Top 30 GST FAQs
- What is Goods and Services Tax (GST)?
It is a destination-based tax on the consumption of goods and services. It is to be levied at all stages, i.e., from manufacturing up to final consumption with credit of taxes paid at earlier stages available as a setoff.
- Which existing taxes are proposed to be subsumed under GST?
The GST would replace the following taxes:
- Taxes currently levied and collected by the Centre:
- Central excise duty
- Duties of excise (medicinal and toilet preparations)
- Additional duties of excise (goods of special importance)
- Additional duties of excise (textiles and textile products)
- Additional duties of customs (known as CVD)
- Special additional duty of customs (SAD)
- Service tax
- Central surcharges and cesses related to the supply of goods and services
- State taxes that would be subsumed under GST are:
- State VAT
- Central sales tax
- Luxury tax
- Entry tax (all forms)
- Entertainment and amusement tax (except when levied by the local bodies)
- Taxes on advertisements
- Purchase tax
- Taxes on lotteries, betting, and gambling
- State surcharges and cesses related to the supply of goods and services
- Which commodities are proposed to be kept outside the purview of GST?
Commodities such as alcohol for human consumption and petroleum products, viz., petroleum crude, motor spirit (petrol), high-speed diesel, natural gas, and aviation turbine fuel, have temporarily been kept out until the GST Council decides to include them. Also, electricity is outside the ambit of GST.
- Who is liable to pay GST under the proposed GST regime?
Under the GST regime, the tax is payable on the supply of goods and/or services. Liability to pay tax arises when the taxable person crosses the turnover threshold of Rs. 20 lakhs (Rs. 10 lakhs for NE and special category states), except in certain limited cases where the taxable person is apt to pay GST regardless of whether he has traversed the threshold limit or not.
- How will imports be taxed under GST?
Imports of goods and services will be treated as interstate supplies, and IGST will be levied.
- How will exports be treated under GST?
Exports will be handled as zero-rated supplies. No tax will be payable on exports of goods or services; however, input tax credit (ITC) will be refundable to the exporters.
- What is the scope of the composition scheme under GST?
The small taxpayers with an aggregate turnover in a preceding fiscal year up to Rs. 50 lakhs shall be eligible for composition levy. Under this scheme, a taxpayer shall pay tax as a percentage of his turnover in a state during the year without the benefit of input tax credit (ITC). The rate of tax for CGST and SGST/UTGST shall not be less than 1 percent for manufacturers and .5 percent in other cases; 2.5 percent for specific services as mentioned in para 6 (b) of Schedule II, viz., serving of food or any other article for human consumption. A taxpayer opting for composition levy shall not collect any tax from his customers.
The government may increase the limit of Rs. 50 lakhs to Rs. 1 crore, on the recommendation of the GST Council.
Taxpayers making interstate supplies or making supplies through eCommerce operators who are required to collect tax at source shall not be eligible for composition scheme.
- Are securities transactions taxable under GST?
Securities have been specifically excluded from the definition of goods as well as services. Hence, any transaction in securities shall not be taxed.
- What is the role of the compliance rating mechanism?
As per section 149 of the CGST/SGST Act, every registered person shall be assigned a compliance rating based on the record of conformity in respect to defined parameters. Such ratings shall be posted in the public arena. A prospective client will be able to see the compliance ratings of suppliers and decide whether to deal with a supplier or not. This will create healthy competition amongst taxable persons.
- What is the anti-profiteering measure?
As per section 171 of the CGST/SGST Act, any reduction in the rate of tax on any supply of goods or services or the benefit of ITC shall be passed on to the recipient by way of a corresponding reduction in price.
Levy and exemption
- Will supplies made without consideration come under the purview of supply under GST?
Yes, but only those activities defined in Schedule I of the CGST/SGST Act. The said provision has been adopted in the IGST Act as well as in the UTGST Act.
- Will giving away essential commodities by a charitable institution be a taxable activity?
For a supply to be taxable under GST, the transaction should be in the ordinary course of business. As there is no quid pro quo involved in the supply of charitable activities, it is not a supply under GST.
- What is composite supply and mixed supply?
Composite supply consists of two or more taxable supplies of goods and/or services, which are clustered and provided in conjunction with one another in the ordinary form of business, with one being the principal supply. For instance, when a consumer buys a TV and also purchases a warranty and a maintenance contract for it, the three items comprise a composite supply. In this example, the supply of TV is the principal supply, while the warranty and maintenance service are considered ancillary.
Mixed supply is a combination of more than one individual supplies of goods and/or services made in conjunction with each other for a single price, which can usually be provided individually. For instance, a shopkeeper selling a storage water bottle along with a refrigerator. The bottle and the fridge can easily be priced and traded singly.
- What is the treatment of composite supply and mixed supply under GST?
Composite supply shall be treated as a supply of the principal supply. Mixed supply would be treated as a supply of that particular good or service that attracts the highest rate of taxation.
- What is a reverse charge?
It means the liability to pay tax is the recipient of the supply of goods and services, instead of the supplier.
- Who is not eligible for the composition scheme?
