GST Notes for preparation of CA, CS, CMA and GST practitioner exams. GST is a single, destination based indirect tax. It is levied on value added to goods as well as services at each stage of the supply chain. The main objective behind levying such a tax is to consolidate multiple indirect tax levies into a single tax
Whether it was uniformity of taxation and consequent free interior trade or possession of the jewel in the crown‘ at the root of prosperity of Britain is debatable, nonetheless the words of father of modern economics on the benefits of uniformity of system of taxation cannot be taken too lightly. Before implementation of Goods and Service Tax (GST), Indian taxation system was a farrago of central, state and local area levies. By subsuming more than a score of taxes under GST, road to a harmonized system of indirect tax has been paved making India an economic union.
CONSTITUTIONAL SCHEME OF INDIRECT TAXATION IN INDIA BEFORE GST
Article 265 of the Constitution of India provides that no tax shall be levied or collected except by authority of law. As per Article 246 of the Constitution, Parliament has exclusive powers to make laws in respect of matters given in Union List (List I of the Seventh Schedule) and State Government has the exclusive jurisdiction to legislate on the matters containing in State List (List II of the Seventh Schedule). In respect of the matters contained in Concurrent List (List III of the Seventh Schedule), both the Central Government and State Governments have concurrent powers to legislate. Before advent of GST, the most important sources of indirect tax revenue for the Union were customs duty (entry 83 of Union List), central excise duty (entry 84 of Union List), and service tax (entry 97 of Union List). Although entry 92C was inserted in the Union List of the Seventh Schedule of the Constitution by the Constitution (Eighty-eighth Amendment) Act, 2003 for levy of taxes on services, it was not notified. So tax on services were continued to be levied under the residual entry, i.e. entry 97, of the Union List till GST came into force. The Union also levied tax called Central Sales Tax (CST) on inter-State sale and purchase of goods and on inter-State consignments of goods by virtue of entry 92A and 92B respectively. CST however is assigned to the State of origin, as per Central Sales Tax Act, 1956 made under Article 269 of the Constitution.
On the State side, the most important sources of tax revenue were tax on sale and purchase (entry 54 of the State List), excise duty on alcoholic liquors, opium and narcotics (entry 51 of the State List), Taxes on luxuries, entertainments, amusements, betting and gambling (entry 62 of the State List), octroi or entry tax (entry 52 of the State List) and electricity tax ((entry 53 of the State List). CST was also an important source of revenue though the same was levied by the Union.
HISTORICAL EVOLUTION OF INDIRECT TAXATION IN POSTINDEPENDENCE INDIA TILL GST:
In post-Independence period, central excise duty was levied on a few Commodities which were in the nature of raw materials and intermediate inputs, And consumer goods were outside the net by and large. The first set of reform was suggested by the Taxation Enquiry Commission (1953-54) under the chairmanship of Dr. John Matthai. The Commission recommended that sales tax should be used specifically by the States as a source of revenue with Union governments’ intervention allowed generally only in case of inter-State sales. It also recommended levy of a tax on inter-State sales subject to a ceiling of 1%, which the States would administer and also retain the revenue.
The power to levy tax on sale and purchase of goods in the course of inter- State trade and commerce was assigned to the Union by the Constitution (Sixth Amendment) Act, 1956. By mid-1970s, central excise duty was extended to most manufactured goods. Central excise duty was levied on unit, called specific duty, and on value, called ad valorem duty. The number of rates was too many with no offsetting of taxes paid on inputs leading to significant cascading and classification disputes.
The Indirect Taxation Enquiry Committee constituted in 1976 under Shri L K Jha recommended, inter alia, converting specific rates into ad valorem rates, rate consolidation and input tax credit mechanism of value added tax at manufacturing level (MANVAT). In 1986, the recommendation of the Jha Committee on moving on to value added tax in manufacturing was partially implemented. This was called modified value added tax (MODVAT). In principle, duty was payable on value addition but in the beginning it was limited to select inputs and manufactured goods only with one-to-one correlation between input and manufactured goods for eligibility to take input tax credit. The comprehensive coverage of MODVAT was achieved by 1996-97.
The next wave of reform in indirect tax sphere came with the New Economic Policy of 1991. The Tax Reforms Committee under the chairmanship of Prof. Raja J Chelliah was appointed in 1991. This Committee recommended broadening of the tax base by taxing services and pruning exemptions, consolidation and lowering of rates, extension of MODVAT on all inputs including capital goods. It suggested that reform of tax structure must have to be accompanied by a reform of tax administration, if complete benefits were to be derived from the tax reforms. Many of the recommendations of the Chelliah Committee were implemented. In 1999-2000, tax rates were merged in three rates, with additional rates on a few luxury goods. In 2000-01, three rates were merged into one rate called Central Value Added Tax (CENVAT). A few commodities were subjected to special excise duty.
Taxation of services by the Union was introduced in 1994 bringing in its ambit only three services, namely general insurance, telecommunication and stock broking. Gradually, more and more services were brought into the fold. Over the next decade, more and more services were brought under the tax net. In 1994, tax rate on three services was 5% which gradually increased and in 2017 it was 15% (including cess). Before 2012, services were taxed under a positive list‘ approach. This approach was prone to ‗tax avoidance‘. In 2012 budget, negative list approach was adopted where 17 services were out of taxation net and all other services were subject to tax. In 2004, the input tax credit scheme for CENVAT and Service Tax was merged to permit cross utilization of credits across these taxes.
