Unit I.

4 Levy and
Collection of GST
TAXABLE EVENT & OTHER BASIC TERMINOLOGY
 Understanding “Taxable Event”

 Understanding “Taxable Event” is important as it defines the levy

and collection of GST

 This aspect is covered under the following sections of various GST

Acts:

CGST & SGST - Section 9

UTGST - Section 7
IGST - Section
5
 ‘Liability’ to Pay Tax
‘Liability’ here means the responsibility to pay tax to the government.

As per GST law the ‘liability’ or ‘responsibility’ to pay tax is of the supplier of the
good/service.

For ex. When Kartik sells goods to Garima, the sales invoice will have a
GST component that will be paid by Garima as she is the buyer.
However the ‘liability’ to pay GST to the govt’, is that of Kartik.

Simply Kartik is responsible for collecting the GST from Garima and
paying it to the government. That is why it is an indirect tax.
Basic Terminology
 To better understand the application of this Act, we need to
under stand the following terms:

1) Agriculturist:
Means an Individual or a HUF who undertakes cultivation of Land –

a) By Own Labor, or

b) By the Labor of Family, or

c) By Servants on Wages payable in cash or kind or by hired labor

under personal supervision or the personal supervision of any member of the
family
2) E- Commerce
The supply of Goods or Services or Both including digital Products over digital or electronic
network

3) E-Commerce Operator
Means any person who owns, operates or manages digital or electronic facility or platform
for E – Commerce

4) Forward Charge
Under the GST regime, the supplier is liable to pay tax, this is also referred to as forward
charge.
Under GST law, generally supplier (seller of goods or services or both) collects tax from
recipient (buyer/ customer of goods or service or both) and pay to the Government (net of
ITC) (but ultimately GST is borne by end customer or consumer that is why it is called indirect
tax) this mechanism is known as forward charge.
6) Casual Taxable Person Sec 2 (20) of CGST Act

“A taxable person who occasionally undertakes transactions

involving supply of goods or services or both in the course or
furtherance of business, whether as principal, agent or in any other
capacity, in a State or a Union territory where he has no fixed place
of business.”

In simple terms if supply, for the furtherance of business, is being

made in a state/UT where that person does not have a fixed place
of business (registered business address) then such a person has to
compulsorily take registration under GST as a casual taxable person.

This is irrespective of threshold income limits. (75 Lakhs - 1.5 cr)

https://cleartax.in/s/gst-registration-limits-increased
-A casual taxable person cannot opt to pay tax under composition levy* [an
alternative method of levy of tax designed for small taxpayers whose turnover is up to Rs.1.5
crores ( Rs. 75 lakhs in case of Special Status States)].

-He has to apply for registration at least five days prior to commencing his
business in India.

-A casual taxable person has to make an advance deposit of tax in an

amount equivalent to his estimated tax liability for the period for which the
registration is sought.

-The amount deposited shall be credited to the electronic cash ledger of

casual taxable person.

-The Electronic Cash Ledger is an account of the taxpayer that is maintained

by the GST system that reflects the cash deposits in recognized banks and
payments of taxes and other dues made by the taxpayer.
-The registration certificate shall be issued electronically only after
the said deposit appears in his electronic cash ledger.

-The casual taxable person can make taxable supplies only after
the issuance of the certificate of registration.

-The certificate of registration shall be valid for the period specified

in the application for registration or ninety days from the effective
date of registration, whichever is earlier.

-In case the casual taxable person intends to extend the period of
registration, an application in FORM GST REG-11 should be
submitted before the end of the validity of registration granted to
him.
-The validity period of ninety days can be extended by a further period not
exceeding ninety days.

-The extension will be allowed only on payment of the amount of an

additional amount of tax equivalent to the estimated tax liability for the
period for which the extension is sought has to be deposited.

-The casual taxable person is eligible for the refund of any balance of the
advance tax deposited by him after adjusting his tax liability. The balance
advance tax deposit can be refunded only after all the returns have been
furnished, in respect of the entire period for which the certificate of
registration was granted to him had remained in force.

Note: However, in case such a person is supplying any of the notified

handicraft products, then he needs to take registration only if annual
income crosses the threshold limits.
Levy of Tax – Salient Features
 We already Know that:

-GST shall be levied on all intra and inter state supplies of taxable
goods or services or both.

