An Overview of the Goods and Services Tax.
The Goods and Services Tax (G.S.T.) is a landmark step taken by the Government of India to boost the GDP and introduce a more effective tax regime.
GST is a win-win situation for the entire country. It brings benefits to all the stakeholders of the industry, government and the consumer. It will lower the cost of goods and services to give a boost to the economy and make the products and services globally competitive. By subsuming most of the central and state taxes into a single tax and by allowing a set-off of prior-stage taxes for the transactions across the entire value chain, it would mitigate the ill effects of cascading and improve competitiveness and liquidity of the businesses.
GST will be applicable to all dealers whose aggregate turnover in a financial year exceeds INR 2.00 Million (INR 1.00 Million in case of eleven special category states). Separate registration will be required in every state from where a taxable supply of goods or services is made.
This article covers below some of the peculiar provisions of GST having a crucial impact on the industry and provides an insightful perspective regarding the same.
If the supplier is not registered under GST and is supplying taxable goods or services to a recipient who is registered, the GST on such taxable supplies shall be borne by the recipient on reverse charge basis. Meaning registration seems to be mandatory for every party; else it is quite possible that owing to extra compliance issues people might be interested in doing business only with those parties who are registered under the GST legislation. With few days left with GST coming into force , this registration parameter might create a big time hassle among small trader’s as they might lose some business until they get registered under GST. Thus, in order to counter this issue, a monetary threshold limit in place will act as a cushion for such small business houses till the time they come fully under the ambit of GST compliance.
Under the current tax laws North East, Uttarakhand and Himachal Pradesh have certain areas exempted from excise duty and other state taxes. Department of Industrial Policy and Promotion is working on a scheme where companies will have to pay tax upfront and can claim refund of the same in the areas stated above. Taxes paid also can be claimed as set off against any liability. The industry wants clarity on policy and time for adjustment. It is keen on availing smooth and hassle free refunds.
Intra-company transactions are proposed to be taxed under GST. Any secondment of employees, sharing of common expenses between related companies would be taxed. Though, the receiving entity would be entitled to avail credit of tax charged by the supplying company, this would result in the requirement of additional working capital for all such companies.
From some peculiar provision under the GST Act, GST on advance payment is one. In the present situation except service tax no other law requires to pay tax on advances. Now the taxpayer will have to pay GST on the advancement of goods and services in GST. After giving advance to the supplier the buyer will not get the credit of GST. Whenever the supplier supplies goods or services and gives the tax invoice to the receiver then only the buyer will get the credit of GST. If the rates can’t be ascertained at the time of taking advance, then GST will be charged @ 18%. The money will be blocked for during this time until the supply is completed. Similarly, the supplier will charge GST on the remaining amount by deducting the advance from the total amount. Every small or large business will have to pay attention towards accounting and must be compliant with the law. Accounting software’s need to be upgraded to charge tax based on receipt invoice.
While GST is yet to come into effect, it will evolve post implementation. Further, though clarity on various critical issues affecting the industry are still unanswered, the benefit to the economy cannot surely be undermined.