The GST or the Goods and Services Tax, is a new tax regime being introduced in India and will be levied on all transactions of goods and services made for a consideration. When implemented, the new levy will replace almost all the indirect taxes at both central and state levels. Internationally, GST was first introduced in France and now more than 160 countries have introduced it. Most countries, depending on their own socio-economic formation, have introduced National level GST or Dual GST. Malaysia is a recent entrant to have introduced GST on April 1, 2015. In India, the GST is expected to come into effect by July 2017.
We have listed 5 simple ways to help you understand GST and prepare in advance.
1. Difference Between the Current Tax Regime and GST
In the current scenario, taxes treat goods and services differently. Goods attract excise duty which is levied at the manufacturing level and value added tax (VAT) levied at the time of sale. In contrast, services attract only one levy i.e. service tax, levied on the provision of taxable services.
However, GST does not discriminate between goods and services. In the GST regime, all ‘supply’ such as sale, transfer, barter, lease, import of services etc. of goods and/ or services made for a consideration will attract GST. As GST is applicable only on ‘supply’, taxable events such as ‘manufacture’, ‘sale’, ‘provision of services’ etc. will lose their relevance.
Also, the distinction between trader and manufacturer will lose its importance with GST, as both goods and services will be treated at par for taxation purposes. Effectively, GST brings the trader and the manufacturer on the same level from the perspective of taxation.
2. One Nation, One Tax
Though perceived to be a single tax mechanism across the country, India is actually implementing dual GST. In dual GST, all intra-state transactions of goods and services made for a consideration will attract two levies i.e. CGST (Central GST) and SGST (State GST); while an inter-state supply transaction will attract IGST.
For e.g. If you are a trader from Mumbai supplying goods to your customer in Pune, then you will charge CGST and Maharashtra SGST. But if you supply goods to your customer in Ahmedabad (Gujarat), you will charge IGST.
GST should be able to resolve most of the issues in the current tax structure such as classification, valuation, double taxation disputes etc. One key thing to note is that most tax credits that are not available in the current tax regime with VAT, Luxury tax, Entertainment Tax etc. will be available with GST.
3. GST Math
GST is payable on the ‘transaction value’. Transaction value is the price actually paid or payable for the said supply of goods and/or services between un-related parties. The transaction value is also said to include all expenses in relation to a sale such as packing, commission etc. However, discounts/ incentives given before or at the time of supply will be permissible as a deduction from the transaction value. For discounts given after supply, they will be permissible as deduction, subject to fulfilment of prescribed conditions.
Claiming Tax Credit:
To enable the buyer to claim input tax credit, the GST law inter-alia prescribes that the supplier should deposit the GST and file GST returns. Effectively, through this provision, the buyer of goods/ services will have to in turn ensure that all his vendors pay GST and file returns.
Likely rates for GST:
The rate of GST has not been specified in the draft GST law. However, various news reports suggest that the rates will be 0%, 5%, 12%, 18% and 28% (plus cess).
4. GST Compliance
The GST regime will have a CGST Act and an IGST Act, apart from the state-wise SGST laws. So, if you are a trader in Maharashtra, you should be aware of the CGST, IGST and Maharashtra SGST Acts. Thus, as a taxpayer you will likely see an increase in tax compliance. A service tax assesse, who currently files returns twice a year, could now be required to file as many as 61 returns (5 returns per month and 1 annual return)!
5. Gearing up Technologically for GST
Under GST, all documents ? returns, refunds, payments etc are expected to be in electronic/online format rather than in physical paper form. Therefore, as the Government continues to emphasize on electronic filing and tax compliance, entrepreneurs will either have to become tech-savvy or opt for easy-to-use automation software to help them meet this challenge. Even the current software being used by traders may help provided it gives invoice level details required for filing GST returns.
The Government has initiated the GST enrolment process across India and provided state-wise dates for obtaining enrolment at www.gst.gov.in. We suggest that you enroll for your GST ID at the earliest. If you would like to kick start the process of GST compliance, read our quick guide on a 4 Point Action Plan to Get GST Ready.
IRIS is an appointed GST Suvidha Provider and our solution IRIS GST is an application built with a highly scalable, available and secure architecture that will help you file with GST, right from registration to return preparation, through to submission. With built-in analytics and dashboards, IRIS GST will ensure that you stay compliant, while always having a pulse on the process.
In the meanwhile, if you have any questions please write to firstname.lastname@example.org