Jan 302017

ESIC Limit increase from Rs 15000 to Rs 21000 w.e.f from 1st Jan 2017

ESIC limit has been increased from 1st Jan 2017 from Rs 15000 to Rs 21000Draft rules were published on 6th October 2016 and whereas, objections and suggestions received from persons likely to be affected thereby have been considered by the Central Government

Now, therefore, in exercise of the powers conferred by section 95 of the said Act, the Central Government, after consultation with the Employees’ State Insurance Corporation, hereby makes the following rules further to amend the Employees’ State Insurance (Central) Rules, 1950, namely:-1.(1) These rules may be called the Employees’ State Insurance (Central) Third Amendment Rules, 2016.

(2) They shall come into force from 1st day of January, 2017.

2. In the Employees’ State Insurance (Central) Rules, 1950, in rule 50, for the words “fifteen thousand rupees” occurring at both the places, the words ‘twenty one thousand rupees” shall be substituted.

Download Circular

Courtesy: Prakash Consultancy Services

Jan 302017

Business Vertical under GST

Meaning of business vertical?

As per sec 2(18) of the revised model GST act, “business vertical” means a distinguishable component of an enterprise that is engaged in supplying an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business verticals.

Hence, any component of the whole business shall be a separate business vertical if it has following characteristics:

  1. It must be a distinguishable component of the whole enterprise. That means, component identified as a business vertical must be capable of transfer, close or otherwise deal with without affecting other of whole business.
  2. The distinguishable component may be engage in supplying individual product / services or the bundle of related product / services. Among other factors. following factors shall also be considered for determining the related goods or services:
    • The nature of products or services
    • The nature of production process
    • The type or class of customers for the products or services
    • The methods used to distribute the product or providing of services
    • The nature of regulatory environment, if applicable.
  3. The risk or rewards of products or services included in a business vertical must be same.

The law relating to business vertical is given below:

  1. Registration: As per provision of section 23(2) – Notwithstanding anything contained in sub-section (1), a person having multiple business verticals in a State may obtain a separate registration for each business vertical, subject to such conditions as may be prescribed. Hence, it is not obligatory but optional to register each of the business vertical of a business in a state.
  2. Codification of business verticals: The structure of GSTIN is made is such a way that it would incorporate upto 35 business verticals of the same legal entity having same PAN. 13th digit would be alpha-numeric (1-9 and then A-Z) and would be assigned depending on the number of registrations a legal entity (having the same PAN) has within one State.

          For example, a legal entity with single registration within a State would have „1‟ as 13th digit of the GSTIN.

          If the same legal entity goes for a second registration for a second business vertical in the same State, the 13th               digit of GSTIN assigned to this second entity would be „2‟.

  1. Option to avail composition scheme: Option to avail composition scheme is person wise and PAN based. Hence, it is not possible to avail composition scheme for one vertical of the business and pay tax in regular manner for one or more of another vertical of the same business by the same PAN holder. Composition scheme would become applicable for all the business verticals/registrations which are separately held by the person with same PAN.
  2. Conditions for registering separate business vertical in the same state: In GST regime, multiple registrations within a State for business verticals of a taxable person would be allowed. This provision is subject to following conditions –
    • Input Tax Credit across the business verticals of such taxable persons shall not be allowed unless the goods or services are actually supplied across the verticals.
    • For the purpose of recovery of dues, all business verticals, though separately registered, will be considered as a single legal entity.
Jan 252017

Taxable person in GST

Who is taxable supplier under GST?

As per Sec 2(98) of model GST ACT – “taxable person’’ shall have the meaning as assigned to it in section 10;

As per sec 10(1) A person who is registered or liable to registered under schedule V of the GST act shall be a taxable person. As per sec 2(73) of the act the person shall include –

  • an individual;
  • a Hindu undivided family;
  • a company;
  • a firm;
  • a Limited Liability Partnership;
  • an association of persons or a body of individuals, whether incorporated or not, in India or outside India;
  • any corporation established or a Government company;
  • any body corporate incorporated by or under the laws of a country outside India;
  • a co-operative society registered under any law relating to cooperative societies;
  • a local authority;
  • government – means central government, State government or union territory or their respective department except where any such entity the accounts of which are not required to be kept in accordance with Article 150 of the constitution;
  • society as defined under the Societies Registration Act, 1860 (21 of 1860);
  • trust; and
  • every artificial juridical person, not falling within any of the preceding sub-clauses;

Hence, the definition of term taxable person includes wide range of person. Even gram panchayat or municipal council, central government or state government etc. can be taxable person if it is, either registered under the act or is liable to get registered as per schedule V of the act.

