120 Days of GST

Its around 4 months have passed, we have entered in the GST regime. Like any other major change, GST is also facing teething problems, which are expected to be sorted out in coming few months.

This blog will try to comment on performance of GST in first 120 days.

Biggest achievement of GST is quantum of the tax collection. GST collected so far is in line with the estimates provided by the govt at the time of rollout. As per latest data released by finance ministry, GST collection was above Rs. 95,000/- Crores in July 17 and was above Rs. 91,000/- Crore in August 17. Collection in September 17 was at Rs. 92,150/- Crores. Figures of October are awaited. However, point to be noted is this is only the collection of GST. This is not the actual revenue for govt. Because, from this collection, govt has yet to pay the refunds to eligible assessees. Collection net of GST can be termed as actual revenue for the govt. Nevertheless, gross collection as well is impressing.

Some financial experts and socialists were arguing that there will be huge protest from small businessmen against GST. Fortunately, it is not so. GST is well accepted by entire strata of society and people are adapting to it.

However, there is major cause of concern as well. Thing to worry about is the fact that even July months GST returns are not yet filed completely. (People have collected GST and paid it to govt, but return filing process is pending). Due date for filing GST Returns for July 17 have been extended again and again and as of date, it is 30/11/2017. Govt. has claimed that it has established fully automated system with almost nil human intervention which will ensure transperancy and accuracy. However, even after 120 days post implementation, no one knows how that system works exactly. Reason being, not even the first months returns have been filed yet! Govt and tax payers are blaiming this on each other. As per govt, people are not yet used to it, and as per tax payers, system is too complicated to get accustomed with it.

For certain sectors, GST rates are too high, and govt. has revised it last couple of months. Though govt is paying attention to the troubles of various industries, it wont be possible for the govt. to satisfy all of them! Thus, some sort of resistence will always remain.

Lets see, what happens next!

Till then, stay tuned and keep reading!!

GST – How it Works – Part 2 (Scope and Taxable event)

In last blog we have seen three main type of GST Levies – CGST, SGST and IGST. We have also seen which levy will be applicable in which case.

Before going into the intrecacies of GST, it is important to know exact scope of GST. Scope of any tax is decided on the basis on taxable event. We have seen the meaning of the term ‘taxable event’ in last blog. We have also seen that in GST taxable event is ‘Supply of Goods and Services‘. Let us try to discuss this in detail.

By mere reading of this term, it is very simple to understand that in all cases where any goods and services are supplied, GST will be payable. What is worth noting is that GST law uses the term ‘Supply’ and not ‘Sale’. When I use the term ‘Sale’, here also goods are supplied by seller to buyer. But intention of sale is very clear, i.e. seller will give goods to buyer and will receive money from buyer for the same. However, like GST law says, when we use the term ‘Supply’, its scope become much much wider. As per GST law, Supply includes any of the following terms:

1) Normal Sale Transactions / Providing of Services

2) Gifts / Donations  / Free Samples (All these activities are done without an intention for receipt of money or revenue generation. But still, there is ‘Supply’ of goods from donor to donee. Even if goods are donated or services are provided to charitable trusts, GST is payable.)

3) Exchange of goods (Here too, there is no movement of money. But still, there is ‘Supply’ of goods from one person to another. This may also include Barter exchange. Thus, all the cases where supply is done in kind, GST becomes applicable.)

4) Renting / Leasing out the Property (This includes Supply of immovable property. All the leave and license agreements, lease agreements etc. will be covered here)

5) Transaction between Principal and Agent

6) Import of services in India

7) Permanat transfer / disposal of Business Assets where input tax credit is already claimed

8) Transfer of right to use the goods without transferring title to the goods (eg. rent a cab, renting of machinery, providing free accomodation, free transportation etc)

9) Construction activity (Though there was huge resistance, this activity was covered in Vat. Same is covered in GST as well. In all first sale transactions i.e. from builder to first buyer, GST is payable. However, if entire sale consideration is paid after completion certificate is received, GST is not applicable.)

10) Any perks or services provided by Employer to Employee exceeding Rs. 50,000/- per year. This comes in the ambit of Supply of services and hence, GST will be payable.

Above points cover only broad and widely used ideas of the term ‘Supply’. There are many other clauses incorporated in the act which make meaning of ‘supply’ in GST virtually unlimited. 

Along with supply, levy of GST is equally dependent on ‘Place of Supply’. Will try to cover this in next blog. Till then, Stay Tuned and Happy Reading 😊.

GST – How it works? Part 1

Thanks for the overwhealming response given to the last two blogs on GST 😊.

