Everything you Should Know About GST

Published on 01 Jul 2017 by Team

GST aims to stitch together a common market by dismantling fiscal barriers between states. It is a single national uniform tax levied across the country on all goods and services. It has been implemented from July 1, 2017,

What the GST has done is it has subsumes all local and central indirect taxes (except customs duty). Hence GST has empowered states to collect service taxes.

Picture Courtesy- digitallearning.com

Illustration- Let us assume that the GST is set at 20%. Suppose that the manufacturing cost of a Product A is 100 and assuming a GST of 20% the total amount is Rs. 120. The next step of taxation would be when the Product is sold to consumers, let’s say at a price of 150. So the GST will charge another 20% on just the difference of Rs. 150 and Rs. 120 i.e. only 20% on Rs. 30 which is equal to Rs. 6. So the final price is Rs. 150 + Rs. 6. Unlike the case of petrol pricing there is no tax on a tax now. This eliminates the cascading effect of taxes which is very prevalent in our economy and has been simplified to an elemental level in the example.

Since the GST will be applied at every step of value creation it will be very difficult for black money owners to participate anywhere in the value chain with the GST without accounting for all other transactions. The GST is estimated to provide an immediate boost of 0.9% – 1.4% of the GDP.

Taxes that have been replaced the standardised GST 

GST India will subsume the following taxes that are currently being levied by the Central and State governments:

i. Central Excise Duty
ii. Duties of Excise
iii. Additional Duties of Excise
iv. Additional Duties of Customs
v. Special Additional Duty of Customs
vi. State Value Added Tax (VAT)
vii. Central Sales Tax (CST)
viii. Luxury Tax
ix. Entry Tax
x. Entertainment Tax
xi. Advertisement taxes
xii. Purchase Tax
xiii. Taxes on lotteries and gambling
xiv. Central and State Surcharges and Cesses on goods and services

GST affects the Business climate permanently
The most important thing about GST with respect to how it has forever changed the way business transactions are carried out is its point of levy. Under GST, point of tax levy is ‘supply’. What constitutes a supply has been defined in the GST Act.

Supply means sale of goods and services. A supply of goods and services can take place even without an actual sale. Supply will also include, transfer, exchange, and barter, rental, lease and also a supply made to an agent or to a branch.

So if you are a business, engaged in any of the above, GST will replace all taxes paid by you on purchases, and mandate you to levy GST on your supply. In this context the government may notify some services & goods, which will not be considered a supply and hence will not attract GST. So the first step would be to identify if your business has made a supply. As GST, is an indirect tax and is applicable to businesses, professionals, freelancers and service providers. It is not applicable to salaried individuals.

GST slabs | Application of GST | Registration under GST

The Goods and Services Tax will range from 0% to 28% depending on various product categories. The four-tier GST tax slabs of 5%, 12%, 18% and 28% will be set lowest for essential items and highest for luxury goods and services.

As a trader, you may be already registered under VAT, so you must register for GST. GST will allow you to set off tax paid at earlier stages for payment of GST on supplies you make. Manufactures also stand to benefit by registering, as they can now adjust tax paid on inputs against GST on outputs.
As a businessman one has to register under GST if the following applies:

  1. If yearly turnover (sales) exceeds ?20 lakh (?10 lakh for the Northeastern states).
  2. You make inter-state sales i.e. you are based in one state and sell goods to a receiver in another state. Like if you are based in Bangalore and you sell goods to Pune then it is considered to be an interstate sale.
  3. You sell online. (it is irrelevant whether you may be selling through your own website or through an operator like eBay or Myntra)
  4. You sell goods on behalf of another taxable person (i.e. you are an agent).
  5. Dealing in goods/services on which reverse charge applies that is where the buyer has to deposit tax instead of the seller.

*For points 2-5, annual sales are irrelevant. GST shall apply even if sales are less than INR 20 lakh (INR10 lakh for NE states) per year. Those with turnover less than Rs 20 lakh (Rs 10 lakh for North East states) do not have to mandatorily register for GST. This limit, though, is not to be considered if the business is involved in making inter-state transactions. GST registration is mandatory for them.

GST Not Applicable only if exempted specefically under the Act.

If a person deals in exempted goods or services then GST does not apply to him. GST is also not applicable to agriculturists. For example if you grow your own crops and sell them, then GST does not apply to you.

GST Registration-

People have to apply for registration in each state in which they will be conducting business, within 30 days from the date on which they are liable for registration (For example, the day their annual sales crosses ?20 lakhs).
Everyone who is involved must obtain separate registration for each state, as registration under GST will be state-wise.
Registration number in GST (GSTIN) will be PAN-based so, having Permanent Account Number will be a prerequisite for obtaining registration.
People can also choose to self-register for GST even if their sales are lesser than ?20 lakhs. This will help to avoid limitations like no interstate sales, no selling online.

Businesses that need to register under GST irrespective of their turnover

  • Every person who is registered under the Pre-GST law (i.e., Excise, VAT, Service Tax etc.)  needs to register under GST.

  • When a business which is registered has been transferred to someone, the transferee shall take registration with effect from the date of transfer.
  • Anyone who drives inter-state supply of goods**
  • Casual taxable person
  • Non-Resident taxable person
  • Agents of a supplier
  • Those paying tax under the reverse charge mechanism
  • Input service distributor
  • E-commerce operator or aggregator
  • Person who supplies via e-commerce aggregator
  • Person supplying online information and database access or retrieval services from a place outside India to a person in India, other than a registered taxable person

*As per 22nd GST Council meeting of 6th October 2017- Service providers providing inter-state services are exempted from registration if their annual turnover is below 20lakhs (10 lakhs for Special states. 20 lakhs for J&K)

A casual taxable person-
A person who periodically supplies goods and/or services in a region where GST is applicable but does not have a regular or fix place of business in the said region is treated as a casual taxable person as per GST. For example, a person who has place of business in Delhi gives consulting services in Indore (where he has no place of business), then he would be treated as casual taxable person in Indore.

Special registration for casual taxable person explained-
A casual taxable person may obtain a type of temporary registration for a span of 90 days (extendable for more 90 days).
If he is able to obtain the above registration then he will have to deposit tax in advance (based on his estimated tax liability).

Collection of GST?
Only a registered taxable person can collect GST. You must prominently show the GST amount on tax invoices.

Reverse Charge-
Reverse charge means the liability to pay tax is by the receiver of goods/services instead of the supplier. Reverse charge applies for both services and goods.
Situations where reverse charge will apply-
1. When an Unregistered dealer sells to a registered dealer: In such cases, the registered dealer has to give GST on the supply. If a person is registered under GST and he is buying from an unregistered dealer then reverse charge will apply, i.e. the buyer, will have to pay GST.
2. When services are provided through an e-commerce operator: When an e-commerce operator supplies services then reverse charge will apply on the e-commerce operator. It has to pay GST. For example, a company that provides services of engineers, electricians, teachers, make-up artists, etc. This company has to pay GST and collect it from the customers instead of the registered service providers.

Keep in mind that the Centre or State Government may notify other scenarios where reverse charge will apply.

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