Before state level VAT was introduced by States in the first half of the first decade of this century, sales tax was levied in States since independence. Sales tax was plagued by some serious flaws. It was levied by States in an uncoordinated manner the consequences of which were different rates of sales tax on different commodities in different States. Rates of sales tax were more than ten in some States and these varied for the same commodity in different States. Inter-state sales were subjected to levy of Central Sales Tax. As this tax was appropriated by the exporting State credit was not allowed by the dealer in the importing State.
This resulted into exportation of tax from richer to poorer states and also cascading of taxes. Interestingly, States had power of taxation over services from the very beginning. States levied tax on advertisements, luxuries, entertainments, amusements, betting and gambling.
A report, titled “Reform of Domestic Trade Taxes in India”, on reforming indirect taxes, especially State sales tax, by National Institute of Public Finance and Policy under the leadership of Dr. Amaresh Bagchi, was prepared in 1994. This Report prepared the ground for implementation of VAT in States. Some of the key recommendations were; replacing sales tax by VAT by moving over to a multistage system of taxation; allowing input tax credits for all inputs, including on machinery and equipment; harmonization and rationalization of tax rates across States with two or three rates within specified bands; pruning of exemptions and concessions except for a basic threshold limit and items like unprocessed food; zero rating of exports, inter-State sales and consignment transfers to registered dealers; taxing inter-State sales to non-registered persons as local sales; modernization of tax administration, computerization of operations and simplification of forms and procedures.
The first preliminary discussion on transition from sales tax regime to VAT regime took place in a meeting of Chief Ministers convened by the Union Finance Minister in 1995. A standing Committee of State Finance Ministers was constituted, as a result of meeting of the Union Finance Ministers and Chief Ministers in November, 1999, to deliberate on the design of VAT which was later made the Empowered Committee of State Finance Ministers (EC). Haryana was the first State to implement VAT, in 2003. In 2005, VAT was implemented in most of the states. Uttar Pradesh was the last State to implement VAT, from 1st January, 2008.
INTERNATIONAL PERSPECTIVES ON GST / VAT:
VAT and GST are used inter-changeably as the latter denotes comprehensiveness of VAT by coverage of goods and services. France was the first country to implement VAT, in 1954. Presently, more than 160 countries have implemented GST / VAT in some form or the other. The most popular form of VAT is where taxes paid on inputs are allowed to be adjusted in the liability at the output. The VAT or GST regime in practice varies from one country to another in terms of its technical aspects like definition of supply extent of coverage of goods and services‘, treatment of exemptions and zero rating‘ etc. However, at a broader level, it has one common principle, it is a destination based consumption tax. From economic point of view, VAT is considered to be a superior system over sales tax of taxing consumption because the former is neutral in allocation of resources as it taxes value addition. Besides, there are certain distinct advantages of VAT. It is less cascading making the taxation system transparent and antiinflationary. From revenue point of view, VAT leads to greater compliance because of creation of transaction trails.
When compared globally, VAT structures are either overly centralized where tax is levied and administered by the Central government (Germany, Switzerland, Austria), or dual GST structure wherein both Centre and States administer tax independently (Canada) or with some co-ordination between the national and sub-national entities (Brazil, Russia). While a centralized structure reduces fiscal autonomy for the States, a decentralized structure enhances compliance burden for the taxpayers. Canada is a federal country with unique model of taxation in which certain provinces have joined federal GST and others have not. Provinces which administer their taxes separately are called nonparticipating provinces‘, whereas provinces which have teamed up with the Federal Government for tax administration are called participating provinces‘.
The rate of GST varies across countries. While Malaysia has a lower rate of 6% (Malaysia though scrapped GST in 2018 due to popular uproar against it), Hungary has one of the highest rate of 27%. Australia levies GST at the rate of 10% whereas Canada has multiple rate slabs. The average rate of VAT across the EU is around 19.5%.
NEED FOR GST IN INDIA:
The introduction of CENVAT removed to a great extent cascading burden by expanding the coverage of credit for all inputs, including capital goods. CENVAT scheme later also allowed credit of services and the basket of inputs, capital goods and input services could be used for payment of both central excise duty and service tax. Similarly, the introduction of VAT in the States has removed the cascading effect by giving set-off for tax paid on inputs as well as tax paid on previous purchases and has again been an improvement over the previous sales tax regime.
But both the CENVAT and the State VAT have certain incompleteness. The incompleteness in CENVAT is that it has yet not been extended to include chain of value addition in the distributive trade below the stage of production. Similarly, in the State-level VAT, CENVAT load on the goods has not yet been removed and the cascading effect of that part of tax burden has remained unrelieved. Moreover, there are several taxes in the States, such as, Luxury Tax, Entertainment Tax, etc. which have still not been subsumed in the VAT. Further, there has also not been any integration of VAT on goods with tax on services at the State level with removal of cascading effect of service tax.
CST was another source of distortion in terms of its cascading nature. It was also against one of the basic principles of consumption taxes that tax should accrue to the jurisdiction where consumption takes place. Despite remarkable harmonization in VAT regimes under the auspices of the EC, the national market was fragmented with too many obstacles in free movement of goods necessitated by procedural requirement under VAT and CST.
