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GST

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In this blog, we look at a query on whether IGST credits can be availed in respect of hotel accommodation, by obtaining an ISD registration.

 

Query:

We have a head office in Mumbai and 3 other branch offices. However, we have several meetings with clients across the country. For this purpose, we have entered into a contract with a Hotel chain having Hotels across various cities in the country. Can we ask such Hotels to issue an IGST invoice to the ISD registration applied for in the location where we have our Head Office?

 

Response:

 

No. The nature of supply would be an intra-State supply and consequently would be liable to CGST and SGST.

 

It is important to note that the nature of tax to be paid on a supply would be an interplay of (a) location of the provider of services and (b) place of supply of services. Where these are within the same State, it would be an intra-State supply; and where they are in different States, it would be an inter-State supply. Applying this rule is mandatory and not the choice of the recipient or the supplier.

 

With specific reference to accommodation in hotels, the place of supply is the State where the hotel is located – accordingly, all such supplies (accommodation) would always be intra-State supplies and hence would be liable to CGST and SGST. Therefore, the Hotelier cannot issue an invoice for IGST.

 

Additional comments: Where the recipient obtains a registration as an ISD in the State where the accommodation was taken; an ISD can distribute the credits accumulated on a monthly basis, by issuing an ISD invoice to the Head Office/ Branch(es) to which the service is attributable, in the proportion of their turnover.

 

Legislative reference: Section 19 of the CGST Act, 2017 read with Section 7, 8 and 12 of the IGST Act, 2017 and Rule 54 of the CGST Rules, 2017. 

 

Authors: Meghana Belawadi and NR Badrinath

 

  

With GST set to be implemented, www.withdia.com brings to you collaborative wisdom on the GST law and potential impact areas for your business. To read more such curated content or to give us your valuable feedback head to our webpage www.withdia.com, or download our Android/iOS app on your phone and have all this knowledge accessible on the go!

Question 1: 

 As per the circular, Any person making zero rated supply (i.e. any exporter) shall be eligible to claim refund under either of the following options, namely: -

(a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund  un-utilized input tax credit; or

(b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 (Refunds) of the Central Goods and Services Tax Act or the rules made there under (i.e. the Central Goods and Service Tax Rules, 2017).

 

We are seeking more clarity on LUT and Bond part i.e. Option ‘a’ of above.

 

We appreciate if you can furnish further clarity in terms of

  1. Bank guarantee format
  2. Amount of Bank Guarantee
  3. Complete procedure to follow with department to obtain permission for Export without payment of duty.

 

Answer: 

Thanks  for your query.  

Please find below a recent notification and circular issued by CBEC in relation to furnishing of Bond/ letter of undertaking (‘LUT’).  

  • Vide Notification no 16/2017-Central Tax dated July 7, 2017 following category of registered persons have been specified who are eligible to give a LUT instead of a Bond for export of goods or services or both without payment of IGST: 
  • A status holder as specified in paragraph 5 of the Foreign Trade Policy 2015-2020; or
  • Who has received the due foreign inward remittances amounting to a minimum of 10% of the export turnover, which should not be less than one crore rupees, in the preceding financial year,

 

and he has not been prosecuted for any offence under the Central Goods and Services Tax Act, 2017 (12 of 2017) or under any of the existing laws in case where the amount of tax evaded exceeds Rs 2.5 crores

 

  • Exports may be allowed under existing LUTs/Bonds till July 31, 2017.

 

  • Exporters to submit the LUTs/Bond in the revised format latest by July 31, 2017.

 

Procedure for furnishing Bond

 

  • Procedure for submission and acceptance of bond has already been prescribed vide Circular No. 2/2/2017-GSTdated 4th July, 2017 (bond to be furnished manually to the jurisdictional Deputy / Assistant Commissioner in Form RFD-11 till the module for furnishing same is available on common portal).

 

  • To be furnished on non-judicial stamp paper of the value as applicable in the State in which bond is being furnished.

 

  • Running bond to be furnished on self-assessment basis in GST RFD-11 to cover the tax involved in the export.  Exporter to ensure that the bond amount is sufficient to cover the liability, in case of shortage, fresh bond to be furnished.

 

  • Jurisdictional Commissioner may decide on value of bank guarantee.  If satisfied with track record, bank guarantee may be dispensed with.

