Frequently Asked Questions - Indirect Tax
Frequently Asked Questions - Indirect Tax
1. What is GST?
The Goods and Services Tax (GST) is a tax on the supply of goods and services in the country. It is essentially a tax only on the value addition at each stage and a supplier at each stage is permitted to set-off, through a input tax credit mechanism i.e. the tax paid on the purchase of goods and services is available for set-off against the tax to be paid on the supply of goods and services. The Act, Rules and the rate of GST across all Indian States are expected to be uniform.
2. How does the proposed GST work?
Below is an indicative illustration for the levy and set-off of GST in three stages of the supply chain:
|Stage of supply chain||Manufacturer||Whole Seller||Retailer|
|Purchase value of input (INR)||100||150||175|
|Value addition (INR)||50||25||15|
|Sale value (INR)||150||175||190|
|Rate of GST||18%||18%||18%
|GST on output(INR)|| 27
|GST on input (INR)||18||27||31.5|
| Net GST=GST on output-input
tax credit (i.e. tax on value addition)
Note: It is assumed that the rate of tax would be 18 per cent for calculation purpose.
3. How would a transaction of the supply of goods and services within a particular state be taxed simultaneously under Central GST (CGST) and State GST (SGST)?
The proposed GST in India would be based on the ‘dual GST’ model which envisages that both the central and state governments will simultaneously tax all transactions within a particular state involving the supply of goods and services under CGST Act and SGST Act, respectively. These taxes are deposited by the tax payers electronically and will go directly into the respective government’s CGST/SGST accounts.
Under the current regime, the powers to tax services and manufacturing transactions are with the central government whereas the power to tax sale transactions is with the State governments exclusively.
4. What will be the mechanism to tax inter-state transactions?
All inter-state supply of goods and services will be taxed under an Integrated GST (IGST) Act. The rate of GST under the IGST Act would broadly be equal to the sum total of CGST plus SGST rates added together. The IGST is to be deposited into an IGST Account administered by the central government and will be distributed between the central government and the consuming states on a mutually-agreed formula.
The collection mechanism of IGST is as under:
5. What are the proposed taxes to be subsumed under GST?
The central taxes proposed to be subsumed under CGST include:
The state taxes proposed to be subsumed under GST are:
6. What are the goods/sectors that will be out of purview of GST?
The goods/sectors that will be out of the GST ambit include alcohol and specified petroleum products i.e. petroleum crude, high speed diesel, motor spirit, aviation turbine fuel and natural gas. Petroleum products will be inducted into GST at a later date. Alcohol will continue to attract state excise duty and VAT. Tobacco and tobacco based products will attract both excise duty and GST. Taxes such as stamp duty, toll tax, road tax, electricity duty etc. will not bepart of GST.
7. What would be the rate structure under GST?
The proposed rate structure consists of 5, 12, 18, 28 and 28 per cent + cess besides goods which are taxed at nil rate (fully exempt). GST Tariff may be referred to, to know tax rate for respective goods and services
8. What will be the threshold limit and compounded levy under GST?
The minimum threshold is INR2 million of aggregate turnover in a financial year. However in certain states the limit is reduced to INR1 million. Composition scheme is available for turnovers upto INR5 million and rate of tax would be as specified under Section 10 of the CGST Act.
Section 23 of the CGST Act specifies persons who are not required to be registered (e.g. a farmer, a person having wholly exempt turnover etc.) Section 24 of the CGST Act specifies persons who are required to take registration irrespective of the turnover (e.g. persons making inter-State supply, casual taxable persons, non-resident taxable persons etc.)
9. How will imports be taxed under GST?
Under the proposed GST regime, though the levy of Basic Customs Duty (BCD) on import of goods is set to continue, the additional customs duty, the current Special Additional Duty (SAD) will be replaced by IGST. While the full set-off will be available of the IGST paid on import of goods and services, BCD paid on import will not be eligible for set-off. In the case of import of services, an IGST on reverse charge basis will be levied and credit of the same will be available to the importer- recipient in accordance with the law.
10. How will the credit mechanism work under GST?
Both CGST and SGST are two parallel taxes under the ‘dual GST’ regime levied simultaneously on goods and services. Therefore, the cross utilisation of CGST input tax credit for payment of SGST output tax liability and vice versa will not be permitted. However, the GST credit pool is fungible with CGST and SGST and the same can be used for payment of IGST, CGST and SGST and vice versa. The order of utilisation of the IGST credit will be first towards IGST, then CGST and the balance towards SGST liability. Similarly an SGST credit can be utilised first towards SGST liability and then towards IGST, whereas a CGST credit will be used first toward CGST and then towards IGST.
11. Why does the introduction of GST require a Constitutional Amendment?
The Indian Constitution clearly demarcates the powers of taxation between the central and state governments. While the centre is empowered to tax services and goods up to the stage of production, the states are authorised to levy tax on the sale of goods. The states do not have the power to levy tax on supply of services while the centre does not have power to levy tax on the sale of goods. Under the proposed ‘dual GST’ regime, all services and goods will be simultaneously taxed by both the state and central governments. Therefore, it is mandatory for the restriction imposed by the Constitution to be amended to enable the states and central governments to tax goods and services simultaneously.
