Mr. Subodh, a businessman dealing in manufacturing of plastic bottles, was sitting in his chamber, his head bowed low over a booklet called ‘FAQ on Goods and Service Tax’ and looking thoroughly disappointed and twirling his moustache impatiently. The more he read, the more confused he seemed to get. Unable to take it anymore, he shut the book and slammed it on the table angrily. Just then, the door opened and came in his friend, Kushal, who was a Chartered Accountant.
“Hey, Subodh, what’s up?” Kushal asked with concern seeing the agitation of his friend.
“Tough times are upon us, Kushal,” Subodh replied bitterly, “Our nation is witnessing mighty winds of revolution in very wake of economy as never before. And who are the sufferers? It’s we, the common people, our business and industry!”
“Sufferers?” Kushal asked, perplexed, “C’mon! I thought you would say -Benefiters”!
“Yes, Sufferers!” Subodh retorted, his moustache twitching angrily. He grabbed the GST booklet and said “See this. The Government showed us false hopes. We were expecting GST to be simpler! Hah! And what we got? A 276 page FAQ? It’s so damn big, full of torturous terminologies!”
Kushal burst out laughing. A complete one minute of laughter and then he hiccoughed himself back to normalcy, “Haaa! Subodh! You couldn’t have been funnier! You are judging the simplicity of GST with the pages of this booklet! C’mon, I know you don’t read books, but I can assure you one thing, buddy. GST’s gonna change the world and your lives for the Greater Good! Okay, I’ll acquaint you about the basics of GST in layman language and not in any technical jargon! Alright?”
“Fire it on!” Subodh urged.
“Allow me to cheer you up!” Kushal said, “Tell me, what type of indirect taxes you are paying in present?”
“Many kinds of taxes; more than the fingers on my both hands!” Subodh replied, “Excise, Service Tax, VAT, CST, Entry Tax, Octroi, Professional Tax, Customs - ”
“Stop right there!” Kushal said, “Now you don’t have to memorize all of them at your fingers. Only one finger will do and that’s – GST!”
Subodh looked dumbfounded.
“Oh, yes!” Kushal resumed, “17 indirect taxes have been made as one - GST! Can you believe that?”
“Really?” Subodh asked uncertainly, “That means no more different procedures and forms?”
“Exactly!” Kushal said, “At present, there are different departments across the cities. Isn’t it? Sale Tax, Excise & Service Tax, Customs are situated at different corners of the city! Imagine, in the GST regime, all these departments will be integrated in one. It’s the finest example of simplicity!”
Subodh shook his head in disbelief and asked eagerly, “What about the cascading effect?”
“No more cascading effects.” Kushal smiled, “I’ll give you an example. In the present scenario, state Value Added Taxes are levied on the value inclusive of Excise duty. In other word, a tax is levied on tax, giving rise to the cost of the product and eventual rise in the price of the goods. Similarly, if you purchase a product from a different state, you have to pay CST. The credit of CST is not allowed to be deducted from the Output Sale Taxes. This is another cascading effect.
Fortunately, in GST, this has been done away with. With the introduction of GST oriented taxes namely- State GST (SGST), Central GST (CGST) and Integrated GST (IGST) – cascading effects are completely wiped off. On an overall economic perspective, the prices of the goods will come down like blessings from heaven!”
“It’s really a blessing!” Subodh lauded.
“Tell me, Subodh.” Kushal asked, “How many warehouses do you maintain?”
“I have warehouses in many states. The total would come to around 50! And now as you speak of it, the painful costs of these warehouses and logistics are no less than stabbing with a knife!” Subodh sounded sarcastic.
Kushal smiled, “What if I tell you, GST will cut down the cost of maintaining warehouses considerably?”
“Are you kidding?” Subodh gasped, leaning closer, “Tell me! I couldn’t wait to hear you!”
Kushal resumed, “Presently, for industries, the decision of how many inventories to maintain or where to maintain them is guided heavily by the concerns of tax avoidance. Most of the industries maintain warehouses in each state and union-territories to avoid the CST charged on crossing the border. They have a large number of smaller warehouses at various locations amounting to more than 50 or 60 small warehouses in some cases to avoid the multi-state tax scenarios, which increases the overall cost of logistics. Also, management of such small warehouses increases the cost and reduces the overall efficiency of the logistics players.
