INDIRECT TAX : If the taxpayer is just a conduit and at every stage the tax incidence is passed on till it finally reaches the consumer who really bears the brunt of it, such tax is indirect tax. An indirect tax is one that can be shifted by the taxpayer to someone else. The significant indirect taxes that were being levied in India till June 2017 excise duty, customs duty, service tax, central sales tax (CST), value added tax (VAT), octroi, entry tax, purchase tax etc. FEATURES OF INDIRECT TAXES (DTime of taxation: Indirect taxes are levied on purchase/sale/manufacture of goods and supply of services, - (ii)Incidence and impact: In case of indirect taxes, the incidence and impact of indirect taxes fall on two different persons. It means the tax burden is shifted by the supplier to the buyer or recipient of goods or services and is borne by the ultimate consumer of goods and services. - (iii) Payment of tax: The seller of goods o supplier of services pays indirect taxes to t government and the same is collected from the - (iv) Regressive in nature: As indirect taxes are levied on sale of goods and services, they do not depend on the paying capacity of the taxpayer as tax payable on commodity is same whether it is purchased by a poor person or rich person. Hence, indirect taxes are regressive in nature. - (vy) Inflationary in nature: The indirect taxes on goods and services increases its price. This leads to inflationary trend.(i) Nonevasive: ti fel eve inet wes See ey ae imple decy tragh eo rodacs nd sippy ofseries. (0) sett for uadertaing wale sts: The al esi procs ie Hohl tbnecs, ar oor weed a higher rae Tis practice mo Bocourges consump of such pods Dut BO inset the event the Ste which is wed fr deaing mele cts by he oven (i) Major source of revense: to Ini, the “Seon of inert tl tx even mor th ‘0 pace Here, Wat ae amor eu of ak even forthe Covenant HISTORY OF INDIRECT TAXATION IN INDIA “The history of indirect taxation in India dates back to few centuries and cue of the same is found in Kautlya's Arhasashra. During those ays, taxes were collected in king in the form of crops andor any agricultural product. Such collections were gonerlly ear-marked for some specific purposes or for the development of the State. ‘Taxes were also raised separately for meeting inernal and extemal exigencies like famine, ood, war ete.Wit the ait of lst Revolain tthe ey 180 Europe mate were intel ih machi nade material = ing tv ben the mow promt ‘The mundaicg was 0) iene tht seling he ‘renfocued mew ecoming impostBle So 10 Tein markt was ho Pond wh Bich procs. Few dts ke ta were a rogaced in nan cotage Fruit and for evi reanons, ies of ides medics were lover conpared to the impr Bish ret Ait pi the Bria hgh pos es mrad aden nd. ‘The modem hy of inc tues stu fe the ty oth ceauy we eacie day mas impose na san @ oor spit. Gradually, the base of excise duties was troudene. «The Central Excise Act was formulated in 1944 and thereafter has gone for gradual change yea by year | When the British lft india in 1947, they le India with a structure, especially that of revenue, which has not completely change til now. «Reforms on taxation in India at a notable scale ‘were started by two committees appointed in the 1970s: though the reforms suggested by them were plemented from late 1980s. eLaan Kam Ibe i cone a the ahi of he psn in 1970, bute genes wee coed ty aterdeae, 1199, sggse VA he fom of MAN VAT (VAT the Mant eel Following hi esoemendatons, 2 dre move was made by VP Singh when be snroaced MODVAT (Mies ‘ave Adel Tao) is 1988 dng his ene as Fiance Miner MODVAT wa resets ofthese Se ees ne a a Ae Er te cee COAT 1 a drt te gone i oie ‘en a appl pry pT ‘a mo pe iden eo “he atemp of «nation wie VAT was a wink oe cf tthe teianing ofthe tw leno i eet that soe sl x and cental exe ues and serees‘nom i trond aye gl 0 The ‘Shauna iin te hinged ‘Sage rym ant ann alt ‘Sef A cn se wr “The tung of aon wide VAT wat an utile one ‘en athe being ofthe now milena mean hr sine sent and cea exe des an serves tats were bbe merged ito oe. For the Sues, he sales twas te arges source of x vee “To aval te vantage of a igle tmcand es benef Impct on uifing te economy and promsting conome cies, the fie move waren of Goods ad Services Tax (GST in Inn was made by All Bia \Vapoyee govemmen in the yea" 2000”. initiating iesaone wih Ste Finance Miniter. In 2008, Vay Kellar sogesd a ompreesive GST ad in the neat yet MP Chiba he then Finance Mine, he Inch GST a bet gl © ‘Mer yer of deers between the sts and te a ee eaeien ldCGST GST The Central Goods and Service tax under GST has replaced the existing tax services tax, excise tax, etc. SGST means the state goods and service tax that has replaces the existing tax like the sales tax, luxury tax, etc. This tax is levied by the state eovernmerCollected by Benefiting authorities Applicable on transaction Registration Central Government Central Government Intrastate (Within the state) No registration, until the turnover, is State Government State Government Intrastate (Within the State) No registration, until the turnover, ison transaction Registration Composition scheme (Within the state) No registration, until the turnover, is exceeding Rs.20 lakh (For northeastern states it is Rs.10 lakh) The dealer can use the benefits up to Rs.75 lakh (Within the state) No registration, until the turnover, is exceeding Rs.20 lakh (For northeastern states it is Rs.10 lakh) The dealer can use the benefits up to Rs.75 lakhstates it is states it is Rs.10 lakh) Rs.10 lakh) Composition The dealer The dealer scheme can use the can use the | benefits up to benefits up to Rs.75 lakh Rs.75 lakh under the under the composition composition scheme scheme To get GST registration you can get in touch with our advisors who will help you in getting the GST registration within 6-7 days. OoDifference Between Excise duty and Customs duty: Customs duty is Excise duty is charged on goods charged on when they are goods that are transported produced in across factories. international borders. It is a kind of It is also a kind of indirect tax indirect tax. Excise duty is Customs duty is to be paid by to be paid by theExcise duty is ; Customs duty is to be paid by to be paid by the the importer of the manufacturer goods. of the