GST, which replaced several indirect taxes including VAT, service tax, octroi, excise and more, is already a year and a half old. It was looked upon as a modified version of the erstwhile VAT but in effect has many improvisations that got rid of several drawbacks in VAT and the tax credit system in place. In this journey of GST till date, businesses and registered taxpayers have learnt a lot of lessons in terms of law, its mandates, amendments in clauses and how it needs to be adopted and implemented.
GST was implemented as a destination-based tax and hence the revenue from GST flows to the states where the goods and services ultimately reach and are traded. This was a major shift from the existing excise levies that taxed goods on the basis of their manufacture. Replacing almost 17 indirect taxes GST is truly a revolutionary move that was implemented and here is the journey till date in brief.
Insights on journey
Till date, 33 GST council meetings have taken place and many more are to follow. All these meetings have given guidance on how the law can be implemented well. So far, more than 900 decisions and nearly 300 notifications have reformed the GST Law to eliminate practical hurdles in these GST council meetings. These meetings have acted like guiding posts in this journey making the implementation a smoother process and coming up with amendments in the law that were beneficial to all. The recent GST council decided new GST threshold limits, annual GSTR 4 filing, free accounting & billing software, etc.
In the recent meeting, the GST Council relaxed the tax exemption limit to Rs 40 lakh from the earlier cap of Rs 20 lakh during its 32nd meeting. The exemption limit for small states has also been increased to Rs 20 lakh from Rs 10 lakh.
Although we are still in an evolving phase with new and simplified procedures making way for smoother GST compliances path, we have a long way to go. The law that was implemented on 1st of July 2017 is now an integral part of business systems and processes.
After this we can talk about date of applicability, how it is divided into SGST, CGST, various tax slabs applicable, turnover limits, registration procedure and more.
Date of applicability
GST has been applicable in India from 1st July 2017. But since then, many amendments have taken place. The insights are furnished below.
Different types of GST taxes
GST was levied by the government under four major types of taxes.
- SGST – State GST that is levied on every intra state supply of goods and services
- CGST – Central GST that is levied on every intra state supply of goods and services
- IGST – Integrated GST that is levied on every inter-state supply of goods and services
- UTGST – Union Territory GST that is levied on all supply of goods and services that take place in Union Territories
The SGST and CGST were levied as twin taxes on each intra-state supply of goods or services e.g. if on a certain supply the applicable GST rate is 18% then the SGST and CGST would be levied as 9% each. The proceeds of SGST go to the state governments, CGST go to the central government. In case of IGST inter-state supply this rate would be levied as a single IGST rate of 18% and the revenue would be shared between central and state governments. In case of UTGST the proceeds go to the UT governments.
For all 3 taxes i.e. SGST, CGST and IGST the credits can be used to against each other.
The fourth meeting of GST council which was held on 3-4 November 2016 had decided slab rates. These rates included 5%, 12%, 18% and 28% for different items and services. Apart from this, the additional cess above 28% was also discussed to levy on sin goods and luxury items.
Till date, there have been many changes in rates and slabs, the latest two are summarized here:
- In the 31st meeting, which was held on 22nd December 2018, GST tax rate got reduced on total 8 group of services, which got implemented from 1st January 2019. Few examples include:
- reduction from 28% to 12% on cinema tickets costing more than Rs.100
- reduction from 18% to 12% on third party insurance premium of goods transporting vehicles
- The reduction in GST rate on total 16 service groups was declared in the 28th meeting, which was held on 21st July 2018. The change got implemented from 27th July 2018. Few examples include:
- reduction from 18% to 5% on supply of eBooks of which’s print version exists
GST Registration and businesses to whom it applies
The process of GST registration is simple and normally takes 2-6 business days. Yes, the GST Registration is free of cost. You can get registered under GST without paying any Government Fee. However, in some cases you have to digitally sign the GST application and the Digital Signature costs range from Rs.1,000 to Rs.1,500.
There is also a mechanism available for voluntary GST registration to help claim input tax credit. Apart from, all those businesses whose turnover exceeds the threshold limits as specified by the GST Act, GST registration is mandatory for the below ones:
- Individuals registered under the Pre-GST law (i.e., Excise, VAT, Service Tax etc.)
- A person engaged in inter-state supply of taxable goods and/or services
- Casual taxable person engaged in taxable supply
- Non-resident taxable person
- Agents of a supplier & Input service distributor
- Persons who supply goods via eCommerce
- Ecommerce aggregators
- 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
Changes in filing GSTR forms:
- GSTR-2 (return containing details of inward supplies) and GSTR-3 (return with summary of inward and outward supplies and tax liability) filing is disabled. Instead, filing of GSTR-3B was made mandatory till March 2018.