 

  • In general, bank guarantee should normally not exceed 15% of bond value.

 

Procedure for furnishing LUT

 

  • The LUT has to be furnished in duplicate in a financial year in form GST RFD-11.  Validity of 12 months.

 

  • To be executed by the working partner, the Managing Director or the Company Secretary or the proprietor or by a person duly authorized by such working partner or Board of Directors of such company or proprietor on the letter head of the registered person.

 

Acceptance of Bond/ LUT

 

  • To be accepted by the jurisdictional Deputy/Assistant Commissioner having jurisdiction over the principal place of business of the exporter.

 

  • Can be furnished before Central Tax Authority or State Tax Authority till the administrative mechanism for assigning of taxpayers to respective authority is implemented.

 

  • Commissioner of State Tax can direct, by general instruction to exporter, the Bond/LUT in all cases to be accepted by Central tax officer till such time the said administrative mechanism is implemented.

 

 Question 2:

 We request you to kindly advise tax liability under GST for import of service product (software) into India and re-expert of same without any modification.

 

Answer:

 Import of software services / product would be deemed as inter-state supply and thus shall be subjected to IGST @ 18%.  Exports of services are treated as the zero rated supply and hence are exempted from GST. Hence, the supplier shall be allowed to export the goods/services without charging any tax, provided the place of supply is outside India, and can avail the CGST/SGST and IGST credits/ refund paid on imported software input cost.  However, the procedures prescribed for export without payment of tax would have to be followed.  Please note that fixing the place of supply is dependent on facts and it would be best for you to obtain professional advice on this. 

 

 Question 3:

 I am writing this as a followup to Chetan's email forwarding rates for GST

 My company is a startup and provide Training, Recruitment and Contracting people   to Software Services companies in India.

 

Will you be able to let me know 

 a) is there any concessions for a start up

 b) If no, what are the rates for the above three 

 

I am unable to find details in the doc, may be search does not give out these key words

 

Answer:

 

Please find below our response.

 a) is there any concessions for a start up

There are no concessions specific to start-ups under the GST law.

b) The rates for the 3 categories of services provided by you are as follows:

Training: 18% -- 999293 Other education and training services and educational support services: commercial training and coaching services 

 

Recruitment: 18% -- 99851 Employment services including personnel search, referral service and labour supply service 

(6th digit code may be identified from the Schedule annexed to Notification No. 11 on Central Tax Rates, based on the applicability)

 

Contracting staff: 18% -- 998513 Employment services including personnel search, referral service and labour supply service: Contract staffing services

In this blog, we look at a query on taxation of training and recruitment services provided by a start-up.

 

Query:

We are a startup and provide Training, Recruitment and Contracting people to Software Services companies in India.

  1. Is there any concessions for a start up?
  2. What are the rates for the above three?  

 

Response:

Given that the business is engaged in supply of services:

 

  1. There are no concessions specific to start-ups under the GST law. While the composition scheme is available to persons whose aggregate turnover in a year does not exceed Rs.75 lakhs, the scheme is only restricted to suppliers of goods. 
  2. The rates for the 3 categories of services provided by you are as follows:
    • Training: 18% -- 999293 Other education and training services and educational support services: commercial training and coaching services 
    • Recruitment: 18% -- 99851 Employment services including personnel search, referral service and labour supply service 

      (6th digit code may be identified from the Schedule annexed to Notification No. 11 on Central Tax Rates, based on the applicability)

       

    • Contracting staff: 18% -- 998513 Employment services including personnel search, referral service and labour supply service: Contract staffing services

 

 

Legislative reference: Section 9 and 10 of the CGST Act, 2017 read with Notification 11/2017 - Central Tax Rates  

Authors: Meghana Belawadi and NR Badrinath

 

 

 

With GST set to be implemented, www.withdia.com brings to you collaborative wisdom on the GST law and potential impact areas for your business. To read more such curated content or to give us your valuable feedback head to our webpage www.withdia.com, or download our Android/iOS app on your phone and have all this knowledge accessible on the go!

In this blog, we look at a query on requirement of registration in case of exporters and eligibility of refunds on exports.

 

Query:

We are in a startup phase. We build products. All our sales are outside India only. Currently, we have no service tax number nor do we take any export benefits anywhere.