In the constitutional scheme, taxation powers on goods was with Central Government but it was limited up to the stage of manufacture and production while States have powers to tax sale and purchase of goods. Centre had powers to tax services and States also had powers to tax certain services specified in clause (29A) of Article 366 of the Constitution. This sort of division of taxing powers created a grey zone which led to legal disputes. Determination of what constitutes a goods or service is difficult because in modern complex system of production, a product is normally a mixture of goods and services.
As can be seen from the previous paragraphs, India moved towards value added taxation both at Central and State level, and this process was complete by 2005. Integration of Central VAT and State VAT therefore is nothing but an inevitable consequence of the reform process. The Constitution of India envisages a federal nature of power bestowed upon both Union and States in the Constitution itself. As a natural corollary of this, any unification of the taxation system required a dual GST, levied and collected both by the Union and the States.
GST: A HISTORICAL PERSPECTIVE:
The Kelkar Task Force on Fiscal Responsibility and Budget Management (FRBM) recommended in 2005 introduction of a comprehensive tax on all goods and service replacing Central level VAT and State level VATs. It recommended replacing all indirect taxes except the customs duty with value added tax on all goods and services with complete set off in all stages of making of a product.
In the year 2000, the then Prime Minister introduced the concept of GST and set up a committee to design a GST model for the country. In 2003, the Central Government formed a taskforce on Fiscal Responsibility and Budget Management, which in 2004 recommended GST to replace the existing tax regime by introducing a comprehensive tax on all goods and services replacing Central level VAT and State level VATs. It recommended replacing all indirect taxes except the customs duty with value added tax on all goods and services with complete set off in all stages of the value chain. An announcement was made by the then Union Finance Minister in Budget (2006-07) to the effect that GST would be introduced with effect from April 1, 2010 and that the EC, on his request, would work with the Central Government to prepare a road map for introduction of GST in India. After this announcement, the EC decided to set up a Joint Working Group in May 10, 2007, with the then Adviser to the Union Finance Minister and Member-Secretary of the Empowered Committee as its Co-conveners and four Joint Secretaries of the Department of Revenue of Union Finance Ministry and all Finance Secretaries of the States as its members. This Joint Working Group got itself divided into three Sub-Groups and had several rounds of internal discussions as well as interaction with experts and representatives of Chambers of Commerce & Industry. On the basis of these discussions and interaction, the Sub-Groups submitted their reports which were then integrated and consolidated into the report of Joint Working Group (November 19, 2007).
This report was discussed in detail in the meeting of the EC on November 28, 2007, and the States were also requested to communicate their observations on the report in writing. On the basis of these discussions in the EC and the written observations, certain modifications were considered necessary and were discussed with the Co-conveners and the representatives of the Department of Revenue of Union Finance Ministry. With the modifications duly made, a final version of the views of EC on the model and road map for the GST was prepared (April 30, 2008). These views of EC were then sent to the Government of India, and the comments of Government of India were received on December 12, 2008. These comments were duly considered by the EC (December 16, 2008), and it was decided that a Committee of Principal Secretaries/Secretaries of Finance/Taxation and Commissioners of Trade Taxes of the States would be set up to consider these comments, and submit their views. These views were submitted and were accepted in principle by the EC (January 21, 2009). Based on discussions within the EC and between the EC and the Central Government, the EC released its First Discussion Paper (FDP) on GST in November, 2009. This spelled out the features of the proposed GST and has formed the basis for discussion between the Centre and the States.
Oil and liquor continues being out
What is GST ?
GST is a single, destination based indirect tax.
It is levied on value added to goods as well as services at each stage of the supply chain. The main objective behind levying such a tax is to consolidate multiple indirect tax levies into a single tax.
Thus, GST subsumes a host of taxes. It overcomes limitations of the previous indirect tax structure. Furthermore, it brings efficiency in the administration of tax.
GST is proposed to have a dual structure. It will have two components: Central GST and State GST. Central GST will replace Central excise duty, services tax and additional customs duties etc. and will be levied by the centre. State GST will replace VAT, Central State Tax, entertainment tax, luxury tax, lottery tax, electricity duty etc. and will be levied by the states.
GST will be charged on the value-added at each stage of sale/ purchase in the supply chain. To illustrate: Let us say that the GST rate is 10 %. A chips manufacturer buys raw materials worth Rs. 10 (potatoes etc.), makes chips and sells it to a retailer at Rs 20. The value-added by the Chips manufacturer is Rs. 10 (20-10). Thus, GST payable by him is Re. 1 (10 % of 10). Similarly, if the retailer sells the chips to final consumers at Rs. 25, the value-added by him is Rs. 5 (25-20). The GST payable by the retailer is Rs. 0.5
State GST will follow the destination principle that is it would be applied in the state where the product is sold.
GST will replace all indirect taxes and will be levied on all goods and services. The exceptions are: petroleum product, Entertainment and amusement tax levied and collected by Panchayat/ Municipality/ district council, alcohol, stamp duty, customs duty, tax on consumption and sale of electricity
GST has been adopted by around 140 countries around the world. It’s benefits are:
Simplified tax regime:
Currently there are multiple indirect taxes (around 15) levied by the Central and the State Government and they differ across states. GST will simplify and rationalize the tax structure of India by bringing in a regime of a single and uniform tax.
A simple tax regime will reduce the cost of compliance and hence increase the number of taxpayers. This will help increase tax revenues. Also, the tax base will be comprehensive as all goods and services will be taxed with a few exemptions.
