1. What is GST?
The Goods and Services Tax (GST) is a tax on the supply of goods and services. It is essentially a tax on the value addition at each stage and a supplier at each stage is permitted to claim set-off, through an input tax credit mechanism i.e. the tax paid on the purchase of goods and services is available for set-off against the tax to be paid on further supply of goods and services. The Act, Rules and the rate of GST across all Indian states including union territories are uniform.
2. How does GST work?
Below is an indicative illustration for levy and set-off of GST in three stages of the supply chain:
| Stage of supply chain | Manufacturer | Wholesaler | Retailer |
|---|---|---|---|
| Purchase value of input (INR) - - (A) | 100 | 150 | 175 |
| Value addition (INR) - - (B) | 50 | 25 | 15 |
| Sale value (INR) - - (C) | 150 | 175 | 190 |
| Rate of GST *- - (D) | 18% | 18% | 18% |
| GST on output (INR) - - (E = C x D) | 27 | 31.5 | 34.2 |
| GST on input (INR) - - (F = A x D) | 18 | 27 |
31.5 |
| Net GST payable (i.e. tax on value addition) (INR) - - (G = E – F) |
9 | 4.5 | 2.70 |
*Note: It is assumed that the rate of tax is 18 per cent for calculation purpose.
3. How would a transaction of supply of goods and services within a particular state be taxed simultaneously under Central GST (CGST) and State GST (SGST)?
GST in India is based on the ‘dual GST’ model wherein both the central and state governments simultaneously tax all transactions within a particular state involving the supply of goods and services under CGST Act and SGST Act, respectively. These taxes are deposited by the taxpayers electronically and go directly into the respective government’s CGST/SGST accounts.
Under the earlier regime, the powers to tax services and manufacturing transactions were with the central government whereas the power to tax sale transactions was with state governments exclusively.
4. What is the mechanism to tax interstate transactions?
All interstate supply of goods and services are taxed under the Integrated GST (IGST) Act. The rate of GST under the IGST Act is equal to the sum total of CGST plus SGST rates added together. The IGST is to be deposited into an IGST account administered by the central government and is distributed between the central government and the consuming states on a mutually-agreed formula.
The collection mechanism of IGST is as under:
- The interstate seller can utilise the input tax credit of IGST, CGST and SGST on his/her purchases to pay IGST liability
5. Which taxes have been subsumed under GST?
The central taxes subsumed under CGST include:
- Central Excise duty
- Additional Excise duties
- Excise Duty levied under the Medicinal and Toiletries Preparation Act
- Service Tax levied under Chapter V of the Finance Act, 1994
- Additional Customs Duty, commonly known as Countervailing Duty (CVD)
- Special Additional Duty of Customs (SAD)
- Central Sales Tax
- Surcharges
- Central cesses.
The state taxes subsumed under GST are:
- VAT/Sales tax
- Entertainment tax (unless it is levied by the local bodies)
- Luxury tax
- Taxes on lotteries, betting and gambling
- State cess and surcharges in so far as they relate to supply of goods and services
- Entry tax
- Octroi/Local body tax
6. Which goods/sectors are out of the purview of GST?
Goods/sectors that are out of the GST ambit include alcohol and specified petroleum products i.e. petroleum crude, high speed diesel, motor spirit, aviation turbine fuel and natural gas. Petroleum products are likely to be inducted into GST at a later date. Alcohol for human consumption continues to attract state excise duty and VAT. Tobacco and tobacco based products attract both excise duty and GST. Taxes such as stamp duty, toll tax, road tax, electricity duty etc. are not part of GST.
7. What is the current rate structure under GST?
The rate structure consists of four slabs i.e. 5, 12, 18 and 28 per cent, GST compensation cess on selected goods besides goods which are taxed at nil rate (fully exempt). GST tariff should be referred to, to know tax rate for respective goods and services.
8. What is the threshold limit and composition scheme under GST?
The minimum threshold is INR2 million of aggregate turnover in a financial year. However, in certain states the limit is reduced to INR1 million. Composition scheme is available for turnovers up to INR15 million and rate of tax is as specified under Section 10 of the CGST Act.
Section 23 of the CGST Act specifies persons who are not required to be registered (e.g. a farmer, a person having wholly exempt turnover, etc.) Section 24 of the CGST Act specifies persons who are required to register irrespective of the turnover (e.g. persons making interstate supply, casual taxable persons, non-resident taxable persons, etc.)
9. How are imports taxed under GST?
Under the current GST regime, though the levy of Basic Customs Duty (BCD) on import of goods is continued, the additional customs duty and the Special Additional Duty (SAD) is replaced by IGST. While the full set-off is available of the IGST paid on import of goods and services, BCD paid on import is not eligible for set-off. In the case of import of services, an IGST on reverse charge basis is levied and credit of the same is available to the importer-recipient in accordance with the law.