  • Do we need to register for GST?
  • Do we need to charge GST to our customers?
  • Do we get tax reimbursement anywhere?

 

Response:

 

A. Registration under GST:

Yes, any person making a supply of taxable goods or services or both is required to obtain registration in the State from where he is making taxable supplies, if his aggregate turnover in a financial year exceeds twenty lakh rupees (or ten lakhs, in case of Special Category States).

The term “aggregate turnover” means the aggregate of the turnovers of all registrations having the same PAN (computed on all-India basis), comprising the following:

  1. Taxable supplies (intra-State and inter-State supplies);
  2. Exempt supplies;
  3. Exports of goods or services or both.

Further, every person making inter-State supplies is also liable to registration, regardless of the threshold limit for turnover. Exports would also be covered within the meaning of the term “inter-State supply” – which means, even if you are just an exporter of goods (assuming that there are no local supplies), you are required to obtain registration under the GST law.

 

B. Collecting tax (GST) on supplies made:

Tax should not be collected where the supply amounts to an export. A supply would qualify as an export only under the following conditions:

  • Goods: Taking of goods out of India to a place outside India

Note: Tax will be recovered where goods are not exported within three months and fifteen days from date of issue of the invoice for export.

  • Services: For a service to qualify as an export, five conditions to be satisfied, which are:
    • supplier of services should be located in India;
    • recipient of services should be located outside India;
    • place of supply of services said to be exported, shall be outside India;
    • Payment for the said service is received in convertible foreign exchange;
    • supplier and recipient of services are not mere establishments of the same person (viz., the recipient is not a branch or any other form of office of the exporter in India).

Note: Tax will be recovered if payment of such services is not received by the exporter in convertible foreign exchange within one year and 15 days from the date of issue of invoice for export;

 

Where any transaction does not qualify as an export, as provided above – the supply would be a taxable supply, attracting GST, which can be collected from the recipient.

 

C. Eligibility of refund on exports:

As exports are zero-rated supplies, the relevant input tax credits are allowed to be utilised against any other output taxes of the exporter. Alternatively, the exporter may claim refund of such taxes, as prescribed.

  • Refund of taxes paid on inputs, input services and capital goods which are used in export of goods or services or both, remaining after utilisation towards other output tax liability – where the export is made without payment of taxes; or
  • Refund of the IGST paid on export of goods or services or both.

 

 

Legislative reference: Section 22 read with Section 24 and 2(6) of the CGST Act, 2017; Section 7 & 8 read with Section 2(5), 2(6) and 16 of the IGST Act, 2017 

Authors: Kushal Choudhary and NR Badrinath

 

 

 

With GST set to be implemented, www.withdia.com brings to you collaborative wisdom on the GST law and potential impact areas for your business. To read more such curated content or to give us your valuable feedback head to our webpage www.withdia.com, or download our Android/iOS app on your phone and have all this knowledge accessible on the go!

We are Nasscom member and are in a startup phase. We build products. All our sales are outside India only. Currently we have no service tax number nor do we take any  export benefits anywhere.What I wanted to know is:

 

Question 1: Do we need to register for GST. I think we may need to do and so have gone ahead with that.

 

Answer: Yes, any person making a supply of taxable goods or services or both is required to obtain registration in the State from where he is making taxable supplies, if his aggregate turnover in a financial year exceeds twenty lakh rupees (or ten lakhs, in case of Special Category States).

 

Question 2: Do we need to charge GST to our customers. I don’t think so as per the GST FAQ

 

Answer:  Tax should not be collected where the supply amounts to an export. A supply would qualify as an export only under the following conditions:

 

  1. Goods: Taking of goods out of India to a place outside India
    • Note: Tax will be recovered where goods are not exported within three months and fifteen days from date of issue of the invoice for export.
  2. Services: For a service to qualify as an export, five conditions to be satisfied, which are:
    • supplier of services should be located in India;
    • recipient of services should be located outside India;
    • place of supply of services said to be exported, shall be outside India;
    • Payment for the said service is received in convertible foreign exchange;
    • supplier and recipient of services are not mere establishments of the same person (viz., the recipient is not a branch or any other form of office of the exporter in India).