Reduce the cascading effect of taxation:
As mentioned earlier, GST is a uniform tax levied on value-added. Levy at each stage of sale/ purchase will be set-off against taxes paid by the supplier in the previous stage. Through this set-off mechanism, GST is levied only on value-added. To illustrate: Let’s say GST is 10 %. Continuing with our earlier example, if you make a packet of chips (manufacturer) and sell it for Rs. 20 it should be 30, your GST should come out to be Rs 3 (10 % of Rs. 30). But, this tax is levied only on value-addition and so you’ll be allowed to claim a tax credit to the value of GST already paid by the supplier in the previous stage. Let’s say you bought raw materials (potatoes etc.) worth Rs. 10 for making chips. The supplier of the raw materials has already paid Re. 1 (10 % of Rs. 10) as GST. So, the chips manufacturer can claim a tax credit of Re. 1 and pay only the remaining Rs. 2 as GST. Thus, there is no cascading effect and no burden of ‘tax on tax’.
Improve ease of doing business:
Currently, doing business across state borders is very difficult due to differences in tax procedures. GST will lead to a unified economy and allow businesses to expand its operations with ease. It will also improve manufacturing in India, attract foreign investment and lead to job creation.
Growth of GDP (Gross Domestic Product): Introduction of GST will help reduce tax rates, remove multiple point taxation, and increase revenues. Basically, a uniform tax system will make India a common market, and will boost trade, commerce, and export. Together, these will help accelerate economic growth and boost the GDP of the country. Several experts are anticipating this growth to be somewhere around 1-2% and expecting GST to bring down inflation by roughly 2% as well.A Federal Reserve paper says GST could give a boost of up to 4.2% to the Economy. It will also boost external trade about 32%.
Optimal supply chain decisions: Currently, all supply chain decisions are guided with the view to reduce the burden of indirect taxes. GST will do away with the interest rate differentials and lead to seamless movement of goods and services between states. Read this article to appreciate the importance of optimal supply chain: India’s reverse Brexit: GST will create million of formal jobs
Benefit from the Composition Scheme for Small Businesses:
To encourage reduced taxes and tax compliances, the Composition Scheme was introduced under GST. Small business owners registered under the scheme are required to pay a fixed percentage of tax on their turnover. In addition to this, unlike the regular GST tax payers, small businesses registered under Composition Scheme need to file one quarterly return. Following are the tax rates under Composition Scheme:
Small businesses with a turnover of Rs 1.50 crores would pay a flat GST rate of 1%. They will now file one tax return only.
Small service providers with an annual turnover of Rs 50 Lakhs would now pay a GST of 6% instead of 18%
Simple and easy online procedure
The entire process of GST (from registration to filing returns) is made online, and it is super simple. This has been beneficial for start-ups especially, as they do not have to run from pillar to post to get different registrations such as VAT, excise, and service tax.
Regulated Unorganized Businesses:
One of the motivations to implement GST was to get on board the unorganized sector and eventually increase the tax base. According to Economic Survey 2017 – 2018, post the implementation of GST, there has been a 50% increase in the number of indirect tax payers. Furthermore, there has been an increase in the number of voluntary registrations, especially small enterprises that sell goods to large enterprises. These small enterprises want to come under the ambit of GST and claim input tax credit benefit.
Disadvantages of GST
An increase in operational costs:
Businesses will have to employ tax professionals to be GST-complaint. This will gradually increase costs for small businesses as they will have to bear the additional cost of hiring experts. Businesses have to either update their existing accounting or ERP software to GST-compliant one or buy a GST software so that they can keep their business going. But both the options lead to increased cost of software purchase and training of employees for an efficient utilization of the new billing software.
SMEs will have a higher tax burden:
Smaller businesses, especially in the manufacturing sector will face difficulties under GST. Earlier, only businesses whose turnover exceeded Rs 1.5 crore had to pay excise duty. But now any business whose turnover exceeds Rs 20 lakh will have to pay GST.
However GST Council is set to discuss a proposal to exempt small businesses with annual turnover of less than Rs 2 crore from filing annual returns.
State lose self-administration to change charge cost:
The nation will lose autonomy to trade charge cost and it will likely be done by methods for GST gathering.
Oil and liquor continues being out
Oil and liquor continue being saved out of GST area yet they shape for all intents and purposes forty Percent if India’s general trade, so colossal piece of advancement continues being out of GST space.
Important aspects of GST
- GST is payable on supply
All forms of ‘supply’ such as sale, transfer, barter, lease, import of services etc. of goods and/ or services made or agreed to be made for a consideration attracts CGST (levied by Centre) and SGST (levied by State).
Further, certain supplies (specified in Schedule I), even if made without consideration, such as permanent transfer of business assets on which credit is availed, transaction with related or distinct persons, transactions with agent etc. attracts GST.
In Schedule I of the CGST Act, it is provided that gifts1 not exceeding INR 50,000/- in value in a financial year by an employer to an employee are not be treated as supply of goods or services or both.
- Liability to pay GST
Typically, the GST liability is to be discharged by the supplier of goods/ service or both. However, in specific cases, the liability to pay tax is cast on the recipient of the supply instead of the supplier. This is known as Reverse Charge Mechanism (RCM).
GST Law prescribes RCM on specified goods (such as tobacco leaves, silk yarn etc) as well as services discussed below.