10. How does the credit mechanism work under GST?
Both CGST and SGST are two parallel taxes under the ‘dual GST’ regime levied at the same time on goods and services. Therefore, the cross utilisation of CGST input tax credit for payment of SGST output tax liability and vice versa is not permitted. However, the IGST credit pool is fungible with CGST and SGST and the same can be used for payment of IGST, CGST and SGST and vice versa. The order of utilisation of the IGST credit will be first towards IGST, then CGST and the balance towards SGST liability. Similarly SGST credit can be utilised first towards SGST liability and then towards IGST, whereas a CGST credit will be used first toward CGST and then towards IGST.
11. Why does the introduction of GST require a Constitutional Amendment?
The Indian Constitution clearly demarcates the powers of taxation between the central and state governments. While the centre is empowered to tax services and goods up to the stage of production, the states are authorised to levy tax on the sale of goods exclusively. The states do not have the power to levy tax on supply of services while the centre does not have power to levy tax on the sale of goods. Under the ‘dual GST’ regime, all services and goods are simultaneously taxed by both state and central governments. Therefore, it was mandatory for the restriction imposed by the Constitution to be amended to enable the states and central governments to tax goods and services simultaneously.
12. What is the time of supply for levying GST on the supply of goods?
In the erstwhile regime, India followed an origin-based tax system and therefore the point of taxation was at the origin of sale and the originating state kept the tax so collected, irrespective of where the consumer is located. Under the present GST regime, which is a multi-point levy (i.e. levied at each value addition in the value chain), the tax moves with goods and is credited to the account of the destination state based on the place of supply as determined under the IGST Act. GST is charged on supply and point of levy is determined as per time of supply under Section 12 of the CGST Act.
13. What is the point of levy of GST on supply of services?
GST on services is a tax on supply and the liability to pay GST arises in terms of Section 13 of the CGST Act. The revenue is remitted to the state where the service is consumed based on the place of supply as determined under the IGST Act. By default, the place of supply of services is the place where the service recipient is located in the case of B2B transactions. However, there are few exceptions to this rule.
14. What is the process of registration under the present GST regime for new businesses/applicants?
Each taxpayer is allotted a state-wise Permanent Account Number (PAN) based 15-digit Goods and Services Taxpayer Identification Number (GSTIN). Those taxpayers who were already registered under the erstwhile state or central tax regime, have migrated to the common portal and granted GST registration suo moto with a request to provide additional information where ever required.
A new applicant can apply for registration on the common portal without prior enrolment.
15. What is the process of registration under GST for existing businesses/applicants?
Under the erstwhile regime, taxpayers were separately registered with the state and/or with central tax administrations or with both based on their business activity. In the GST regime, a taxpayer is required to obtain state-wise single registration. Even within a state, the taxpayer has an option to obtain multiple registrations for different businesses, if required.
16. What are the contents of a tax invoice to be issued under the GST regime?
A registered supplier supplying taxable goods/services shall issue at the time of supply, a tax invoice showing complete details of the transaction viz., name, address and GSTIN of the supplier, name, address and GSTIN of the buyer/service recipient, date of invoice, value of goods or service, description of goods or service, HSN classification, rate of CGST, SGST or IGST, tax amount, signature of the taxpayer, etc.
17. How and when should the returns be filed?
A single e-return is to be filed for CGST, SGST and IGST for a given tax period. Returns, that allow the auto-population of data from the vendors and automated matching of purchase/sales invoices, shall be filed online by the registered taxpayer in a sequential manner within prescribed cut-off dates. The various due dates for filing of returns are as follows
| Sr.No |
Return/Ledger |
Description of applicable form | Due date |
|---|---|---|---|
| 1 | GSTR1 | Outward supplies made by taxpayer (other than compounding taxpayer and ISD) | 10* of the next month * due date for the period July 18 to March 19 – 11 of the next month |
| 2 | GSTR3B | Monthly return (other than compounding taxpayer and ISD) | 20 of the next month |
| 3 | GSTR4 | Quarterly return for compounding taxpayer | 18 of the month next to quarter |
| 4 | GSTR5 | Periodic return by Non-Resident Foreign Taxpayer | 20 of the next month |
| 5 | GSTR5A | Return for Non-resident persons providing OIDAR services | 20 of the next month |
| 6 | GSTR6 | Return for Input Service Distributor (ISD) | 13 of the next month |
| 7 | GSTR7 | Return for Tax Deducted at Source | 10 of the next month |
| 8 | GSTR8 | Details of supplies effected through e-commerce operator and the amount of tax collected | 10 of the next month |
| 9 | GSTR9 | Annual Return | 31 December of next financial year |
| 10 | GSTR-9A | Annual Return for compounding taxpayer | 31 December of next financial year |
| 11 | GSTR-10 | Final Return when registration is cancelled or surrendered | Within three months of the date of cancellation or date of cancellation order, whichever is later |
| 12 | GSTR-11 | Details of inward supplies to be furnished by a person having UIN and claiming refund | 28 of the month following the month for which statement is filed |
It may be noted that the payment of the tax due, is a must for filing valid return under the GST regime without which the system will not permit filing of returns.