But since GST has subsumed all the indirect taxes and has completely wiped off the cascading effect, the tax burden will reduce and thus need to have such a fragmented warehouse system will decrease. This means, less cost of logistics and warehouses, increase in efficiency of logistic players and further decrease in the prices of goods!”
“That’s the superbly wow effect of GST, I haven’t even dreamed of!” exclaimed Subodh, looking as happy as if his birthday had come earlier. He asked eagerly, “Okay, Kushal, what about the procedures in GST: Returns, Payments, etc?”
Kushal responded, “Pursuant to integration, you don’t need to apply for different registrations. A single registration will suffice. The registration number is called GSTIN. You can either obtain a single GSTIN for all business outlets in a state held under same PAN or multiple GSTINs for each of them. However, GSTIN is a state wise registration. Meaning, if you have two business outlets – one in Assam and other in West Bengal – then two registrations have to be obtained.”
“Okay...” Subodh nodded, “Single registration is indeed a turning point. No more different procedures for Sale Tax, Service Tax, Excise and so on. But tell me one thing. In Assam and in some other states, you can fill an online for VAT registration and upload documents. The problem is – even if it’s an online form, you still have to take the form to departments and get it manually approved by the officials. The bitter truth is – in the process, you have to pay bribery and unaccounted money to the intermediaries. I must not say this. But truth is always a truth. It’s quite a hassle and time consuming process. What about GST?”
“Good question.” Kushal said appreciatively, “In GST, all such departmental and manual works has been done away with. Just fill up the online forms, upload the documents and get it approved online within 3 working days!
If during the process of verification, one of the tax authorities raises some query or notices some error, the same shall be communicated to the applicant and to the other tax authority through the GST Common Portal within 3 common working days. The applicant will reply to the query / rectify the error / answer the query within a period informed by the concerned tax authorities (Normally this period would be seven days). On receipt of additional document or clarification, the relevant tax authority will respond within seven common working days.”
“That’s indeed appreciative,” Subodh nodded, “And once it gets approved, do we have to go to department to fetch the certificate or they will dispatch us?”
“Even better than that!” Kushal responded, “You can simply download the GST Registration Certificate online from GST portal!”
Subodh was impressed and said, “Okay, tell me more about these returns and challans.”
Kushal continued, “See, there is threshold limit for applicability of GST. For North-Eastern states, the limit is Rs 20 lacs; for others, it is Rs 10 lacs. If you don’t cross the limit, you won’t come in GST regime. For calculating the exemption limit, aggregate turnover shall include the aggregate value of all taxable and non-taxable supplies, exempt supplies and exports of goods and/or services excluding taxes viz. GST.”
“But I am a manufacturer. Till now, I got SSI exemption under Central Excise for a limit up to Rs 400 lacs!” Subodh argued.
“Yeah, but you can still apply for Composition Scheme- the limit is Rs 50 lacs with various administrative benefits. The tax rate will be just 1%. Of course, in this, you cannot issue tax invoices or claim Input Tax Credit. The rules are generally the same as they are now.”
“Okay, so if I supply goods, say- Rs 7 lacs intra state & Rs 1 lac inter-state, then I will be exempted –
“Wait. There are exceptions to this exemption.
The following categories of persons shall be required to be registered compulsorily irrespective of the threshold limit:
a) persons making any inter-State taxable supply;
b) casual taxable persons;
c) persons who are required to pay tax under reverse charge;
d) non-resident taxable persons;
e) persons who are required to deduct tax under section 37;
f) persons who supply goods and/or services on behalf of other registered taxable persons whether as an agent or otherwise;
g) input service distributor;
h) persons who supply goods and/or services, other than branded services, through electronic commerce operator;
i) every electronic commerce operator;
j) an aggregator who supplies services under his brand name or his trade name; and
k) such other person or class of persons as may be notified by the Central Government or a State Government on the recommendations of the Council.”
Kushal resumed, “Returns are also very simple. GSTR1 has to be filed generally within 20th of next month. It will contain information like supplies made in a month, namely outward supplies to registered persons, outward supplies to unregistered persons (consumers), details of Credit/Debit Notes, zero rated, exempted and non-GST supplies, exports, and advances received in relation to future supply.
