INTRODUCTION OF GST

GST was first levied by France in 1954. Malaysia is the most recent country to introduce GST in their country. In countries where GST has been adopted, manufacturers, wholesalers, retailers and service providers charge GST at the specified rates on price of the goods and services from consumers and claim ITC for GST paid by them on procurement of goods and services.

GST is one of the biggest taxation reforms in India aiming to integrate State economies and boost overall growth by creating a single, unified Indian market to make the economy stronger. It is a comprehensive destination and consumption based indirect tax, levied on goods as well as services at the National level. Its main objective is to consolidate multiple indirect tax levies into a single tax thus subsuming an array of tax levies, overcoming the limitations of existing indirect tax structure, and creating efficient tax administration. It is a comprehensive tax regime covering both goods and services, and be collected on value added at each stage of the supply chain. Further there is a provision of ITC i.e. GST paid on the procurement of goods and services can be set off against that payable on the supply of goods and services. GST is a national level tax based on value added principle just like State level VAT. The essence of GST is in removing the cascading effects of both Central and State taxes by allowing setting off of taxes throughout the value chain , right from the original producer and service provider’s point upto the retailer’s level.

In December 2014, the constitution (122) amendment bill, 2014 for amending the constitution so as to introduce GST and to subsume State VAT, octroi, entry taxes, luxry tax etc. was introduced in Lok Sabha by Finance Minister. Such bill was passed by Lok Sabha in May 2015 and in August 2016 by Rajya Sabha

Amendment of Article 366 (Definition): Article 366 covers various definitions. As per new clause 12A to Article 366:

“Goods & Service Tax” means any tax on supply of Goods or Services or both except taxes on supply of the alcoholic liquor for human consumption. The term service is also defined by inserting new clause 26A as, anything other than goods. The 122nd Constitutional amendment bill is already passed by Lok Sabha by 2/3rd Majority. Most of the parties are already supported the bill in Rajya Sabha also. Along with amendment in Constitution, to empower the Central and State Government to levy and collect the GST, four legislatures were given assent by President which are:

• The Central GST Act,2017
• The Integrated GST Act,2017
• The  GST (Compensation to States)Act,2017
• The Union Territory GST Act,2017

Chargeability and Meaning of GST

Goods and Service Tax is an Indirect, Consumption and Destination based Value Added Tax, levied by Government, under the provisions of Constitution of India, on Supply of Goods or Services or both at the rates specified by GST Council from time to time.

Advantages of GST

1.GST eliminates the cascading effect of tax

GST is a comprehensive indirect tax that was designed to bring the indirect taxation under one umbrella. It is going to eliminate the cascading effect of tax that was evident earlier. Cascading tax effect can be best described as ‘Tax on Tax’. Amalgamating several central and state taxes into a single tax will mitigate cascading or double taxation, facilitating a common national market. This would be hugely beneficial for consumers as the tax burden on inter-state logistics will be cheaper.

2. Simplicity

Goods and Service Tax (GST) will replace the existing form of indirect tax in the nation. It will prove a substitute for the 17 indirect laws pertaining to the nation and will subsidized it with the new GST Tax. That shall come across as a simpler term to envision. GST is a transparent tax and also reduces number of indirect taxes. A common tax would mean easy compliance and uniformity of tax rates and structures for industry and would thus contribute to ease of doing business by removing cascading costs.

For Central and State Governments, GST is expected to lead to easier administration and enforcement.

3. Higher Threshold for Registration

Earlier, in the VAT structure, any business with a turnover of more than Rs 5 lakh (in most states) was liable to pay VAT.  Also, service tax was exempted for service providers with a turnover of less than Rs 10 lakh. Under GST regime, however, this threshold has been increased to Rs 20 lakh (10 lakhs for NE States), which exempts many small traders and service providers.

4. Composition scheme for small businesses

Under GST, small businesses (with a turnover of Rs 20 to 75 lakh/1 crores) can benefit as it gives an option to lower taxes by utilizing the Composition scheme. This move has brought down the tax and compliance burden on many small businesses.

5. Boosting of Revenue

With the new GST in the nation, there won’t be more of an evasion as what is happening with the current tax laws. Such simpler term of taxation will make more suppliers in a mood to pay the tax amount which in turn marks the boost in revenue levels.

