment) and credit it
to the account of the Government. The return filed by the tax payer would be
treated as self-assessed.
d) Payment
of tax shall be made electronically through internet banking, or also through
credit card and through the modes of Real Time Gross Settlement (RTGS) or
National Electronic Funds Transfer (NEFT). Smaller taxpayers shall be allowed to
pay tax over the bank counter. All challans for payment of tax shall be
generated online on the Goods and Services Tax Network (GSTN).
e) The
taxpayer shall furnish the details of outward supplies electronically without
any physical interface with the tax authorities. Inward supply details would be
auto-drafted from the supply details filed by the corresponding suppliers.
f) Taxpayers
shall file, electronically, monthly returns of outward and inward supplies, ITC
availed, tax payable, tax paid and other prescribed particulars. Composition
taxpayers shall file, electronically, quarterly returns. Omission/incorrect
particulars can be self-rectified before the last date of filing of return for
the month of September of the following year or the actual date of filing of
annual return, whichever is earlier.
g) For
mismatched invoices, reversal and reclaim of input tax credit shall be done
electronically on the GSTN portal without any tax payer contact. This
electronic system would also prevent, inter alia, input tax credit being
taken on the basis of fake invoices or twice on the same invoice.
h) Taxpayers
shall be allowed to keep and maintain accounts and other records in electronic
form.
5.
Input
tax credit
Taxpayer is allowed to take credit of taxes paid on
inputs (input tax credit), as self-assessed, in his return. Taxpayer can take
credit of taxes paid on all goods and services, other than a few items in the
negative list, and utilize the same for payment of output tax. Credit of taxes
paid on inputs can be taken where the inputs are used for business purposes or
for making taxable supplies. Full input tax credit shall be allowed on capital
goods on its receipt as against the current Central Government and many State
Government practice of staggering the credit in more than one installment.
Unutilized input tax credit can be carried forward. The facility of
distribution of input tax credit for services amongst group companies has been
provided for through the mechanism of Input Service Distributor (ISD).
6.
Refund
Time limit for claiming online refund has been
increased from one year to two years. Refund shall be granted within 60
days from the date of receipt of complete application. Interest is payable if
refund is not sanctioned within the stipulated period of 60 days. If the refund
claim is less than Rs. 2 lakhs, there is no need for the claimant to furnish
any documentary evidence to prove that he has not passed on the incidence of
tax to any other person. Only a self-certification to this effect would
suffice. Refund of input tax credit shall be allowed in case of exports or
where the credit accumulation is on account of inverted duty structure (i.e.
where the tax rate on output is higher than that on inputs).
7.
Demands
A new concept of sunset clause for tax disputes has
been introduced. It provides that Adjudication Order shall be issued within 3
years of filing of annual return in normal cases and the time limit is 5 years
(from the date of filing of annual return) in fraud/suppression cases. SCN will
have to be issued at least 3 months prior to the time limit prescribed for
issue of adjudication order in normal cases and at least 6 months prior to the
time limit prescribed for issue of adjudication order in cases involving
fraud/suppression etc. Penalty is Nil or minimal if the tax short paid /
non-paid is deposited along with interest at the stage of audit/investigation.
8.
Alternate
Dispute Resolution mechanism - Advance Rulings
Advance ruling mechanism has been continued under the
GST law. The salient features are as under:
a) Advance
ruling can be sought in respect of more subjects than allowed at present.
The subjects are: classification of goods/or services, time and value of
supply, rate of tax, admissibility of input tax credit, liability to pay tax,
liability to take registration and whether a particular transaction amounts to
a supply under GST law.
b) Advance
ruling can be sought not only for new activities but also for existing
activities. The facility of appeal, which is not there
under the Central law, has been provided in the GST Law.
c) The
applicants or the Department, if aggrieved by the advance ruling, would
henceforth get the opportunity to file an appeal before the Appellate Authority
for revision of the ruling. Advance Ruling can be obtained more easily as there
will be one Advance Ruling Authority (as also the Appellate Authority) in every
State.
9.
Other
provisions of GST
The provisions worth mentioning here are:
(i)
Valuation
of goods shall be done on the basis of transaction value i.e. the invoice
price, which is the current practice under the Central Excise and Customs Laws.
Taxpayers are allowed to issue supplementary or revised invoice in respect
of a supply made earlier.
(ii)
New
modes of payment of tax are being introduced, viz. through credit and debit
cards, National Electronic Fund Transfer (NEFT) and Real Time Gross Settlement
(RTGS).
(iii)
E-Commerce
companies are required to collect tax at source in relation to any supplies
made through their online platforms, under fulfilment model, at the rate
notified by the Government.
(iv)
An
anti-profiteering measure has been incorporated in the GST law to ensure
that any benefits on account of reduction in tax rates results in commensurate
reduction in prices of such goods/services.
10.
IT
preparedness
Putting in place a robust IT
network is an absolute must for implementation of GST. A Special Purpose
Vehicle called the GSTN has been set up to cater to the needs of GST. The
GSTN shall provide a shared IT infrastructure and services to Central and
State Governments, taxpayers and other stakeholders for implementation of
GST. The functions of the GSTN would, inter alia, include: (i)
facilitating registration; (ii) forwarding the returns to Central and State
authorities; (iii) computation and settlement of IGST; (iv) matching of tax
payment details with banking network; (v) providing various MIS reports to the
Central and the State Governments based on the taxpayer return information;
(vi) providing analysis of taxpayers’ profile; and (vii) running the matching
engine for matching, reversal and reclaim of input tax credit. The target date
for introduction of GST is 1st July, 2017.
The GSTN will also make available
standard software for small traders to keep their accounts in that, so that
straight away it can be uploaded as their monthly returns on GSTN website. This
will make compliance easier for small traders.
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