Taxation law with reference to GST in India
Goods and Services Tax in India
The Goods and Services Tax (hereinafter referred to as “GST”) is often termed as a “game changer” under the Indian taxation regime. It was first proposed by the then Finance Minister in the budget speech of 2006 and thereafter the GST was introduced officially in India on July 1, 2017.
What is GST?
It is an indirect tax. It is a single tax on the supply of goods and services. It is essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set off benefits at all the previous stages.
GST is further classified into:
- CGST– Central Goods and Services Tax. CGST is levied by the Central Government on intra- State sales
- SGST– State Goods and Services Tax. SGST is levied by the State Government on intra- State sales
- IGST– Integrated Goods and Service Tax. IGST is levied by the Central Government on inter-State sales.
Advantages of GST
Some of the key benefits inter alia include:
- GST taxation regime is relatively a simpler taxation policy as it removes the cascading effect of taxes.
- For trade and industry, it has enhanced the ease of doing business in India
- Removing double taxation in sectors like hospitality, software
- Consolidation and harmonization of laws and procedures relating to taxes in India
- Reduction in compliance costs
It is expected that in the long run, the successful implementation of GST regime in India will lead to a single national market, common tax base and common tax laws in the Centre and States.
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Understand in detail about the Taxation under Goods and Services Tax (GST) Regime in India
What is the taxable event under GST?
Tax shall be accrued to the taxing authority under whose jurisdiction the product is consumed or supplied.
Which taxes have been clubbed together under the new domain of GST?
With the advent of GST some of the taxes which have been subsumed are stated below:
At the Central level:
- Central Excise Duty,
- Additional Excise Duty,
- Service Tax,
- Additional Customs Duty.
At the State level:
- Subsuming of State Value Added Tax/Sales Tax,
- Entertainment Tax (other than the tax levied by the local bodies),
- Central Sales Tax (levied by the Centre and collected by the States),
- Octroi and Entry tax,
- Purchase Tax,
- Luxury tax, and
- Taxes on lottery, betting and gambling
How is a composite supply taxed?
Goods or services in a composite supply cannot be supplied separately. In a composite supply, the tax rate of the principal supply will apply on the whole supply.
For example, in case of transportation of goods, the supply of goods, packing material, insurance form a composite supply and the supply of goods is the principal supply. The packing material or insurance cannot be supplied separately if there is no supply of goods.
How is a mixed supply taxed?
A mixed supply will have the tax rate of the good/service attracting the highest rate of tax.
For example, a gift box comprising sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices supplied for a single price is a mixed supply. Each of the goods mentioned above can also be sold separately. Since aerated drinks have the highest GST rate of 28%, aerated drinks will be treated as principal supply and 28% will apply on the entire gift box
How are exports taxed under GST?
Export of goods and/or services qualify as an inter-State supply. Exports of goods and services are treated as zero rated supplies. The exporter has the option undertake the export of goods/ services in either of the following ways:
- Export of goods/services or both under a bond or Letter of undertaking (LUT) without paying IGST claiming the refund of unutilized ITC
- Export of goods/services or both on payment of IGST and subsequently claiming refund of IGST paid towards the export of goods/ services
In addition, the conditions which are required to be fulfilled for a service to qualify as export and be subject to zero-rated tax have been specified in the GST law.
How are imports taxed under GST?
Imports qualify as an inter-State supply under GST. In addition to custom duty which is levied on import of goods, IGST is leviable on import of both goods and services.
The importer of services will be eligible to claim ITC towards IGST paid on import of goods and services, however credit of Basic Custom Duty paid on import of goods will not be available to the importer and shall be a cost to the importer.
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Read below to know about Goods and Services Tax (GST) Regime in India
What is GST?
GST is an Indirect Tax which is levied on the supply of both goods and services in India. It is destination-based tax where tax is levied on every value addition. It was implemented on 1st July 2017. All the state and central taxes and duties under the erstwhile indirect tax regime except Custom Duty levied on import of goods were subsumed with the implementation of GST.
India has adopted a dual GST model where GST shall have two components one levied by the Centre (referred to as Central GST), and the other levied by the States (referred to as State GST).
What are the merits of GST?
Some of the ways in which GST is beneficial are stated below:
- Avoidance of multiplicity of taxation;
- Enhanced transparency in the tax regime;
- Increased uniformity preventing unhealthy competition between the States;
- Elimination of double charging system;
- Reduction of cascading effect by limiting the taxation to value addition only;
- Easy filing and necessary documentation owing to reliance on digitalization;
- Prevention of tax evasion;
- Increase in the revenue
What are different Components of GST in India?
- Central Goods or Services Tax or (“CGST”) is the tax levied by Central Government on an intra-state supply of goods and/or services.
- State Goods and Services Tax (“SGST”) is the tax levied by the State Government on an intra-state supply of goods and/or services.
- Union Territory Goods and Services Tax (“UTGST”) is the tax levied by the Union Territory Government on an intra-state supply of goods and/or services.
- Integrated Goods and Services Tax (“IGST”) is the tax levied on an inter-state supply of goods or services.
What is the threshold limit for registration under GST?
