India – indirect tax guide
India – indirect tax guide
Explore the requirements and rules that apply to indirect taxes in India.
General
Goods and Services Tax (GST). India follows a dual structure of GST, where intra-state/intra-union territory supplies are liable to central GST and state GST/union territory GST. Inter-state supplies including imports are liable to integrated GST.
Standard rate:
The standard rate of GST is 18 percent. However, certain products/services are eligible for a lower rate of 5 percent or 12 percent. A higher rate of 28 percent applies to certain specified luxury/sin goods including cars, tobacco and cement, etc. The applicable rate depends on the classification of the goods or services as per the GST rate schedule.
In addition to goods being liable to GST at 28 percent, a GST compensation cess is also levied on luxury/sin goods. Such products include motor vehicles, cigarettes, carbonated beverages, cigars, aircrafts and yachts for personal use, etc.
What supplies are liable to the standard rate?
All forms of supply (goods or services) made for consideration in the course or furtherance of a business are liable to a standard rate of GST, except exempt supplies or supplies that are eligible for the concessional rate.
Are there any reduced rates, zero- rates or exemptions and if so, what do they apply to?
- Export of goods or services and supplies to a special economic zone (SEZ) developer or a SEZ unit are treated as zero-rated supplies.
- Exempt goods or nil-rated products include various agricultural produce/food, grains, items of basic necessities, etc.
- The supply of alcoholic liquor for human consumption and specified petroleum products (namely petroleum crude, high speed diesel, motor spirit, natural gas and aviation turbine fuel) are outside the GST regime.
VAT/GST registration
Who is required to register and what is the threshold?
Every supplier of goods shall be liable to be GST registered if his aggregate turnover in a financial year exceeds 4 million Indian rupee (INR). The enhanced threshold limit of INR4 million is effective from 1 April 2019 and the enhanced limit will not apply in certain specified cases. However, the threshold limit for service providers remains INR2 million.
Furthermore, certain specified categories of persons including persons making interstate supplies (i.e. from one state in India to another state or exporting goods out of India) or persons liable to pay tax under the reverse charge mechanism, are required to register regardless of their turnover.
Is voluntary registration possible?
Yes.
Is voluntary registration available for an overseas company or a fiscal representative?
Yes, registration is available to a non-resident taxable person1 subject to prescribed conditions.
VAT/GST compliance
What is the typical frequency of returns?
Typically, the returns are required to be filed on a monthly basis by all registered persons except a person opting for the composition scheme (persons not having turnover of up to INR15 million) for whom the frequency of filing returns is quarterly. Further, an annual return is also prescribed for all registered persons. The GST Council has also rolled out a transition plan for the introduction of a new GST return filing process for all taxpayers with effect from 1 January 2020.
VAT/GST recovery
Are there any items that a registered business cannot recover GST on?
No input tax credit (ITC) of taxes paid on inward supplies is available when the same are exclusively used for making exempt or non-taxable outward supplies.
In addition, ITC is not available on certain specified supplies such as motor vehicles; food and beverages; outdoor catering services; rent-a-cab services; employee related expenses; life insurance and health insurance services, etc.
Can an overseas company recover GST if it is not registered?
No.
How long does it typically take to obtain a GST refund following a return filing?
The GST legislation prescribes a time limit of 60 days for granting a refund. The timeline is from the date of filing the complete application. However, as a benefit to exporters of goods/services, the law provides for a provisional refund of 90 percent within 7 days subject to certain conditions.
Invoices
Are there specific requirements for the content of invoices to be considered valid for GST purposes?
Yes, the law prescribes the specific details to be captured in the tax invoice and other documents. Also, the GST Council has proposed to implement a procedure to electronically obtain pre-authentication of invoices through the allocation of an electronic invoice reference number for all B2B supplies with effect from 1 January 2020.
Special indirect tax rules
Does a reverse charge or indirect tax withholding mechanism apply?
Yes, there are certain notified supplies of goods and services where the recipient is liable to pay GST under the reverse charge mechanism.
Further, the GST legislation prescribes tax withholding (tax deducted at source and tax collection at source). The provisions for tax collection at source are applicable to electronic commerce operators and the provisions for tax deducted at source are applicable to supplies to government establishments.
Rulings
Other indirect taxes
Are there any other indirect taxes that apply in the jurisdiction?
Other indirect taxes include the following:
- customs duty/cess levied on import of goods in India
- excise duty on alcoholic liquor and specified petroleum products
- electricity duty and tax on the sale of electricity
- entertainment tax levied by local bodies
- stamp duty
- other local levies (such as municipal tax, property tax, etc.) levied by local municipal corporations.
Footnotes
1 Non-resident taxable person means any person who occasionally undertakes transactions involving the supply of goods or services or both, whether as a principal or agent or in any other capacity, but who has no fixed place of business or residence in India.
Disclaimer
All information within this guide is provided by KPMG professionals in India and based on information available as of September 2019.