-Alcoholic liquor for human consumption is kept out of the purview of

GST (Currently central excise and state VAT is applicable on them).

-CGST on crude oil, high speed diesel, natural gas, aviation turbine,
motor spirit(petrol), shall be levied with effect from the date as may be
notified by the Government on the recommendations of Council.
(currently central excise and state VAT is applicable on them).
The GST Law Also specifies that:

 The Government may by notification, specify categories of

supply of goods or services or both, where the tax shall be paid
on reverse charge basis by the recipient. (Sub section 3)

 In case of supply of goods/services or both by unregistered

person to a registered person tax shall be paid on the reverse
charge basis (only for certain goods/services & registered
persons). (sub-section 4)
 In case of intra-state supply of services through an electronic
commerce operator, the latter shall be liable for paying tax.
(Sub-section 5)

- Further if the electronic commerce operator does not have a

physical presence in the taxable territory, any person
representing such electronic commerce operator for any
purpose in the taxable territory shall be liable to pay tax

-Additionally, if the electronic commerce operator does not have

a physical presence in the taxable territory and also he does not
have a representative on a said territory, then electronic
commerce operator shall appoint a person in the taxable territory
for the purpose of paying tax.
GST Threshold Limits
What is ‘GST Registration’?

 Registration of a business entity under the GST Law means obtaining a

unique number (GSTIN - Goods and Service Tax Identification
Number ), from the concerned tax authorities.

 Without registration, a person can neither collect tax from his

customers on outward supplies nor claim any input tax credit of tax
paid by him on inward supplies.

 However, GST registration is mandatory only for:

a) Suppliers of goods/services with an aggregate annual turnover above
a certain level which is referred to as ‘threshold limit’. One time supplier
like selling your personal old car is not liable to register.
b) Certain categories of suppliers or transactions or both, irrespective of
the threshold limit.
‘Threshold Limit’ for Suppliers of goods/services

When GST was introduced in 2017 GST threshold limits were lower for
goods, however, in order to support MSEs this threshold limits were
raised.

In the 32nd GST Council Meeting held on 10th January 2019, it was
proposed that to support SMEs, the threshold limit on supply of goods
should be raised to Rs. 40 lakhs. An option was provided to the states to
opt for the new limits or continue the earlier ones.

https://cleartax.in/s/gst-registration-limits-increased
The applicable threshold limits in various states w.e.f. 1st April 2019 on
supply of goods only is as follows:

i) In case of exclusive supply of goods

Rs. 20 lakhs if business is in the States of Arunachal Pradesh, Manipur,

Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana,
Tripura and Uttarakhand

Rs. 40 lakhs for all other states and UTs

ii) In case of supply of services or mixed supply (goods and services):

Rupees 10 lakh if business is in States of Manipur, Mizoram, Nagaland

and Tripura

Rupees 20 lakhs for all other states and UTs

Note: The small businesses, having turnover below the threshold limit
can, however, voluntarily opt to register.

https://cleartax.in/s/gst-registration-limits-increased
Persons not Liable to Register:
1. Whose annual aggregate turnover is less than the threshold limit
2. If he is completely exempted to pay tax under GST and IGST Act.
3. Agriculturist Person
4. A Govt can mention the category of persons who are exempted
to register under the GST council.

Compulsory Registration in certain cases:

