Goods and Services Tax
(GST)
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Content of presentation
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Background of GST
Salient features of GST
GST status update
Inter-State GST
Place of Supply
Revenue Neutral Rate (RNR)
Issues in GST
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Background of GST
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Introduction of VAT at State Level
– For introduction of harmonious VAT at State level a
meeting of Chief Ministers was convened by then
Finance Minister Dr. Manmohan Singh in 1995.
– In Nov 1999, two important decisions were made
• To end unhealthy tax rate war (by implementing uniform
floor rates based on consensus)
• To form Standing Committee of State finance Ministers
called Empowered Committee of State Finance Ministers to
build consensus and take decisions
– VAT in the State was introduced in April 2005.
– By Jan 2008 VAT was implemented in all States and
UTs.
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Kelkar Committee Report
1.
Union Government constituted a Task Force on the
Implementation of the Fiscal Responsibility and Budget
Management Act, 2003.
2.
Task Force pointed out the required Fiscal corrections
could be made on the Expenditure side as also the
Revenue side.
3.
Task Force proposed a strategy for Tax Reforms and
recommended, inter-alia, introduction of an integrated
Goods and Services Tax.
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Announcement
The Union Finance Minister in his
Budget Speech in February 2006 stated
by April 2010, a unified Goods and
Services Tax would be introduced in
India, replacing the Central and State
levies on goods and services.
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Developments
The Empowered Committee of State Finance Ministers
has prepared and submitted to the Union Finance
Ministry its recommendations regarding the proposed
unified Goods and Services Tax.
The first Discussion Paper on Goods and Services Tax
in India was published by the Empowered Committee
of State Finance Ministers on November 10, 2009.
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Salient Features of
GST Model
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Objectives of GST
• Development of Harmonised National Market
• Harmonisation
in
Tax
Policy
and
Administration
• Harmonisation in legal Provisions, procedures
and tax rates
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What is GST ?
• GST has same nature as VAT but will include all
major indirect taxes of Centre & State
• Tax on continuous chain of transaction from
producer and service provider upto retailer, with setoff.
• Removal of cascading of tax like Central Excise
component presently taxed under State VAT.
• Integration of goods and services for vatability.
• Change in inter-State transactions from origin based
to destination based.
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Benefits of GST
• Removal of cascading burden and transparency in
tax
• Simplified tax structure by removing multiplicity of
tax
• Uniformity of tax procedure, rate across India
• Possibility of better compliance due to linkage of all
taxes.
• Reduced cost of compliance for tax payer.
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Changes under GST
• Additional power to levy tax on services for the
State.
• Additional power to levy VAT on goods for the
Centre.
• Set-off relief of VAT on goods to service provider
and vice versa.
• Subsuming of several taxes levied by State and
Centre,
• Introduction of inter-State GST instead of CST
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Central Taxes to be subsumed under GST
• Central Excise Duty
• Additional Excise Duties
• Excise Duty levied under the Medicinal and
Toiletries Preparation Act
• Service Tax
• Additional Customs Duty, commonly known as
Countervailing Duty (CVD)
• Special Additional Duty of Customs - 4% (SAD)
• Surcharges, and
• Cesses.
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State Taxes to be subsumed under GST
• VAT / Sales tax
• Entertainment tax (unless it is levied by the local
bodies).
• Luxury tax
• Taxes on lottery, betting and gambling.
• SCPT – Sugar Cane Purchase Tax
• Entry tax not in lieu of Octroi.
• State cesses and Surcharges relating to supply of goods
and services
• Octroi [proposed by Government of India, objected by
States]
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Taxes NOT to be subsumed under GST
•Central Taxes
• Customs Duty
• Excise on tobacco products and petroleum
products
•State Taxes
• Excise duty on liquor
• Sales Tax on petroleum products, liquor
• Stamp duty
• Taxes and duties on Electricity
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GST Tax Structure
• GST with two components Centre GST (CGST) and State
GST (SGST).
• Two taxes levied on every transactions from manufacture
to retailer.
• Inter-State sales tax on ‘destination’ unlike ‘Origin’ based
under CST.
• Implementation through three statutes.
