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INCOME TAX AND GST

Module III
Goods and service tax
It is a comprehensive, multistage, destination based tax which is levied
on every value addition. It is a single tax on supply of goods and
services.
Evolution of GST system in India (Milestones of GST)
 2000- Prime minister introduced the concept of GST.
 2003- The central govt formed a task force under Vijay Khalkar.
 2004- The force recommended GST to replace existing tax.
 2006- First announcement of GST by union minister 2006-07 budget.
 2009- Empowered committee released the first discussion paper.
 2011- 115th amendment bill introduced and subsequently lapsed.
 2016- 122nd amendment bill introduced in Lok Sabha.
 2016- 1st GST council meeting conducted.
 2017 (March) - GST council recommend CGST, SGST, IGST, UTGST.
 2017 (April) - CGST, SGST, IGST, UTGST, act was passed.
 2017- (July) - GST was launched all over India.
Salient features of GST
 GST applicable on the supply of goods or services.
 GST is a destination based consumption tax.
 GST to be paid to accounts of center and state separately.
 GST is an important source of revenue for government.
 GST apply all goods and services except human consumption alcohol.
 Tobacco and tobacco products would be subject to GST.
 GST would be subject to PAN based registration.
Objectives of GST
1. One country one tax system.
2. Reduce tax evasion.
3. Reduce corruption.
4. Reduce economic distortion.
5. Increase productivity.
6. Increase tax GDP ratio.
7. Increase tax regulations compliances.
8. Uniform registration and payment.
Need for GST in India
1. GST rationalize the multiplicity of taxes.
2. Introduction of GST will cover untaxed areas of services.
3. GST will avoid distortions by present complex tax structure.
4. GST will avoid paying tax on tax.
5. GST will lead to credit availability on inter-state purchases.
6. GST provides greater certainty and transparency of taxes.
7. GST ensures tax compliance across the country.
8. GST will avoid dual taxation to some extent.
Advantages of GST
1. Eliminating tax on tax effect.
2. Decrease in price of product.
3. One point single tax.
4. Uniformity of tax rate.
5. Eliminate multiplicity of taxation.
6. Easy identification of products.
7. Easy compliance.
8. Reducing transaction cost.
9. Reduces the corruption.
Benefits of GST to various stake holders
 Benefits of GST to citizens
 Simpler tax system.
 Increase employment opportunities.
 Transparency in tax system.
 Uniform prices.
 Reduction in prices of goods.
 Benefits to trade and industry
 Reduction in multiplicity of taxes.
 Mitigation of double taxation.
 Development of common national market.
 Simpler tax regime.
 Efficient neutralization of taxes.
 Benefits to government
 Simpler tax system.
 Efficient uses of resources.
 Improved revenue collections.
 Broadening of tax base.
 Reduce tax evasion.
Limitations/ negative aspects of GST system in India
1. Dual tax system.
2. Short term business challenges.
3. Increased operation cost.
4. Online taxation system.
5. Multiple registration.
6. Indigenous manufacturing.
7. Revenue distribution.
8. Complexities of the businessman.
Comparison between traditional indirect/ VAT tax system and GST
Indirect tax system GST system
Complex scheme Simple scheme
There are separate tax rates There is only one CGST,SGST rate
There is cascading effect There is no cascading effect
Burden of tax payer is high Tax burden expected to be reduced
Cost burden to consumers Cost will be reduced
Tax compliance is complex Tax compliance become simpler
Taxes are levied at two stages It is levied at final destination point
State govt gets whole share Shared between central and states
Taxable event on sale of goods Taxable event on every supply of
goods and services
Online payment not compulsory Compulsory if more than RS.10000
 VAT is not applicable on services GST applicable on services
Agent
Agent means a person who carries on the business of supply or receipt
of goods or services or both on behalf of another.
Aggregate turnover
It means the aggregate value of taxable supplies.
Capital goods
Capital goods means goods the value of which is capitalized in the
books of account of the person claiming the input tax credit and which
are used in the course of business.
Casual taxable person
Person who occasionally undertake transactions of supply of goods and
services in the course of business.