There are two types of RCM in GST law:
- Section 9 (3) of the CGST Act – RCM is applicable in respect of specified services (12 services including transportation of goods by road (GTA), advocate services, sponsorship, director etc)
- Section 9 (4) of the CGST Act – Domestic RCM (i.e. supplies by un-registered dealer) is deferred till 30.09.2019. Also, amendment is made in section 9 (4) of CGST Act to restrict the applicability of the provision to a notified class of registered persons and not to all registered persons.
RCM leads to increase in the compliance burden for the recipient [as receiver has to pay GST under RCM, reflect the same in returns, prepare invoice as well as payment voucher].
- GST is payable as per time of supply
The liability to pay CGST / SGST arises at the time of supply as determined for goods and services. In this regard, separate provisions prescribe what time of supply for goods and services is.
The provisions prescribe payment of GST on supply of goods or services at the earliest of date of issuance of invoice or prescribed last day by which invoice is required to be issued or date of receipt of payment.
Given that there could be multiple parameters in determining ‘time’ of supply, maintaining reconciliation between revenue as per financials and as per GST is a major challenge to meet for businesses.
By way of Notification No. 66/2017-CT, all supplier of goods (and not services) can pay GST on raising of invoices1. Hence, now GST is not payable at the time of receipt of advance on supply of ‘goods’. However, in case of advance received for supply of services, GST is payable.
- Determining Place of Supply could be the key
An intra-State supply of goods attracts Central GST and State GST whereas an inter-State supply attracts IGST. Thus, it is crucial to determine whether a transaction is an ‘intra-State’ or ‘inter-State’ as taxes are applicable accordingly.
In this regard, the GST law provides separate provisions which help an assessee determine the place of supply for goods and services. Typically, for ‘goods’ the
place of supply is location where the good are delivered. Whereas for ‘services’, the place of supply is location of recipient.
However, the IGST Act prescribes multiple scenarios (at section 10, 11, 12, 13, 14 and 16) such as supply of services in relation to immovable property, services to and by SEZ etc. wherein this generic principle is not applicable and specific provisions to determine the place of supply prevail. Thus, businesses need to scroll through all the place of supply provisions before determining the place of supply.
A specific provision in the GST Law, in cases of wrong payment of GST, for automatic inter-Governmental adjustment, would be welcome.
- Valuation in GST
GST is payable on the ‘transaction value’. Transaction value is the price actually paid or payable for the said supply of goods and/or services between un-related parties and price is the sole consideration.
The transaction value is also said to include all expenses in relation to sale such as packing, commission etc. Even subsidies linked to supply, excluding Government subsidies is includable.
However, discounts/ incentives given before or at the time of supply are permissible as deduction from transaction value. As regards discounts given after supply is made, the same is permissible as deduction subject to fulfillment of prescribed conditions.
It is pertinent to note that Rule 27 to 35 of CGST Rules deal with Valuation.
- Input tax credit in GST
Section 16 and 17 of CGST Act and Rule 36 to 45 of CGST Rules deal with Input Tax Credit. Typically, credit of input tax charged to registered person.
Section 16 (2) of the Act, prescribes following four conditions to claim credit:
(a) He is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other taxpaying documents as may be prescribed
(b) He has received the goods or services or both
(c) subject to the provisions of section 41 or section 43A, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and
(d) He has furnished the return under section 39:
Out of the four aforesaid conditions, two conditions i.e. (c) and (d) appear to be un-justified as the recipient gets burdened with the responsibility of ensuring whether GST has been paid to the Government or not.
Further, to continue to claim the input tax credit the buyer needs to ensure that he pays the supplier within 180 days from date of invoice1. If payment to vendor is not made within 180 days, then proportionate input tax credit will have to be reversed and availed again on payment to vendor.
Section 17 (5) provides that input tax credit will not be available on following:
- Motor vehicle and other conveyances
- Employee related (such as beauty treatment etc)
- Works contract unless for further supply of works contract services
- Composition supplies
- Goods / services used for personal use
- Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
- Any tax paid in accordance with provisions of sections 74, 129 and 130
- GST legislation
In GST regime, there is one CGST Act and 31 SGST Act (one for each of the States including two Union Territories), one UTGST Act (for 5 UTs) and one IGST Act governing inter-State supplies of goods and services. Also, there is a separate Compensation Act for cess.
- Anti-profiteering provisions
Through section 171 of CGST Act, India introduced anti-profiteering measure to ensure that the benefits arising out of the GST regime are passed on to consumers. In this regard, Rule 122 to 137 of CGST Rules deal with Anti-profiteering.
However, neither CGST Act and nor CGST Rules do not lay down method to compute anti-profiteering benefits.
- Key procedural provisions
The CGST Rules were notified Vide. Not. No. 3/2017-CT1 (from 22nd June 2017) and 10/2017-CT (from 1st July 2017) and over the period of time have been amended more than 20 times.
- Time limit for adjudication
Time limit for adjudication of generic cases (i.e. other than fraud, suppression etc.) is three years and in fraud, suppression etc. cases is five years.
- Continuation of few earlier provisions
Most of the current provisions such as reverse charge, tax deduction, pre-deposit, prosecution, arrest etc. are continuing in the GST law.