 

Note: Tax will be recovered if payment of such services is not received by the exporter in convertible foreign exchange within one year and 15 days from the date of issue of invoice for export;

Where any transaction does not qualify as an export, as provided above – the supply would be a taxable supply, attracting GST, which can be collected from the recipient.

 

 Question 3: Do we get tax reimbursement anywhere? I am not sure on this point.

 

Answer: As exports are zero-rated supplies, the relevant input tax credits are allowed to be utilised against any other output taxes of the exporter. Alternatively, the exporter may claim refund of such taxes, as prescribed.

Question: I am an existing taxpayer registered under Excise, Service Tax and State Tax Laws such as VAT, Entry Tax, Luxury Tax and Entertainment Tax. I received SMS/ EMail with Provisional ID and Password. What are next steps for me? How do I begin to enrol with the GST Common Portal with Provisional ID and Password?
Answer: See the attached document 

Question 1: What is the final clarity on Business transfers ( law which addresses slump sale exemption  of the present regime ) ?


Answer:  Services by way of transfer of a going concern, as a whole or an independent part thereof, would continue to be exempt under GST.  This has been provided in Clause 32 of the Schedule outlining the service tax exemptions to be continued under GST.

 

Question 2: We are fully export unit providing IT services to US clients. I understand that we export does not comes under GST. But do we have to Register under GST? Is it compulsory for us?

 

Answer : Yes you would need to obtain a registration. Registration is mandatory if the value of taxable supplies effected exceeds Rs. 20 lacs. It is important to note that exports are zero-rated supplies and not non-taxable supplies. Hence, it is important that registration be obtained and other compliance procedures duly observed.

 

Legally, it is important to note that a transaction would qualify as exports, only if the prescribed conditions are fulfilled. Thus, procedure-wise, ‘export’ is a claim that would be made by the supplier and it should go through a test by the tax office – to ensure that the conditions are fulfilled. Thus, it is imperative that an exporter should be registered. Further, an exporter is eligible to claim a refund of input tax credits. This, once again, makes it mandatory that registration is obtained – only a registered person can make an application for refund.”

 

Question 3: Suppose our project is in West Bengal and we need to raise  invoice from  Maharashtra (from our H.O. Mumbai) , then which tax we can apply because in Maharashtra we are going to apply GST and in West Bengal, I don't know the which tax structure is there. Please explain also the percentage of GST or any other tax.

 

Answer : If the supply is being rendered by a tax payer in Mumbai to a recipient in West Bengal, the tax that would be applicable would ordinarily be IGST West Bengal.  However, if the tax payer is providing such services from an office / establishment in West Bengal, the applicable tax would ordinarily be CGST + SGST West Bengal.  Management of business consultant services would typically fall under the 18% rate. 

 

As you would appreciate, the individual facts would determine the location of the supplier, the location of the recipient, the place of supply and the rate of tax.    

 

Question 4 :  We are Shrink Wrapped Software Package providing company and our concern is whether our software package will be considered under Goods or Service.

 

Answer : Under the GST Rate Schedule for goods released by the GST Council, there is a specific entry for “Discs, tapes, solid-state nonvolatile storage devices, "smart cards" and other media for the recording of sound or of other phenomena, whether or not recorded, including matrices and masters for the production of discs, but excluding products of Chapter 37” under HSN 8523 in the said schedule.  Under this HSN, software falls under “HSN 8523 8020 – Information technology software”.

 

Given this, supply of IT software on physical media should qualify as ‘goods’ under the GST regime. 

 

Question 5: We are a software company specialising in ERP products. I am trying to register for GST but am unable to find the HSN code which would be applicable to us. Can you please help us in providing the relevant HSN code?

 

Answer : These HSN and SAC codes are available in the drop down menu in the “goods/ services” tab at the time of enrolment on the GST portal.  Please find below the link where the detailed list of HSN codes can be found which is being used for the GSTN registration: 

 

HSN codes – Please click on the link to open the Customs Tariff available on the CBEC website - http://www.cbec.gov.in/htdocs-cbec/customs/cst1617-300616/cst1617-3006-idx

 

 

Disclaimer - The information contained has been obtained from sources believed to be reliable and is intended for general guidance only. This cannot be construed as legal advice and thus disclaims NASSCOM from any legal obligation. NASSCOM disclaims all warranties as to the accuracy, completeness or adequacy of such information. NASSCOM shall have no liability for errors, omissions or inadequacies in the information contained or for Interpretations thereof. 