- The deadline to claim ITC (Input tax credit) ended on 25th October 2018.However, ITC claims for the maiden year of Goods and Services Tax (GST) roll out (July 2017 to March 2018) will be allowed till March 31, 2019. Businesses can amend the errors in the returns to be filed for January to March 2019.
- GST council doubled the exemption limit to provide relief to the small businesses. This will be applicable from 1st April. Earlier it was Rs. 20 lakh which has now become Rs. 40 lakh. The composition scheme will be available to services and mixed goods and services suppliers with a tax rate of 6% — 3% central GST and 3% state GST — if they had annual turnover of Rs 50 lakh in the preceding financial year.
- The composition scheme limit got raised from Rs. 1 crore to Rs. 1.5 crore. It is not mandatory to file GSTR 2 currently. The GSTR 1 form filing is a mandatory return form under GST. Registered taxpayers with an annual turnover exceeding 1.5 crores need to file the GSTR 1 return by the 10th of the subsequent month.
- The GST Council also proposed to extend the due date for furnishing FORM GSTR-8 till 31st March 2019 and for submitting FORM GST ITC-04 also till the end of March. It also made some changes in the refund related process.
- The new return filing system is expected to be launched on 1 April 2019.
- The due date for furnishing the annual returns in FORM GSTR-9, FORM GSTR-9A and reconciliation statement in FORM GSTR-9C for the Financial Year 2017 – 2018 has been further extended till 30th June 2019.
Resistance of industries towards adoption of GST
There are around 160 countries in the world that have GST in place. Well, though registration process is simple, it’s adoption and implementation in India was not an easy task. There has been lot of resistance from various industries and sectors towards adoption of GST.
One of the biggest challenges faced by GST adopters today are compliance and legislation issues. It was more challenging for service providers, especially, who thus far were availing the benefit of centralised registration. Apart from filing monthly and annual returns, other returns for input service distributor, job-work, added compliance burden. The number of returns to be filed for service providers increased from two half-yearly returns to around twenty five in a year.
The new simplified GST return forms will be rolled out from April 1, 2019. In July, the Central Board of Indirect Taxes and Customs (CBIC) had put up in public domain draft GST return forms ‘Sahaj’ and ‘Sugam’ and sought public comments. These forms would replace GSTR-3B (summary sales return form) and GSTR-1 (final sales returns form).
IT infrastructure and online processes:
GST compliance, return filing and payments all have to be done online. Many small businesses are not tech-savvy and do not have the resources for fully computerized compliance. Neither all businesses in India have strong and capable IT infrastructure nor all businessmen are tech savvy enough.
Constant changes in rates and slabs:
Though it sounds minor changes in percentage, it hugely impacts the amounts to be paid and charged. Multiple rate structures made it more complex for adopters to understand and implement GST in their existing systems. Further, lower threshold for composition dealers and classification of commonly used goods under higher rate slabs caused furore amongst the business community.
No doubt such provisions have been made a part of the process to keep a sharp check on profiteering, it came out as a hurdle. It became a pain for businesses to implement complex pricing decisions immediately after a rate cut/ increase in credit.
Implementation if E-Way bill:
Initially, during the first round of GST implementation and adoption, the portal for the E-Way bill system crashed on its launch date i.e. 1 February 2018, due to overload of entries and resulted in bringing the business transport system to a standstill. The crash of the system forced the government to extend the period limit for both inter and intra state movement of goods. This was finally implemented from April 2018.
In today’s date, it is must to generate E-Way bill in case movement of goods (either to or from a registered taxable person) is more than Rs. 50,000.
Unregistered suppliers and GST:
Not all suppliers are registered under GST regime and hence they are not a part of this newly reformed tax ecosystem. The problem arises here while adopting and implementing GST and claiming Input Tax Credit (ITC) since they are unregistered. Since the supplier of goods and/or services is not registered under GST regime, he is under no obligation to charge GST on his sales. In other words, he cannot pass on the tax paid on those goods to you. Hence, in no case you will be able to claim input tax credit from such vendor (unregistered dealer).
However, if the amount of cumulative transaction(s) with unregistered person(s) exceeds Rs.5000 per day, buyer needs to pay tax at the time of purchase under Reverse Charge Mechanism (RCM) and later s/he will get input tax credit of that amount paid at the time of purchase. It looks simple on paper but is really complicated in practice.
The purpose of GST was to replace a lot of other indirect and direct taxes like the VAT, service tax, luxury tax etc. It has been proved as a great system to boost economy and the upcoming changes will, also, surely be in the benefit for Indian economy.
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