7 things you must know about GST

7 things you must know about GST

GST- 7 things you must know!

1. GST applicable on ‘supply’

In GST regime, all ‘supply’ such as sale, transfer, barter, lease, import of services etc of goods and/ or services made for a consideration will attract CGST (to be levied by Centre) and SGST (to be levied by State). As GST will be applicable on ‘supply’ the erstwhile taxable events such as ‘manufacture’, ‘sale’, ‘provision of services’ etc. will lose their relevance.

Further, certain supplies, even if made without consideration, such as permanent transfer of business assets, self-supply of goods or services, assets retained after deregistration etc will attract GST.

Interestingly, even a ‘barter’ of goods transaction which were hitherto un-taxed in VAT regime, will attract GST.

2. GST payable as per time of supply

The liability to pay CGST / SGST will arise at the time of supply as determined for goods and services. In this regard, separate provisions prescribe what will time of supply for goods and services. The provisions contemplate payment of GST at the earliest for:

1. ‘Goods’- Removal of goods or receipt of payment or issuance of invoice or date on which buyer shows receipt of goods

2. ‘Services– Issuance of invoice or receipt of payment or date on which recipient shows receipt of services

It can be observed that there are many parameters in determining ‘time’ of supply. Thus, determining the ‘time’ of supply and further maintaining reconciliation between revenue as per financials and as per GST rules could be a major challenge to meet.

3. Determining Place of Supply could be the key

At present inter-State supply of goods attract Central Sales Tax. Now, its provides that an inter-State supply of goods and/ or services will attract IGST (i.e. CGST plus SGST). Thus, it would be crucial to determine whether a transaction is a ‘intra-State’ or ‘Inter-State’ as taxes will be applicable accordingly. In this regard, the draft GST law provides separate provisions which will help an assesse determine the place of supply for goods and services.

Typically for ‘goods’ the place of supply would be location where the good are delivered. Whereas for ‘services’ the place of supply would be location of recipient. However, there are multiple scenarios such as supply of services in relation to immovable property etc wherein this generic principle will not be applicable and specific rule will determine the pace of supply. Thus, the business will have to scroll through all the place of supply provisions before determining the place of supply.

4. Valuation in GST

GST would be payable on the ‘transaction value’. Transaction value is the price actually paid or payablefor the said supply of goods and/or services between un-related parties. The transaction value is also said to include all expenses in relation to sale such as packing, commission etc. Even subsidies linked to supply will be includable. As regards discounts/ incentives, it will form part of ‘transaction value’ if it is allowed after supply is affected. However, discounts/ incentives given before or at the time of supply will be permissible as deduction from transaction value.

The law also provides for Valuation Rules to help determine value in certain cases. The Valuation Rules appear to be drafted by taking few provisions from current Valuation provisions in vague in Excise (for e.g. concept of ‘transaction value’), Service Tax (for e.g. concept of ‘pure agent’) and Customs (for e.g. concept of ‘goods of like kind and quality’).

5. Input tax credit in GST

Current CENVAT Credit regime disallows CENVAT Credit on various services such as motor vehicle related services, catering services, employee insuranceconstruction of civil structure etc. Similarly, State VAT laws restrict input tax credit in respect of construction, motor vehicle etc. Current, this denial of credits leads to un-necessary cost burden on assesse.

It was expected that in GST regime, seamless credit will be allowed to business houses without any denial or any restrictions except say goods/services which are availed for personal use than official use (something similar to Unite Kingdom VAT law).

However, surprisingly, inter-alia, aforesaid credit would continue to be not available (in respect of both goods or services). Further, credit is proposed to be denied on goods and/or services used for private orpersonal consumption, to the extent they are so consumed. This continuation of denial will lead to substantial tax cascading (as rate of GST will be higher than the current rate of service tax!). Also, another round of litigation as interpretation issues will crop up while determining eligibility or otherwise of GST paid on personal consumptions such as business lunch with clients.

6. Inter-State supply of goods for consideration to attract additional tax

Draft GST law provides that an additional tax upto 1% will be levied by Centre on inter-State supply ofgoods (and not on services) made for consideration. Thus, effectively inter-State branch transfers will not attract this 1% additional Tax. This additional tax will be assigned to States from where the supply of goods originates. This additional tax will be applicable for a period of two years and could be extended further by GST Council.

The credit of this additional levy will not be available as thus it will be a cost in the supply chain.

7. There would be 33 GST laws in India

In GST regime, there will be one CGST law and 31 SGST law for each of the States including two Union Territories and one IGST law governing inter-State supplies of goods and services.

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