Jul 312017
 

Liability to pay GST on expense

As we all know that from 1st July 2017, GST is payable on sales made by trades, manufactures etc which hitherto paying taxes under existing laws. However, do we know that GST is also payable on expense incurred by the assessee. There we are discussing the related provisions in brief:

Section 9(4) of the act, as stated below, cast a liability on the purchaser of the goods and / or service to pay the GST:

(4) The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

(Similar provisions are inserted in respective state GST laws, IGST and UTGST laws)

Thus, the liability to pay GST is twofold as explained below:

Direct liability Indirect liability
Simple to understand that in case any supplies are made the supplier is liable to pay GST and get it recovered from the purchaser. Here, an attempt is made to recover the taxes from the purchaser in case supplier is not liable to pay the GST as his turnover is below Rs 20 lacs.

Caution to business owners

From now onwards, before booking any expenditure in the profit and loss account, accountant must go through the list of expenses and find out:-

  1. Whether GST is liable to be paid on the expenses under GST law?
  2. If yes, whether GST is paid by the supplier of goods and / or services?
  3. If GST is not paid, find out the HSN code and rate of GST based on the classification criteria of the goods and / or services received and consumed by the receiver registered person?
  4. Raise invoice on himself of the taxable amount and tax value of the respective goods?
  5. Pay the tax liability on the above tax invoice?
  6. Find out whether GST is paid above is also available as input tax credit (ITC) or goods and / or services falls under section 17(5)?
  7. In case goods / services under question falls under section 17(5) input tax credit will not be available irrespective of the fact that GST is paid by supplier or receiver?

Expenses not liable to GST under reverse charge mechanism

Expenses on which GST is not payable:

  1. Salary to staff
  2. Wages to staff
  3. Salary, interest on loan, commission etc to partners of the firm
  4. Electricity expense
  5. Petrol
  6. HSD
  7. Any payment of statutory dues
  8. Expenses upto Rs 5000 per day in aggregate for supplies from all unregistered taxable person in a single day.
Jul 282017
 

Service provided before GST and not concluded

Query?

How the transactions would be viewed legally as well as by the department which have commenced provision of service in June 2017 but the invoicing and the payment for the same are spilling over to July 2017 when the GST is effective?

Legal Provision:

Under Existing tax (i.e. Service Tax) Under GST regime
“Section 66B – Charge of service tax on and after Finance Act, 2012There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen per cent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person toanother and collected in such manner as may be prescribed.

 

SECTION 67A – Date of determination of rate of tax, value of taxable service and rate of exchange:

(1) The rate of service tax, value of a taxable service and rate of exchange, if any, shall be the rate of service tax or value of a taxable service or rate of exchange, as the case may be, in force or as applicable at the time when the taxable service has been provided or agreed to be provided.

 

Explanation. — For the purposes of this section, “rate of exchange” means the rate of exchange determined in accordance with such rules as may be prescribed].

 

When tax is payable under existing law:

Under the existing service tax regime tax is payable at the point of time determined by Point of Taxation Rules 2011 which is earlier of the following events:

a)    Date of invoice, if the same is issued within 30 days of completion of service, if not, the date of completion of the service;

b)    Receipt of advance to the extent of such advance or receipt of payment

Levy – Section 9 (1)There shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person. 

Time of Supply 13

(2) The time of supply of services shall be the earliest of the following dates, namely:—

a)    The date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier; or

b)    The date of provision of service, if the invoice is not issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier; or

c)     The date on which the recipient shows the receipt of services in his books of account, in a case where the provisions of clause (a) or clause (b) do not apply”

 

“Section 142(10) Save as otherwise provided in this Chapter, the goods or services or both supplied on or after the appointed day in pursuance of a contract entered into prior to the appointed day shall be liable to tax under the provisions of this Act.

 

Section 142(11)(b) Notwithstanding anything contained in section 13, no tax shall be payable on services under this Act to the extent the tax was leviable on the said services under Chapter V of the

Finance Act, 1994”

 Examples & conclusion:

Particulars Service Provided Invoice raised Payment received Action
Case 1 Before June 30 Before June 30 Before June 30 Pay Service Tax
Case 2 Before June 30 Before June 30 After June 30 Pay Service Tax
Case 3 Before June 30 After June 30(Invoice raised within 30 days) After June 30 Always batter to pay service tax.
Case 4 Before June 30 After June 30(Invoice is not raised within 30 days) After June 30 Pay Service Tax
Case 4 After June 30 After June 30 After June 30 Pay GST

Jul 262017
 

Whether educational institutions are also liable to get registered under GST?