In next few blogs will try to speak about working of GST. To start with, who is liable for GST? If annual turnover of business exceeds Rs. 20.00 Lakh, person is liable for GST. This limit is Rs. 10.00 Lakh for some under-developed states and north eastern states. 

After this, we need to know what is the taxable event in GST. Taxable event means moment at which tax becomes due. For eg. In case Income tax, tax becomes due when we earn money. In case of customs / import duty, tax becomes due when goods are received in India. Similarly, in GST, taxable event is supply of goods and services. I.e. once the goods or services are supplied by one person to another, GST becomes due. Now what does supply mean under GST and what is included in supply is very vast aspect on which entire levy of GST is based. Will try to cover this in may be next blog.

But before that lets know three main type of GST – SGST, CGST and IGST. Now, what is this? In earlier blogs we have seen that GST is going to replace host of indirect taxes levied by state govt and central govt. That means when we will pay GST, some portion of it will go to state govt and some portion will go to central govt. 

When person supplying the goods / services and place where goods/services are supplied are in the same state, CGST and SGST are levied. For eg. If you take dinner in AC Restaurant in Mumbai, you will have to pay GST @ 18%. Here, Restaurant owner is resident of Mumbai. Place where he is supplying service (i.e. the restaurant) is also in Mumbai. Thus, in this case you will pay CGST and SGST. Both levies are equal. This means out of total 18% GST, central govt will get 9% GST (Central GST – CGST). Remaining 9% will go to state govt. (State GST – SGST). At the time of depositing the GST to govt, restaurant owner will deposit CGST to central govt and SGST to state govt. Funda is simple here.

But this is not so simple for IGST. It refers to Integrated GST (I – GST). IGST is payable when person supplying the goods and place of supply are in different states. Eg. If seller in Maharashtra sells goods in Gujarat, he will charge IGST. This entire IGST will be deposited with central govt. Central govt will thereafter give the share of tax to individual states.

Apart from these three, there is fourth type as well. This is known as UTGST (Union Territories GST). This is applied when goods are sold / supplied in Union Territories. Logic is same as SGST.

In all the above cases, credit of GST paid at earlier stage will be available. However, since CGST will go to centre and SGST will go to state, CGST and SGST cant be set off with each other. IGST can be set off with any of these.

Will try to write more in my next blog on working of GST. Till then stay tuned and Happy Reading 😊.

GST Tax Rates – Whats Costlier and Whats Cheaper

Thanks for overwhealming response given to the last blog!😊☺😊. Last blog “GST aayo re” has got maximum views till now!😄

As GST is implemented now, we broadly have 5 tax rates in place – 0%, 5%, 12%, 18% and 28%. Lets see how much tax is charged on various goods and Services.

0% Tax Rate

0% tax (i.e. in fact no tax) will be applicable as on date to Fresh meat, fish, chicken, eggs, milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, all kinds of salt, jaggery, hulled cereal grains, Bindi, sindoor, kajal, human hair, bangles, Drawing or colouring books, stamps, judicial papers, printed books, newspapers, jute and handloom, Bones and horn cores, hoof meal, horn meal, bone grist, bone meal, etc.

In case of services, 0% tax is applicable for Grandfathering service and low budget hotels and lodges with room rent below Rs 1,000/-.

5% Tax Rate 

5% tax rate will be applicable to fish fillet, packaged food items, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, cashew nut, cashew nut in shell, raisin, ice, clothes/garments below Rs 1000, footwear below Rs 500, Bio gas, kerosene, coal, medicines, insulin, stents used in surgery, agarbatti, kites, fertilizers, first-day covers and lifeboats.

In services 5% tax will be applicable to railway travel, air travel of economic class and small restaurants

12% Tax Rate

12% tax will be applied on frozen meat products, butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, fruit juices, namkeen and ketchup & sauces, mobile phones, Cutlery items like Spoons, forks, ladles, skimmers etc, Ayurvedic medicines, diagnostic kits, tooth powder, umbrella, sewing machine, spectacles, playing cards, chess board, carom board and other board games like ludo, clothes / Apparel above Rs 1000.

Services in 12% tax are Non-AC hotels, business class air travel, state-run lottery and work contracts.

18% Tax Rate

18% tax will be paid on biscuits, flavoured refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, curry paste, mayonnaise and salad dressings, mixed condiments and mixed seasonings, mineral water, Footwear costing more than Rs 500, Printed circuits, camera, speakers and monitors, printers, electrical transformer, CCTV, optical fiber cable, bidi leaves, tissues, envelopes, sanitary napkins, note books, steel products, pencil sticks, headgear and its parts, aluminium foil, weighing machinery, bamboo furniture, swimming pools and padding pools.