Composite supply
It means two or more goods or services that are only sold as a set and
cannot be sold individually.
Examples of composite supply
 A gift wrapped box of chocolates
 Hotel services
 Restaurant services
 Work contract services
 Booking a train ticket
Exempted supply
It is the supply of goods and services that does not attracts GST and
allows no claim on ITC.
Input tax
It means the central tax, state tax, integrated tax charged on any supply
of goods and services made to a registered person.
Mixed supply
It means a combination of two or more good or services made together
for a single price.
Components of GST
CGST (Central Goods and Services Tax)
It is tax levied on intra state supplies of both goods and services by the
central government and will be governed by the CGST act.
SGST (State Goods and Services tax)
It is tax levied on intra state supplies of both goods and services by the
state government and will be governed by the SGST act.
UTGST (Union territory goods and services tax)
It is an indirect tax that is collected when intra state goods or services
supplied, along with tax charged as under CGST act.
IGST (Integrated Goods and Services Tax)
It is a tax levied on all inter-state supplies of goods and services and will
be governed by IGST Act.
Cascading effect of tax
It is the effect where a tax is paid on tax and the value of the item keeps
increasing every time this happens.
Levy and collection of tax under GST
1. Levy and collection of cess
Cess is levied on such intra-state supplies of goods and services u/s 9
CGST Act and such inter-state supplies of goods and services u/s 5 of
IGST Act.
2. Levy and collection of cost, SGST, IGST, UTGST
Asper section 9 (1), the CGST or UTGST or SGST shall be levied on all
intra state supplies of goods and services. IGST shall be levied on all
inter-state supplies of goods and services.
3. Tax payable by the e-commerce operator on notified services
4. Reverse charge tax on reverse charge basis
It is a mechanism where the recipient of the goods or services is liable
to pay GST instead of the supplier.
Composite levy under GST
It is a scheme to bring simplicity and to reduce the compliance cost for
the small tax payers, where they have to pay the tax at a fixed rate
based on their business turnover.
Features of composite levy under GST
 Turnover must be below Rs.75 Lakhs (RS. 50 Lakhs for NE states)
 Fixed tax rate on the total sales turnover.
 Not eligible for input tax credit.
 Applies only to the intra-state supplies.
 No monthly filing, only quarterly returns.
 Issues bill of supply and not tax invoice.
Benefits of composition scheme under GST
1. No requirement to maintain records.
2. Hassle free payments of tax at single rate.
3. Filing quarterly returns reduce the cost.
Limitations of GST composition scheme under GST
1. No credit of input tax
2. No inter-state business
3. Pay tax from on pocket
4. Strict panel provisions
Specified rate of composition levy under GST
Category of registered person Rate of tax
Manufacturers (Except of such 2% of the turnover
goods as may be notified by govt)
Restaurant services 5% of the turnover
Traders or any other suppliers 1% of the turnover
GST tax structure
1. Zero rate
It is a nil tax that is applied on goods and services. Eg: Milk, Egg, Curd,
Educational and health services.
2. Lower rate
A lower rate of 5% will be applied on this category items. Eg: Tea,
Sugar, Edible oil, Spices.
3. Standard rate
There are two standard rate. 12% and 18%. Eg for 12%: Butter, Cheese,
Mobile phone, processed food. Eg for 18% Capital goods, Industry
intermediaries, computers and printers.
4. Higher rate
A higher rate of 28% will be levied on white goods. Eg: Washing
machine, Air conditioner, Refrigerator, Small car.
Revenue neutral rate
It may be defined as taxing procedure that allows the govt to still
receive the same amount of money despite changes in tax laws.
GST council (GSTC)
It is a constitutional body created for taking policy decisions about
introduction and implementation of GST, including about exemptions,
tax rates and tax credits.
Composition of GSTC
 Chairperson - The union finance minister
 Member- The union minister of state in charge of revenue or finance
 Members- Ministry in charge of finance/taxation of each state govt
Functions and powers of GSTC
GSTC will make recommendations to the union and states on;
1. Tax, cesses and surcharges levied by union and the states.
2. Goods and services that may be subjected to or exempted to GST.
3. Model GST laws, principles of levy, apportionment of IGST.
4. Threshold limit of turnover for GST exemption.
5. The rates including floor rates with bands of GST.
6. Special provision with respect to North Eastern states.
HSN under GST
HSN stands for harmonized system of Nomenclature developed by
WCO with vision of classifying goods all over the world in a systematic
manner.