goods. Excise duty is calculated Custom duty of taking into any goods is account the valued by its number or assessable value. volume of goods. Bottom line: So, when we compare, MostFactors Affecting Tax Computation Volume, monetary worth, and quantity of items affect the computation of tax. The computation of tax is affected according to the items’ assessable worth.Calculation Excise duty is valued ad valorem, which implies that the duty is computed based on the number or volume of commodities. Customs duty, on the other hand, is determined by its assessable value. It is valued by the quantifiable value.Apvaxraces oF VAT (2) Simple methods thre ware ever rte oft {tele VX compwaton nd comes bce en. (@) Prevented cascading (x om tx) fet: As tee Sete an ipet tw tet mesh prevented Crscaling tect. (2 dpe eae Aa te YET yum ae a enema aed aoe = {0 Tanparecr Ae nso on wt ictus sop toe pee A wu ore miei matte en @ i (©) Export compeivnee improved: As he geas fxpoced were tat usable under VAT, the expons brane compete. Provider ax bate A the {VAT ten eapired tale ation and was aed very snge of ale don, provided» lage x (@Fncouraged investment: As une the VAT regime ‘se rt was allawed on ceil god i encouraged (0) Minimined tax evasion: Owing tothe we of tx ino Seay enna aii-L ComplicalQiS ARYAN WAGER, Qredlibicated system of tax in practice. It is a multi-rate system with exemption to certain industries with a view to provide social justice and economic development. - 2. High administrative cost: The administrative cost of VAT system is very high because the work associated with this system involves a number of stages. - 3. Reduces revenue of the Govermment: VAT system reduces the tax burden of consumers and in © consequence reduces Government revenue.‘Sauievr Fexrores oF VAT: pe ri as A ito ho ‘Si en ap pcg (Coen apr a np A oa part te te cy pose re ve ae he i a Footttmee 9 Soin tt Ys me ae te ‘ceaaing “é (6) Nota burden on dealer A dsr int eis pay hy tx fom his pocket Aer sdusing the our of paid cn parca (put tx) fom the amount oleced (ouput x) rm perons fo whom good ae sold a he ‘rence smo spd he Govermet (0 Taxable from se’ pola of sens ll wansactons Involving sls at tnd tam he ew point of thse (oiQUniorm rate at every plat of se: Same re aod ‘em often flowed forthe same em wher the ‘Bd ae wo tamer dealer acansue,INTRODUCTION TO VAT Meaning of VAT - As the name indicates, the Value Added Tax (VAT) is a tax on the value added to a commodity or services at each stage of production and distribution process or chain. VAT is nothing but a type of Sales tax. It is a tax on sale of goods. It is another method of colecting tax on sales.Salient features of GST Some salient features of GST are as follows One nation, one tax: GST is considered to be the biggest indirect tax reform of independent India being projected as “one nation, one tax’, , India has one type of tax although with multiple tax rates on different items of goods and services. Dual GST Model: Two structure of the components of tax: Consistent with the federal country, India has dual structure or two tier GST Central GST consisting of the (CGST) and State/Union Territory GST (SGST)/(UTGST) which operate in a parallel fashion. The Centre levies and collects Central Goods and Services Tax (CGST) and the States/Union Territories levy and collect State/ Union Goods and Services Tax (SGST/UTGST) on all intra-state supply/transactions of goods and services within a State on a common taxable base. (3) Role of GST Council: The GS Council formed under Article 279A has been entrusted with the power to recommend modifications in the rules, rate structure etc. relating to GST, Modifications relating to the GST laws, rules etc. can be notified by the Government only based on the recommendations made by the GST Council. (4) inter-state transactions and the IGST mechanism: The Centre levies and collects the Integrated Goods and Services Tax (IGST) on all inter-state supply of goods and services. The IGST mechanism has been designed to ensure seamless flow of input tax credit from one State to another. The seller deposits the IGST with the Central Government. Later, the SGST/UTGST component included in the IGST fs transferred to the State Government/Union Territory where the services or goods have been consumed. (5) Creation af a unified national market: Introduction of GST has created a unified national market which facilitates free movement of goods and services across the country. (6) No cascading effect: Cascading effect is the effect of taxes-on-taxes Federal structure of our democracy, allows both states and Centre to levy taxes separately and this had caused this cascading. The concept of cascading effect can be can understood better with the help of the following example: When manufacturer A“’ sells his goods from Assam to Dealer “B” in Haryana, he is liable to collect both Excise Duty and Central Sales Tax at the rate of 12.5% and 2% respectively, being an inter-state sale. Further, Dealer “B” will not get any credit of this Excise Duty and CST paid by him. So, dealer "B" would consider the Excise Duty and CST paid as part of his cost. Now, when dealer “B” would sell these locally in the State of Haryana, he would charge tax on the purchase price of his goods plus Excise duty and CST and amount added by him as his profit (Value addition). So, here the “Cascading Effect” is evident. Tax paid on tax results in increase in price. But with the introduction of GST, Input Tax Credit (ITC) can be availed for(7) oesieation based tax Gst based en the principle of destnation-based consumption taxation as agaist th ‘Siutng poncple of orin-besed taxation. Tas implies that all SGST colecte [Srdinoniy’ accrues to the sate where the consume of the goods OF services sl resides. (a Searles tow of ree (51 factates seamles cree cross the entire supply chain and acros al states under (9) Enhanced transpareney! (ST regime has enhanced transparency Inthe inact tax Framework and Is expected {outer bring down te at of ination. (40) Tax merlity across the county: Gst estes that eoing busines nthe country staat al ot wich impact he ease with Business can Be GoneTAXES SUBSUMED BY GST - Taxes that have been subsumed in GST include both Central ar Taxes, Following Is