GST Rates List
GST stands for Goods and Services Tax. It is classified into three types:
CGST –Central GST
SGST –State GST
IGST –Integrated GST
Finance Minister Arun Jaitley said that the government wanted to keep the GST rates close to the original rates. But there were differences in case of some items because of the changes in the economy as well as customer preferences. Some commodities were kept in the high tax bracket (18-28%) but on scrutinizing the list, they found that these commodities should be considered as necessities and not luxuries. This is why the GST rates were revised for commodities such as notebooks, exercise books, spectacles and lenses and some other items.
GST Tax Rates on some common items
|5%||Household necessities such as edible oil, sugar, spices, tea, and coffee (except instant) are included. Coal , Mishti/Mithai (Indian Sweets) and Life-saving drugs are also covered under this GST slab|
|12%||This includes computers and processed food|
|18%||Hair oil, toothpaste and soaps, capital goods and industrial
intermediaries are covered in this slab
|28%||Luxury items such as small cars , consumer durables like AC and Refrigerators, premium cars, cigarettes and aerated drinks , High-end motorcycles are included here.|
Though edible items like sugar, tea and coffee are included in the 5% slab, milk does not attract any tax under the new GST regime. The idea behind this is to ensure that basic food items are available for everyone but instant food is kept out of this category.
Basic household items like toothpaste and hair oil, which currently attract 28% tax, will be taxed at 18% only.
Sweets will also be taxable at 5%.
Tax rates on coal has also been reduced from 11.69% to just 5% in order to relieve the pressure on power industries.GST also gives a major push to domestic industries as they will be able to procure seamless input credit for capital goods. Make in India campaign is set to flourish after this reform.
GST Rates on Goods
The government has proposed a 4-tier tax structure for all goods and services under the slabs- 5%, 12%, 18% and 28%. After the recent revision of GST rates, these are the commodities that fall under the four tax slabs along with those that do not attract any tax. Please note that only those commodities are included in this list whose rates have been revised in various council meetings.
Let us have a look at various products and the tax slab in which they fall into :
Apart from other items that enjoy zero GST tax rate, these are the commodities added to the list after 11th June rate revision –
- Hulled cereal grains like barley, wheat, oat, rye, etc.
- Bones and horn-cores unworked and waste of these products.
- Palmyra jaggery
- All types of salt
- Dicalcium Phosphate (DCP) of animal feed grade conforming to IS specification No. 5470 :2002
- Kajal [other than kajal pencil sticks]
- Picture books, colouring books or drawing books for children
- Human hair – dressed, thinned, bleached or otherwise worked
- Sanitary Napkins
- Unit container-packed frozen branded vegetables (uncooked/steamed)
- Vegetables preserved using various techniques including brine and other preservatives that are unsuitable for immediate human consumption.
- Music Books/manuscripts
5% Tax Slab
Given below are the items that have been added to the 5% GST tax rate slab along with the other existing items-
- Cashew nuts/cashew nuts in shell
- Ice and snow
- Bio gas
- Coir mats, matting and floor covering
- Pawan Chakki that is Wind-based Atta Chakki
- Postage or revenue stamps, stamp-postmarks, first-day covers, etc.
- Numismatic coins
- Braille paper, braille typewriters, braille watches, hearing aids and other appliances to compensate for a defect or disability
- Fly-ash blocks
- Walking sticks
- Natural cork
- Marble rubble
- Accessories/parts for carriages designed for differently-abled individuals
12% Tax Slab
After the GST council meeting on 11th June, the following items were added to the 12% GST rates category-
- Preparations of vegetables, fruits, nuts or other parts of plants, including pickle, murabba, chutney, jam, jelly
- Ketchups, sauces and mustard sauce but excluding curry paste, mayonnaise and salad dressings, mixed condiments and mixed dressings
- Bari made of pulses including mungodi
- Menthol and menthol crystals, peppermint, fractionated/de-terpenated mentha oil, dementholised oil, Mentha piperita oil and spearmint oil
- All diagnostic kits and reagents
- Plastic beads
- Exercise books and note books
- Glasses for corrective spectacles and flint buttons
- Spoons, forks, ladles, skimmers, cake servers, fish knives, tongs
- Fixed Speed Diesel Engines
- Two-way radio (Walkie talkie) used by defence, police and paramilitary forces etc.
- Intraocular lens
- Corrective spectacles
- Playing cards, chess board, carom board and other board games, like ludo, etc.
- Debagged/roughly squared cork
- Items manufactured from natural cork
- Agglomerated cork
18% Tax Slab
- The items mentioned below have been added to the 18% GST tax rate slab among the other existing items-
- Kajal pencil sticks
- Dental wax
- Plastic Tarpaulin
- School satchels and bags other than of leather or composition leather; toilet cases, Hand bags and shopping bags of artificial plastic material, cotton or jute; Handbags of other materials excluding wicker work or basket work
- Headgear and parts thereof
- Precast Concrete Pipes
- Salt Glazed Stone Ware Pipes
- Aluminium foil
- All goods, including hooks and eyes
- Rear Tractor tyres and rear tractor tyre tubes
- Rear Tractor wheel rim, tractor centre housing, tractor housing transmission, tractor support front axle
- Weighing Machinery other than electric or electronic weighing machinery
- Printers other than multifunction printers
- Ball bearing, Roller Bearings, Parts & related accessories
- Transformers Industrial Electronics
- Electrical Transformer
- Static Converters (UPS)
- CCTV including CCTV with video recorders
- Set top Box for TV
- Computer monitors not exceeding 17 inches
- Electrical Filaments or discharge lamps
- Winding Wires, Coaxial cables and Optical Fiber
- Perforating or stapling machines (staplers), pencil sharpening machines
- Baby carriages
- Instruments for measuring length, for use in the hand (for example, measuring rods and tapes, micrometers, callipers)
- Bamboo furniture
- Swimming pools and paddling pools
- Televisions/Monitors (upto 32 inches)
- Power banks powered by Lithium-ion batteries
- Sports goods, games consoles and related items with HS code 9504
- All items with HS code 8483 including gear boxes, transmission cranks and pulleys
- Used or retreaded pneumatic rubber tires
28% Tax Slab
The council meeting was held to ‘reduce’ the tax rates on certain items based on customer preferences. Hence, no additional items were added to the highest GST rates slab of 28%.