Ever since the inception of taxation system, the world has witnessed a myriad of instances related to tax evasions.  Although the highly distinguished US Supreme Court Justice, Late Oliver Wendell Holmes Jr., once said, “Taxes are what we pay for civilized society,” nonetheless most of the taxpayers worldwide have an inherent characteristic of looking out for loopholes in taxation framework that can help them dodge the entire administrative system.  Their Indian counterparts are also influenced with the same deceitful passion, and therefore, taxation authorities in India are in portentous need of a new administrative framework.

One cannot question the fact that success of any taxation system is unequivocally reliant on the administrative and regulatory capacity of the jurisdiction.  As India has the federal fiscal structure, taxation authorities in the country have consistently been citing concerns related to how various compliance monitoring functions should be streamlined so as to maintain harmonised communication between all the authorities.  The current indirect taxation system in the country has been unable to maintain strategic coordination between the Centre and the States/Union territories, and this has been a prime concern for ages.  However, with the Parliament showing green signal to the GST Bill, it is quite clear that the overall tax administrative framework in the country would undergo a massive overhaul.

 

Though there are a plethora of whys and wherefores of re-structuring the tax administrative framework in India, this article sheds light on four major loopholes of the existing system.

 

Lack of coordination:  Taxation authorities in India have to face numerous unanticipated complications owing to the absence of strategic coordination with each other.  Due to the federal fiscal system of the nation, it indeed becomes a perplexing task for the authorities to establish direct communication with various regulatory bodies of the Centre and the States.  Lack of coordination between authorities becomes nothing less than an exploitable point for all those who are maligned with unethical intentions of evading tax.  Hence, it can be deduced that a new administrative framework is the need of the hour.

 

Corruption:  There are no two doubts about the harsh truth that corruption exists across all sectors, jurisdictions, and departments in India.  Various experts have opined that the current taxation framework and administrative system have been prime reasons behind the existence of such deep-rooted sleaze in the country.  As various commercial activities attract various rates of taxes in varied jurisdictions, it actually opens the room for corruption across the country.  On the flipside, the uniform GST rates across India from July 1st would play substantial role in eliminating the scope of corruption.

 

Administrative inefficiency:  Before questioning the efficiency of taxation authorities, we must acknowledge the fact that lack of cutting-edge technologies has actually made it difficult for the authorities to ensure immaculate management and monitoring of compliance activities.  As most of the vital functions associated with tax compliance in India (such as return filing, payment, refund claims, and so on) are not automated currently, it is so obvious that regulatory bodies would have difficult time managing and monitoring those functions competently.  As each state is enthusiastically passing its respective GST Bill in State Assemblies, it would become much more convenient for taxation authorities to keep a close eye on all automated compliance related functions.

 

Lack of built-in elasticity:  This is yet another major factor that might raise the eyebrows of contemporary economists.  The income from taxation in India does not surge in accordance with the rise in national income.  India has witnessed this unanticipated trend during the last few years, and if this is not checked as immediately as possible, then it might become a point of grave concern in the near future.  Herein, standard GST rates, automation of compliance related activities, and introduction of GST compliance rating concept can actually help the country maintain unswerving tax-income ratio.

 

In a nutshell:  These are the four major loopholes of the existing taxation system in India, and therefore, one must advocate the need of a new administrative framework for taxation authorities in India.

In this blog, we look at a query on whether registration is mandatory for a person whose entire turnover purely comprises export of services.

 

Query:

We are fully export unit providing IT services to US clients. I understand that what we export does not comes under GST. But do we have to register under GST? Is it compulsory for us?

 

Response:

Yes you would need to obtain a registration.

 

Registration is mandatory if the value of taxable supplies effected exceeds Rs. 20 lacs. It is important to note that exports are zero-rated supplies and not non-taxable supplies. Hence, it is important that registration be obtained and other compliance procedures duly observed.