The provision of schedule V of the act may be summarized as under:-

Person liable to be registered

Person not liable to be registered

General rule:1.     Supplier whose aggregate turnover in a financial year exceeds rupees 20 lacs.2.     Every person who is registered under any of the earlier law – service tax, sales tax, etc.

3.     Transferee in case of business transfer

1.     Person exclusively engaged in supplies not liable to tax or are wholly exempt from tax2.     An agriculturist, for the purpose of agriculture
Special category:In the below mentioned cases person is liable to get registered irrespective of the turnover –1.     Inter-State taxable supply

2.     Casual taxable

3.     Persons who are required to pay tax under reverse charge

4.     Electronic commerce operator

5.     Non-resident taxable person

6.     Person required to deduct TDS or collect TDS

7.     Person supplies on behalf of other taxable person

8.     Input service distributor

9.     Every person supplying online information and database access or retrieval services from a place outside India to a person in India, other than a registered taxable person

Few important clarifications on taxable person:

  1. For liability to get registered under a particular state – rules shall apply state wise. For example – Mr. A have business entity in state A and state B. If Mr. A supplies from state A are chargeable and From state B non – chargeable then Mr. A is liable to get registered only in state A and not is state B. And if he meets other criteria then he is also liable to be registered under state A only.
  2. When to get registered – in the above example Mr. A is liable to get registered in state A only if his aggregate turnover in a financial year exceeds rupees 20 lacs, that means, the aggregate value of all taxable supplies, exempt supplies, exports of goods and/or services and inter-State supplies of Mr. A (having the same PAN), computed on all India basis and excluding taxes, if any, charged under the CGST Act, SGST Act and the IGST Act, as the case may be exceeds 20 lacs rupees.

Two GST registrations shall always be treated as different person:

  1. In the following case a person is required to hold more than one GST registrations:
    • More than one registration in each of the state from when he makes taxable supplies
    • If the person applies for registration for each of his business vertical
    • Two establishments of person and such person apply for different registrations under different states.
  2. For the purpose the act, all registrations under the act shall be treated as different person. Hence, all sale and purchase between such persons shall be accounted at market price and provisions of input tax credit shall apply accordingly.
  3. The registration under the GST is PAN based. Hence, for the same business vertical by same person (means PAN holder), in same state two registrations are not possible.
Jan 242017


What is input tax credit?

Sec 2(56) “input tax credit” means credit of ‘input tax’ as defined in sub-section (55);

Sec 2(55) “input tax” in relation to a taxable person, means the IGST, including that on import of goods, CGST and SGST charged on any supply of goods or services to him and includes the tax payable under sub-section (3) of section 8, but does not include the tax paid under section 9;

In essence a taxable person may take input of following taxes paid under GST:

  • IGST (Integrated goods and service tax) – paid on domestic procurement as wells as overseas procurement
  • CGST (Central goods and service tax)
  • SGST (State goods and service tax)
  • GST paid under reverse charge mechanism

However GST paid under composition scheme is not eligible for input tax. Further, input of GST paid to composition supplier, by mistake or otherwise, is not eligible.

When a registered taxable person is eligible for taking input tax credit?

Following are the eligible criteria for taking input tax credit:

  1. Input tax shall be charged on any supply of goods or services to him
  2. Such goods or services are used or intended to be used in the course or furtherance of his business
  3. He had complied with all conditions precedent to eligibility of input tax.

If the above two conditions are met, the eligible amount shall be credited to the electronic cash ledger (ECL) of such person.

When input tax shall be credited to electronic cash ledger?

The input tax shall be credited to ECL provisionally as provided under sec 36 of act. Every registered taxable person shall, be entitled to take credit of input tax, as self-assessed in his return.