*The GST rates for various products are subject to change from time to time without prior information.
GST Rates on Services
Government has also impose GST on Services with the same 4-tier tax structure as of goods. GST rates on services comprising of 5%, 12%, 18% and 28% comes with various pros and cons for the consumers. However, government has exempted healthcare and educational services from the purview of the GST.
The Goods and Services Tax council has passed the rate slabs at NIL, 5%, 12%, 18%, 28%. Some of the services categorized under different slabs are mentioned below :
Chargeable services offered on Basic Savings Bank Deposit (BSBD) account opened under the PMJDY (Pradhan Mantri Jan Dhan Yojana)
5% Tax Slab
Railways-Transportation of goods, passengers
Goods transported in a vessel from outside India
Renting a motor cab without fuel cost
Transport services in AC contract/stage or radio taxi
Transport by air (scheduled)/air travel for purpose of pilgrimage via chartered/non-scheduled flights
Tour operator services
Leasing of aircrafts
Print media ad space
Working for printing of newspapers
12% Tax Slab
Rail transportation of goods in containers from a third party other than Indian Railways
Air travel excluding economy
Food /drinks at restaurants without AC/heating or liquor license
Renting of accommodation for more than Rs.1000 and less than Rs.2500 per day
Chit fund services by foremen
Construction of building for the purpose of sale
IP rights on a temporary basis
Movie Tickets less than or equal to Rs. 100
18% Tax Slab
Food/drinks at restaurants with liquor license
Food /drinks at restaurants with AC/heating
Renting for accommodation for more than Rs.2500 but less than Rs.5000 per day
Supply of food, shamiyana, and party arrangement
Circus, Indian classical, folk, theatre, drama
Supply of works contract
Movie Tickets over Rs. 100
28% Tax Slab
Entertainment events-amusement facility, water parks, theme parks, joy rides, merry-go-round, race course, go-carting, casinos, ballet, sporting events like IPL
Race club services
Food/drinks at AC 5-star hotels
Accommodation in 5-star hotels or above
GST on Loans and Advances
Earlier Service Tax was levied on Loans which has now been replaced by GST which would now be levied on loans. The rate of Service Tax was 15% whereas the rate of GST is 18%. A lot of people are of the opinion that the effective cost of having a loan would increase as the rate of GST is 3% higher than the rate of Service Tax. Several people are of the opinion that their EMI’s would increase as the rate has been increased by 3%. However, this is not the case as GST is not levied on repayment of loan or on payment of Interest on Loan.
GST is only levied on the processing charges and any other charges paid to the bank excluding the principal repayment and interest payment. These other charges include the Loan Processing Fees, Loan Prepayment Charges and other charges, if any. As a major chunk of the loan repayment comprises of principal repayment and interest payment, the impact of GST on Loans would be very negligible. The impact of GST on Home Loans and Personal Loans has been explained below for a much better understanding of the impact.
Mentioned below are the important loans and their GST rates:
(a) Personal Loan– 18%
(b) Home Loans– 18%
(c) Car Loan– 18%
GST on Cars
Subsequent to bringing cars under the GST regime, the GST rate on cars has been fixed at 28% for all personal use vehicles featuring a petrol or diesel driven engine. However, in addition to GST, a composition cess is also applicable to cars over and above the GST Rate. Thus the overall tax rate applicable to vehicles under GST ranges from 29% to 50%. Lower rates of taxation are however applicable to cars driven by cleaner technologies such as fuel cells (including hydrogen fuel cell) and electric vehicles. Know more about GST on cars
GST on Gold
Subsequent to introduction of GST on items made from gold such as gold jewelry, the current GST rate on gold is 3%. However, a 5% GST rate is applicable to making charges applied to gold jewelry in case the manufacturing is outsourced to a job worker. This can however, be charged as input tax credit (ITC) by the jeweler and only a 3% GST charge is applied to the final bill paid by the purchaser of gold jewelry items. Know more about GST on Gold and impact of GST on the gold industry
GST On Real Estate
GST is applicable to real estate purchases only if you are purchasing an under construction property. The GST rate applicable to such commercial or residential transactions is 12% till 31st March 2019. From 1st April, the applicable GST Rates on residential real estate will be 5% for non-affordable housing properties and 1% for affordable housing properties. No GST is applicable in case you are purchasing a ready to move in property. Additionally, different GST rates are applicable to various building materials used in the construction of houses/flats. This can range from 5% (sand, marble rubble, etc.) to 28% (cement, etc.). Know more about GST impact on real estate in India
GST on Food
Food items especially fresh food mostly carry a Nil GST rate. However, packaged food stuff and semi-processed/processed foods do feature GST rates starting from 5% up to 18%. While no food stuff are currently included in the highest 28% GST bracket, the 18% rate of GST is applicable to some common food products such as chocolates as well as baked goods such as cakes. Know more about applicable GST on Food
Upcoming products in GST Rates Slab
The Government is going on with some new tactics to bring in some of the products under GST system. As hinted by Finance Minister, Arun Jaitley, there could be an inclusion of products under GST with the reduction of GST rates on some products. Major products which can come under GST rates slab includes :
Petroleum products- Petrol and Diesel
Total Revisions in GST Rates
Till date, there has been 32 GST council meetings till January 2019 in which the council has recommended various relief measures regarding GST rates on goods and services. GST Council Meeting is chaired by the Finance Minister providing clarification and recommendation regarding various changes made in the GST rates of the goods and services.