Provisions related to HSN codes for GST in India
1. Small tax payer with annual turnover up to Rs. 1.5 crore need not
mention HSN code in their tax invoice.
2. Tax payers having turnover between Rs. 1.5 crore and Rs. 5 crore
need to mention only two digits of HSN code.
3. Tax payers having turnover above Rs. 5 crore need to mention four
digits of HSN code.
SAC in GST
SAC stands for services accounting code, it is the uniform codes for the
services for recognition, measurement and taxation.
Understanding related to SAC codes for GST in India
1. The first two digits are same for all services.
2. Next two digits represents major nature of service.
3. Last two digit represent detailed nature of service.
Supply under GST
Supply under GST includes all forms of goods and services or both such
as sales, transfer, exchange, barter, license, rental, lease, or disposal
made or agreed to be made for a consideration in the course of
furtherance of business.
Characteristics of supply
 Supply should be of goods or services.
 Supply should be taxable.
 Supply should be made by a taxable person.
 Supply should be made within a taxable territory.
 Supply should be made in exchange of cash or reward.
Types of supply
 Based on location
 Intra- state supply
Intra-state supply is a type of supply of goods or services where the
location of the supplier and place of supply are same state.
 Territorial waters
Where the location of supplier is in the territorial waters or where the
place of supply is in the territorial waters.
 Inter-state supply
Inter-state supply is a type of supply, when the location of the supplier
and the place of supply are in different states.
 Based on combination
 Composite supply
When two or more goods or services are combined to make a bundle, it
is known as composite supply.
 Mixed supply
A mixed supply means two or more independent goods or services
which are offered together as a bundle but can also be sold separately.
 Continuous supply
Continuous supply means supplying goods or services that are provided
or agreed to be provided continuously or on a recurring basis.
 Based on recipient
 Inward supply
It means receipt of goods or services or both whether by purchase,
acquisition or any other means with or without consideration.
 Outward supply
It means supply of goods or services or both whether by sales, transfer
barter, exchange license, rental, lease or disposal or any other mode
agreed to be made by such person in the course.
 Based on tax treatment
 Exempt supply
It means supply of goods or services or both which attracts nil rate of
tax or which may be wholly exempt from the tax.
 Zero-rated supply
It means export or supply of good or services to special economic zone
developer or special economic zone unit.
 Non-taxable supply
Non-taxable supply is the sale of any good or service which attracts nil
rate of tax.
 Taxable supply
Supply on which tax shall be paid under GST.
Components of supply under GST
1. Time of supply
2. Place of supply
3. Value of supply
Time of supply for GST
Time of supply means the point in time when goods have been deemed
to be supplied or services have been deemed to be provided for
determining when the tax payer is liable to pay taxes.
Time of supply for goods
The time of supply of goods is the earliest of;
1. Date of issue of invoice
2. Last date on which invoice should have been issued.
3. Date of receipt of advance/ payment
Time of supply of services
The time of supply of services is the earliest of;
1. Date of issue of invoice
2. Date of receipt of advance/ payment
3. Date of provision of services
Place of supply under GST
Place of supply is the location of the service recipient. It determines
whether a transaction is intra state supply, inter-state supply or an
external trade.
Basic principles of place of supply
1. GST is a consumption based tax.
2. Location of the supplier of services and place of supply are in the
same states or union territory, CGST and SGST/ UTGST payable.
3. Location of the supplier of services and place of supply are in the
different states or union territory, IGST payable.
4. Specific provision have been made for place of supply in case of
services.
Value of supply under GST
The value of supply for a transaction is the price or consideration paid
by the customer to suppliers. It decided the taxable value of supply
made, and thus the amount of tax needed to be paid for it.

Prepared by
RAHUL MURALI
JUBAIR MAJEED

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