With a 1 July rollout date for the new Goods and Services Tax (GST) in India, one topic that deserves to be in the limelight is the transition that must occur from the plethora of existing laws to one unified tax regime. Rules issued by the Central Board of Excise and Customs (CBEC) and the GST Council will govern the transition.
Those transition rules are now finalized, so let’s look at how input tax credit (ITC) will be handled during the quickly approaching changeover.
Pre-GST tax credits under the new regime
Every registered person (other than those opting for the composition scheme) can submit the amount of ITC to which he is entitled on pre-GST transactions using the electronic Form GST TRAN-1. This must be submitted within 90 days from the appointed day, i.e., the date GST comes into force. The amount of ITC will be credited to the electronic credit ledger (maintained in Form GST PMT-2) of the said person, who may receive a 90-day extension from the commissioner, on the recommendation of the GST Council.
A registered person claiming un-availed Central Value Added Tax (CENVAT) credit in respect of capital goods will be required to specify the following for each item:
- The amount of ITC already utilized under each of the existing laws until the appointed day
- The amount of ITC pending under each of the existing laws until the appointed day
A registered person claiming credit of eligible duties and taxes in respect of inputs or input services received on or after the appointed day and upon which the duty or tax was paid by the supplier under the existing laws shall furnish the following details:
- Name of the supplier, serial number, and date of issue of the invoice by the supplier or any document on the basis of which ITC was admissible under the existing law
- Description and value of the goods or services
- Quantity of goods, and the unit or unit quantity code thereof
- Amount of eligible taxes and duties or, as the case may be, VAT (or entry tax) charged by the supplier in respect of the goods or services
- Date on which the receipt of goods or services was entered into the books of account of the recipient
A new concept of deemed credit has been introduced in the transition rules. A registered person who was not registered under the existing laws shall be allowed to avail ITC on goods held in stock on the appointed day, so long as he is not in possession of any document evidencing payment of central excise duty.
The rate of deemed credit when a person does not have any duty paying document is now 60 percent (up from 40 percent in the draft rules) of the Central Goods and Services Tax (CGST) paid on the sale of goods if the goods attract a CGST rate of 9 percent or more. Otherwise, the deemed credit is 40 percent of the CGST paid.
In cases when Integrated Goods and Services Tax (IGST) is paid on the sale of goods, deemed credit would be available on 30 percent of the IGST paid if the IGST rate is 18 percent or above. If less than 18 percent, credit would be available on 20 percent of the IGST paid.
Such credit of central tax shall be availed subject to satisfying the following conditions, namely:
- Goods should be leviable to excise duty or additional customs duty (in lieu of excise)
- Such goods were not unconditionally exempt from the whole of the duty of excise
- The document for procurement of such goods is available with the registered person
- The stock of goods on which the credit is availed is stored in such a way that the registered person can easily identify it
The scheme shall be available for six tax periods from the appointed date, and the registered person will have to submit a statement at the end of each period indicating details of supply of such goods. Stock on hand as of 30 June must be sold by 31 December, 2017. Otherwise, no credit will be available.
Every person claiming credit of VAT or service tax paid under the existing laws (to offset GST liability) on supplies made after the appointed day shall be required to furnish the proportion of supply on which VAT or service tax was paid. Here, individual states have been given a discretion to provide a VAT calculation method.
Every person to whom the provisions of job-worker apply shall, within 90 days of the GST launch date, submit a declaration electronically specifying his stock on the appointed day.
Further, the government also reserves the right to recover any credit wrongly availed.
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