Are education institute are liable to be pay GST:

Rate of GST on services as prescribed by government under Sr. No. 69 is given below: of Services Rate

Sr. No. 69

Services provided -

a)    by an educational institution to its students, faculty and staff;
b)    to an educational institution, by way of,-
i.    transportation of students, faculty and staff;
ii.    catering, including any mid-day meals scheme sponsored by the Central Government, State Government or Union territory;
iii.    security or cleaning or house-keeping services performed in such educational institution;
iv.    services relating to admission to, or conduct of examination by, such institution; upto higher secondary:

Provided that nothing contained in entry (b) shall apply to an educational institution other than an institution providing services by way of pre-school education and education up to higher secondary school or equivalent.

Nil

Thus, as per above entry educational institution are not required to pay GST on their services provided to students.

Are educational institutions are required to obtained registration under GST?

As per section 22(1) of the act – Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees.

For ascertaining the liability to obtained registration two major conditions needs to be fulfilled:

(i)    For ascertaining place of registration – from where taxable supplies are being made.
(ii)    When liable to obtained registration – when aggregate turnover in a financial year exceeds Rs 20,00,000/-.

Section 23(1)(1) states that –  The following persons shall not be liable to registration, namely:-

Any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the Integrated Goods and Services Tax Act;

Taxable supplies:

Section 2(108) Taxable Supply  means a supply of goods or services or both which is leviable to tax under this act;

 As per section 9 services provided by educational institutions are leviable to tax and hence GST shall be levied on services are provided by educational institute at the rate notified by government which is NIL as mentioned above.

Aggregate turnover:

Section 2(6) AGGREGATE TURNOVER  means the aggregate value of:(i)            Taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis),(ii)           Exempt supplies,

(iii)          Exports of goods or services or both and

(iv)          Inter-State supplies of persons having the same Permanent Account Number,

To be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess;

Section 2(47) Exempt Supply means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;
Section 2(78) Non-taxable supply” means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act;

Since, services provided by educational institutions are exempted supply which are to be included in the included turnover for ascertaining the liability to obtained registration.

Conclusion:

In view of the above discussion the position of educational institutions may be summarized as below:

  1. In case educational institution is providing only educations services than such fees are chargeable at NIL rate and such educational institutions are not liable to get themselves registered.
  2. In case educational institutions are also providing other supplies, i.e., providing books to students, providing shoes and dress etc to students then in such cases such institutions are liable to get themselves registered.

Effect of registration:

  • Fee receipts shall be issued to students in the format prescribed under GST.
  • All expenses incurred by educational institutions needs to be scrutinized to see whether any liability to pay GST exist under section 9(4) as reverse charge mechanism taxpayer.
  • Monthly returns shall be filled all such educational institutions.
  • Input tax credit may be claimed for eligible expenses
  • Refund may be claimed for unutilized input tax credit.

Jul 252017
 

Common mistake occurred in transition to GST regime

I have personally identified some mistakes which business man are doing in the transition process from existing acts to GST regime. If the data is not properly synchronize properly from the very beginning of transition process it is obvious that difficulty may arise subsequently at the time of filing of return or validation of return or claiming refund.

Here it should be noted that under GST there is a online process of matching date and cross validation and hence any mistake you incurred at the time of making sale invoice it cant be hidden and get noticed at the time of filling return or matching of return. Further, non filing of data or wrong filing of data is auto penalized under GST and hence it is important file correct data to avoid future difficulties.

Here an attempt is being done to identify such common mistakes that are doing viral in transition process which needs to be avoided:

  1. Place of supply in case of providing services is not known or not known properly. In case of provider of services place of supply is specifically mentioned under section 12 & 13 of the act.

    a.    In case any service is not specifically covered under section 12 or as the case be section 13 then place of supply will be registered address of recipient of services in case supply of services to registered person.
    b.    In case supply of services to unregistered person place of supply will be the address of recipient known to the service provider.
    c.    In case address is not known than supplier address will the address of recipient. In such cases supplier will charge CGST and SCGST in all cases.
    d.    In few cases act have made it compulsory to mention the address in that cases service bill can be provided only after recipient address is mentioned on invoice.

  2.  The next common mistake is to mentioning GST against tax charge. This is technically wrong under that act. Mentioning GST over the invoice and charging tax combining CGST and SGST means you are charging IGST.

    a.    In case of inter-state sale: If you are selling goods / services to registered person where IGST is applicable then clearly mention IGST over the invoice. As IGST, CGST and SGST needs to be transferred under different account heads of the government.
    b.    In case of local sale: If you are selling to local registered person than mentioned both CGST and SGST and corresponding amount of tax under different column of the invoice.
    c.    Avoid: Never mix the CGST, SGST and IGST.