the list of taxes, both Central and State, subsu the GST: . (A) Central Taxes: Central Excise Duty Duties of Excise (Medicinal & Toilet Preparation) Additional Duties of Excise (Goods of Special Importance) Additional Duties of Excise (Textile @ Textile Products) Additional Duties of Customs (CVD) Special Additional Duty of Customs (SAD) Central Sales Tax (Except for few items) Central Surcharges and Cesses so far as they relate to supply of good and service (9) Service Tax » (B) State Taxes: (1) State Value Added Tax (VAT)/Sales tax (2) Luxury tax (3) Entry tax (All forms) (4) Entertainment Tax (other than the tax levied by the local bodies) (5) Taxes on Advertisement (6) Purchase Tax (7) Taxes an lotteries, betting and gambling Ey iae Surcharges and Cesses so far as they relate to supply of goods and 4TAXES NOT SUBSUMED IN GST [Although most of the Central and State taxes have been subsumed in GST, the following taxes have nat Deen subsumed in GST: (A) Central Taxes: Basic Custom Duty, Research and Development Cess, Export Duty, antidumping Duty, Safeguard Duty, Social Welfare Surcharge tte. levied on import and export and Central Excise Duty (on Petroleum products) (B) State Taxes: State Excise Duty (on Alcohol for human consumption}; VAT {on Petroleum products, Professional Tax, Stamp Duty, Motor Vehicle Tax, Toll charges et (Ge cat denging ny 2 premmentanier est Oat a dementia grommet ingens onDIFFERENCES BETWEEN GST AND PREVIOUS TAX VAT Structure Basis of Levy Registration Filing of Returns and Collection of Re EY State VAT rn neers pee Under the old taxation system, the central taxes applicable were custom duty/central excise duty, central sales tax on commodities and services, surcharge and cesses. The state taxes included state VAT, entertainment tax, luxury tax, tax ‘on gambling, betting and lottery, sales tax deducted at source, and surcharge and cesses, Under VAT, tax will be levied at the place where goods are manufactured or sold, or the place at which services are rendered. Under VAT, the registration is decentralised under state and central authorities, Under the old scenario, service tax and central excise were uniform, but VAT varied fram Under VAT, the CM a under fae ee os Pd Se ad ee en ets provision/payment basis Under GST, all the central and state taxes will be subsumed, and a single tax will be levied on all commodities and services apart from motor spirit, petroleum, natural gas and high-speed diesel, Under GST, tax will be levied at the place of consumption, like a destination-based tax. Under GST, there will be uniform e-registration depending upon the PAN of the entity. Under GST, the process is uniform and the dates for collecting or depositing tax and iat ery a) co Beall} upon rules reiating to Place of Supply LC ee tar on Excise Duty Basic Customs Duty Entry Tax Under VAT, all commodities apart from those exempt are taxed. Under VAT, excise duty will be levied up to the point of manufacturing. Under VAT, the centre charges tax on imports under a separate act. Under VAT, entry tax is charged by certain states for inter-state transfers, detained as import in local area. Under GST, the State GST subsumes this tax. Under GST, the excise duty will be replaced by Central GST and tax will be levied up to retail level. No change. Under GST, entry tax is not applicable, but an additional 1% will be levied as tax on inter-state supply of certain commodities. AMeaning of GST According to Article 366 (12A) of constitution of India, as amended by 101st constitutional Amendment Act, 2016 the Goods and Services tax (GST) is defined “as a tax on supply of goods or services or both, except supply of alcoholic liquor for human consumption. GST is a destination-based tax on consumption of goods and services right from the manufacturer to the consumer, to be levied on the same taxable event by both the states and the union government. It is levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as set off. In a nutshell, only value addition is taxed. Nah sag Ms YF age em ee mh ear ea wk nn ge rac aaSUPPLY UNDER GST ‘Atasable event that event, he happening of wich tracts aby tts. The ett srg GF th SUPP of pons or serves o bth eter ply ho |Cugnncnce ss acca notar GST sppleabeo na. ence, te sti ‘Mopirbecars te at nth pa tbe tated fray wasn ace ua paw oor Supt dein unr 65, Supp ha been defn unde S070 the CST at tude Se.71 For the papi of hi at pty cue: (2 at forms of spo feds or servis or Bath such asl, worst, barer, exchange ‘ices ret ene ops ade pee abe mes fe! 3 omen «pera Incaurieortrance urns (2 impr of series lor a consraton whether ar net cere of beret o bane, {eh th setup Swe maa ornate made wou onaerin (a). escent Stace tbe ate a pp fod or pp of srcNEGATIVE LIST IN GST ACT i ‘her treated as goods Schedule Ill specifies certain activities which are neit nor treated as services, This list of activities is called Negative List. 1. Services by an employee to the employer in the course of or in relation to his employment, 2, Services by any court or Tribunal established under any law for the time being in force, 3. (a) Functions Performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities, (b) Duties performed by any person who holds any Post in pursuance of the provisions of the Constitution in that Capacity OR (c) Duties performed by any person as Cha Director in a body established by the Central Government or a State Ta local Government oi authority and who js not deemed as an e; lo before the commencement of this clause. ee irperson or a Member or a 4 Services of funeral \ |, ¢remato 'ransportation of the deceased. ea 5. Sale of land an building, and subject ta Pare 7. Supply af goods f place in the ‘i rom a place jn the non. taxable t, to an. taxable territery, SPl® *erritory without ods, to another entering into 8B. (a) Supply of wareh Si cineca used goods to any person before Clearance for (b) Supply of of documents Of titi Heald @ po Activie:.. ..4. ON THE BASIS OF GEOGRAPHICAL LOCATION which can be classified . This clastfiation considers movement of suply geographically can (A) INTER-STATE SUPPLY: According to Section 7(1) of || 0, subject to the provisions Section 10 , supply of goods, where the location of the supplier and the place of supply are