 

Legally, it is important to note that a transaction would qualify as exports, only if the prescribed conditions are fulfilled. Thus, procedure-wise, ‘export’ is a claim that would be made by the supplier and it should go through a test by the tax office – to ensure that the conditions are fulfilled. Thus, it is imperative that an exporter should be registered. Further, an exporter is eligible to claim a refund of input tax credits. This, once again, makes it mandatory that registration is obtained – only a registered person can make an application for refund

 

Legislative reference: Sections 2(6), 2(47), 22 of the CGST Act, 2017 read with Section 16 of the IGST Act, 2017

Authors: Meghana Belawadi and NR Badrinath

 

With GST set to be implemented, www.withdia.com brings to you collaborative wisdom on the GST law and potential impact areas for your business. To read more such curated content or to give us your valuable feedback head to our webpage www.withdia.com, or download our Android/iOS app on your phone and have all this knowledge accessible on the go!

In this blog, we look at a query on billing of services provided up to the day immediately preceding the GST appointed date.

 

Query:

If GST is implemented on Jul-01 can we continue to bill our clients in July for the services up to June and charge Service tax on such invoices?

 

Response:

No. All invoices issued on / after 01.07.2017 should be GST compliant. Service tax law will cease to apply on such invoices.

Ideally, for services provided upto 30.06, there should be a hard close of the invoices – should be issued not later than 30.06. However, if there are any revisions for the same (both upward or downward), the same may be effected by way of supplementary invoices, debit notes or credit notes, as the case may be during the GST period.

Note – such revisions would be liable to GST.

 

Legislative reference: Sections 142(11) and 173 of the CGST Act, 2017

Authors: Meghana Belawadi and NR Badrinath

 

With GST set to be implemented, www.withdia.com brings to you collaborative wisdom on the GST law and potential impact areas for your business. To read more such curated content or to give us your valuable feedback head to our webpage www.withdia.com, or download our Android/iOS app on your phone and have all this knowledge accessible on the go!

In this blog, we look at a query on the distribution of credits on account of services attributable to more than one GST registration belonging to the same entity.

 

Query:

We have a significant amount of marketing expenses which we incur in Mumbai while most other services are billed to our head office in Noida. The marketing team in Mumbai cannot be moved to the head office for various reasons. How can we distribute the credits accumulating in both locations?

 

Response:

For distributing credits, the law carves out a provision for obtaining a registration as an Input Service Distributor (ISD). This ISD registration would be separate from the registration obtained for business purposes. Further, there is no restriction on the number of ISD registrations that a person can obtain. Therefore, in addition to registering Noida and Mumbai (and other locations from where taxable supplies are made), 2 ISD registrations – one in Noida and the other in Mumbai – can be obtained.

 

Legislative reference: Section 20 of the CGST Act, 2017

Authors: Meghana Belawadi and NR Badrinath

 

With GST set to be implemented, www.withdia.com brings to you collaborative wisdom on the GST law and potential impact areas for your business. To read more such curated content or to give us your valuable feedback head to our webpage www.withdia.com, or download our Android/iOS app on your phone and have all this knowledge accessible on the go!

In this blog, we look at a query on the restriction of credits in case of exports.

 

Query:

A company is engaged in providing software support services to MNCs having operations in India and overseas. If the entire contract is with the Indian companies, will there be any input tax restrictions as the services in India would be taxed and services to overseas locations would qualify as exports?

 

Response:

No. In the instant case, there would no restrictions on input credits. Input tax restrictions would apply where a person supplies taxable as well as exempt services. Although export of services would not suffer tax, they are classified as “zero-rated supplies”. Consequently, they would be reckoned as taxable supplies for the purposes of input tax credits.

Given this, there are no exempt supplies, and therefore, no restriction of input tax credits. This would hold good even where the contract for services to overseas locations is entered into with the overseas entities:

 

Legislative reference: Section 17 of the CGST Act, 2017 read with Section 16 of the IGST Act, 2017

Authors: Meghana Belawadi and NR Badrinath

 

With GST set to be implemented, www.withdia.com brings to you collaborative wisdom on the GST law and potential impact areas for your business. To read more such curated content or to give us your valuable feedback head to our webpage www.withdia.com, or download our Android/iOS app on your phone and have all this knowledge accessible on the go!

In this blog, we look at a query on the number and types of returns to be filed by a registered person.

 

Query:

What are the returns that a Company in the IT ITeS sector be required to file, in a financial year?