Such amount shall be credited, on a provisional basis, to his electronic credit ledger to be maintained in the manner as may be prescribed.

The credit referred above shall be utilized only for payment of self-assessed output tax liability as per the return. That means input tax may only be utilized only for payment of out tax liability which is assessed by taxable person himself. In any other sum due to pay, e.g., tax liability under any order of department, penalty, fees and any other sum shall be paid by him in cash through online banking.

How to utilized input available in ECL by a taxable person?

Provisions related to utilization of input available in ECL are given in sec 44(5) and summarized in below table:

Input tax credit on account of Priority of utilization
IGST (1) (3) (2)
SGST (2) (1) x
CGST (2) x (1)

What if, in ECL, there is still left a balance in credit side after setting off the input tax?

The balance in the cash or credit ledger after payment of tax, interest, penalty, fee or any other amount payable under the Act or the rules made there under may be refunded in accordance with the provisions of section 48 and the amount collected as CGST/SGST shall stand reduced to that extent.

What are the other requirements which a taxable person must complied with before availing of input tax credit?

  1. He must have a tax invoice / debit note / such other taxpaying document(s) evidencing the payment of tax claimed as input
  2. He must have actually received the goods
  3. Tax claimed as input must have actually been paid to appropriate government. The payment to government may be done in either of the following mode:
    1. In cash, means online transfer through challan
    2. By way of utilization of input tax credit.
  4. He must have furnished the return for the concern period.
Jan 202017

Casual Taxable Person under GST

Who is casual taxable person?

As per sec 2(20) of revised model GST law – A casual taxable person means a person who occasionally undertakes transactions involving supply of goods and/or services in the course or furtherance of business whether as principal, agent or in any other capacity, in a taxable territory where he has no fixed place of business.

The essential elements for being a casual taxable person are:

  • Occasional transactions in a specified state jurisdictions, i.e., he does not do his business in a single place for whole of the year and needs to frequently change his place of business. Eg. Circus business etc.
  • He may have a fixed place of business

Section 24 of revised GST Model law specified some special provision for casual taxable person which are reproduced below:

24. Special provisions relating to casual taxable person and non-resident taxable person

(1) The certificate of registration issued to a casual taxable person or a non-resident taxable person shall be valid for a period specified in the application for registration or ninety days from the effective date of registration, whichever is earlier

and such person shall make taxable supplies only after the issuance of the certificate of registration:

PROVIDED that the proper officer may, at the request of the said taxable person, extend the aforesaid period of ninety days by a further period not exceeding ninety days.

(2) Notwithstanding anything to the contrary contained in this Act, a casual taxable person or a non-resident taxable person shall, at the time of submission of application for registration under sub-section (1) of section 23, make an advance deposit of tax in an amount equivalent to the estimated tax liability of such person for the period for which the registration is sought:

PROVIDED that where any extension of time is sought under sub-section (1), such taxable person shall deposit an additional amount of tax equivalent to the estimated tax liability of such person for the period for which the extension is sought.

(3) The amount deposited under sub-section (2) shall be credited to the electronic cash ledger of such person and shall be utilized in the manner provided under section 44.

From the above provisions following are broad compliances which a casual taxable person needs to be complied with:

  1. Such person shall be required to obtain registration in each of the state in which he undertakes supplies.
  2. A casual taxable person shall apply for registration at least five days before the commencement of business in a taxable territory where he has no fixed place of business.
  3. Such certificate of registration shall be valid for a period of maximum 90 days subject to validity period in registration certificate.
  4. On request above validity period may be extended for a period not more than 90 days. Under no circumstances registration is allowed for more than 180 days.
  5. Such person shall deposit its estimated tax liability in advance at the time of registration.
  6. Such advance tax shall be utilized in the manner provided under sec 44.
  7. Any excess advance tax paid may only be refunded only when such person has file all returns for the validity period his registration certificate.
  8. Such people need not to file annual return.

However a casual taxable person needs to file annual return in the state where he has fixed place of business.

Jan 192017

Taxation of Dividend

What is dividend?

Dividend, as understood generally, means the amount paid to or received by a shareholder in proportion to his shareholding in a company, out of the total sum so distributed.