in - © 1) Two different states; © (Hi) Two different Union territories; OR © (til) A state and a Union territory shall be treated as supply of goods in this course, Similarly-in Section 7(3), subject to the provisions of Section 12, supply of services, where the location of the supplier and the place of supply are in - (i) Two different states; (Hi) Two different Unien territories; OR ® (iif) A state and a Union territory shall be treated as supply of service in this course. ® (8) INTRA-STATE SUPPLY ‘As per Section B(1) of 40, subject to the provisions of Section 10, supply of goods where the location of the supptier and the place of supply of goods are in the same state or same Union shail be treated as intra-state supply with respect ta the fact that the following goods are - territ shall ibe treated as intra- state supply which (i) Supply af goods to or by a Special Economic Zone developer or 2 Special Economic Zone unit; (U) Goods imported into the territory of india till they cross the customs frontiers of india; or (itt) Supplies made to a tourist referred to in section 15. © (C) SUPPLIES IN THE TERRITORIAL WATERS As per Section 9 of 00 001, netwithstanding anything contained in this act, - (a) Where the location of the supplier is in the territorial waters, the location of such supplier: or (b) Where the place of supply i In the territorial wat the place if supply, shall, for the Purpuuere! thi Acs De decened tee ur ha shed rete Te ee eee point of the appropriate baseline is located.r » When two or more goods or services or both are supplied together a question arises on the tax payable as bath these goods or services or both may have different GST rates when sold separately. These goods supplied together are called combination supplies which CGST Act classifies into the following: (A) Composite Supply According to Section 2(30) of i, ‘composite supplies’ means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services ar both, or any combination thereof, which are naturally bundles and supplied in conjunction with each other in the ordinary course of business, one of which is principal supply. (B)MixedSupply According to Section 2(74) of |) |, ‘mixed supply’ means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person fir a single price where supply does not constitute a composite supply. » (A) COMPOSITE SUPPLY » Composite supply refers to a supply of goods or services which ar naturally bundled and supplied in conjunction with each other. » Under GST, the term “composite supply” is defined as a supply consisting of two or more taxable supplies of goods or services or both, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, where one of the supplies is a principal supply. The principal supply is the supply which constitutes the predominant element of the composite supply and determines the nature of the composite supply. » For example, a restaurant provides food and beverages to its customers. In this case, the supply of food and beverages are naturally bundled and supplied together in the ordinary course of business. The principal supply in this case is the supply of food, and the supply of beverages is ancillary to the supply of food. Hence, the supply of food and beverages is a composite supply, and the supply of food is the principal supply.© (B)MIXEDSUPPLY © Mixed supply refers to a situation where a single transaction or supply involves both goods and services. For instance, a restaurant may provide food f(a good} and table service (a service) to its customers. The concept of mixed supply i important because it has implications for the tax treatment of such transactions. Another important consideration in mixed supply transactions is haw to » allocate the value of the supply between the goods and services. This ts known as the “allocation of consideration” or “apportionment” issue. » Mixed supply can also have implications for compliance and record-keeping. Businesses that engage in mixed supply transactions must be able to accurately identify and record the value of the goods and services provided, challenging in some cases, particularly if the goods and services This can are closely related and difficult to separate. © Overall, mixed supply is an important concept in tax law and accounting. Businesses that engage in mixed supply transactions must be aware of the tax implications and be able to accurately allocate the value of the supply between goods and services. This requires a sound understanding of the different methods of allocation and careful record-keeping practices.E BASIS UF N ENT /FLOW » Supply of goods and services involves the presence of two parties which are part of the transaction where one is the supplier and other is the recipient. When we classify supply on the basis of movement/flow, we take into consideration the point of view of either of the parties. The classification can be as follows: (A) INWARD SUPPLY: ‘INWARD SUPPLY’ refers to the receipt of goods and services or both, whether by purchase, acquisition or any other means with or without consideration. » Inward supply refers to the supply of goods or services that are received by a registered person from a supplier within the country. In the Goods and Services Tax (GST) regime, inward supply plays a crucial role as it helps in determining the input tax credit (ITC) available to the recipient of such supplies. ® Under GST, input tax credit is allowed to a registered person for the taxes paid on inward supplies of goods or services that are used or intended to be used for business purposes. The availability of input tax credit ensures that the burden of taxes paid on inputs is passed on to the final consumer and helps in reducing the overall tax burden on businesses. » Inward supply can be of two types, namely, ‘Taxable supply refers to the supply of goods or ices ject to GST, recipient is eligible to claim input tax credit for the taxes paid on such supplies, On other hand, exempt supply refers to the Supply of goods oF services that are ex claim input from GST, and the recipient is not eligible to tax credit for the taxes paid on! such supplies. » [tls important for registered persons to maintain accurate records of inward supplies as it ts required for filing GST returns. The