 

Response:

The following returns would be required to be filed by every registration (i.e., if operations in two States, by each of the two registrations):

  1. Form GSTR-1: Details of outward supplies (By 10th of every month, for the previous month) – 12 returns
  2. Form GSTR-2: Details of inward supplies (By 15th of every month, for the previous month, based on acceptance/ rejection/ modification/ deletion/ addition of entries to those auto-populated from the GSTR-1 of the various suppliers) – 12 returns
  3. Form GSTR-3: Return for the month (By 15th of every month, for the previous month, based on auto-populated details from furnished Form GSTR-1 & GSTR-2, and payment of taxes through electronic credit ledger or electronic cash ledger) – 12 returns
  4. Form GSTR-9: Annual return (By 31st December of the following financial year) along with audit accounts and a reconciliation statement between the details furnished in the returns and the figures ion the audited accounts (Annual return alone would suffice where the aggregate turnover in the year does not exceed Rs.2 Crore) – 1 return

 

Additionally, where applicable, the below returns would also have to be filed:

  1. Form GSTR-6: Return for distribution of credits by every registration as an Input Service Distributor (By 13th of every month, for the previous month, based on acceptance/ rejection/ modification/ deletion/ addition of entries to those auto-populated from the GSTR-1 of the various suppliers of service) – 12 returns
  2. Form GSTR-8: Only if the Company acts as an e-commerce operator for the supply of goods or services by other suppliers for tax collected at source (By 10th of every month, for the previous month) – 12 returns, if applicable 

 

Legislative reference: Section 37, 38, 39 and 44 read with Section 20 and 52 of the CGST Act, 2017

Authors: Meghana Belawadi and NR Badrinath

 

With GST set to be implemented, www.withdia.com brings to you collaborative wisdom on the GST law and potential impact areas for your business. To read more such curated content or to give us your valuable feedback head to our webpage www.withdia.com, or download our Android/iOS app on your phone and have all this knowledge accessible on the go!

 In this blog, we look at a query on taxability of services provided by unregistered persons.

 

Query:

We engage computer science graduates on specific engagements on a contract basis. Should all such persons be registered under GST?

 

Response:

No. Only persons whose aggregate PAN-India turnover exceeds Rs. 20 Lakhs in a financial year (or 10 Lakhs in where persons operate from Special Category States), or when such persons effect inter-State supplies etc. (other cases where registration is mandatory), a supplier of goods or services would be liable for registration. However, whenever a registered person inwards a supply (may be a supply of goods or a supply of service) from an unregistered person, the recipient of the supply would be liable to discharge tax on the same on reverse charge basis. Consequently, GST would be payable by the Company engaging the graduates, on reverse charge basis, and after making payment of the same, and on receipt of services, the Company would be entitled to claim credit of the taxes paid.

 

 

Legislative reference: Section 9 read with Section 49 of the CGST Act, 2017

Authors: Meghana Belawadi and NR Badrinath

 

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The implementation of the Goods and Services Tax (GST) is one of the biggest tax reforms in the country. The principle reason why GST is such a landmark tax reform is because, for the first time in the history of the country, there will be the ability for the tax payer to take credit for all taxes incurred in the supply chain that are eligible for credit. 

 

This is vastly different from the pre GST scenario, where credit for state taxes was not allowed while paying central taxes and vice versa. For example, an IT service provider liable to pay tax on services rendered is permitted to take credit of central levies ie service tax and excise duty, but is not permitted to take credit of state VAT / Central Sales Tax on its purchases.  This results in a cascading effect on taxes, as not creditable taxes increase the cost base of the service provider, in turn increasing the price of the service on which the service tax is levied.

 

Under the GST regime, all taxes paid will be creditable while paying tax on the next leg of the economic chain. As such, there will be tax only on the net value add at each stage.  However, there are rules attached to the manner in which input tax credit can be claimed.  It is essential that these rules are followed to ensure that there is no loss of credit in the chain.  These have been elaborated further in the following paragraphs:

 

Who is eligible to claim credit of input taxes?

 

Only a registered person is entitled to claim credit of input taxes and therefore it is essential that a supplier takes a registration in each state where it has credit pools.

 

Can credits be claimed on all types of expenses?

