FREQUENTLY ASKED QUESTIONS ON GST (PART-5)

[Dr. Sanjiv Agarwal]

Frequently Asked Questions (FAQs) on GST and their answers which would help the readers to know and understand about the concept and nuances of proposed Goods and Services Tax (GST) and its models.

These FAQs have been compiled with sole objective of providing a means of better understanding of GST. For details, readers may refer to Government portals / literature.

Q.31    What is the scope of composition and compounding scheme under GST?

Ans.    A Composition/Compounding Scheme will be an important feature of GST to protect the interests of small traders and small scale industries. The Composition/Compounding scheme for the purpose of GST should have an upper ceiling on gross annual turnover and a floor tax rate with respect to gross annual turnover. In particular there will be a compounding cut-off at ₹ 50 lakhs of the gross annual turnover and the floor rate of 0.5% across the States. The scheme would allow option for GST registration for dealers with turnover below the compounding cut-off.

Q.32    What is meant by Revenue Neutral Rate (RNR) ?

Ans.      It is the tax rate that will allow the Government to receive the same amount of money despite of changes in tax laws. In the GST regime the revenue of the government would not be same in comparison with the present tax structure due to tax credit mechanism, removal of cascading effect , or otherwise. Therefore an adjusted in tax rate is required to avoid reduction in revenue of the government. This adjusted Rate is termed as Revenue Neutral Rate (RNR).

According to Sub-committee on GST rates headed by CEA (MOF), the term “Revenue Neutral Rate (RNR)” will refer to that single rate, which preserves revenue at desired (current) levels. In practice, there will be a structure of rates, but for the sake of analytical clarity and precision it is appropriate to think of the RNR as a single rate. It is a given single rate that gets converted into a whole rate structure, depending on policy choices about exemptions, what commodities to charge at a lower rate (if at all), and what to charge at a very high rate.

Q.33    How is Revenue Neutral Rate different from standard rate of GST ?

Ans.    The Revenue Neutral Rate should be distinguished from the “standard” rate defined as that rate in a GST regime which is applied to all goods and services whose taxation is not explicitly specified. Typically, the majority of the base (i.e., majority of goods and services) will be taxed at the standard rate, although this is not always true, and indeed it is not true for the states under the current regime.

Q.34    What is the structure of registration number in GST ?

Ans.    Each taxpayer will be allotted a State wise PAN-based 15-digit Goods and Services Taxpayer Identification Number (GSTIN).

13th digit would be alpha-numeric (1-9 and then A-Z) and would be assigned depending on the number of registrations a legal entity (having the same PAN) has within one State. For example, a legal entity with single registration within a State would have “1‟ as 13th digit of the GSTIN. If the same legal entity goes for a second registration for a second business vertical in the same State, the 13th digit of GSTIN assigned to this second entity would be “2‟.This way 35 business verticals of the same legal entity can be registered within a State. 14th digit of GSTIN would be kept BLANK for future use.

Q.35    How will Goods and Service Tax return filing be done?

Ans.    Common periodicity of returns for a class of taxpayers would be enforced. There will be different frequency for filing of returns for different class of taxpayers, after payment of due tax, either prior to or at the time of filing return. The return can be filed without payment of self-assessed tax as per the return but such return would be treated as an invalid return and would not be taken into consideration for matching of invoices and for inter-Governmental fund settlement among States and the Centre.

Q.36    Whether return can be revised under the proposed GST regime ?

Ans .   No, there is no such provision of revision of returns.

(To be continued……)