• Basic features of law to be uniform.
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GST Tax Structure
• Zero rating of Exports
• GST on imports equal to CGST and SGST
• Inter-State Tax will flow to the consuming
State which will give ITC
• All industrial exemption schemes to be
converted into cash subsidy schemes
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GST Rate Structure
• Two-rate structure
• a lower rate for necessary items, goods of
basic importance and specified services.
• a standard rate for goods and services in
general.
• A special rate for precious metals.
• A list of exempted items – same as existing
VAT Act as well as negative list for services.
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GST Business Process
• Common system for registration, return, payment
• Registration number PAN based with state code
and check digits
• Maximum services for dealers to be electronic and
on common portal GSTN.
• All dealers to file electronic returns.
• Payments through e-payment or OTC payment for
small dealers
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Prime Requirements for roll out of
GST
• Amendment in Constitution,
• Robust IT infrastructure,
• Statutes for CGST, SGST & IGST,
• Business process re-engineering
• Migration of existing tax payers for
allotment of new Registration number.
• Decision regarding rate of tax.
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GST Status Update
A. Constitutional Amendment
B. Machinery for GST
C. Automation
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GST Status Update
A. Constitutional Amendment:
•
GST envisages additional power to levy tax on trade by
Centre and Service by State, which presently not
available in the Constitution.
• Accordingly, Constitutional Amendment (One Hundred
and Fifteenth) introduced in Lok Sabha in 2011. Vetted
by Standing Committee and gave recommendation in
2013.
• Based on recommendations of Standing Committee,
Amendments to Bill done. EC gave remarks on Bill,
under consideration with Government of India.
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GST Status Update Cntd..
B. Machinery for GST:
• Apart from Constitutional Amendments, EC has crystallized
areas
which
needs
detailed
deliberations
for
smooth
introduction of GST.
• EC formulated three Sub-Committees to work on (i) Dual
Control (administrative control over dealers), Exemption and
Threshold, (ii) Inter-State GST and GST on Imports (iii) Place
of Supply and RNR.
• Reports prepared and accepted by EC
• Work of Committee on GST Laws is under progress.
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GST Status Update Cntd..
C. Automation:
• In order to cater automation needs, non
Government Company formed.
• States and Centre to have 49% equity and private
participation at 51% equity.
• Business processes for registrations, return and
payment are near to finalization.
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Details of Constitutional
Amendments
New Articles
• Article 246A provides for levy of GST by State &
Centre
• Article 269A provides tax on inter-State by Centre.
• Article 279A creation of GST Council for
implementation of GST.
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GST Council Structure
• Union Finance Minister
• Union Minister of State
Revenue
• State Finance Ministers
• One of the State Finance
Ministers
Chairperson
Member
Members
Vice-chairman
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GST Council
Functions
Recommendations on• Taxes to be subsumed in GST
• Exempted goods & services
• Threshold
• Floor rate of tax with band
• Special rate for specific period
Dispute settlement between States, between Centre and States
Decision
• Majority of not less than 3/4th of weighted votes
• Centre vote to have weightage of 1/3rd
Maharashtra recommendations
• Centre vote to have weightage of 1/5th
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Constitutional Amendments
Other Amendments
• Article 286 to do away with concept of ‘declared goods’
• Article 366 to include definitions of ‘goods & services
tax’ and ‘services’
• Clause (29A) of article 366, defining deemed sales like
works contract, hire-purchase sale, lease etc. to be
omitted
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Constitutional Amendments
Amendment in Union List
• Entry 84 to be modified to retain power to levy excise
duty on petroleum products & tobacco products
• Entry 92 about tax on sale of newspaper and
advertisement published therein to be deleted
• Entry 92C about tax on services to be deleted
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Constitutional Amendments
Amendment in State List
• Entry 52 omitted – Entry Tax (objected by State)
• Entry 54 provided for tax on Petroleum goods & liquor
(State demanded for tobacco & tobacco products also)
• Entry 55 about tax on advertisement to be deleted
• Entry 62 entertainment tax can be levied by Local Bodies
only. Tax on Luxury, entertainment, Betting & gambling
subsumed in GST
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Machinery for GST
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EC Sub-Committees
• EC constituted committees for providing machinery for
GST
Committees to deal with various issues.