6. 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.

7. Lesser cost of Logistics and Inventory 

 As the GST tax will mark the end of 17 other indirect laws, there won’t be much of logistics and inventory costs as of now. Also, the slow movement across the state levels of goods carrier will be stopped with the transit speed increasing tenfold.

8. Quite an Investment Boost 

As is the norm with the current tax laws in India, there isn’t any input on capital goods. But with the new GST Tax laws, one can avail input tax credit on the capital goods. That way, the investment might surge up.

9. Number of compliances is lesser

Earlier, there was VAT and service tax, each of which had their own returns and compliances. Below table shows the same:

Under GST, however, there is just one, unified return to be filed. Therefore, the number of returns to be filed has come down. There are about 11 returns under GST, out of which 4 are basic returns which apply to all taxable persons under GST. The main GSTR-1 is manually populated and GSTR-2 and GSTR-3 will be auto-populated.

10.Defined treatment for E-commerce operators

Earlier to GST regime, supplying goods through e-commerce sector was not defined. It had variable VAT laws. For the first time, GST has clearly mapped out the provisions applicable to the e-commerce sector and since these are applicable all over India, there should be no complication regarding the inter-state movement of goods anymore.

11.Improved efficiency of logistics

Earlier, the logistics industry in India had to maintain multiple warehouses across states to avoid the current CST and state entry taxes on inter-state movement. These warehouses were forced to operate below their capacity, giving room to increased operating costs.

Under GST, however, these restrictions on inter-state movement of goods have been lessened.

Reduction in unnecessary logistics costs is already increasing profits for businesses involved in the supply of goods through transportation.

12. Unorganized sector is regulated under GST

In the pre-GST era, it was often seen that certain industries in India like construction and textile were largely unregulated and unorganized.

Under GST, however, there are provisions for online compliances and payments, and for availing of input credit only when the supplier has accepted the amount. This has brought in accountability and regulation to these industries.

13. Input Tax Credit:

The mechanism of input credit under GST is one of the most important features of GST. This means that at the time of paying tax on output, manufacturers or service providers, for example, can reduce their tax payable by the amount they have already paid on inputs. For example, if a manufacturer's total tax on output comes to Rs. 5,000 while tax paid on input (purchases) is Rs.3,000, the manufacturer needs to deposit only Rs. 2,000 (Rs. 5,000 - Rs. 3,000) as tax, thus reducing the overall incidence of tax on final product. Average tax burden on companies is likely to come down which is expected to reduce prices and lower prices mean more consumption.

14. 'One Nation, One Tax'

In the current regime, tax rates vary from state to state. So companies often choose warehouses for their inventory based on tax considerations. Under GST, the country will move to 'One Nation, One Tax' regime, giving companies freedom to set up their own warehouses to optimise cost and improve customer service.

15. Exports

GST could also boost exports by making Indian goods competitive in global markets. Exports will be treated as zero rated supplies which means no tax will be payable on exports of goods or services. However, exporters can claim input tax credit.

16. Simple to follow

For manufacturers or service providers, GST will help in ease of doing business. GST will bring in a simpler tax regime with fewer exemptions, reduce multiplicity of taxes, reduce compliance costs - no multiple record keeping for a variety of taxes, usher in simplified and automated procedures for various processes such as registration, returns, refunds and tax payments. All interaction needs to be through the common GSTN portal - so less public interface between the taxpayer and the tax administration.

17. GDP

Goods and Services Tax is seen boosting India's GDP or gross domestic product growth by 1.5-2 per cent over the long term. GST will deliver significant benefits by improved taxation efficiency and ease of doing business, and will convert India into one common market.

Disadvantages of GST

1. Increased costs due to software purchase

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.

2. Being GST-compliant

Small and medium-sized enterprises (SME) who have not yet signed for GST have to quickly grasp the nuances of the GST tax regime. They will have to issue GST-complaint invoices, be compliant to digital record-keeping, and of course, file timely returns. This means that the GST-complaint invoice issued must have mandatory details such as GSTIN, place of supply, HSN codes, and others.

3. GST will mean an increase in operational costs

As we have already established that GST is changing the way how tax is paid, businesses will now 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.

Also, businesses will need to train their employees in GST compliance, further increasing their overhead expenses.