5. Inter state supplier
6. Casual Taxable Person
7. Payer of reverse Charges
8. 4. supplier through Electronic Commerce Operator
9. Electronic Commerce Operator
Types of GST Registration:
1. Normal Tax Payer- Operates their Business in India
2. Composite Tax Payer: Who register under GST Composition
Scheme and pay reduced flat rate of GST tax but cant clain ITC.
3. Casual Taxable Person: runs a stall or seasonal shop in India with no
fixed place of business.
4. Non Resident taxable Person- who reside outside India
occasionally supply goods or services to the residents of India. Can
act as a principal or agent. They don’t have a fixed place to do
business or reside in India.
HSN Code
HSN code stands for “Harmonized System of Nomenclature”. This system has been
introduced for the systematic classification of goods all over the world.
HSN code is a 6-digit uniform code that classifies 5000+ products and is accepted
worldwide. It was developed by the World Customs Organization (WCO) and it
came into effect from 1988.
Wef from Apr 1,2021, the HSN code includes 4,6 and 8 digits u8niform codes:
1. 4 digits code: these codes are used by all businesses whose annual turnover is
upto Rs.5crores.
2. 6 digits code: these codes are used by all businesses whose annual turnover is
more than Rs.5 crores
3. 8 digit code: these codes are universal and mandatory for all transactions related
to import and export of goods.
HSN Codes are typically 6 digit codes. However, in India, we
have 8 digit HSN codes where the first two digits represent the
chapter number, the next two digits represent the heading
number, the following two digits comprise the sub-heading, and
the last two digits are the tariff item.
 SAC
SAC stands for Servicing Accounting Code and is used to classify services
instead of goods. All services tend to begin with the number 99, which is
what identifies the code as a SAC and not an HSN.

SAC (Services Accounting Code) and HSN (Harmonized System of

Nomenclature) was introduced in India as a part of the Goods and
Services Tax (GST) implementation.
To implement the GST, it was necessary to have a common classification
system for goods and services to ensure uniformity in tax rates and
compliance. The HSN system is used for goods, and the SAC system is used
for services.
Breaking up the 6-digit SAC in GST. For example, the SAC for Information technology (IT) design and
development services is 998314.
•The first two digits in SAC are the same for all services, i.e., 99.
•The middle two digits represent the major nature of services, in this case, IT services
•The last two digits represent the detailed nature of services, in this case, Design and Development
services.
The use of SAC (Services Accounting Code) in GST (Goods and Services Tax) is to classify and levy taxes on
various services provided by businesses. SAC codes are unique six-digit codes assigned to each service, and they
help identify the type of service being offered and the applicable GST rate for that service.

The use of SAC codes in GST has several benefits for businesses and the government, such as:

•Uniformity: SAC codes help create uniformity in the tax system, ensuring that businesses are taxed consistently
across the country.

•Identification of services: The SAC codes make it easier to identify the different types of services offered and the
applicable tax rates for each service.

•Compliance: Using SAC codes simplifies the process of tax calculation and filing of GST returns, reducing the
burden of compliance for businesses.

•Monitoring and tracking: The government can use SAC codes to monitor and track the services offered and
collect taxes more efficiently.
 Differences between SAC Code and HSN Code
The SAC (Services Accounting Code) code and HSN (Harmonized System of Nomenclature) code are
both classification systems used to identify goods and services for tax purposes under the GST (Goods and
Services Tax) in India. While both codes are designed to classify goods and services, they differ in the
following ways:

•Nature of Classification: The SAC code is used to classify services, while the HSN code is used to
classify goods.

•Digits: The SAC code consists of six digits, while the HSN code consists of four, six and eight digits. In
India we follow 8 digit HSN Code.

•Structure: The first two digits of the SAC code represent the major service category, while the HSN
code's first two digits represent the chapter. The next two digits of the SAC code represent the specific
service, while the HSN code's next two digits represent the heading. The final two digits of the SAC code
represent the sub-service, while the HSN code's final four digits represent the product code.
Apart from the above payments a dealer is required to make these payments –

•Tax Deducted at Source (TDS) – TDS is a mechanism by which tax is deducted by the dealer before making the
payment to the supplier. It is generally 2% OF IGST (1% for CGST & 1% of SGST). TDS refers to the tax which is
deducted when the buyer of goods or services, such as government departments, makes payments under a business
contract.

For example – A government agency gives a road laying contract to a builder. The contract value is Rs 10 lakh.
When the government agency makes payment to the builder TDS @ 1% (which amounts to Rs 10,000) will be
deducted and balance amount will be paid.

•Tax Collected at Source (TCS) – TCS is mainly for e-commerce aggregators. It means that any dealer selling
through e-commerce will receive payment after deduction of TCS @ 1%. (0.5% of CGST & 0.5% of SGST).
TCS refers to the tax which is collected by the electronic commerce operator when a seller supplies some goods or
services through its website and the payment for that supply is collected by the electronic commerce operator.