The most interesting feature is that you don’t have to feed in the “Inwards” details. They will be auto-populate!”
“C’mon, Kushal; speak English!” Subodh urged.
“Let me give you an example. This example is for B2B (Business to business) case. Mr. A is a supplier of goods; Mr B, another supplier, purchase goods from Mr. A. Now, Mr A will file GSTR-1(Outward supplies) with the details of supplies made during the month to Mr.B.
Now, when Mr. B will file his GSTR-2 (Inward supplies), he doesn’t have to feed the purchase details. The details of GSTR-1 filed by Mr. A will get imported in GSTR-2 of Mr. B automatically from the online portal.
“That’s a time-saving technique, they have introduced.” Subodh praised, “It will also facilitate matching of invoices, I guess?”
“Yes,” Kushal said, “Scanned copies of the invoices has to be uploaded, though in case of B2C or composition scheme, it is not required to be uploaded. Now, if the supplier has missed out any invoice or information, the recipient can himself feed the invoices not uploaded by his supplier. The credit on such invoices will also be given provisionally but will be subject to matching. On matching, if the invoice is not uploaded by the supplier, both of them will be intimated. If the mismatch is rectified, provisional credit will be confirmed. But if mismatch continues even after intimation, the credit provisionally allowed will be reversed.”
Subodh asked, “What if the invoices do not match? Whether ITC given or denied? If denied, what action is taken against supplier?”
Kushal replied, “If invoices in GSTR-2 do not match with invoices in counter-party GSTR-1, the ITC will be reversed if the mismatch continues even after it is made known to both and still it is not rectified.
Mismatch can be because of two reasons. First, it could be due to mistake at the side of the recipient, and in such a case, no further action is required. Secondly, it could be possible that the said invoice was issued by supplier but he did not upload it and pay tax on it. In such a case, recovery action shall be taken against the supplier. In short, all mismatches will lead to proceedings if the supplier has made a supply but not paid tax on it.”
“Do tax payers under the composition scheme also need to file GSTR-1 and GSTR-2?” Subodh queried, to which Kushal said, “No, my friend. And that’s the simplicity of it. They just have to file a quarterly return in Form GSTR-4 by the 1st of the month after the end of the quarter. Since they are not eligible for any input tax credit, there is no relevance of GSTR-2 for them and since they do not pass on any credit to their recipients, there is no relevance of GSTR-1 for them. In their return, they have to declare summary details of their outward supplies along with the details of tax payment. They also have to give details of their purchases in their quarterly return itself, most of which will be auto populated!”
“It’s getting quite interesting and simple. Tell me about the tax payments.”
Kushal said, “Payment of taxes by the normal taxpayer is to be done on monthly basis by the 20th of the succeeding month. Cash payments will be first deposited in the Cash Ledger and the taxpayer shall debit the ledger while making payment in the monthly returns and shall reflect the relevant debit entry number in his return. Payment can also be debited from the Credit Ledger. Payment of taxes for the month of March shall be paid by the 20th of April. Composition tax payers will need to pay tax on quarterly basis. Timing of payment will be from 0000 Hrs to 2000 Hrs.”
“GST has indeed introduced tech-savvy and simple procedures.” Subodh said.
Kushal took a deep breath and concluded, “Yes. There are lots in GST regime to talk about: E-Commerce, Job Works, ISD, Valuations, Time of Supply, Assessments, Audits, Refunds and much more. It’ll take whole day to delve into them. What I have told you are just the basics of GST which any business man should know about to get a fairer picture of what GST is all about.
Overall, you can say that GST’s gonna bring financial discipline and simplicity among the businesses. Many small dealers and manufacturers will have to introduce technologies and improve infrastructure for the better facilitation GST compliances. In short, GST will not only bring tax revolution in our nation but also a call for business restructuring at large. Especially the small dealers who are not well acquainted with latest Information technologies have to keep themselves abreast of latest tech and knowhow.
Well, so let’s hope for the best and prepare ourselves to capitalise the positive winds of GST!”
Note: The above is a succinct, layman’s guide to GST. I haven’t dived into the complexities of procedures and methods but simply presented in a way understandable to anyone.
The author can also be reached at casauravsomani@gmail.com
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