What is Goods and Services Tax (GST)?

Goods and Service Tax is a destination based tax on supply of goods and services. It is proposed to be levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as setoff. In a nutshell, only value addition will be taxed under GST and burden of tax is to be borne by the final consumer. The introduction of GST shall eliminate cascading effect of taxes.

Indirect taxes can be either origin based or destination based. Origin based tax (also known as production tax) is levied where goods or services are produced. Destination based tax (consumption tax) are levied where goods and services are consumed.

GST being a destination based tax, the tax would accrue to the taxing authority which has jurisdiction over the place of consumption which is also termed as place of supply.

What is GST levied on? What are the activities that are covered under GST?

GST is levied on supply. Supply includes sale, transfer, barter, exchange, license, rental, lease or disposal and other specified transactions for a consideration including stock transfers. In case the supply is between related parties or when price is not the sole consideration, then GST is to be paid on the value determined as per the valuation rules.

What are the taxes that would be subsumed in to GST?

The GST would replace the following taxes:

(I) taxes currently levied and collected by the Centre:
– Central Excise duty
– Duties of Excise (Medicinal and Toilet  Preparations)
– Additional Duties of Excise (Goods of Special Importance)
– Additional Duties of Excise (Textiles and Textile Products)
– Additional Duties of Customs (commonly known as CVD)
– Special Additional Duty of Customs (SAD)
– Service Tax
– Central Surcharges and Cesses so far as they relate to supply of goods and services

(ii) State taxes that would be subsumed under the GST are:
– State VAT
– Central Sales Tax c. Luxury Tax
– Entry Tax (all forms)
– Entertainment and Amusement Tax (except when levied by the local bodies)
– Taxes on advertisements g. Purchase Tax
– Taxes on lotteries, betting and gambling
– State Surcharges and Cesses so far as they relate to supply of goods and services

What are benefits to a trader under GST 

As mentioned above, several indirect taxes will be subsumed under GST regime. In other words, instead of all such taxes, the supplier shall be required to pay GST on the supplies/sales effected by them. Additionally, the following taxes which are currently accounted as costs by the suppliers would be eligible as credit under GST regime:

– CST paid on procurement of goods;
– Excise duty/CVD paid on procurement of goods;
– Additional Customs duty, special additional duty on import of goods;
– Service tax paid on input services (in case of pure traders).

What are the components of GST? Are there different GST for intra-state, inter-state and import transaction?

It would be a dual GST with the Centre and States simultaneously levying it on a common tax base. The GST to be levied by the Centre on intra-State supply of goods and / or services would be called the Central GST (CGST) and that to be levied by the States/Union territory would be called the State GST (SGST)/UTGST. Similarly, Integrated GST (IGST) will be levied and administered by Centre on every inter-state supply of goods and services.

Will the person paying GST be eligible to avail input tax credit of the IGST, CGST and SGST that is paid?

Yes. Any person who procures inputs, input services and capital goods for use in business and discharges GST on such procurement shall be entitled to claim ITC of such taxes paid. However, please note that there are certain specific restrictions prescribed which denies ITC credit on certain transactions

Are there any rules prescribed for input tax credit utilization?

Input tax credit provisions, prescribe rules for manner of utilization of credits wherein IGST can be utilized against IGST, CGST and SGST, CGST can be utilized against CGST and IGST and SGST can be utilized against SGST and IGST

Will there be both central as well as state Government Authority for GST?

Centre will levy and administer CGST & IGST while respective states /UTs will levy and administer SGST/ UTGST.

Can there be both CGST and SGST on the same transaction?

Yes, All intra-state supplies are government by respective state government GST Acts as well as CGST Act. Accordingly, every intrastate transaction would have CGST and SGST component as a part of GST.

What are the GST rates that would be applicable?

Who will decide rates for levy of GST? The CGST and SGST would be levied at rates to be jointly decided by the Centre and States. The rates would be notified on the recommendations of the GST Council. Currently, there are indicative lists of goods and services that are available in the public domain which are subject to changes.

Who is liable to pay GST under the proposed GST regime? 

Under the GST regime, tax is payable by the taxable person on the supply of goods and/or services. Liability to pay tax arises when the taxable person crosses the turnover threshold of Rs.20 lakhs (Rs. 10 lakhs for NE & Special Category States) except in certain specified cases where the taxable person is liable to pay GST even though he has not crossed the threshold limit. 

Is every business man required to take registration under GST or is there a threshold limit that is prescribed?

Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees:

Provided that where such person makes taxable supplies of goods or services or both from any of the special category of states the Schedule to the GST Act, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees.

What is the procedure for migrating in to GST

Existing registered suppliers (under VAT/CST) need not apply afresh for GST registration. Such suppliers would be migrated into GST and given provisional registration. Such persons would be required to submit all requisite documents and information for obtaining the final registration certificate within the prescribed time limit of granting of provisional registration. Failure to do so will result in cancellation of GSTIN.

Accordingly, all existing tax payers are required to enroll on the GST system portal i.e., www.gstn.org for the purpose of validating the data pertaining to such tax payer under GST regime.

Will GST cover both goods supply of goods and or services? What is the treatment for each of it?

GST is a tax that is leviable on supply. Supply can be both goods and/or services. Provisions such as place and time of supply has been separately prescribed for both goods and services.GST would also apply at a rate that is applicable on such goods (basis the HSN Code) and services (based on the SAC)

Is an import transaction (goods and services) also liable to GST?

Imports of Goods and Services will be treated as inter-state supplies and IGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import on goods and services subject to the prescribed restrictions under the GST provsions. 

What is GSTN and its role in the GST regime? 

GSTN stands for Goods and Service Tax Network (GSTN). A Special Purpose Vehicle called the GSTN has been set up to cater to the needs of GST. The GSTN shall provide a shared IT infrastructure and services to Central and State Governments, tax payers and other stakeholders for implementation of GST. The functions of the GSTN would, inter alia, include:

(I) facilitating registration;
(ii) forwarding the returns to Central and State authorities;
(iii) computation and settlement of IGST;
(iv) matching of tax payment details with banking network;
(v) providing various MIS reports to the Central and the State Governments based on the tax payer return information;
(vi) providing analysis of tax payers’ profile; and
(vii) running the matching engine for matching, reversal and reclaim of input tax credit.

The GSTN is developing a common GST portal and applications for registration, payment, return and MIS/ reports. The GSTN would also be integrating the common GST portal with the existing tax administration IT systems and would be building interfaces for tax payers

What is the treatment under GST in case goods are returned by the customers?

The supplier has to issue a credit note for sales returns and undertake GST adjustments in accordance with the GST laws. Such credits notes are to be shown in outward supply returns of such sellers. Similarly, in case the supplier returns the goods to Lenovo, then Lenovo will issue a credit note that has to be reported by the supplier in his returns.

What is the treatment of discounts in GST?

In case the discounts are provided on the face of the invoice, then such discounts have to be deducted from the value of supply and GST has to be paid on such net value. In case the discounts are provided after the supply, then a credit note has to be issued for the value of the discount. The agreement between the parties has to clearly provided for such provision of discount.

What is Anti-Profiteering measure?

As per section 171 of the CGST/SGST Act, any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. An authority may be constituted by the government to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.