 

Input tax credit can be claimed with respect to:

 

  • Inputs;
  • Input services; and
  • Capital goods

 

Input tax credit on capital goods can be claimed in the first year of purchase, provided income tax depreciation is not claimed on the GST paid thereon. There would be a requirement to reverse credit in the event of sale of the capital goods in subsequent years, based on a depreciated value. 

 

Capital goods would cover all goods which are capitalized in the financial statements.

 

What are the conditions to be fulfilled for claiming credit of input tax?

 

The following conditions would have to be fulfilled in order to claim credit of input taxes paid:

 

  • The expenses / tax in question would have to be declared as an inward supply in its return of inward supplies (GSTR 2) and would have to be electronically matched with the corresponding return of outward supplies (GSTR 1)
  • The expenses should be incurred in the course or furtherance of business
  • The goods / services should have been received
  • Possession of a tax invoice, debit note, or such other taxpaying document
  • The expenses should not fall within the list of expenses for which credit will not be allowed
  • The vendors should be paid within 180 days from the date of the invoice

 

What happens when the tax paid to the supplier has not been deposited by him and not disclosed in his return?

 

When a supplier does not disclose a supply made in his return and has therefore failed to discharge the taxes with respect to the same, the customer would not be entitled to such credit.

 

These mismatches are reflected in the customer’s auto populated return for inward supplies and the customer is given time until the filing of his return for the subsequent return to rectify the same.

 

Discrepancies not ratified are added to the output liability of the customer in the return succeeding the month to which the error pertains to. In other words, a recipient claiming input tax credit has effectively 2 months from the month of procurement to rectify mismatches in the claims he makes. 

 

This is in line with the philosophy of seamless flow of credit through the chain from manufacturer/ importer to the end customer and also with the concept of matching of invoices, ie, linking the invoice disclosed and tax payment by the supplier to the availment of input credit to the purchaser. . 

 

What happens when the supplier is not registered and has therefore not charged a tax on his invoice?

 

Where GST on taxable supplies has not been charged by a supplier, one of the reasons for this could be that his turnover is below the threshold for registration.

 

Given this, he would qualify as an unregistered dealer. A person making purchases from an unregistered dealer is required to discharge GST on such purchases as the recipient of service under reverse charge. 

 

He would subsequently be eligible to input credit of such tax paid subject to it qualifying as an input credit.

 

What are the list of goods/ services that are not eligible as credits?

 

  • Motor vehicles - except when
    • used for further taxable supply of such vehicle or conveyance;
    • used for providing taxable service of transportation of goods/ passengers;
    • Imparting training on driving, flying, navigating such vehicle or conveyance
  • Any goods / service that are given as personal use of for consumption by the employee (examples: health and fitness center, rent-a-cab, life and health insurance etc)
  • Works contract services used for construction of immovable property(except plant and machinery);
  • Goods or services received by a taxable person for construction of immovable property on his own account (except plant and machinery);
  • Goods/ services on which tax has been paid under composition scheme;
  • Goods/ services used for private or personal consumption;
  • Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

 

Are there any restrictions applicable in case the input tax credit pertains to expenses incurred for exports / exempt / non taxable supplies?

 

Input tax credit would be available for expenses incurred for exports / supplies to SEZ’s. Such input tax credit could be utilized to pay domestic liability or could be claimed as a refund.

 

Input tax credit for expenses exclusively incurred for exempt / non taxable supplies would not be available. Such credit would have to be tracked separately. 

 

Additionally, proportionate reversal method has been prescribed for common credits.

 

What are the conditions applicable for common input credits used for both business and non-business purposes?

 

In the event of common inputs / assets / services that are used for both business as well as non-business purposes, 5% of input tax credit would have to be reversed.

 

What is the time limit for availing credit of input taxes?

 

Input tax credit can be claimed on invoices issued within the financial year upto September 30 of the following year. Therefore, for an invoice dated August 1, 2017 as well as an invoice dated March 31, 2018, the last date for the claim is September 30, 2018.

 

Do watch this space for our next article in the GST series – Place of supply: Relevant provisions for the IT / ITES segment

 

Disclaimer

The above blog is based on inputs from our GST knowledge partner, BMR Advisors. The blog is with the intent to provide general guidance and does not render any definitive opinion. Prior professional advice is recommended before implementation of any aspects covered above.

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