Taxpayers with an aggregate turnover upto Rupees Forty Lakhs are exempt from obtaining registration under GST. For North-Eastern states, taxpayers with an aggregate turnover upto Rupees Twenty Lakhs are exempt from obtaining registration under GST.
How can a return be filed under GST?
Taxpayers are required to file returns under GST on annual as well as monthly and quarterly basis in the terms of the forms available based on applicability and duration.
Whether goods and services are both liable to GST?
Yes, goods and services are both liable to GST. The applicable component of GST on the supply of goods/ services shall depend on whether the supply of goods/services is an inter-state supply or an intra-state supply.
How is GST applied in respect of goods/ services?
Dual system of GST shall be levied on goods and services. Centre would levy and collect Central Goods and Services Tax (hereinafter referred to as “CGST”), and States would levy and collect the State Goods and Services Tax (hereinafter referred to as “SGST”) on all transactions within a State.
How should dealers register for GST?
Existing or new dealers are required to apply online for registration under GST after the submission of the requisite documents. After approval of the said application, each dealer would be allotted a 15 digit common identification number also known as GSTIN.
When shall an entity be liable to pay GST?
An entity shall be liable to pay GST when the turnover is over the threshold of INR 2,0000,000 or INR 1,000,000 in case of North Eastern & Special Category States unless specifically exempted.
Whether services provided by lawyers / law firms to clients are liable to pay GST?
Lawyers/ firm of lawyers are exempt from payment of GST. The services provided by a lawyer/law firm to a body corporate are required to be discharged by the body corporate under reverse charge mechanism.
Can a person without GST registration claim ITC and collect tax?
No, a person without GST registration can neither collect GST from his customers nor can claim any input tax credit of GST paid by him.
Why is place of supply essential under GST in India?
The fundamental objective under GST is that is it should tax the consumption of supply of goods or services at the destination or at the point of consumption. Accordingly, place of supply determines the place i.e. taxable jurisdiction where the tax should be levied.
The place of supply determines whether a transaction qualifies as an intra-state supply or an inter-state supply. This will assist in determining that the supply of goods or services is subject to CGST and SGST in case of an intra-state supply or IGST in case of an inter-state supply.
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Below are some important definitions that a person needs to know related to Goods and Services Tax (GST) in India
Composite Supply under GST
A composite supply means a supply of goods and/or services or a combination of both, which is naturally bundled together and supplied with each other one of which is a principal supply.
Mixed Supply under GST
A mixed supply means a combination of two or more goods or services for a single price. Each of the goods or services can be supplied separately and is not dependent on any other.
Concept of an Intermediary under GST
A person who only arranges or facilitates the supply of goods and/or services between two or more persons but does not supply the goods and/or services on his own account is known as an intermediary. The place of supply of intermediary services is the location of supplier of such services.
Advance Ruling under GST
A taxpayer under GST has an option to seek an advance ruling in a scenario where there is uncertainty in the law. An advance tax ruling is applicable on:
- Classification of goods/services under GST
- Applicability of a notification which may affect the rate of tax
- Determination of the time and value of the supply of goods/services
- Whether ITC will be eligible to be claimed
- Liability to pay tax on any goods/services
- Requirement for obtaining registration under GST
- An activity in relation to goods/services by the applicant will qualify as a supply
Anti-Profiteering under GST
Suppliers of goods and services are required to pass on the benefit of reduction in the rate of tax (if any) or the benefit of ITC to the recipients by way of reduction in prices. The act of not passing on the benefits to recipients is known as “profiteering”.
GST Compensation Cess under GST
States were initially apprehensive of not earning as much revenue under the GST regime as they were earning under the erstwhile indirect tax laws. The Central Government guaranteed the state governments minimum tax revenue for states for obtaining their consent for transitioning to the GST regime and pass their own respective State GST laws. This minimum tax revenue is known as GST Compensation Cess and will be provided by the Central Government to the State Governments for 5 years. The cess is applicable only on certain products.
Input Tax Credit under GST
Input tax credit is the reduction on the tax on inputs which has already been paid. Where goods/ services have been availed after due payment of taxes on them and receipt of respective invoice, an entity becomes eligible to avail input tax credit.
IGST under GST
The Integrated GST (hereinafter referred to as “IGST”) is the GST which will be levied by Central Government on inter-State supply of goods and services. Tax gets transferred to Importing state.
Input Tax under GST
Input tax is the Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), Integrated Goods and Services Tax (IGST) or Union territory Goods and Services Tax (UTGST) charged on supply of goods or services.
It also includes the tax paid under reverse charge mechanism including the IGST charged on the import of goods from outside India.
Tax paid under composition scheme is not included under input tax.
Inter-State and Intra-State Supply under GST
The component of tax under GST (i.e. CGST, SGST/UTGST or IGST) will be applicable on whether the supply of goods and/or services is an intra-state supply or inter-state supply in Indoa. Both supplies have been briefly explained below:
Intra – state supply
The supply of goods / services qualifies as an intra-state supply when the location of the supplier of goods/services and the place of supply of the customer are in the same State or Union territory.
Inter – state supply
The supply of goods/services qualifies as an inter-state supply when the location of the supplier of goods/services and the place of supply of the customer are in:
- Two different States; or
- Two different Union territories; or
- State and a Union territory
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