  3. How to apply for composition levy (CMP – 01) – Still there is confusion among trades that how can they avail benefit of composition scheme. Now new CMP forms for applying for composition scheme are now available on website.

    a.     It should be noted that while applying for composition scheme every trade or restaurant service provider shall give details of his stock as on 30th June 2017.
    b.    Further, if you have any stock of inter state purchase than you will not be allowed to avail the benefit of composition scheme at the time of migration.
    c.    In the above case you shall register first as normal trader under GST and then apply of composition scheme under GST subsequently.
    d.    Option of paying tax under composition levy shall be chosen at the start of the year and the same needs to be carry forward of the rest of the year.

  4. Problem in identifying correct tax Rate – Clarity over tax rates on items dealing with is required and best way to avoid future disputes is to sit with your supplier and get clear over the HSN code of the items you are dealing with. Once your HSN code is clear tax rate corresponding to that HSN code is your tax rates.

    a.    Here it’s the worth to note that HSN code is required to mention only in those cases where your turnover is more than 150 lacs rupees.
    b.    But clarity over HSN code is required to all suppliers as in all cases return are cross matched and in case return are not matched mis-match report will be generated by GSTRN. This will cause unnecessary difficulties at the time of validation of return.

Jul 242017
 

GST and TDS calculation under Income Tax Act

Circular no 23/2017 of CBDT:

The Central Board of Direct Taxes (the Board) had earlier issued Circular No. 112014 dated 13.01.2014 clarifying that wherever in terms of the agreement or contract between the payer and the payee, the Service Tax component comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XVII-B of the Income tax Act, 1961 (the Act) on the amount paid or payable without including such Service Tax component.

Now, the Government has brought in force a new Goods and Services Tax regime with effect from 01.07.2017 replacing, amongst others, the Service Tax which was being charged prior to this date as per the provisions of Finance Act, 1994. Therefore, there is a need to harmonize; the Circular No. 01/20 14 of the Board with the new system for taxation of services under the GST regime.

Hence therefore, wherever in terms of the agreement or contract between the payer and the payee, the component of ‘GST on services’ comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XV II-B of the Act on the amount paid or payable without including such ‘GST on services’ component.

Conclusion:

The amount of TDS shall be computed without grossing up for the goods and service tax (GST) component, which is also part of the bill.

What is included in GST for the purpose of deduction of TDS at source?

GST for these purposes shall include:

  1. Integrated Goods and Services Tax (IGST),
  2. Central Goods and Services Tax (CGST),
  3. State Goods and Services Tax (SGST)and
  4. Union Territory Goods and Services Tax (UTGST).

For the purpose of above circular, GST does not included cess chargeable under GST (Compensation to the States) Act which is also a part of GST chargeable under the above acts. Matter needs to be further clarified as to whether TDS shall also be deducted on the cess component or not. Practically cess shall also be excluded for the purposes of deduction of TDS.

What is the impact of above circular on the existing contract as on 01.07.2017?

Any reference to ‘service tax’ in an existing agreement or contract which was entered prior to 01.07 .2017 shall be treated as ‘GST on services’ with respect to the period from 01.07.20 17 onward till the expiry of such agreement or contract.

Example: There are several payments, such as works contracts which attract GST (at 18%) and which also attract TDS (at 10% on fees for technical services, 2%/1% on work contract) under the Income Tax (I-T) Act.

Whether TDS under GST and TDS under income tax shall be deducted separately?

As the purpose of deduction of TDS under GST and TDS under income tax act is different and hence in cases where as per terms of contract TDS under income tax and TDS under GST is deductible at the same time than both are deducted separately and accounted for in the different accounts and further deposited under separate account.

Jul 182017
 

Legal provision:

Legal provisions as to determination of place of supply of goods and / or services are provided under section 10 of the The Integrated Goods and Services Tax Act. The legal provision is reproduced as below:

Place of supply of goods other than supply of goods imported into, or exported from India.
(1) The place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under,––

  1. where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient;
  2. where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person;
  3. where the supply does not involve movement of goods, whether by the supplier or the recipient, the place of supply shall be the location of such goods at the time of the delivery to the recipient;
  4. where the goods are assembled or installed at site, the place of supply shall be the place of such installation or assembly;
  5. where the goods are supplied on board a conveyance, including a vessel, an aircraft, a train or a motor vehicle, the place of supply shall be the location at which such goods are taken on board.

(2) Where the place of supply of goods cannot be determined, the place of supply shall be determined in such manner as may be prescribed.

Analysis:

Part A: Where the supply involves movement of goods:

S. No. Circumstances Place of supply
1 Movement of goods by:·         Whether by the supplier or·         The recipient or·         Any other person The location of the goods at the time at which the movement of goods terminates for delivery to the recipient.
2 Delivery of goods by supplier to recipient or any third person:·         On the direction of third person The principal place of business of such person
3 Goods are assembled or installed at site Place of such installation or assembly
Goods are supplied on board a conveyance, including a vessel, an aircraft, a train or a motor vehicle Location at which such goods are taken on board

The movements of goods would cover stock transfer to branches also. In the case of inter state branch transfer, though the goods are being transferred within the same legal entity, yet these are transferred from one GSTIN to another GSTIN and hence would be deemed to be supply between distinct person as per provisions of section 25(4) of the CGST act.