Income tax act provides an inclusive definition of the term dividend. This means, a particular distribution if not regarded as dividend as per the the extended meaning provided under sec 2(22) of the act but if cover by ordinary meaning as given above, still it shall be regarded as dividend.

As per sec 2(22) dividend includes:

  1. Any distribution entailing the release of a company’s assets
  2. Any distribution of debenture, debenture stock, deposit certificates and bonus to preference shareholders
  3. Distribution on liquidation of company
  4. Distribution on reduction of capital
  5. Any payment by way of loan or advance by a closely held company to a shareholder holding substantial interest provided the loan should not have been made in the ordinary course of business and money lending should not be a substantial part of the company’s business.

How dividend income is taxable?

If dividend comes under (a) to (d) of above, then under section 10(34) dividend income from an Indian company is not taxable in the hands of shareholders, instead the payer company will pay dividend tax under sec 115-O.

The payment or distribution under above clauses can be treated as dividend only to the extent of accumulated profits of the company. Any payment or distribution beyond accumulated profits shall not be regarded as dividend and can’t be taxed in the hands of payer company.

However deemed dividend falling under section 2(22)(e) of above and dividend from foreign company is taxable in the hands of shareholders u/s 56(2)(i) as income from other sources, regardless of the fact whether shares are held by the assessee as investment or stock in trade. In such cases payer company will not pay tax.

What is tax incidence of dividend?

The tax incidence may be summarized under the following table:

Particulars Dividend declared by an Indian Company
Dividend Interim Dividend Deemed dividend u/s 2(22)(e)
Basis of charge Deemed as income of shareholder in which it is declared. Deemed as income of the previous year in which the amount is unconditionally made available to the shareholder. Treated as income of the previous year in which it is so distributed or paid.
Taxable in the hands of
1.   Shareholder x x
2.   Company declaring dividend


Any dividend declared by a foreign company is always taxable in the hands of shareholder.

What is tax rate applicable on dividend?

Dividend(as % of dividend) Surcharge(as % of dividend tax) Education cess(as % of dividend tax and surcharge) Total
April 1, 2003 – March 31, 2004 12.5 2.5 Nil 12.8125
April 1, 2004 – March 31, 2005 12.5 2.5 2 13.0875
April 1, 2005 – March 31, 2007 12.5 10 2 14.025
April 1, 2007 – March 31, 2010 15 10 3 16.995
April 1, 2010 – March 31, 2011 15 7.5 3 16.60875
April 1, 2011 – March 31, 2013 15 5 3 16.2225
April 1, 2013 – Sept 30, 2014 15 10 3 16.995
Oct 1, 2014 – March 31, 2015 17.64706 10 3 19.99412
From April 1, 2015 17.64706 12 3 20.35765

Position after Budget 2016:

For investors receiving dividend in excess of Rs 10 lacs per annum, budget 2016 proposes to tax at the rate of 10% of gross amount of dividend in addition to applicable dividend tax. Hence, additional tax @ 10% shall be payable by individual / HUF in case gross dividend received in financial year 2016-17 exceeds Rs 10 lacs.

Sec 115BBDA as inserted by sec 52 of Finance act 2016.

(1) Notwithstanding anything contained in this Act, where the total income of an assessee, being an individual, Hindu undivided family or a firm, resident in India, includes income in aggregate exceeding ten lakh rupees, by way of dividends declared, distributed or paid by a domestic company or companies, the income-tax payable shall be the aggregate of—

(a)   the amount of income-tax calculated on the income by way of such dividends in aggregate exceeding ten lakh rupees, at the rate of ten per cent; and

(b)   the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the amount of income by way of dividends.

(2) No deduction in respect of any expenditure or allowance or set off of loss shall be allowed to the assessee under any provision of this Act in computing the income by way of dividends referred to in clause (a) of sub-section (1).

(3) In this section, “dividends” shall have the same meaning as is given to “dividend” in clause (22) of section 2 but shall not include sub-clause (e) thereof.’.

Is declaring dividend in always beneficial?

This depends on the facts of each case.

