GOODS AND SERVICE TAX
TABLE OF CONTENTS
What is this Goods and Service Tax (GST) Bill?
Basically, a bill is a draft of a proposed law which is presented to the Parliament for the purpose of discussion. Once it is passed by the Parliament, it becomes an Act. Therefore, theGST Billhas now becomeGST Act. Goods and Service Tax or GST is a unified taxation system that is levied on the supply of goods and services in India. It is considered to be a comprehensive, multistage and destination based tax reform.
What are the Changes made to the GST Act?
It was in June 2016 when theModel GST law was first drafted which was later revised inNovember 2016. The Lok Sabha has passed the4 bills with certain amendments. Here is a list of themajor changes proposed in GST bill as onOctober 2017:
The GST Law is now Applicable in the State of Jammu and Kashmir
Haseeb Drabu,the Finance Minister of the State of Jammu and Kashmir had confirmed the applicability of GST in Jammu and Kashmir (now a Union Territory). [Earlier, J&K had a separate constitution and had special provisions regarding legislature, therefore, CGST & IGST and SGST were supposed to be passed separately. But, after the scrapping of Article 370, this provision has been restored as accordance with that of a normal State or Union Territory.]
Provisions for the Employer’s Gifts to Employee
Previously, the supply ofgoods or servicesbetween related persons (made during the course of business) was treated as‘supply’even when there is no specific consideration. Due to this reason,EmployerandEmployeewere covered in the definition of related person. Therefore, it stood that any supply of goods or services to the employee by his employer (even if free of cost) would have been covered under the scope of GST.
Now, the proposed change to the Act provides that GST will not apply on gifts upto Rs. 50,000 by an employer to a particular employee. However, gifts above Rs. 50,000 will attract GST.
Applicability of GST on the Sale of Land/Building
Previously, the term ‘goods’ included all movable property including actionable claims (excluding only money and securities). Apart from this, “Services” had a vague definition of “anything other than goods”. Thus, there existed an apprehension that the Government might levy GST on supply of immovable property (land/building) apart from levy of Stamp duty.
Now, the government has clearly mentioned in Schedule III that sale of land and/or building will neither be treated as a supply of goods nor a supply of services, i.e., Goods and Service Tax (GST) will not be applicable on this.
So currently it stands that:
· GST will be applicable on renting, leasing of land and/or building.
· GST will NOT be applicable on sale of land/building (Stamp duty will continue to apply)
· GST will applicable on works contract, i.e., constructing a building.
· GST will applicable on sale of an under-construction building.
However, there are discussions of bringing in sale of land and/or building under GST within 1 year from GST implementation date
Provisions for the Fixing up of the Upper limits of GST rates- CGST- 20% & IGST- 40%
Previously, theupper cap fixed was 14%and25%respectively in both the laws. Now, this upper cap hasbeen fixed at 20% and 40% respectively under CGST and IGSTLaw to maintain flexibility for increase of rates in the near future. However, theGST slabs remain the same – 5%, 12%, 18% and 28%.
Inclusion of Petroleum Products GST
The petroleum products (crude oil, high speed diesel, petrol, natural gas and aviation turbine fuel/ATF) have now been brought under the provision of Goods and Service Tax (GST).
This will be highly beneficial to Indian businesses as businesses now can take input credit on petrol products purchased. Many industries like the plastic and chemical industries have petroleum products as inputs for manufacture. In addition to this, machinery, vehicles use petrol/ATF to run. Availability of input credit will help to reduce prices of goods.
Applicability of Unregistered Seller and registered Buyer – GST on a Reverse Charge Basis
It is to be noted that anunregistered suppliercannot charge GST on sales. Such tax treatment is not mentioned under the Model law i.e., tax to be charged if an unregistered dealer sold to a registered buyer.
Now, the Act provides that when a registered buyer buys from an unregistered dealer, then reverse charge is applicable, i.e. the buyer (recipient of goods/services) is liable to pay GST. This is similar to the current purchase tax which is applicable on the purchase of goods from an unregistered dealer which is currently in effect in many states.
Current Reduction in Composition Rates as per the recent Amendment
Earlier Composition Scheme
New GST Act
The provision of reduction in composition rates is a welcome move for the MSME sector. Composition scheme had many restrictions such as non-availability of ITC, not eligible for inter-state transactions. Reduction in composition rates, however, will attract more taxpayers to register. However, service providers are still not eligible for composition scheme thus burdening the various professionals and freelancers.
Provision of Removal of Permission Required for Composition Scheme
In case of a taxpayer, whose turnover wasless than 50 lakhsin the last financial year, now, he has the option to pay under composition scheme. Hedoes not have towait for thepermission of the proper officer. He can directlyregister himselfunder the composition scheme.
Change in the Provision Time of Supply of Services as per the Act
According to theModel GST Law, the time of supply of services (i.e., the point of taxation when liability to pay tax arises) would be the earlier of:
· Date of issue of invoice, OR
· The last date on which the invoice should have been issue, OR
· Date of receipt of payment by the supplier.
Now in the present Act, as passed in the parliament, the provisions for determining time of supply for services have now been changed. Thus, the time of supply of services shall be earlier of the following dates:
· If the invoice is issued within time prescribed:
o Invoice issue date, OR Date of receipt of payment (whichever is earlier)
· If the invoice is not issued within time:
o The date of providing of services, OR The date of receipt of payment (whichever is earlier)
· If clauses (a) & (b) are not applicable then:
o The date on which the recipient shows the receipt of services in his books of accounts.
Details of the Changes in Conditions for Disallowing Input Credit Tax (ITC)
As per the previous provisions ofGST Law, if the recipient/buyer failed to pay the service provider within a span of3 months, then theinput tax credit (ITC)availed by the buyer would bedisallowedand he would be required to pay the amount of ITC availed along with interest.(This provision was only for the services and there were no provisions of re-allowing the ITC if the buyer paid after 3 months.)
Presently, in this amended act, this particular provision also includes goods. Further, the time period for payment is extended to 180 days instead of earlier 3 months before ITC is disallowed. Also, now if payment is made even after 180 days then the ITC will be re-allowed.
Provision of Credit of Rent-a-cab, Life Insurance and Health Insurance Allowed if used Against Sale of Same Category
Previously,rent-a-cab, life insurance, andhealth insurance businesseswere not eligible to takeinput tax credit (ITC). Only those services, as are notified by the government, which are mandated to be provided to an employee by the employer will enjoy ITC.
In order to reduce the burden of the taxpayer, input tax credit (ITC) is planned to be allowed for the above services subject to the following condition:
· Credit must be adjusted only against outward supply (sale) of the same category of service. It can also be a part of mixed or composite supply.
· GST will apply on petrol on a date and at a rate notified by the Government on the recommendations of the Council.
Provisions for the Non-Applicability of GST on Actionable Claims
“Actionable claims” has been included in the definition of “Goods” by the Modal GST Law, in other words, GST would apply on actionable claims.
However, the Lok Sabha amendments to the GST act in Schedule III clarify that actionable claims, other than lottery, betting and gambling will neither be treated as a supply of goods and not as a supply of services. Thus, GST will be applicable on lottery, betting, gambling but not on other actionable claims.
It is to be noted that, ‘Actionable Claims’ are those claims which can be enforced only by a legal action or a suit. For example, a book debt, bill of exchange, promissory note. A book debt (debtor) is not goods because it can be transferred as per Transfer of Property Act but cannot be sold. Bill of exchange, promissory note can be transferred under Negotiable Instruments Act by delivery or endorsement but cannot be sold.