Five categories of registered persons are not eligible for the composition scheme:
- Supplier of services other than supplier of restaurant service
- Supplier of goods that are not taxable under the CGST/SGST/UTGST Act
- An interstate supplier of goods
- Person supplying goods through an electronic commerce operator
- Manufacturer of certain notified goods
- How do you compute aggregate turnover to figure out composition scheme eligibility?
The method for calculating the aggregate turnover is given in section 2 (6). Accordingly, aggregate turnover means the value of all outward supplies (taxable supplies + exempt supplies + exports + interstate supplies) of a person having the same PAN, and it excludes taxes levied under central tax (CGST), state tax (SGST), union territory tax (UTGST), integrated tax (IGST), and compensation cases. Likewise, the value of inward supplies on which taxation is payable under reverse charge is not included in the computation of aggregate turnover.
- What will be the effective date of registration?
Where the application for registration has been submitted within 30 days from the date on which the person becomes liable to register, the effective date of registration shall be the date on which he became liable for registration.
Where the applicant has submitted an application for registration after 30 days from the date of becoming liable to register, the effective date of registration shall be the date registration is granted.
In the event of a person holding the registration voluntarily while being inside the threshold exemption limit for paying tax, the effective date of registration shall be the date of the order of enrollment.
- In which cases is registration compulsory?
As per section 24 of the CGST/SGST Act, the following categories of persons shall be required to register, irrespective of the threshold limit:
- Persons making any interstate taxable supply
- Casual taxable persons
- Persons required to pay tax under reverse charge
- E-commerce operators required to pay tax under sub-section (5) of section 9
- Non-resident taxable persons
- Persons who are required to deduct tax under section 51
- Persons who supply goods and/or services on behalf of other registered taxable persons, whether as an agent or otherwise
- Input service distributor (whether or not separately registered)
- Persons who are required to collect tax under section 52
- Every eCommerce operator
- Every person supplying online information and database retrieval services from a place outside India to a person in India, other than a registered person
- Such other person or class of persons as may be notified by the Central Government or a State Government on the recommendations of the Council
- Can a person voluntarily register under GST?
Yes, as per section 25 (3), a person, though not liable to register under section 22, may register himself voluntarily, and all provisions of this Act, as applicable to a registered taxable person, shall apply to such an individual.
- Is a permanent account number (PAN) mandatory for obtaining a registration?
Yes, as per section 25 (6) of the CGST/SGST Act, every person shall receive a permanent account number issued under the Income Tax Act, 1961 (43 of 1961) to be eligible for grant of registration. Nevertheless, a person needing to deduct tax under section 51 may have, in lieu of a PAN, a tax deduction and collection account number issued under said Income Tax Act, to be eligible for grant of registration. Also, as per section 25 (7), PAN is not mandatory for a non-resident taxable person who may be granted registration based on any other document as may be prescribed.
- Is registration permanent?
Yes, once granted the registration certificate is permanent unless surrendered, canceled, suspended, or revoked.
- Is it necessary for UN bodies to register under GST?
Yes, as per section 25 (9) of the CGST/SGST Act, all notified UN bodies, consulate or embassy of foreign countries, and any other class of persons so notified would be required to obtain a unique identification number (UIN) from the GST portal.
- Does a casual taxable person or non-resident taxable person need to pay any advance tax at the time of obtaining registration under this special category?
Yes, while a normal taxable person does not have to make any advance deposit of tax to obtain registration, a casual taxable person or a non-resident taxable person is required, at the time of application for registration, to make an advance deposit of tax in an amount equivalent to his estimated tax liability for the period of registration sought. If registration is to be extended beyond the initial period of 90 days, an additional advance amount of tax equivalent to the estimated tax liability is to be deposited for the period for which the extension beyond 90 days is sought.
- Are amendments to the registration certificate permissible?
Yes, as per section 28, the proper officer may based on information furnished, either approve or reject amendments in the registration within a period of 15 working days from the date of receiving an application for amendment.
- What happens when the registration is obtained by wilful misstatement, fraud, or suppression of facts?
The registration may be canceled retrospectively by the proper officer.
- Who is an ISD?
ISD stands for input service distributor and has been defined in section 2 (61) of the CGST/SGST Act. It is an agency meant to receive tax invoices towards the receipt of input services and further distribute the credit to supplier units (having the same PAN) proportionately.
- Will ISD require a separate registration from the existing taxpayer registration?
Yes, the ISD registration is meant for one office of the taxpayer, which will be different from the standard
- Can a taxpayer have multiple ISDs?
Yes, different offices of a taxpayer can apply for ISD registration.
- What is the difference between casual and non-resident taxable persons?
|Casual taxable person||Non-resident taxable person|
|Undertakes transactions involving the supply of goods or services in a state or UT where he has no fixed place of business.||Conducts transactions involving the supply of goods or services but has no fixed place of business in India.|
|Has a PAN.||Does not have a PAN; a non-resident person who has a PAN may register as a casual taxable person.|
|Same application form for registration as for normal taxable persons, viz., GST REG- 01.||Separate application form for registration, viz., GST REG-9.|
|Can claim ITC of all inward supplies.||Can get ITC only in respect of import of goods and/or services.|
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This whitepaper is authored by Vatsal Bhandari.1 (800) 270-2875