18. What is the mode of payment of tax?
The payment of tax is in an electronic mode with a common ‘challan’ (i.e. document for payment of taxes) for all the taxes under three different modes of payment:
- Internet banking including credit card/debit cards
- Payments through RTGS/NEFT
- Over the counter payments (for payments up to INR10,000/- per tax period) in cash cheque or Demand Draft (DD)
19. How are exports taxed under GST?
Exports are zero rated under GST which means that there shall not be taxed and input taxes will be refunded.
20. When can a taxpayer claim a refund in the GST regime? How will the refund procedure work under the proposed GST law?
The refund regime is simplified under GST as opposed to the erstwhile manual refund processing system. The refund can be obtained in the following two scenarios:
- Refunds on exports
- Refunds of accumulated input tax credit in case of an inverted duty structure
Refund claims can be submitted online.
21. How does the dispute resolution mechanism work under the proposed GST regime?
There is an ’Advance Ruling mechanism’ put in place in each state. An elaborate adjudication and appellate procedure is prescribed under the GST law. A separate appellate Tribunal called the Goods and Services Tax Appellate Tribunal has also been formed to deal with GST disputes.
22. What happened to various exemptions including area-based exemptions granted in the erstwhile regime, under the GST framework?
The GST regime does not allow any tax exemptions for investments/operations in any specific area. However, incentives can be offered by the states as part of industrial policy which may inter-alia include refund of the tax paid by the taxpayer in the form of industrial subsidy.
As of now, units in the erstwhile excise-free zones will have to pay GST, including Central GST. They have to claim a refund of the CGST component later, based on guidelines issued by the central government.
Time of supply
1. What is time of supply?
It is the point when the liability to charge GST arises. It indicates the time when the supply (taxable event) is deemed to have been made.
2. What is the time of supply with respect to supply of goods?
Vide section 12 of the CGST/SGST Act, time of supply in case of goods, shall be earlier of the following:
- Date of issue of invoices by the supplier or the last date on which he/she is required to issue the invoices under section 31, with respect to the supply; or
- *Date on which the supplier receives the payment with respect to the supply.
*Vide Notification No. 66/2017-Central Tax dated 15 November 2017, the government has practically done away with the liability to pay tax at the time of receipt of payment in case of goods.
3. What is the time of supply with respect to supply of services?
Vide section 13 of the CGST/SGST Act, time of supply in case of services, shall be the earlier of the following:
- Date of issue of invoice by the supplier if the invoice is issued within the period prescribed under section 31(2) or the date of receipt of payment whichever is earlier; or
- Date of provision of service, if the invoice is not issued within the period prescribed under section 31(2) or the date of receipt of payment whichever is earlier; or
- Date on which the recipient shows the receipt of services in his books of accounts, in case where both the above provisions do not apply
- Note – Separate time of supply have been prescribed for supply of vouchers, reverse charge mechanism and addition to value of supply by way of interest, late fee, penalty or delayed payment of consideration.
4. Where it is not possible to determine the time of supply as above, how will the same be determined?
Basis the residual entry, time of supply shall be
- if periodical return has been filed, then the due date of filing such periodical return; or
- date in which CGST/SGST/IGST liability is actually paid, in all other cases.
Place of supply
1. Need for determining the place of supply under the GST law?
GST is a consumption based tax, it would effectively tax the consumption of such supplies at the destination thereof or as the case may be at the point of consumption. Place of supply provision determines the place i.e. taxable jurisdiction to which the tax should be allocated.
The place of supply determines whether a transaction is intra-state or interstate. In other words, the place of supply of goods or services, is required to determine whether it is an intra-state supply, subject to CGST plus SGST or would it be an interstate supply attracting IGST.
2. What would constitute as place of supply where goods are removed?
Place of supply of goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient.
In case goods are supplied on board a conveyance viz. vessel, aircraft, train or motor vehicle, place of supply shall be the location at which goods are taken on board a conveyance.
3. What would constitute as place of supply if the goods are delivered by the supplier to a person on the directive of a third person?
The goods shall be deemed to have been delivered to such third person, accordingly the place of supply shall be the principal place of business of such third person.
4. What is the place of supply in respect to B2B supply of services?
Place of supply of services is determined on the basis presumption prescribed under the IGST law. The presumption in case of supplies to registered person is the location of such person. Since the recipient is registered, address of recipient is always there and the same can be taken as place of supply.
5. What constitutes as the place of supply in respect to B2C supply of services?
With respect to an unregistered recipient, the usual place of supply is the location of the recipient. However, in many cases, address of the recipient is not available, in such cases, location of the supplier of services is taken as a proxy for place of supply.
Note – Separate place of supply rules have been prescribed for services provided in relation to immovable property, services by way of organising an event held in multiple states, services supplies on board a conveyance, services by way of transportation of goods and passenger transportation services.