What is GST?
India has undergone umpteen transformations over the past 6 decades to bring about indirect tax reforms in the country. On the 3rd of August, 2016 the Rajya Sabha passed the 122nd Constitutional Bill to roll-out GST in India. GST (Goods and Services Tax) is a comprehensive tax levied on supply of goods and services across India. It follows a simple mechanism of replacing almost all of the indirect taxes at Central and State level, and makes all transactions in the country taxable, whether its trading, manufacture or service. This new reality of a unified tax structure is the single largest tax reform in our country since independence.
Here’s an attempt to explain what GST is and how it will have a major impact on all of us.
Why is there a need for GST?
GST addresses these issues – In the previous tax system, taxes are levied in different places and at different rates on many goods, whereas GST (Goods and Services Tax) is a single tax reform that includes all indirect taxes such as sales tax, services tax, entertainment tax, entry tax etc. In the previous tax system, taxes are levied mostly at the point of production instead of consumption, whereas GST is a Destination based Consumption tax, wherein the taxable event is Supply as against the existing taxable events of manufacture, sale, or providing service. With its single tax reform concept, GST has much in common with VAT, as it will be applied only when a value is added at each point in the supply chain.
With its technological backing, structured tax filing process across India and simplified tax compliance, it is expected to contribute significantly to ‘ease of doing Business.’ Hence, it is imperative for businesses to run-up this new wave of taxation, as certain prevalent business practices are expected to undergo many changes with the onset of GST.
What are the Key Features of GST?
- For special category states – Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand., the threshold of GST Registration is ₹10 Lakh.
- For the rest of India it is ₹20 Lakh, with approximately 7 – 8 million businesses likely to be registered under GST. For small dealers with turnover below Rs 50 Lakh, there is an option of adopting the Composition scheme and pay flat ~1 to 4% tax on turnover.
Considering the fact that India has a federal structure, Dual GST is the apt model chosen. Tax would be jointly levied by both Centre and the States on supply of goods and services.
Dual GST components are:
For transactions in interstate IGST will be applicable, and for intra-state transactions CGST+SGST will be applicable.
The government has categorized 1211 items under the below mentioned tax slabs, keeping approximately 81% of items at or under the 18% tax slab.
The taxes that will get subsumed under GST are:
The manner of availing input tax credit for setoff of tax liability is defined as under:
Also, CGST and SGST cannot be set off against one another.
The backbone of GST
For all the e-filling requirements of GST there will be a nodal agency that will be IT backbone of GST responsible for controlling all its processes, forms, tracking data of all kinds of trade etc., in the country. GSTN or Goods and Service Tax Network is that agency, a Not for Profit Sec 25/Section 8 company incorporated under the public-private partnership (private companies, central and state government are the stakeholders).
The GST council is incharge of setting the rate of tax, dispute resolution, exemptions and so on under the Goods and Services Tax regime. The council consists of 2/3rd representation of states and 1/3rd representation of Centre, headed by Finance Minister Arun Jaitley. Recommendations of the GST Council (75% votes) will be binding on the Centre and states.
Business Process of GST : Registration | Returns | Payments | Refunds
Existing dealers would be auto-migrated and given a 15-digit PAN based GSTIN with the below mentioned structure:
Please note, the entity code will be applicable for taxpayers having multiple business verticals within the state.
The GST (Goods and Services Tax) regime introduces the following changes:
- Filing Monthly Returns: Under the GST regime, it is mandatory for all businesses to file monthly returns along with the necessary quarterly or annual returns. Even businesses which in the current tax structure file quarterly or half-yearly returns for service tax etc, need to now file monthly returns.
- Filing Compliance Events: In comparison with filing 1 return event today, businesses will need to comply with the requirement if filing ‘3 compliance events every month – Form GSTR-1, Form GSTR-2 and Form GSTR-3 (as mentioned below).
- Revised Due Date: As against the deadline of 20th in the current VAT regime, the first compliance event (filing Form GSTR-1) has a due date of 10th of the subsequent month.
- Composition scheme will no longer be a favourable option: As mentioned in the table below, Composition Dealers will need to be file quarterly returns and the details in those returns need to be filed relating to purchases. Also, the non-availability of input credit in the tax filing chain scheme would increase the selling price for the composite dealers, and cause businesses to reduce their purchases from these dealers.
- For any amount > Rs 10,000 e-payment will be mandatory
- Online Payment through NEFT/RTGS/IMPS
- Offline Payment through Cash/Cheque/DD/NEFT/RTGS etc.
- Challan is auto-populated, and can also be downloaded
Refund process will be automated and wherever applicable 80% – 90% refund will be granted provisionally when applied without audit.
GST Impact on Business
- Adoption of GST Technology: This sudden migration from paper filing to updating invoices and filing returns online will be the only option available. Hence, tax payers will have to understand and adopt suitable technology to ensure efficiency and effectiveness in filing returns.
- Access to Pan-India market: Intra-state and interstate trades would become tax neutral, and the whole of India will open up as a market for both sourcing vendors and customers’ customers without any issues of compliance.
- Cash flow planning: Input tax credit on purchase will be provided only provisionally during return filing, and will be confirmed only after corresponding sale has been uploaded and after the liability is discharged by supplier. Hence, cash flows WILL get impacted in case of mismatch. As any supply would be taxable, branch transfers would result in tax liability leading to cash blockage. GST will also be applicable on advances received and reverse charge is extended to goods as well. Businesses will need to rethink how to effectively do business and structure deals.
- Easier Compliance: GST requires businesses to provide granular level of data (invoice-wise), that needs to be reported with HSN codes. The good news is that compliance is going to get easier with GST replacing most of the prevalent indirect taxes and with the support of technology. With GST, the government has shifted its burden of following up with vendors who have not uploaded their returns by cutting out the input credit.
- Branch / Supply chain re-engineering: Businesses having multi-state presence due to tax considerations (to avail concessional CST rate) need to re-plan their warehouse and branch networks and locate them nearer to markets rather than state-wise.
- Pricing strategy: Due to elimination of cascading effect, prices of products are likely to come down. Hence, businesses need to re-align to the new realities in procurement and sale.
- Re-negotiate contracts: Work contracts and other multi-year supply deals have to be re-negotiated to absorb GST rates. As tax would be payable on advance, such conditions need a relook.
What must be the next steps for Businesses to comply with GST?
As we move closer to the July 1 deadline of rolling out Goods and Services Tax (GST), the authorities are busy working out the details related to its implementation. It is important for the taxpayer to take several preparatory steps in this direction, as migration to GST will be the key for having a clean opening balance to begin with. Two prime factors to consider here are:
1 Input tax credit (in returns/inputs/capital goods) from current regime (CENVAT, VAT) will be carried forward to GST (CGST, SGST). It is essential to keep the books updated, as that will help companies during assessment and at that time the number will get picked up. The businesses will go through immense financial and non-financial pain is there is no clarity on the features of GST, its procedure etc.
2 To ensure migration to GST is a seamless affair, all the accounting and party masters in ERP need to be kept updated with statutory details filled-in.
Significance of GreenGST
GreenGST is pioneer in assisting trade and manufacturing businesses with understanding and adopting statutory changes related to GST. The substantially simplified solution will ensure there is quick and smooth transition, along with the ease of understanding statutory requirements under GST. GreenGST solution is an ASP technology that can handle millions of transactions in seconds. The platform connects to GSTN server through multiple GST suvidha providers (GSPs) and helps the user in filing and reconciling Input and Output taxes.