1.
Committee on Problems of Dual Control, Threshold &
Exemption
2.
Committee on IGST and GST on Import
3.
Committee on Revenue Neutral Rate & Place of Supply
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Threshold & Dual Authority
• Threshold at Rs. 10 lakhs & for NE States at Rs. 5 lakhs
• Tax payer to get PAN based registration number
• Tax
payer
upto
1.5
cr
with
States
for
tax
administration
• Dual authority for dealers above turnover of Rs. 1.5 cr.
• IGST dealers may face dual authority. (issue debated)
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Exemptions
• VAT list of exemptions on 96 commodities to continue
• Centre to align its exemption list to VAT list
• List of goods taxed at merit rate (lower rate) to be
decided
• HSN code to be introduced at the time of GST roll-out
• Issue of Rate of food grains in GST
(as majority of the States do not levy tax)
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Composition Scheme
• Composition scheme for small dealers with annual TO
of Rs. 75L. (Proposed 50 L by EC)
• Reasonable compounding rate of 0.5% to be
prescribed. (proposed 1% by EC)
• Scheme to be optional
• Relieves small dealers of maintaining accounting
details.
• Not available for importers and inter-State dealers.
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Issues: Composition Scheme
• Compounding rate of 0.5% not revenue neutral
• Is compounding scheme available to all dealers
including Builders & developers?
Maharashtra Recommendation
− Revenue neutral compounding rate should be 1.5%.
(being revenue neutral)
− Compounding scheme may not be available to service
providers, manufacturers (not accepted by GOI)
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Inter-State GST [IGST]
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IGST
Method:
• Innovative model for inter-State transactions called IGST
model.
• Centre to levy IGST equal to CGST plus SGST on all
inter-State transactions.
• Inter-State seller to pay IGST.
• Credit of IGST available inter-State purchaser to be
adjusted against CGST, and SGST and vice-versa.
• IGST is destination based and will accrue to importing
State.
• B2B transactions -- tax will flow to the State where
purchaser claims ITC
• B2C transactions -- tax will flow to the State of
Consumer if C is clearly identifiable. Otherwise tax
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will remain in the State of B
IGST
Pre-requisite
• Common e-Return for CGST, SGST and IGST
• No short payment
• Inter-State branch / stock / consignment transfer to be
treated as sale
• Reporting of sales and purchase invoice details to be
mandatory
• All taxpayer to file monthly return
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IGST – Process flow of return filing
Uploading of provisional sales statement
Preparation of auto-drafted purchase statement from sales statement
Mutual reconcilation between suppliers & buyers during pre-return period
Finalisation of sales & purchase statements
Preperation of draft return from final statements
E-payment of tax
Submission of e-return.
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IGST – Cut-off dates
10th day of succeeding month
− Uploading provisional sales statement.
− Mandatory for dealers above certain turnover.
17th day of succeeding month
− Uploading final sales statements
− Uploading final purchase statement
20th day of succeeding month
− e-payment
− Filing of e-return.
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IGST – Post return processes
Locating mismatched invoice
immediately after last date of filing
of returns.
Auto SMS or e-mails to respective
dealers in case of mismatch of
invoices
Reconciliation and corrections in
sales & purchase statements based
on mis-match within prescribed time
limit (say 15 days)
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IGST – Post return processes
ITC of claimant dealer to be reversed
by mis-match amount by the system
after above reconciliation period.
Liability of the dealer to be increased
by the extent of ‘non-paid mismatch amount’ in the next return by
the system
Bar on the dealer to file return unless
payment of such reversed credit
along with interest has been made.
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IGST - Validations
I: Return
− Aggregate of sale statement with turnover of sales
− Aggregate of purchase statement with turnover of purchases
− e-payment with tax liability in the return.
II: Sales / Purchase Statements and their matching
− GSTIN of pairing dealers
− GSTIN of blacklisted dealers
− separate invoice for each tax rate
III. Matching of invoice
− GSTIN of pairing dealers,
− Invoice no and date
− Tax amount
− Tax rate
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Other features of IGST Model
• Purchaser to claim ITC of IGST
• ITC of IGST can be adjusted against liability under IGST,
CGST, SGST.