details of inward supplies have to be furnished in the monthly or quarterly return, depending on the turnover of the r istered person, ‘The information to be furnished includes the GSTIN of the supplier, the fn the date of invoice, the taxable value of the supplies, and the amount of tax paid on such supplies. Inward supply is also important for determining the tax Niability of a registered under the reverse c! mechanism, the reverse mechani the supplier. In such cases, the recipient is required to include the value of inward supplies on which tax is payable under the reverse charge mechanism in their GST * In conclusion, inward supply is an important concept under the GST regime, and it pl a crucial role in determining the input tax credit available to the Fecpient of such supplies. Registered persons must maintain accurate records of inward supplies to era, COmPllance with GST regulations and to claim the correct amount of input edit. {B)OUTWARDSUPPLY: ‘OUTWARD SUPPLY refers to sale, transfer, barter, exchange’ », rental, lease or disposal mode, made or agreed to be made by stich person in the one oP One of the key concepts in GST is outward provision of good OF Fervices by a nesane e eU whi! To secahee the sale or » GST is a destination-based tax, which means Fevenue is collected the state where the goods or services are cons mea crepe than heceste Cramscnny 28 Produced. As a result, iti important to a of tax calculation and compliance. VPPlY OF 89 inward supply for the purpose » ‘An outward supply can be of two types - a taxable ly and an e: Supply. A taxable Supp hy a suppl yf Foods or serie es that is subject to GST. empt s ext rom GST. Some examples of exempt suppites include healthcare navi on mp supp ; fe services, education services, and® In the context of the Goods and Services Tax (GST) system in India, a zero- rated supply refers to a supply of goods or services that is exempted from the payment of GST. In other words, the GST rate applicable to a zero-rated supply is 0%. » This provision is meant to benefit businesses engaged in the export of goods or services, as well as those supplying goods or services to Special Economic Zones (SEZs) or other units that operate within SEZs. » The concept of zero-rated supply is important in the GST system because it helps to facilitate the growth of international trade and to promote the competitiveness of Indian businesses in the global market, By exempting such supplies from the payment of GST, the government is essentially reducing the cost of exports and making Indian goods and services more affordable for foreign buyers.Yon ost of the goods under GS “4 charge mechanism means th: reward charge mech, ew n all be the I Be mechanism 2 ones OF asc Aone charge 's also known as direct ae see bien seeds ot aa or both| ay dao ne liable to deduct tax from he, redeurt ce casts 8 at with the respective Gover . “eed it CGST then to Central Govt, if SGST or Uieee woe (depends which tax ost then again to the Central Govt] respective state or LT, + tax is lable on the b, at the tax sh, asis of for Supplier Supplies to Recipient Supplier = Taxable Person Forward Charge Mechanism fesential Conditions of Forward Charge Section (1) of both CGST Act & SGST Act have has specified certain essential conditions tor the levy & collection of forward charge. The conditions are as follows : (a) Nature of supply. According to Section 9(1), on all INTRA STATE. supplies, CGST & SGST shall be levied. This includes supplies of goods or services or both. Inter state supplies means supplies where the location of the supplier and recipient is in different states or UT's. [Refer Chapter - Supplies in the course of Inter State and Intra State, for detailed information on Intra state supplies] Ashi supplies: Example = Punjab . Punjab * Nature of supply = Intra state (/.e. Punjab) * ‘Taxable person = Ashi (supplier) . Levy of Tax = Forward charge CGST & SGST. fi ie Li .. Under Section 91), IGST shall be levied on all . le ae Sarin a cosh pr oevions or both except on the supply of alcohvlic liquor for human consumption. ; hall (c) Valuation for the purpose of tax. Under the forward charge mechanism, the bs Boe be levied on the basis of Transaction value, as determined under Section 15 ol Act. Te [Refer Chapter - Valuation under GST, for detailed information on determination of transaction value u/s 15 for the purpose of valuation]. . A by the GST (d) Tax Rates under GST. Various GST Tax Slab in India as recommended by Cran) are 1% 5% 12%. 18% and 28%.10.8 Goods and Services Tax ies Tax is based upon the specified applicable rates in the notifications issued me the FeSPective State and Central Governments, subject to a maximum of 20% (CGST/SGsT) & 40%, (GST) under respective Acts. The rate of tax so notified will apply on the Value of supplies as determined under Section 15 of the CGST/SGST Act. The Central Government as well as State Governments, on the recommendations of . the Council, have notified applicable GST rates in respect of goods and services SP ecified in the following Schedules: (e) Tax is payable by the Taxable Person. According to Section 2 (107) of CGST Act, a taxable person is a person who is registered under Section 22 or Section 24. [Taxable Person has been explained in detail in chapter - Registration, Section 22 & Section 24]. Under the Forward Charge Mechanism, the supplier of Boods/services/both is the taxable Person, who is liable to pay tax under GST, A person or an establishment of a Person, who has obtained or i i more than one registration under the same PAN, whether in one State, shall, in respect of each such registration, be treated as distinct Person for the Purposes of this Act. This provision makes it obligatory for a offices in different states liable to Pay GST on supplies made Example on Distinct Person to each other. Breschas in Aggregate Turnover in Punjab > 20 Lakhs = Registered in Punjab also aa Office at Haryana egistered in Haryana A ta Turnover in Haryana bectuse Aggrogale TO. >a athe = Registered ry Haryana also ® Hence Joy Lid. will be considered as Distinct Parsons for its branch offices al Haryana, Punjab & Haryana Sm gcc oeOn Inter states sales of such products, CST would continue to be levied. (3) REVERSE CHARGE