4. GST came into effect in the middle of the financial year

As GST was implemented on the 1st of July 2017, businesses followed the old tax structure for the first 3 months (April, May, and June), and GST for the rest of the financial year.

Businesses may find it hard to get adjusted to the new tax regime, and some of them are running these tax systems parallelly, resulting in confusion and compliance issues.

5. GST is an online taxation system

Unlike earlier, businesses are now switching from pen and paper invoicing and filing to online return filing and making payments. This might be tough for some smaller businesses to adapt to.

6. 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.

REGISTRATION

Taxable Person under GST

A ‘Taxable Person’ under GST, is a person who carries on any business, at any place in India and who is registered or required to be registered under the GST Act. Any person who engages in economic activity including trade and commerce is treated as Taxable Person.

‘Person’ here includes- individuals, HUF, company, firm, LLP, an AOP/BOI, any corporation or Government Company, body corporate incorporated under laws of foreign country, co-operative society, local authority, Government, trust, or other artificial juridical person.

If a company is having four branches in different States, all the  branches will be considered as TP (Taxable person)  under each jurisdiction of SGs. For every branch office in different States, a fresh and separate registration is required. But the franchisor company need not take registration in other states where franchisees are located.

Place of registration:

The person has to take registration in the State from where taxable goods or services are supplied.

Time limit for registration

Person liable to take registration under this act shall be liable to take registration within thirty days from the date on which he becomes liable to registration. Input service distributor, registered in the erstwhile law is not required to re-register subject to the procedure to be followed by it as prescribed.

VALIDITY

The registration Certificate once granted is permanent unless surrendered, cancelled, suspended or revoked.

Who needs GST Registration?

Section 22:

The criteria for persons who should be registered under GST are provided under Chapter 6 of the GST Act. As per the GST Act, the following persons are required to obtain GST registration:

Aggregate Turnover Criteria

There is a threshold below which the person is not liable for registration and this threshold is based on Gross Annual Turnover, calculated on all-India basis including exports and exempted supplies turnovers. Any supplier of goods and/or services who makes a taxable supply with an aggregate turnover of over Rs.20 lakhs (now increased to 40 lakhs from financial year 2019-20 in case of goods but for services it is 20 lakhs) in a financial year is required to obtain GST registration. In special category States, the aggregate turnover criteria is set at Rs.10 lakhs.

Aggregate Turnover includes-

i) All taxable supplies,

(ii) All exempt supplies,

(iii) Exports of goods and/or service, and,

(iv) All inter-state supplies of a person having the same PAN

Special Category States under GST

Currently: Assam, Nagaland, Jammu & Kashmir, Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Uttarakhand, Tripura, Himachal Pradesh, and Sikkim are considered special category States.

Mandatory GST Registration Criteria

Some taxable persons who do not qualify for GST registration under the aggregate turnover criteria are required to mandatorily obtain GST registration, if they satisfy any of the following criteria:

Persons making any Inter-State taxable supply

Inter-State supply is supplying goods or services from one State to another. Hence, any taxable person who is involved in supplying goods or services to persons outside the State, is required to mandatorily obtain GST registration.

Casual Taxable persons making taxable supply

Casual taxable person is a person who occasionally undertakes supply of goods and/or services and has no fixed place of business. An example of a casual taxable person would be a fireworks shops setup during Diwali festival time, selling fireworks temporarily.

Persons who are required to pay tax under Reverse Charge Mechanism:

Under GST, for most goods and/or services, the liability for payment of tax rests with the supplier. However, in some cases, the liability to pay tax (GST) would rests with the recipient of the goods or services, instead of the supplier. Such transactions are called reverse charge. Hence, any person (recipient of goods or service) who is required to pay tax under reverse charge must mandatorily obtain GST registration.

Non-resident taxable persons making taxable supply

Non-resident taxable person is any person who occasionally supplies goods or services to recipients in India, but who has no fixed place of business or residence in India. All non-resident taxable persons are mandatorily required to obtain GST registration, irrespective of aggregate turnover criteria.

Persons who are required to deduct tax under GST

According to Section 51 of the GST Act, the Government may mandate a department or establishment of the Central Government or State Government or local authority or Governmental agencies or a category of persons to deduct tax at the rate of 1% from the payment made or credited to the supplier, where the total value under a contract, exceeds Rs.2.5 lakhs.  Such persons are required to mandatorily obtain GST registration and are referred to as “deductor”.