• Purchaser has to bear the burden until settlement of mismatch.
• Seller can not reduce his liability merely on the ground
that ITC on such sales is not claimed
• Seller can revise return in case of incorrect or missing
entry in sales statement
• Revision by seller is allowed only if the ITC is reduced by
the purchaser,.
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Other features of IGST Model Contd…
• Revision of returns to be restricted to 6 months
• Separate annexures may be provided for debit /
credit notes
• Debit and credit notes to be tagged to original sales
and purchase invoices
• Debit and credit notes to carry aggregate details of
value and tax rates
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IGST - Transfer of credit
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GOI will transfer IGST credit utilized by the importing dealer (to
pay his SGST liability) to his State Government.
•
State Government of the exporting dealer will transfer SGST credit
utilized by him (to pay his IGST tax liability) to GOI.
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Settlement between Govt. of India and importing / exporting State
Govt. will be independent of each other
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AG in States and CGA in Govt. of India may be authorised to carry
inter-government settlement.
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Inter-government settlement through consolidated fund within
month without approval of legislature.
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Place of Supply
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Place of Supply Rules
Important for deciding ‘appropriate State’ to receive tax
and place where tax to be paid.
Place of Supply of Services
General rule
• Supply to a registered person or public authority shall be
the State of service recipient
• Supply to Non-registered person shall be the State of
service provider,
With exceptions to certain services as notified.
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Notified Services for Place of Supply
Type of service
Services having nexus to
immovable property including
general insurance
Place of Supply
State in which such property is
located.
Performance based services
State where the services are
actually performed
Services relating to events
State where the event is
actually held
Goods transportation services to
registered persons
Location of service receiver
Goods transportation services to
unregistered person
State in which goods are
handed over for their
transportation.
Passenger transportation service
State where passenger starts
journey.
Services provided on board a
conveyance
State of the first scheduled
point of departure
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Notified Services for Place of Supply
Type of service
Place of Supply
Telecom services
− Fixed line
State where fixed line is
provided
−Post – paid mobile & internet
State of address of service
recipient
−Pre – paid mobile & internet
State of sale of pre-paid
vouchers or where prepayment is received
Broad cast services to
registered persons in
identifiable State
Each state in proportion to
amount attributable to
service provided
Broad cast services to
registered persons in unidentifiable State
Location of registered service
receiver
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Notified Services for Place of Supply
Type of service
Place of Supply
Broadcast services to nonregistered persons
Location of service provider
Advertisement services to
Central Govt., State Govt. or
local authority
Each state in proportion to
amount attributable to
service provided
Legal services involving
representations
Location of forum at which
the litigation is going on.
Legal services not involving
representations to
unregistered persons
Location of service provider
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52
Notified Services for Place of Supply
Type of service
Place of Supply
Account based banking &
other financial services
Location of service receiver
on record of service provider
Non-account based banking &
other financial services
Location of service provider
Insurance services to
registered persons
Location of service receiver
Insurance services to unregistered persons
Location of service receiver
on record of service provider
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Place of Supply of Goods
With movements of goods
• State where goods are delivered to the receiver.
Without any moverment of goods
• State where goods are located at the time when
deliverly takes place
Goods installed
• State in which installation has actually taken place
Goods on board a conveyance
• State where goods are taken on board.
Place of supply of electricity or gas
• State where gas or electricity is used and
consumed.
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Revenue Neutral Rate
(RNR)
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Revenue Neutral Rate
• RNR calculation worked assigned to NIPFP
• NIPFP reported standard rate at 13.91% for State
and 12.77% for Centre.
• Assumption of lower rate at 6%, sugar and textiles
are taxed, services taxed at standard rate
• Issue of high tax rate on services.
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Issues in GST
Important Issues
• Abolition of Entry 52 in State list
• GST compensation mechanism and period.
• Revenue Neutral Rate on services
• Methodology of administration on tax payers
with dual control
• Calculation of service tax base
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