MECHANISM ON INWARD SUPPLIES [Section 93) of IGST Act] Under Normal Scenario, tax is paid by a supplier who makes supply of goods or services or both. However, under Reverse Charge mechanism (RCM) liability to pay tax would not be on the supplier but on the recipient of such goods or services or both, Scope of Reverse Charge Some of the reasons for levy of tax under Reverse Charge Mechanism [RCM] wherein person receiving goods or services is liable to Pay tax are as follows: (a) Supplier of the goods or services is unregistered and he makes supply of goods or services bo a registered person, Multi point tax system helps creating a trail of the transaction from the start of the supply chain to the end Paint of supply chain. However, if an unregis! person supplies goods or services or both to a registered person, he breaks the trail of supply chain as he would not be filing any retum declaring the details of the person from whom he has received goods of services or both and person to whom he has supplied goods ar serviees or both. Therefore, law requires the registered person to Pay tax on such supply received from unregistered person and avail credit in the same way as he would have availed the credit of the taxes paid, had he received the goods or services from a Tegistered person. a & Collection of CGST & sagy Exyample : 10.11 7 Aan pur a8 taxable trom shally worth 0,000. © CGST 4 SGT 10% each person / Recipient (Haryana) * Nature of Supply = inl? Sisto Supply (Haryana) . Nature of Levy = Reversa Charge (Supplier i . Taxable porscn lable wo pay tw = Reg ™ CAST and sasr. . Texes levied = CGST and SasTEXEMPTIONS FROM LEVY OF RCM (i) Supplies Less than 7 5000 per day As per Notification 8/2017 - Central Tax, Supplier where the aggregate value of such supplies of goods/services/both received by the Registered Person from any or all of unregistered suppliers is less than & 5,000 in a day - these supplies are Exempted from Reverse Charge. Example: Anand is a registered supplier under GST. He has Teceived goods of % 2500 from Gajendra, who is not registered in GST. Anand has not received any more supplies from any other unregistered supplier during the day. Anand would not be liable to pay tax under reverse charge on goods received worth % 2500, If however supposedly, he has also received goods worth % 3500 from Himanshu who is also unregistered, then in such case, Anand would have to pay tax on entire supplies of & 6000 received during the day. It has been assumed that both the supplies received by Anand are taxable supplies of goods under GST. (ti) No GST on supplies received from unregistered supplier [Till 31-3-2018] This exemption has further been extended upto 30th June 2018 [As per notification dated 3rd March 2018], The exemption has done away with % 5000 per day, now all tax payment under RCM is exempted till 30/6/2018. How ide Notification No. 11/2018 Central Tax (Rate) dated 23rd March, 2018, tax Dayrecnt taser wyenecharee under sub-section 4 of section 9 of CGST Act, 2017 and sub- section 4 of Section 5 of IGST Act, 2017 has been exempted till 30th June 2018. Thus, all Inter-State Supplies and Intra-State Supplies of goods or services or both received ee unregistered supplier would not be liable for payment of tax under reverse charge June 2018.WHAT. Is COM! : pie Goods and Services Tax has brought along a new regime of business compliance in India. Large organizations have the requisite resources and expertise to address these requirements. Many small traders, start-ups and Small and Medium Enterprises (SMEs) may struggle to comply with these provisions. To resolve such scenarios, the government has introduced Composition Scheme under GST, which is merely an extension of the scheme inder VAT law+ pectin cpg ei ren eee SE Stinnett as may te ei Soro eh node eer ST lw ere te ‘sei bg inte congo nr ny op ey pied we ey ‘Seid compan of the pov of lve alm equed te tad ers on tue Ba ed oe ‘nh our waco al bees | Uae bueno ae Comporton Lavy Schone eo he ea ins, ‘Senn tht the Compson Lan hw kp wy Hee {Se under Campton Liny Soe eh cpa {Sper the wed paps wer CS 5 To cae the bef tall Drier On fhe pay besa Grnper Lee Shere te sary spa fe pe He ed ‘Soe and Cte oe Ean Suny 20298 owe Sree sorte emp hye te Hae ier ean mare of pape esa bs CononTHRESHOLD LIMIT —_ Ordi States. Composition is an alternative methog Theseaea Es S08 rly aggregate turnover of goods in the yhase yea oe n on at ee mt wreeed & 100 lakh to pay composition tax at fixed rates "8 to conditions and restrictions. This limit of @ 1 crore can be extended Up to z 15 crore on the recommendation of Council. : imi ; . However, as per Notificati Threshold Limit for Special Category State 1 ion No, 2017-CT, dated 27-6-2017, for Special Category States viz. Arunachal Prades” Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Himach, Pradesh, this limit is ? 75 lakh. However, for the State of Uttarakhand and Jam, & Kashmir this limit has been retained at % 100 lakh, fe. 1 crore. When Turnover exceeds Threshold. However, as and when the turnover of a persoy exceeds the threshold limit of & 100 Lakh or 2 75 Lakh in a financial year, he shay) not thereafter be eligible for the benefit of composition scheme on subsequent supplies, Taxes not included in Threshold Limit. Furthermore, the amount of Central Tay, Sales Tax, Union Territory Tax and Cesses are not includible in threshold limit of & 100 Lakh / © 75 lakh. of levy The aggregate turnover has been increased from 75 lacs to 100 lacs for normal states and for special category states from 50 lacs to 75 lacs [w.e.f. 6-10-2017] Br AMRTRM 6452. ASTRAayment under this scheme is an ee available i rtain eligible taxable persons. Mele cen Sons to pay tax under cancelled/ 1. Composition scheme is an option: Tax P to the taxable person. This scheme is avai e on tai These eligible pate person can make ar application cane amr 2 this scheme. Once granted, the eligibility shall be valid un cba stands withdrawn, or the person becomes ineligible for the Goods and Services Tax ( ds: This Scheme may be opted for id a Foal he is desing with, For eanpi taxable person cannot opt for payment of taxes under composit Say for sy of stationery and opt a ease scheme of payment Osta oe neni of readymag, garments. If he opts for the Composition Levy, it applies for a B00ds he s supplying. 