Examples:

S. No. Circumstances Important point
LOS = Location of supplier
POS = Place of supply
IGST / CGST
1 M/s P Ltd of Delhi ask M/s A Ltd of Delhi to supply goods at its Delhi office. Supply start point (LOS): Delhi
Supply termination point (POS): Delhi
CGST + Delhi SGST
2 M/s P Ltd of Maharashtra ask M/s A Ltd of Delhi to supply goods at its Maharashtra office. Supply start point (LOS): Delhi
Supply termination point (POS): Maharashtra
IGST
3 M/s P Ltd of Maharashtra ask M/s A Ltd of Delhi to supply goods to M/s X Ltd in Gujarat(M/s P Ltd is selling goods directly to M/s X Ltd) For M/s P Ltd (Deemed receiver):Supply start point (LOS): Delhi
Supply termination point (POS): Maharashtra
For X Ltd (Actual Receiver):Supply start point (LOS): MaharashtraSupply termination point (POS): Gujarat
IGST 

IGST

4 M/s P Ltd of Maharashtra ask M/s A Ltd of Delhi to supply goods to M/s K Ltd in Delhi(M/s P Ltd is selling goods directly to M/s K Ltd) For M/s P Ltd (Deemed receiver):Supply start point (LOS): Delhi
Supply termination point (POS): Maharashtra
For X Ltd (Actual Receiver):Supply start point (LOS): MaharashtraSupply termination point (POS): Delhi
IGST 

IGST

5 M/s P Ltd of Maharashtra ask M/s A Ltd of Maharashtra to supply goods to M/s K Ltd in Gujarat(M/s P Ltd is selling goods directly to M/s K Ltd) For M/s P Ltd (Deemed receiver):Supply start point (LOS): Maharashtra
Supply termination point (POS): Maharashtra
For X Ltd (Actual Receiver):Supply start point (LOS): MaharashtraSupply termination point (POS): Gujarat
CGST + Maharashtra SGSTIGST
6 Over the counter sale:Delhi registered buyer comes in Maharashtra and goods and take them back to Delhi Supply start point (LOS): Maharashtra
Supply termination point (POS): Delhi
IGST
7 Mr. A having fixed place of business in Delhi comes to Maharashtra – purchase goods in Maharashtra and sells within Maharashtra to M/s P Ltd Supply start point (LOS): Maharashtra
Supply termination point (POS): Maharashtra
CGST + Maharashtra SGST

 

Part B: Where the supply involves movement of goods:

8 A trader in Maharashtra hires a computer from a company in Gujarat and at the later date decides to buy the computer at the time of supply in Maharashtra. At the time of hire purchase (Actual movement of goods at the time of hire purchase of computer):
Supply start point (LOS): Gujarat
Supply termination point (POS): Maharashtra
At the time of purchase at later stage:
Supply start point (LOS): MaharashtraSupply termination point (POS is deemed POS): Maharashtra
IGST 

 

CGST + Maharashtra SGST

 

 

Jul 142017
 

Zero rated supply

Meaning [section 16]:

“zero rated supply” means any of the following supplies of goods or services or both, namely:––

  1. Export of goods or services or both; or
  2. Supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

Whether registration is required for making zero rated supply

As per section 23 following persons are not liable to obtain registration:

  1. Any person engaged exclusively in the business of supplying goods or services or both that are:
    1. not liable to tax or
    2. wholly exempt from tax under CGST / SGST;
  2. An agriculturist, to the extent of supply of produce out of cultivation of land.

Since, in the above definition zero rated suppliers are not specifically included and hence such suppliers are required to take registration.

Outward supplies:

Since GST is destination based consumption tax hence tax is payable at the state where goods and / or services are actually consumed. Applying this logic on the above supplies, tax shall be attributable outside India.

Input tax credit:

  1. ITC is specifically allowed: credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply.
  2. General disallowance of ITC: input tax credit shall not be available for the items mentioned under section 17(5)

Manner of claiming refund of accumulated ITC:

  • Zero rated without payment of tax: 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 of unutilised input tax credit; or
  • Zero rated with payment of tax: 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 of the Central Goods and Services Tax Act or the rules made there under.

Apportionment of credit and blocked credits

Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

Cases where refund of ITC claimed will not be credited to fund but paid to registered claimant:

Refund of ITC claimed to be refunded shall be allowed in the following cases:

  1. zero rated supplies made without payment of tax;
  2. where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council: