Basic Overview on GST

Introduction

Introduction of Goods & Service Tax (GST) in India required an amendment in the Constitution to bring concurrent powers to both the Central & State Government so that both the Government could make law & impose GST on transaction of supply of Goods and Services. For this, The Constitutional (One Hundred and Twenty Second Amendment) Bill, 2014 introducing GST received the assent of the President on 8th September, 2016 and the same has been notified as the Constitution (101st Amendment) Act, 2016.

The Draft Model GST Law was placed on Public portal by Government of India on 14th June, 2016 inviting various comments and suggestions and once again Government placed Revised Model GST Law on 25th November, 2016 with the clear intention of implementing GST by April, 2017 which is applicable to whole of India including Jammu & Kashmir.

Present Indirect Taxation Structure in India which will get subsumed in GST.

Currently, India has a dual system of taxation of goods & services, in a sense that tax on activity of manufacture and provision of service is collected by Union Government and that on sale of goods is collected by State Government (VAT). India has adopted value added tax principal with input tax credit mechanism for taxation of goods & services.

Taxes covered in above table will be subsumed in "Goods & Services Tax" which is defined in Article 366 of the Constitution (101st Amendment) Act, 2016 - "Goods and Service Tax means tax on supply of Goods, or Services or both except taxes on the supply of the alcoholic liquor for human consumption."

Levy and Collection Scheme of the GST on Supply of Goods & Services.

The provisions related to the levy and collection of CGST/SGST are contained in the Chapter III (Section 8 & 9) of the Goods & Service Tax Act, 2016 and that of IGST are contained in the Chapter III (Section 5) of the Integrated Goods & Service Tax Act, 2016. CGST/SGST shall be levied on all Intra-State supplies of goods/services and IGST shall be levied on all Inter-State supplies of goods/services at the rate as may be notified by Central/State Government, but not exceeding 14% CGST or 14% SGST or 28% IGST of the value of taxable supplies. It shall come into force on the date as may be notified.

Normal Levy -

Levy & Collection of CGST/SGST on Intra- State Supply (Section 8 of CGST/SGST) - In case of Intra-State Supply, Central Goods and Services Tax (CGST) and/or State Goods and Services Tax (SGST) will be levied and collected by the Central Government and State Government respectively.

Levy & Collection of IGST on Inter- State Supply including Import in India (Section 5 of IGST)- In case of Inter-State Supply Including Import in India, The Integrated Goods & Services Tax (IGST) will be levied and Collected by the Central Government which will be apportioned between Central and State Government. In case of Import of Goods and/or Service, IGST will be levied in addition to Basic Customs Duty (BCD).

Levy & Collection under Reverse Charge Mechanism [Section 8(3) of CGST/SGST & Section 5(2) of IGST] - The CG/SG by notification shall specify the categories of supply of goods/ services on which the tax shall be collected by the recipient of such goods/ services.

Composition Levy (Section 9 of CGST/SGST)-

A registered taxable person whose aggregate turnover in a financial year does not exceed fifty lakh rupees may pay tax at such rate as may be prescribed, which should not be less than 2.5% in case of a manufacturer and 1% in any other case, of the turnover during the year.

A person who is making supply of services and who is making inter-state supplies of goods/services is not entitled to opt for composition scheme.

No such option shall be granted to a taxable person unless all registered taxable person having same PAN as held by the said taxable person, also opt to pay tax under Composition Scheme.

Taxable person opting composition scheme shall neither collect any tax from the recipient on supplies made by him nor shall be entitled for ITC.

Input tax credit and its Utilization

Input Tax Credit is the backbone of this whole GST mechanism. It is the provisions of Input Tax Credit that make GST a value added tax i.e collection of tax at all points after allowing credit for the inputs & Input services. As per section 2(55) of the Act, 'Input Tax' in relation to a taxable person, means the IGST, including that on import of goods, CGST and SGST charged on any supply of goods or services to him and includes the tax payable under sub-section (3) of section 8, but does not include the tax paid under section 9.