3. Composition scheme is not available for services: Suppliers of services are excludey from opting to pay tax under Composition Scheme. 4. Eligibility to pay tax under Composition Scheme: Only taxable persons whose ‘aggregaty tumover’ (aggregate of turnover in all States) does not exceed prescribed threshold limit in the preceding financial year will be eligible to opt for payment of tax under the Composition Scheme. Here aggregate tumover means Value of all (Taxable supplies + Exempt supplies + Exports + Inter-State supplies) - (GST + Value of inward supplies + Value of inward supplies taxable under reverse charge) of all persons having the same PAN. Note; The aggregate turnover has already been explained in the chapter 5. Rate of tax for the composition levy, The Notification No. 8/2017-C.T., dated 27-6-2017, fixed composition rates for CGST. Chart below gives details of the CGST and SGST rates as applicable under the Composition Scheme. The above rates are under CGST Act, and same rate would be applicable in the other SGST/UTGST Act also So, effectively, the composition rates (combined rate under CCST and SGST/UTGST) are 1%, 5% and 1% for manufacturer, restaurant service and normal supplier (i.e., trader), respectively. 11.6 2. Composition Scheme is applicable taxable persons in respect of supplycom Same fate would be applicable. 6. Restriction from claiming Input Tax Credit: Taxable i 7 fr | person opting to pay tax und the Composition Scheme will not be eligible to claim any input tax Ged Ho! if the taxable person becomes ineligib i iti , gible to remain under Composition Scheme, the taxable person will become entitled to take input tax credit in respert of inputs held in stock on the day immediately preceding the date from which he becomes liable to p4¥ tax under Section 8. 7, Composition Scheme not applicable for tax payable Mechanisa It is important to note that fo; Payable under Reverse Charge T any tax payable under Reverse Charge Mechanism, the position Lavy Scheme 17 a sption of payment under this scheme will not be ava ilable, Rate of tax bi lis taxable under Reverse Charge Mechani i Payable on supplies BF anism will be regular rates and not the composition . Scheme shall be applicable for all ¢ Transactions under the same PAN: Composition n e business verticals having sepa t istrati within the State and all other registrations outside the State Whih ake held by ihe person with same PAN. To clarify further, if a taxable person has Multiple business verticals and if he has opted for separate registrations for each such vertical, composition scheme shall be applicable for all the business verticals and it cannot be applied for select verticals only. For example: If a taxable person has the following businesses separately registered: (i) Sale of footwear (Registered in Odisha) (i) Sale of mobiles (Registered in Andhra Pradesh) (ii) Franchisee of McDonalds (Registered in West Bengal) In the above case, the composition scheme shall be applicable for all the three units. Taxable person will not be eligible to opt for composition scheme say for sale of footwear and sale of mobiles and opt to pay taxes under the regular scheme for franchisee of MeNanaldac.. sn pc ster i ‘heme. Section 10 lays down the eligibility criteria to opt for the Compostion Levy sc Where section 100) states the limit of the threshold exceeding which the composition Levy NN SSS 11.20 Goods and Services Tax (Ge, can be availed, section. 10(2) specifies the situations whereby the anscsee CONNOL Opt jy, lhe stid scheme. Eligibility Criteria Saction 10(1) Rogistored Porson whose Aggregale Turnover of proceeding financial year DOES NOT oxcead the threshold limit Section 10/2) Conditions for opting the composition lavy. 1. Section 10(1) Registered Person whose Aggregate Turnover Does Not Exceed Threshold Limit: The eligibility criteria to opt for Composition Levy scheme is based on Threshold Limit. The Threshold Limit & Aggregate Turnover has already been explained in detail, earlier in the chapter. Only persons who qualify elibility criteria can opt this scheme, 2. Conditions for opting Composition Levy [Sec 102): The registered person shall be eligibie to opt under sub-section (1) of sec 10 if :— (@) he isnot engaged in the supply of services other than supplies referred to, in Paragraph 6(b) of Schedule II; (6) he is not engaged in making any supply of goods which are not leviable to tax under this Act; {c)_ he is not engaged in making any inter-State outward supplies of goods; (d) he is not engaged in making any supply of goods through an electronic commerce Operator who is required to collect tax at source under section 52; and (e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council.‘Input Tax Credit’ or ‘ITC’ means the Goods and Services Tax (GST) paid by a taxable person on any purchase of goods and/or services that are used or will be used for business.For example- you are a manufacturer: a. Tax 450 b. Tax paid on input (PURCHASES) is Rs 300 c. You can claim INPUT CREDIT of Rs 30 and you only need to deposit Rs 150 in taxes.1. ITC is Core Provision of GST Input Tax Credit (ITC) is the core concept of GST as GST is destination based tax. ITC avoids cascading effect of taxes and ensures that tax is collected in the State in which goods or services or both are consumed.OO 12.6 Goods and Services Tay {es (i) It should be used or intended to be used by the supplier. fai) It should be used in the course of business or furtherance of business. (76) This not necessary to receive inputs In factory or any place of business. Only Necesga is that they must be used by the supplier ¥ INPUT SERVICE, Means any service which is used or intended to be used by the supplier the course of business or furtherance of business. According to Section 2(60) of CGST Aci, - Essential ingredients of term “Input Service": ; (i) Input Service includes any service. (i) Input Service must be used by the supplier or intended to be used by the supplie,, (ii) Input service must be used in the course or furtherance of business. CAPITAL GOODS means goods, the value of which is capitalised in the books of accoury of the-person claiming the credit