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 with a comprehensive and continuous chain of potential set-off benefits from the point of origination to the ultimate consumer of goods and services. 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||20%||20%||20%|
|GST on output(INR)||30||35||38|
|GST on input (INR)||20||30||35|
| Net GST=GST on output-input
tax credit (i.e. tax on value addition)
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. The dual GST model 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 Central GST Act and State GST Act respectively. These taxes are deposited by the tax payers 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 is to be taxed under an Integrated GST (IGST) Act. The rate of GST under the IGST Act would 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 is the concept of the 1 per cent additional tax proposed to be imposed by the central government?
The central government proposes to collect 1 per cent additional tax on the inter-state supply of goods, over and above GST, which will be collected and retained by the states from where goods originate. This tax is non creditable and is proposed to be levied only on the inter-state supply of goods including stock transfers.
6. What are the taxes proposed 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:
7. What are the goods/sectors that will be out of the purview of GST?
The goods/sectors that will be out of the GST ambit include real estate, alcohol and specified petroleum products i.e. Petroleum Crude, High Speed Diesel, Motor Spirit, Aviation Turbine Fuel and Natural Gas. In addition, Stamp duty, Toll tax, Road Tax, Electricity duty, State Excise duty on alcoholic beverages, etc. will not be a part of GST.
8. What would be the rate structure under GST?
The Empowered Committee of State Finance Ministers was set up to formulate the policies and monitor the progress of implementation of the GST. Further, the government had appointed another Committee chaired by the Chief Economic Advisor to submit its report on the possible tax rates under GST. This committee in its report has suggested that the GST regime should have dual rate structure – low GST rate of approximately 12 per cent on merit goods (e.g. essential commodities), and standard GST rate of approximately 18 per cent on other goods. That apart, it is expected that there may be a higher GST rate of approximately 40 per cent on demerit goods (like tobacco, aerated beverages etc.), lower GST rate of approximately 2 per cent on bullions, and exemption from GST for few select goods.
9. What will be the threshold limit and compounded levy under GST?
As per the Model GST law, the proposed threshold limit of the gross turnover is INR 10 Lakhs for both goods and services put together. However, some of the north–east states will have a lower threshold limit of INR 5 lakhs.
The composition/compounded levy scheme under the proposed GST would have an upper ceiling of INR 50 lakhs on the gross annual turnover and a floor tax rate not less than 1 per cent on the gross annual turnover without input credit.
10. 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 special Additional Duty and Education Cess levied currently will be replaced by IGST. While the full set-off will be available of the IGST paid on import of goods and services, the BCD paid on import will not be eligible for set-off. In the case of import of services, there will be levied an IGST on reverse charge basis and credit of the same will be available to the importer, as the case may be.
11. 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 a 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.
12. Why does the introduction of GST require a Constitutional Amendment?
The Indian Constitution has clearly demarcated 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 powers 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.
13. 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 origination of sale and the originating state keeps the tax so collected, irrespective of whether the consumer is located in the same state or another state. Under the proposed GST regime, though the point of levy will continue to be the origination of supply of goods for the sake of the effective collection of tax, the GST so collected shall be given to the destination state where the goods are consumed.
14. What would be the point of levy of GST on supply of services?
Though the point of levy will continue to be the place of the service provider, the revenue will be remitted to the state where the service is consumed based on the place of supply rules to be notified. 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 for a few services to which this rules cannot be applied effectively. (for e.g. services related to telecommunication services, insurance services, banking and financial services, Broadcasting services, etc.)
15. 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, will be migrated to the common portal and granted GST registration suo motto with a request to provide additional information where required online.
A new applicant would be allowed to apply for registration on the common portal without prior enrollment. Once a complete application is submitted online, a message asking for the confirmation of the data submitted will be sent through e-mail and SMS to the authorised signatory of the applicant. On receipt of such a confirmation from the authorised signatory, an acknowledgement number would be generated and intimated to the applicant. Once the application is approved and the GSTIN is generated, the same along with Log-in ID and temporary password will be sent to the authorised signatory.
16. 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.
17. 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.
18. 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)||10th of the next month|
|2||GSTR2||Inward supplies received by a taxpayer (other than a compounding taxpayer and ISD)||15th of the next month|
|3||GSTR3||Monthly return (other than compounding taxpayer and ISD)||20th of the next month|
|4||GSTR4||Quarterly return for compounding Taxpayer||18th 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)||13th of the next month|
|7||GSTR7||Return for Tax Deducted at Source||10th of the next month|
|8||GSTR8||Annual return||31st 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.
19. 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:
20. How would exports be taxed under GST?
It is expected that exports would be zero rated and therefore eligible for input tax refunds despite the fact that the final goods and services are exempted from GST.
21. 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:
Refunds on exports:
In the proposed GST regime, the GST paid on inputs (including input services) can be verified online (as the purchase and sales invoices are required to be filed along with the monthly returns) and the refund of input tax credit on inputs (including input services) can be sanctioned once the input tax credit matches with the purchase and sale statements filed by the exporter and there is no need for a separate submission of these documents.
Refunds of carry forward input tax credit granted only in case of an inverted duty structure:
In such cases, a cash refund may be granted after an audit and would be sanctioned only after the input tax credit matches with the purchase and sales statements filed along with monthly returns. The refund would be granted only on the submission of applications. In the current regime, such a refund is not permitted.
22. How does the dispute resolution mechanism work under the proposed GST regime?
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in its present form may continue to exist to take care of the cases relating to Customs, Central Excise and Service Tax under the pre-GST regime.
The GST Appellate Tribunal may be formed to deal with disputes post GST and is expected to draw technical and judicial members appointed by both the central and state governments.
23. What happens to various exemptions including area-based exemptions granted in the present regime, under the GST framework?
It is expected that there would be minimal exemptions and concessions 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 continue until it expires.
KPMG in India's analysis 2016 based on the
a) Constitution (One Hundred and Twenty Second Amendment) Bill 2014;
b) First Discussion Paper on GST issued by the Empowered Committee of State Finance Ministers
c) Business Process document released by the by the Empowered Committee of State Finance Ministers; and
d) http://www.empcom.gov.in/ accessed on 28 March 2016.
None of these materials is offered, nor should be construed, as financial, legal or other professional advice. The contents contained or made available through this web page is not intended to create any relationship between the reader and KPMG