Case 1: In case payment is being made to a director, the company may have only three options, i.e., pay as dividend, as loan or advance or pay as remuneration. The result of each of these scenario is summarized as under:

  1. If paid as dividend: This will cost of company 20.35765% and no cost to director up to payment made of Rs 10 lakh. However any payment beyond Rs 10 lacs will cost adiitionally to director @ 11.536% or 10.3% as the case may be. Thus, overall tax bill for any payment beyond Rs 10 lacs is 31.89365%.
  2. If pay as remuneration: This will be tax saving for the company if payment does not come under disallowance and made within permissible limits of the companies act. However, it will be taxed in the hands of director @ 34.608% in case taxable income of director is above Rs 1 crore or 30.9% in other case.
  3. If paid as loan or advance: In this case such loan or advance shall be deemed to be income of director and taxable under his hand. This payment shall be taxable normally under the head income from other sources and all consequences as applicable in scenario b above will also applicable to his case also.

So, before taking decision as declaration of dividend, current taxable income of director shall be consider.

Jan 182017

Refunds of Tax paid under GST

What is refund under GST?

As per explanation 1 to section 48 of the revised GST model law- “refund” includes refund of tax on goods and/or services:

  • Exported out of India or
  • On inputs or input services used in the goods and/or services which are exported out of India, or
  • Refund of tax on the supply of goods regarded as deemed exports, or
  • Refund of unutilized input tax credit as provided under sub-section (3).

Refund may be allowed on certain specific aspects of taxable turnover and that too subject to certain conditions. This may be analyze from the below table:

Taxable turnover for which refunds shall be allowed:1)    Refund of any balance in the electronic cash ledger.2)    Unutilized input tax credit accumulated due to:

a)    Exports including zero rated supplies

b)    Credit has accumulated on account of difference rate of tax on inputs and output supplies.

3)    Purchases made by Embassies or UN be taxed or exempted – Sec 49 and etc..

Taxable turnover for which refunds shall be not allowed at all:

1)    Refund amount is less than 1000/- rupees.2)    ITC of goods lying in stock at the end of the financial year. ITC related to such goods can be carry forward.

Conditions subject to which refunds shall be allowed:1.     Refund of unutilized input tax credit may be claim at the end any tax period subject to conditions mentioned in sec 48(10).2.     No refund shall be allowed in cases:

2.1.   Where goods exported out of India are subjected to export duty.

2.2.   Supplier of goods or services claims refund of output tax paid under IGST Act, 2016.

Process to be followed for claiming refunds of GST paid:

Step 1: Any person can make application in prescribed from and manner for refund of following amounts:

  1. GST
  2. Interest, if any, paid on such GST
  3. Any other amount paid by himStep 2: The above application shall be made before the expiry of two years from the relevant date.Step 3: Refund of any balance in the electronic cash ledger may be claimed in refund filled by him. No separate application for this is required.

    Step 4.    Application shall be accompanied by:
    a.    Such documentary evidence to established (In case claim amount is more than rupees five lacs):
    i.     Refund is due to applicant
    ii.    The amount of tax, interest or other amount was collected from or paid by him
    iii.    Incidence of such tax, interest and has not been passed by him.
    b.    In case claim amount is less than rupees 5 lacs, it is sufficient if he file a declaration to the effect that the incidence of tax and interest had not been passed on to any other person.

    Step 5: If proper officer is satisfied the whole or any part of tax / interest / amount as claimed is refundable – he may make an order and the amount so determined shall be credited to the fund.

    Step 6: Order of refund in step 5 shall be made within 60 days from the date of receipt of complete application.

In what situations refundable amount be paid to applicant?

  • Refund of tax on goods and/or services exported out of India or
  • Refund of tax on inputs or input services used in the goods and/or services which are exported out of India;
  • Refund of unutilized input tax credit under sub-section (3)
  • Refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued;
  • Refund of tax in pursuance of section 70, i.e., Tax wrongly collected or deposited with Central or State government
  • The tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the incidence of such tax and interest to any other person
  • Other class of applicants as the Central or a State Government may notify.

What is refund on provisional basis?