•Reverse Charge – The liability of payment of tax shifts from the supplier of goods and services to the receiver.

Usually, the Input Tax Credit should be reduced from Outward Tax Liability to calculate the total GST payment to
be made.
TDS/TCS will be reduced from the total GST to arrive at the net payable figure. Interest & late fees (if any) will be
added to arrive at the final amount.
 Who is liable to deduct TDS under GST?

•A department or an establishment of the Central Government or State Government; or

•Local authority; or
•Governmental agencies; or
•Such persons or category of persons, notified by the Government.
•Public sector undertakings, or
•A society established by the Central or any State Government or a Local Authority and
the society is registered under the Societies Registration Act, 1860, or
•An authority or a board or any other body which has been set up by Parliament or a
State Legislature or by a government, with 51% equity (control) owned by the
government

Limit for Tax Deduction

If the total value of supply under a contract exceeds Rs 2.5 lakhs then the person/entity
would be liable to deduct TDS.

The deductor would be liable to make the payment of TDS by the 10th day of the next
month in form GSTR-7
TCS Deduction

Section 52 has been inserted under the CGST law for all e-commerce aggregators to
bring TCS in GST. e-Commerce aggregators are made responsible under the GST law
for deducting and depositing tax at the rate of 1% from each transaction.

Any dealers or traders selling goods or services online would get the payment after
deduction of 1% tax (0.5% CGST+ 0.5% SGST or 1% IGST).

online aggregators like Flipkart, Snapdeal, Amazon, etc. would need to deposit the tax
deducted by the 10th day of the next month in form GSTR-8.

All the traders or dealers selling goods or services online would need to get registered
under GST for claiming the tax deducted by e-commerce operators, even if their
turnover is less than the threshold turnover limit notified for GST registration.
For example,

Mr Vinay Dua is a trader who sells his ready-made clothes online on Amazon
India. He receives an order for Rs 10,000, inclusive of tax and commission.
Amazon charges a commission of Rs 200.

Further, there is a return worth Rs 1,000.

Amazon would, therefore, need to deduct 1% tax (TCS) on the amount,

excluding sales returns (Rs 1,000), but including the money paid as a
commission (Rs 200) and GST. Amazon would thus be deducting TCS in GST
at Rs 90 (1% of Rs 9,000) on net sales value.
 Benefits of TDS and TCS under GST

TDS and TCS under GST have numerous benefits. Both TDS and TCS under GST were
introduced by the government for strengthening regulation on tax evaders. Sections 51 and 52
of the CGST Act respectively covers the provisions of TDS and TCS under GST.

From a deductee or supplier’s standpoint, there will an automatic reflection in his electronic
ledger once the deductor files his/her returns under the TDS system.

The deductee can claim credit in his electronic cash ledger of this tax deducted and use it for
payments of other taxes, at his convenience.

TDS majorly helps in bringing the unorganized sectors to comply with the tax provisions and
keeps frauds at bay.

Likewise, TCS in GST regulates the online sellers, keeps a check on the transactions and
ensures timely deposit of tax with the government.
 How to make GST Payment

GST payment can be made in 2 ways

Payment through Credit Ledger

The credit of ITC can be taken by dealers for GST payment.

The credit can be taken only for payment of Tax. Interest,
penalty and late fees cannot be paid by utilizing ITC.

Payment through Cash Ledger

GST payment can be made online or offline. The challan has to
be generated on GST Portal for both online and offline GST
payment. Where tax liability is more than Rs 10,000, it is
mandatory to pay taxes Online.

Penalty
If GST is short paid, unpaid or paid late interest at a rate of 18%
is required to be paid by the dealer. Also, a penalty to be paid.
The penalty is higher of Rs. 10,000 or 10% of the tax short paid
or unpaid.
 How to make GST Payment
GST payment is to be made when the GSTR 3 is filed i.e by
20th of the next month.
 Who should make the GST payment?

These dealers are required to make GST payment –

•A Registered dealer is required to make GST payment if GST liability exists.

•Registered dealer required to pay tax under Reverse Charge Mechanism(RCM).

•E-commerce operator is required to collect and pay TCS

•Dealers required deducting TDS