Therefore, Input Tax is the tax paid by a taxable person under the Act whether under forward charge or reverse charge for the use of such goods and/or services in course or furtherance of his business and tax paid under composition scheme shall not be eligible for input tax.

Eligibility for taking input tax credit-

Every registered taxable person (subject to section 44) shall be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger* of such person.

*Electronic Credit Ledger- an Input tax credit ledger in electronic form to be in the manner as may be prescribed in this behalf.

Conditions for taking input tax credit-

Every Registered Taxable person shall be entitled to get ITC If-

Having possession of taxpaying documents such as tax invoice, debit note issued by registered supplier OR other documents as may be prescribed.

has received or (Deemed to be received)* the goods and/or services.

Tax charged for such supply is actually paid to the credit of the appropriate government, either through cash or through utilization of admissible input tax credit by the supplier.

Has furnished return as per section 34.

• *Deemed to be received -when goods are delivered by supplier to recipient or other person as per the direction of taxable person or his agent by way of transfer of documents of title of goods or otherwise.If Goods received in lots/ installments, credit shall be allowed on receipt of last installment.Recipient of service is required to make payment to supplier within 3 months, otherwise ITC availed by the recipient shall be added to his output tax liability. 

• No ITC allowable on the tax component of the cost of capital goods on which depreciation has been claimed under the provisions of the Income Tax Act, 1961. 

• No ITC allowable for any invoice/debit note after furnishing return under section 34 for the month of September following the end of financial year to which the invoice/ debit note relates; or furnishing of annual return, whichever is earlier.Utilization of Input Tax of CGST, SGST & IGST-Input of CGST-The amount of Input Tax Credit on account of CGST available in Electronic Credit Ledger shall first be utilized towards payment of CGST and the amount remaining, if any, may be utilized towards the payment of IGST. The Input Credit on account of CGST shall not be utilized towards payment of SGST. 

• Input of SGST- The amount of Input Tax Credit on account of SGST available in Electronic Credit Ledger shall first be utilized towards payment of SGST and the amount remaining, if any, may be utilized towards the payment of IGST. The Input Credit on account of SGST shall not be utilized towards payment of CGST. 

• Input of IGST- The amount of Input Tax Credit on account of IGST available in Electronic Credit Ledger shall first be utilized towards payment of IGST and the amount remaining, if any, may be utilized towards the payment of CGST and SGST, in that order.Persons liable for Registration under GST-The following Taxable Person are liable to obtain registration in every such state in which he is so liable within 30 days from the date on which he becomes liable to registration: 

• Every supplier if his aggregate turnover in the state from where he makes taxable supplies in a financial year exceeds 20 lakhs (10 lakhs in special category states) (i.e. Separate Registration to be obtained for business verticals in different states). 

• Person making any inter-state supply without threshold limit. 

• Casual Taxable person- a person who occasionally undertakes transactions involving supply of goods and/or services in the course or furtherance of business whether as principle, agent or in any other capacity, in a taxable territory where he has no fix place of business. 

• Person liable to pay tax under Reverse Charge. 

• A Non-resident Taxable Person.Input Service Distributor. 

• Persons who supply goods and/or services on behalf of other taxable person whether as an agent or otherwise. 

• A person having multiple business verticals in a State may obtain separate registration for each business vertical.  

• Registration under GST is a PAN based registration (i.e. having PAN is necessity). But, a non-resident taxable person may be granted registration on the basis of any other document as may be prescribed. 

• A Certificate of registration shall be issued in the prescribed form. 

• Conclusion: The Country is eagerly waiting for roll-out of GST but this is a mammoth task before the government that is to be achieved within the target date of April, 2017. Task towards implementation of GST will take our country into a new tax regime and shall also result in generating more employment opportunities and also help all the business sectors to grow.