12. What would be the point of levying GST on the supply of goods?
At present, India follows an origin-based tax system and therefore the point of taxation is at the origin of sale and the originating state keeps the tax so collected, irrespective of where the consumer is located. Under the proposed GST regime, which is a multi-point levy (i.e. levied at each value addition in the value chain), the tax will move with goods and will be credited to the account of the destination state based on the place of supply as determined under the IGST Act. The GST will be charged on supply and point of levy will be as determined as per time of supply under Section 12 of the CGST Act.
13. What would be the point of levy of GST on supply of services?
GST on services will be a tax on supply and the point of levy will be as determined in terms of Section 13 of the CGST Act. The revenue will be remitted to the State where the service is consumed based on the place of supply as determined under the IGST Act. By default, the place of supply of services shall be the place where the service recipient is located in the case of B2B transactions and place of the service provider in the case of B2C transactions. However, there are exceptions to this rule.
14. What would the process of registration be under the proposed GST regime for new businesses/applicants?
Each taxpayer will be allotted a state-wise Permanent Account Number (PAN) based 15-digit Goods and Services Taxpayer Identification Number (GSTIN). Those tax payers who are already registered under the current state or central tax regime, are migrated to the common portal and granted GST registration suo motu with a request to provide additional information where required.
A new applicant would be allowed to apply for registration on the common portal without prior enrolment.
15. What would be the process of registration under GST for existing businesses/applicants?
Under the current regime, tax payers are separately registered with the state and/or with central tax administrations or with both based on their business activity. In the GST regime, a taxpayer will have to obtain state wise registration. Even within a state, the taxpayer will have an option to obtain multiple registrations for different business verticals.
16. What are the contents of a tax invoice to be issued under GST regime?
A registered assessee supplying taxable goods/services shall issue at the time of supply, a tax invoice showing complete details of the transaction viz., name, address and GSTIN of the assessee’s name, address and GSTIN of the buyer/service recipient, date of invoice, value of goods/service, description of goods/service, rate and value of CGST, SGST or IGST, signature of taxpayer, etc.
17. How and when should the returns be filed?
A common e-return for CGST, SGST and IGST is proposed in the draft law. Returns, that allow the auto-population of data from the vendors and automated matching of invoices, shall be filed online by a normal/casual taxpayer in a sequential manner within different cut-off dates. The various due dates proposed for the filing of returns are as follows:
|S.No.||Return/Ledger||Description of Applicable Form||Due Date|
|1||GSTR1||Outward supplies made by taxpayer (other than compounding taxpayer and ISD)||10 of the next month|
|2||GSTR2||Inward supplies received by a taxpayer (other than a compounding taxpayer and ISD)||15 of the next month|
|3||GSTR3||Monthly return (other than compounding taxpayer and ISD)||20 of the next month|
|4||GSTR4||Quarterly return for compounding Taxpayer||18 of the month next to quarter|
|5||GSTR5||Periodic return by Non-Resident Foreign Taxpayer||Last day of registration|
|6||GSTR6||Return for Input Service Distributor (ISD)||13 of the next month|
|7||GSTR7||Return for Tax Deducted at Source||10 of the next month|
|8||GSTR8||Annual return||31 December of next financial year|
It may be noted that most of the returns are auto generated by the GSTN system and the dealer is expected to validate the data and also fill in the missing data. It is also to be noted that the payment of the tax due, is a must for filing valid returns under the GST regime.
18. What is the mode of payment of tax?
The payment of tax is in electronic mode with a common ‘challan’ (i.e. document for payment of taxes) for all the taxes under three different modes of payment:
19. How would exports be taxed under GST?
Exports are zero rated under GST which means that there shall be not tax and input taxes will be refunded.
20. When can a tax payer go for a refund in the GST regime? How will the refund procedure work under the proposed GST law?
The refund regime is expected to be simplified under GST as opposed to the current manual verification system. The refund can be obtained in the following scenarios:
21. How does the dispute resolution mechanism work under the proposed GST regime?
An elaborate adjudication and appellate procedure is prescribed under the GST law. A separate appellate Tribunal called the Goods and Services Tax Appellate Tribunal shall be formed to deal with disputes.
22. What happens to various exemptions including area-based exemptions granted in the present regime, under the GST framework?
Minimal exemptions and concessions are expected under the GST regime. However, the tenure of certain exemptions such as the area-based tax exemptions granted by the governments would extend to the GST regime and the governments may have to honour the commitments.
Since tax exemption may not be possible under the GST regime, these exemption may still be granted in the form of post-tax cash refund schemes after the collection of tax, so that the GST chain is not disturbed. While no new exemption would be allowed, the existing special industrial area scheme may