18% tax Services include AC hotels that serve liquor, telecom services, IT services and financial services like Banking, Insurance, Share Broking etc.

28% Tax Rate

28% tax will be levied on  gum, molasses, chocolate not containing cocoa, waffles and wafers coated with choclate, Deodorants, shaving creams, after shave, hair shampoo, dye, sunscreen lotion, Paint, wallpaper, ceramic tiles, Water heater, dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum cleaner, shavers and hair clippers, Automobiles, motorcycles and aircraft for personal use. Services include 5-star hotels, race club betting, private lottery and movie tickets above Rs 100.

Gold is taxed at special rate of 3.00%

Above list is of general used items which can affect the common man. Exhaustive list is as per HSN system (Harmonised System of Nomenclature) which was prevalent in erstwhile excise law.

You can observe that some items are included in two tax rates. Footwear or wearing clothes or restaurant services for eg. This is because their rates are determined by quality of service they are providing or value they are charging. For eg. if you are eating in non ac restaurant, GST is lower and for ac restaurant, its higher. Similarly, if you buy formal shirt costing below Rs. 1000/-, GST is lower and above rs. 1000/- GST is higher.

There is wide spread allegation that keeping so many tax rates will create a problem. Further keeping two or more tax rate for single item will increase complications. But govt justifies this by saying, if you are earning more and spending more, you need to pay more.

Will try to focus more on GST in next blog.

Stay tuned and Happy Reading. 😊.

GST aayo re…

Long awaited and most discussed GST is finally implemented from today!

No tax in India is discussed so extensively like GST. From last 17 years we are discussing that we need to have something like GST. As our PM Modiji correctly commented in his address in the launching ceremony, “There are 500 type of taxes that play there role. Today we are getting rid of them. From Ganganagar to Itanagar and from Leh to Lakshdweep its One Nation One Tax.”

Benefits of GST are already discussed in the last blog. Europian union (EU) is already having free movement of goods and services among the member nations which facilitates ‘ease of doing business.’ Unfortunately, in India, though we are a Single nation, till now each state had different tax rules and different tax structure. Now with GST since we are having one tax, undoubtedly, our Country will develop into single unified market.

There were different taxes levied by different govt. which had different set of rules. This not only resulted in multiple compliances but also created cascading effect of taxes. (Please refer earlier blog to know more about cascading effect of taxes). It was also resulting in artificial scarcity and inflation in certain cases. GST tries to eliminate most of the problems given above. Govt also claims it will increase the national income, investment, exports and will generate employment.

Our Hon PM also made one more statememt at launching program. He said that GST is Good and Simple Tax. GST is Good (not only good, the ideology is so good, it can even be termed as best). But whether its Simple, only time can tell.

Along with the benefits, there are many allegations that the way in which GST is implemented and the compliances expected to be met under GST, will be troublesome for small businessmen. 

On this background, have you ever wondered why our all tax laws are so Complex? The reason is we Indians are most notorious in evading the taxes. Look at some of the cases pending at ITAT or CESTAT, you will be amazed to see the innovative ways people find out to evade the taxes. Ultimately, aim of any tax law is to collect the tax. If people are evading the taxes by finding new ways, govt is ought to make new provisions which will curb the malpractices. This circle goes on and our tax laws become highly complex. If all of us decide to pay the taxes very honestly and tranparently, our tax laws will become as simple as nursery poems! Personally, as far as complexity of tax laws is concerned, I feel, first blame should be on the taxpayers and letter on the Govt.

Will try to focus more on various aspects of GST in next blogs. But one thing is sure, like surgical strike and demonetisation, implementing GST is bold step to make India stronger and better. Personally, I welcome it with all the positivity!!!

Welcome GST Welcome!!!

Goods and Service Tax (GST) – How it works

Last blog was about need of GST and how it will mitigate the cascading effect of tax. In this blog, let us try to understand what exactly GST means and how it will actually function.

GST is destination based tax levied on consumption of Goods and Services. First thing is very clear that GST is charged on consumption (i.e. on use of goods and Services). 

Secondly, GST will be charged at every stage right from manufacture of goods up to the final consumption by the end user. In every stage, GST paid at earlier stage will be available as set off. Due to this, only value addition will be charged at every stage. 

For eg. if Mr. A purchase Goods worth Rs. 1000/- and pays GST of Rs. 100/-. After processing he sells the goods for Rs. 1500/- and collects GST of Rs. 150/-. Though he has collected Rs. 150/-, will he deposit entire Rs. 150/- to govt.? NO. He will deposit only Rs. 50/-. (Rs. 150/- GST collected from customer minus Rs. Rs. 100/- GST already paid to the supplier). This means, Mr. A will take the credit of GST already paid by him and will deposit only the residual amount.