and which are used or intended to be used in the course og, furtherance of business. ~ According to Section,2(19) of CGST Act Essential Ingredients of “Capital Goods”: (i) Value of capital goods must be capitalised in the books of account. Every person is required to prepare profit and loss account and balance sheet for the financial year. The expenses incurred on procurement of inputs, Input services, and other items are charged to profit and loss account, on the ground that the benefit of these items have accrued during financial year. However, if the benefit is intended to accrue in more than one financial year, the expenses incurred on such items is capitalized- The value of such item is shown in the balance sheet as “Fixed Asset’, The capitalization means the value of goods is shown in the fixed assets as against profit and loss account. (i) Capital goods must be used or intended to be used by the supplier. (itt) Capital goods must be used or intended to be used in the course or furtherance of business.ELIGIBILITY & CONDITIONS FOR TAKING ITC Eligibility Conditions eritaria for Availing ITC for Taking ITC sec. 16(1) sec 16(2), (3) and (4) 1. Eligibility Criteria for Availing / Taking ITC [Sec 16(1)] Section 16(1) states that every registered person shall be entitled to take credit of input hanged on any supply of goods or services or both to him, which are used or intend used in the course of tuasiness ot for furtherance of business. But such ITC shall be allowed Input Tax Credit [ITC] 12.7 the manner specified in Section 49 of CGST Act. The said ITC allowed shall be credited to the Electronic C persomr- 1, Registration under GST: Every registered person shall be entitled to ITC cha F ged on inward supply of goods and/or services, This is subject to the provisions relating to use of ITC under section 49 and the conditions and restrictions in the rules. » Inward supply in relation to a person, shall mean receipt of i goods or services or both whether by purchase, acquisition or any other means without consideration [Section 2(67)] . Registered Person Means a person who is registered under section 22 or 24 but does not include a person having a Unique Identity Number. [Section 2 (94)] Inputs/Input Services/Capital Goods must be used or intended to be used by the supplier. Section 16(1) states that the goods (inputs), Input Services and capital goods on which the supplier wants to avail ITC should either be used or intended to be used by the supplier for business purposes only. Thus, use or intention to use inputs or input services or capital goods is essential for the purpose of availment of credit. Pr4. TTC aatlment only though Unctronie Credit Ledger Tce tg ped met 3) of CESTRCS Act al (Cosas Sita ined ee oon gl er ‘Sete Comme far ey a ef He tae cee pT ‘isan pop ier Yar Co Pet imen ty er es a et rapt 13a= La Ce tet et Ne iy * nes * ee A Sl Bot Mel) input services/capital powds only IE ALT THE BELOW GIVEN CONDITIONS ARE FULFILLER. 1. Possession of tax paying document [Section 16(2)a) read with rule 36 of the Csr Rules ITC can be availed on the basis of any of the following documents: () Invoice issued by a supplier of goods and/ar services. (i) Invoice issued by recipient (receiving goods and/or services from unregistered supplier) along with proof of payment of tax (in case of reverse charge), (i) A debit note issued by supplier (i) Bill of entry or similar document prescribed under Customs Act. (#) Revised invoice, (1) Document issued by Input Service Distributor.Sanne Ie SR ee ie eS Sa eae ee ee e | , 2. Receipt of goods/services/or both [Section 16(2)(b)k The registered person shall be stigible tor input tax credit only if goods or services or both are already received by /him For Example: Where a person received an invoice in the month of July but the / goods are received by him in August then such person shall be eligible for ITC in the month of August.SEED Ra ae a a AB ote 3. Goods Received in Installment. The first proviso to Section 16(2) provides that where he goods against a single invoice are received in lot or installments, the registered /taxable person shall be entitled to the credit upon receipt of last lot or installment. j wv—————E Se eS eee T 12.10 Goods and Services Tax (GST) of documents or title of goods. The explanation expands the meaning, es a ~ aie to provide that it is not necessary that the goods are physically receive ; y ipient. The recipient can issue directions to deliver the goods to # party also. For example, Ram may direct that the goods shall be delivered to his job worker Aman. The goods received by Aman will be considered as received by Ram only. 5. Tax actually paid to the credit of appropriate Government. Section 16(2) (c) specifically sevides that the supplier should have actually paid to the credit of appropriate government the tax amount on the supply made by him. In case the supplier fails to make payment of tax, the credit will be denied to the recipient of goods or service, The credit will be denied even when the recipient has paid the tax to the supplier and supplier has failed to pay the tax to the Government. Reversal of Credit if payment not within 180 days : Second proviso to Section 16(2)states that the recipient of supply must pay value of supply with tax payable to the supplier within 180 days from the date of issue of invoice by the supplier (except for cases of Reverse Charge basis where recipient is supposed to pay tax). In case the recipient fails to pay within 180 days, then the amount of ITC shall be added to his output tax liability along with the interest thereon. In case where the registered person, who availed input tax credit, fails to pay: * Amount of goods or services or both, and * Tax on such supplies Within a period of 180 days from issue of invoice, then amount of input tax credit availed by the registered person shall be added to his output tax liability and he will have to pay interest alsy’on such amount from the date of availing credit till such amount is added in hiS output tax liability, However, if after re: rsal of such input tax credit, the registered person makes payment to the supplier thén he shall be eligible to take credit of input tax after making payment. [Refer’ Point No. 7] = " a such