  1. The proper officer may refund on a provisional basis, 90% of the total amount so claimed in the manner and subject to such conditions, limitations and safeguards as may be prescribed
  2. This facility will be available – in the case of any claim for refund on account of export of goods and/or services made by registered taxable persons, other than such category of registered taxable persons as may be notified in this behalf,
  3. Thereafter make final settlement of the refund claim after due verification of documents furnished by the applicant.
Jan 162017

TDS Procedure under GST Act

GST Payment regime:

In the GST regime, for any intra-state supply, taxes to be paid are the Central GST (CGST, going into the account of the Central Government) and the State GST (SGST, going into the account of the concerned State Government). For any inter-state supply, tax to be paid is Integrated GST (IGST) which will have components of both CGST and SGST. In addition, certain categories of registered persons will be required to pay to the government account Tax Deducted at Source (TDS). Here, we will try to understand procedures related to TDS under revised model law.

What is TDS?

Sec 46 of revised GST law: (1) notwithstanding anything contained to the contrary in this Act, the Central or a State Government may mandate, –

(a) a department or establishment of the Central or State Government, or

(b) Local authority, or

(c) Governmental agencies, or

(d) such persons or category of persons as may be notified, by the Central or a State Government on the recommendations of the Council,

[hereinafter referred to in this section as “the deductor”], to deduct tax at the rate of one percent from the payment made or credited to the supplier [hereinafter referred to in this section as “the deductee”] of taxable goods and/or services, notified by the Central or a State Government on the recommendations of the Council, where the total value of such supply, under a contract, exceeds five lakh rupees.

This provision is meant for Government and Government undertakings and other notified entities making contractual payments in excess of Rs.5 Lakhs to suppliers. While making such payment, the concerned Government/authority shall deduct 1% of the total payable amount and remit it into the appropriate GST account (either of central government or state government as may be applicable to deductor).

Value of supply on which TDS shall be deducted:

The value of supply shall be taken as the amount excluding the tax indicated in the invoice. This means TDS shall not be deducted on the CGST, SGST or IGST component of invoice.

To whom TDS shall be paid:

TDS shall be paid within 10 days from the end of the month in which tax is deducted. The payment shall be made to appropriate government. As per sec 2(11) of revised GST model law appropriate Government means the Central Government in case of the IGST and the CGST, and the State government in case of the SGST. Further following procedural compliances shall be done by deductor:

  1. Such deductors needs to get compulsorily registered under section 23 read with Schedule IV of revised Model GST Law.
  2. Such deductor shall have TAN issued under income tax act to get registered under the act.
  3. They need to remit such TDS collected by the 10th day of the month succeeding the month in which TDS was collected and reported in GSTR 7.
  4. The amount deposited as TDS will be reflected in the electronic cash ledger of the supplier.
  5. They need to issue certificate of such TDS to the deductee within 5 days of deducting TDS mentioning therein the contract value, rate of deduction, amount deducted, amount paid to the appropriate Government and such particulars as may be prescribed.
  6. Non deduction / short deduction / non payment or short payment of TDS is on offence under the act for which a minimum penalty of Rs 10000/- is prescribed under the act.

How deductee can claim benefit of TDS:

The deductee shall claim credit, in his electronic cash ledger, of the tax deducted and reflected in the return of the deductor furnished under sub-section (3) of section 34, in the manner prescribed. Any amount deducted as TDS and reported in GSTR – 7 will automatically reflected in electronic cash ledger.

Refund of excess amount deducted:

  1. In case amount is claim by deductee in electronic cash ledger:

Refund to deductor is not possible such case. However, deductee can claim refund of tax subject to refund provisions of the act. Practically it is not possible to claim any erroneous deduction of TDS by deductor.

  1. In case amount is not so claimed by deductee.

Refund of erroneous excess TDS deducted is possible to deductor subject to refund provision and procedure of the act.

Jan 132017

e–Commerce under GST

What is e-Commerce under GST?

As per section 2(41) of revised GST model law electronic commerce means supply of goods and/or services including digital products over digital or electronic network. This means all kind of supplies which completed over digital network is covered under GST regime. This may include transaction done digital network on prepayment basis such as flipkart, first-try etc.