Person who is required to collect tax at source

Such persons are also required to register compulsorily.

Persons who make taxable supply of goods or services on behalf of other persons like agents

Any person who makes a taxable supply of goods or services on behalf of other persons would include agents, brokers, dealers, etc., Such persons are required to mandatorily obtain GST registration.

Input Service Distributor

Input Service Distributor means a supplier of goods or services which receives tax invoices for the receipt of input services and issues a prescribed document for the purposes of distributing the credit of Central Tax, State Tax, Integrated Tax or Union territory Tax paid on the said services to a supplier of taxable goods or services.

Electronic Commerce Operator

Electronic commerce is the supply of goods or service, including digital products over digital or electronic network. An electronic commerce operator is any person who owns, operates or manages digital or electronic facility or platform for electronic commerce. All electronic commerce operators are mandatorily required to obtain GST registration, irrespective of turnover.

Person supplying online information and database access or retrieval services (OIDAR)

Any person supplying online information and database access or retrieval services from a place outside India to a person in India is required to obtain GST registration. Online information and database access or retrieval means
providing data or information, retrievable or otherwise, to any person, in electric form through a computer network.

Persons who supply goods or services through electronic commerce operators

Some persons who supply goods or services through electronic commerce operators, other than supplies where the electronic commerce operator is required to collect tax at source on behalf of the supplier is mandatorily required to obtain GST registration.

Persons Having Service Tax or VAT or Central Excise Registration

All person who, on the day immediately preceding the appointed day is having a service tax or VAT or central excise license under an existing law is required to be registered under GST. Hence, migration to GST is mandatory for all taxable persons having an existing registration.

Who is not required to Obtain GST Registration (Section 23):

Any person who is engaged exclusively in the business of supplying goods or services that are not liable to tax under GST or wholly exempt from tax under GST is exempt from obtaining GST registration.

Also, an agriculturist, to the extent of supply of produce out of cultivation of land is exempt from obtaining GST registration. Under GST, agriculturist means an individual or a Hindu Undivided Family who undertakes cultivation of land:

By own labour, or

By the labour of family, or

By servants on wages payable in cash or kind or by hired labour under personal supervision or the personal supervision of any member of the family;

Voluntary Registration:

Even if a person is not liable to be registered, he may get himself registered voluntarily and all provisions of Act as are applicable to registered taxable person shall apply. It is allowed even in below threshold cases. There is no difference between voluntary and regular registration.

Suo Moto Registration:

The officers are empowered to suo moto grant temporary registration to a person if after survey, enquiry, inspection , search or other proceedings under this Act, it is found that such person is liable to registration under this Act but has failed to apply for registration and within 30 days from the date of grant of temporary registration, the concerned person has to apply for formal registration.

Transferee or Successor of a Business

Any person who is a transferee or a successor of a business, that was carried on by a persons registered under GST is required to be registered under GST with effect from the date of such transfer or succession.

Persons dealing only in exempted goods & Export supplies:

• If a person is dealing in NIL rated goods, there is no requirement of registration even for interstate supplies. But if he get himself registered, then he need to file returns.
• Since, exports are zero rated, one needs to register under GST to claim refund.

Advantages of Registration

• Legally recognized as ‘supplier’ of goods or services.
• Proper accounting of taxes paid on the input goods or services (ITC) which can be utilized for payment of GST due on supply of goods or services or both by the business. So, to claim rebate of ITC, registration is required.
• Legally authorized to collect tax from his purchasers and pass on the credit of the taxes paid on the goods or services supplied to purchasers or recipients. An unregistered person can neither collect GST from customer nor claim ITC of GST paid by him.
• Getting eligible to avail various other benefits and privileges rendered under the GST laws.

 A person is operating in different states, with the same PAN number,
 Every person who is liable to take a Registration will have to get registered separately for each of the States where he has a business operation and is liable to pay GST in terms of Sub-section (1) of Section 22 of the CGST/SGST Act.

A person having multiple business verticals in a state

A person having multiple business verticals in a State may obtain a single/separate registration for each business vertical, subject to such conditions as may be prescribed.