Now look at this from other perspective. Mr. A has purchased goods of Rs. 1000/- and have sold the same for Rs. 1500/-. What is the value addition done by Mr. A? Rs. 500/-. And how much GST he is actually depositing to Govt.? Rs. 50/-. Thus, to put in other words, GST will actually charge only the amount of value addition done at every stage. This is essentially required to avoide cascading effect of tax (Pl refer earlier blog for more details on cascading effect of tax). 

GST is expected to subsume following type of Indirect taxes currently prevailing in India:

1) Excise Duty which is currently charged on Manufacture

2) Custom Duty which is currently charged on Import of goods. (At present, we have three custom duties. Basic Custom Duty, Countervailing Custom Duty (CVD) and Special additional Customs Duty (SAD). Out of this three duties, CVD and SAD will be merged in GST. However, Basic Custom Duty will remain after GST also.

3) Service Tax currently charged on supply of services

4) VAT / CST currently charged on sale of goods.

5) Entertainment tax

6) Luxury tax

7) Entry Tax (eg. Octroi or LBT) charged by local authorities.

At present, all the above taxes are levied by different Govt. authorities. GST will be single tax and hence, there has to be some mechanism to share the revenue collected from GST to different authorities. For this, in India, we are planning to apply Dual GST system. This will have total four types – CGST (Central GST), SGST (State GST), UTGST (Union territory GST) and IGST (Integrated GST). Will try to focus on this in next blog.

Till then, stay tuned and happy reading 😊.

Goods and Service Tax – Why we need GST?

Loksabha has recently passed the GST bill, and most likely it will become effective from 01 July 2017.

Major benefit of GST is it will avoid cascading effect of tax. To put in very simple words, cascading effect of tax means ‘Tax on Tax’. For eg. Mr. A sells goods of Rs. 1000/- to B. Assume sales tax @ 10%. A will charge Rs. 1100/- from B. (Actual Price Rs. 1000/- + Sales Tax Rs. 100/-). Now Mr. B again sells the same goods to Mr. C. Here Mr.B will charge Rs. 1,210/- to Mr. C. (Actual price Rs. 1100/- + Sales Tax Rs. 110/-). In this case, Rs. 1100/- already includes tax of Rs. 100/-. Still Mr. B has charged 10% Sales Tax on entire amount of Rs. 1100/-. This is called as tax on tax (i.e. cascading effect of tax).

Due to this, few years ago VAT was introduced. In VAT, every next stage dealer gets the credit of tax paid by earlier dealer. This avoides ‘Tax on Tax’ as given in above example. Same funda applies to Service Tax and Excise where input tax Credit in form of CENVAT is available. 

Now, a million dollar question arise that if we have input tax machanism to avoide cascading effect of tax, why we need GST? Reason is, we can set off VAT against VAT, or excise against excise but we cant set off VAT against Excise or Excise against CST or VAT against Customs or Service tax against Octroi!!!

Confused? You must be. Cos Indirect Tax structure in India is really complex. We have Excise (for manufacture), VAT/CST (for sale of goods), Service Tax (for sale of services), Octroi/LBT (as entry point tax), Customs (for imports) and so on. All these taxes are regulated by various statutes and collected by different authorities. For eg. excise and customs is collected by Central Govt. VAT is collected by State Govt. Octroi is collected by local authority etc. Since tax collecting authorities are different, they do not allow for set off for tax paid to another authority at earlier level. This results in cascading effect of tax. Moreover, overall indirect tax administration become highly complicated.

And here comes the magic of GST. GST will be the single tax which will replace all indirect taxes (Though there are few exceptions, same will be dealt in next blogs). GST will make tax administration easier, simpler and tax payer friendly. Since almost all Indirect taxes will be absolved in one single tax, cascading tax effects will become minimum. It may also increase the revenue of the government. Rather than increase in revenue, it will reduce the cost of the govt to great extent. Imagine various type of taxes given above, manpower deployed for tax collection, infrastructure and overhead cost involved in collection of taxes. When all the taxes will be replaced by GST, tax collection cost for the government will surely reduce.

Implementation of GST is a cumbersome process. Cos it will change the entire mechanism of Indirect tax collection. How GST will actually work, how it will be implemented, what will be the rates, what will become costlier and what will be cheaper are some of the questions to be answered.

Will try to focus on some of these aspects in next blog. Till then, stay tuned and happy reading 😊