Amendments in GST Act
Various critical amendment in CGST Act, IGST Act and Compensation to States Act is effective from 1st February 2019. Few amendments are procedural in nature, few have far reaching impact and few others are tax-friendly measures (don’t forget that elections are approaching fast!). Lets decode these proposed amendments.
- Supply – Critical amendment
As per section 7 of CGST Act, ‘supply’ includes the activities to be treated as supply of goods or supply of services as referred to in Schedule II. This inclusive clause was leading to an interpretation that where an activity listed in Schedule II would be deemed to be a supply even if it does not constitute a supply as per section 7 (1) (a) or (b) or (c) of CGST Act.
Now, through a new sub-clause (1A) to section 7 of CGST Act, its proposed that certain activities or transactions, when constituting a supply in accordance with the provisions of sub-section (1), shall be treated either as supply of goods or supply of services as referred to in Schedule II.
- Import by ‘person’ made liable
At present, import of services by ‘taxable person’ from a related person is liable for GST (sr. no. 4 of Schedule I of CGST Act). Thus, in case an entity was un -registered then GST liability may not have triggered. Given this, the term ‘taxable person’ is proposed to be substituted by ‘person’ to ensure that GST liability is triggered in these cases.
- No GST on ‘out of scope’ supplies
Clarity was alluding for out of scope supplies i.e. cases where a person in India procures goods (say from China) and supplies the same directly (say to USA). Recently, in the advance ruling of BASF India Ltd (2018-TIOL-82-AAR-GST) the advance ruling authority stated that these kind of transaction will not attract IGST, however, it was also stated that no credit of GST paid will be available as these transactions will qualify as ‘exempt supplies’.
Now, ‘out of scope’ supply (i.e. (supply from non-taxable territory to another non-taxable territory) is sought to be excluded from the GST net (by including it in Schedule III of CGST Act). Further, it is proposed to allow availment of ITC in case of out of scope supplies. This amendment is certainly welcome and is in line with VAT provision across the world.
- No dual levy of GST on high seas sale
In case of supply of goods as high seas sales and sale of warehoused goods, before being cleared for home consumption, IGST was being levied twice, once at the time of import and second time, on clearance for home consumption. Through a Circular clarity was provided that dual levy will not be applicable in such cases. Now, this ambiguity is set to rest by covering the same is Schedule III of CGST Act.
- Ambit of URD RCM curtailed
One of the highly debated provision in GST regime was domestic reverse charge mechanism (RCM) in case of supplies by un-registered vendor to registered vendors. Since 13th October 2017, this domestic RCM provision is suspended till 30th September 2018.
Now, it appears that this RCM is proposed to be made applicable only for a certain notified class of registered persons (and not all registered persons). This amendment will be welcomed by lucky taxpayers, who would be excluded from the clutches of this RCM. However, the un-lucky ones will still bear the brunt of this provision and its compliance. Certainly, this amendment proves the proverb that all taxpayers are equal in the eyes of law and others are more equal!
- ITC denied/ allowed
Input tax credit is not available in respect of food and beverages, health services, travel benefits to employees etc. Now, in cases where it is obligatory under any law for an employer to provide these facilities to its employees, it is proposed to be provided that the input tax credit in such cases shall be available. This is a welcome amendment and will bring relief to factories, IT, BPO sector etc.
Additionally, the credit on motor vehicles above capacity of 13 passengers would be available i.e. credit on bus, van etc will be available. Also, amendment specifically states in cases where input tax credit of procured motor vehicles, vessels and aircraft is not available then input tax credit will also not be available in respect of general insurance, servicing, repair and maintenance of them.
- SEZ can claim credit / refund of GST paid
At present, in cases of supply of goods/ services by a vendor to SEZ, refund is permissible to such vendor. Now, input tax credit is also available SEZ developer or SEZ unit.
- Consolidated DN/CN is permissible
At present, a credit/debit note which is issued by the registered person is required to be issued invoice-wise. Now, taxpayer can issue consolidated credit/debit in respect of multiple invoices issued in a financial year without linking the same to individual invoices.
- Returns process revamped
GST return filing process will be revamped from 1st April 2019 (initially on trial basis). Thus, to enable and provide a specific provision, a new section is being introduced (section 43A) to provide for new mechanism / procedure for furnishing details of tax invoices, for availing of input tax credit by the recipient, its verification etc.
- Appeal pre-deposit amount capped
Presently, the appellant is required to pay a sum equal to 10 per cent of the tax in dispute and 20 per cent (in addition to the amount paid), before the Appellate Authority and Appellate Tribunal respectively. This section is being amended to provide a ceiling of INR 25 crore and 50 crores respectively.