Under GST regime e-Commerce operator is classified under two head:

  • e-Commerce operator as an taxable entity
  • e-Commerce operator as on tax collection entity

Class 1. As taxable entity:

Central government or state government, as the case may be, may specify categories of services under this class. If such services are provided by e-Commerce operator by digital means, whether on its own account or as an agent of other supplier, it is always presumed that same are supplied by e-Commerce operator.

Now the consequences of e-Commerce operator supplying such specified services are below:

  1. The turnover of such supplies shall be included in the turnover of e-commerce operator and not in the turnover of the actual supplier.
  2. E commerce operator is liable to pay tax on such supplies.
  3. No threshold limit is specified for such e-Commerce business. Such e-Commerce supplier has to obtain GST registration for every rupee of transaction.
  4. e-Commerce business has to apply for registration in each of the state where it affects its supplies.
  5. The original supplier, who supplies the services to e-Commerce operator, shall apply for registration in case his aggregate turnover exceeds Rs 25 lacs.

Class 2. As tax collection entity:

  1. Every electronic commerce operator, not being an agent, shall collect an amount calculated at the rate of one percent of the net value of taxable supplies made through it where the consideration with respect to such supplies is to be collected by the E-commerce operator.
  2. Calculation of net value of taxable supplies:
  3. e-Commerce operator need not to collect tax in case where it is working as an agent.
  4. In such case, e-Commerce operator, which deducting its service charges from the amount payable to supplier, shall also collects 1% of value of taxable supplies and deposited it to appropriate government.
  5. The above collection shall be deposited by e-Commerce operator to appropriate government within 10 days from the end of the month in which collection is made.
  6. No threshold limit is specified for such e-Commerce operator.
  7. The actual supplier which filling GST return shall submit supply to tax and claim the credit of tax collected by e-Commerce operator.
  8. e-Commerce operator shall be taxed on its service charge collected from supplier separately if its supply of services falls in terms of levy under the act.

Thus, in essence, every e-Commerce operator has to apply for registration in every state from where it affects its supplies. Every e commerce operator needs to collect 1% of taxable supplies from the actual supplier and deposited the same to appropriate government. This is done to broaden the tax base and transparency in GST compliance.

Jan 122017

HSN Code / SAC under GST

 What is HSN?

HSN stands for harmonised System of nomenclature. The HSN is the codification of all tradable commodities into 20 broad sections with each chapter containing commodity of similar nature.

As we know that same commodity when traded across the geographical boundaries, are known by different names due to lingual differences. Now in IT enabled multi national trade a unique code is given to each class of tradable commodity based on its nature and usages. This classification and codification is known as HSN code a that commodity.

What is SAC?

Similarly in case of services, for each class when traded across different lingual unified code is given for recognition, measurement and taxation of each class of services.

Role of HSN / SAC under GST:

  1. Classification:

HSN (Harmonised System of Nomenclature) code shall be used for classifying the goods under the GST regime.

Taxpayers whose turnover is above Rs. 1.5 crores but below Rs. 5 crores shall use 2 digit code.

The taxpayers whose turnover is Rs. 5 crores and above shall use 4 digit code.

Taxpayers whose turnover is below Rs. 1.5 crores are not required to mention HSN Code in their invoices.

Services will be classified as per the Services Accounting Code (SAC).

  1. Use as description of items in invoices in the online return of GST network:

In fact description of goods sole will not be added on invoice and uploaded in the returns. Only HSN code in respect of supply of goods and Accounting code in respect of supply of services will have to be fed.

The minimum number of digits that the filer will have to upload would depend on his turnover in the last year.

  1. Use as UID of each transaction of each line item:

GSTN will not generate any new identification. The combination of Supplier’s GSTIN, Invoice no and Financial year with HSN/SAC Code will make each line unique.

Few points to be consider while classifying article in HSN code list:

Rule 1: Classification shall always be done based on the reference given in heading. The section, chapter name or sub chapter names are always irrelevant.

Rule 2: If term of heading is not conclusive, classification shall be done on the basis of section note and chapter notes.

Rule 3: An article shall include that article in un-complete, un-finished form. Similarly, A material or substance shall also include a mixture or a combination of that material.

Rule 4: Specific description shall always prevail over general heading.

Rules 5: Packing material shall be classified with the article / material for which they are made.