GST Basics

[Smitesh Desai]

GST is most likely to be introduced with effect from 1^st April 2017. With its introduction, the following 3 major taxes will be abolished:

1. Central Excise Duty
2. Service Tax
3. Value Added Tax (VAT)

Supply will become the Taxable Event rather than Manufacture or Sale. GST will comprise of the following 3 elements:

1. Central Goods & Services Tax (CGST)
2. State Goods & Service Tax (SGST)
3. Inter-State Goods & Services Tax (IGST) – not a different tax, really!

The taxation mechanism will operate in 2 formats:

1. Intra-State ie. Within the state
2. Inter-State ie. Between 2 states

Every transaction will attract both the taxes is CGST + SGST. The rates of CGST & SGST will be determined by the GST Council in due course, most probably before December. Chances are that the rates will be identical. This means that CGST @ x% & SGST @ x% will be attracted on intra-state transactions. X will vary from commodity to commodity. It is believed that the following pattern of tariff structure will be implemented:

1. Mass consumption goods/services will attract 6% + 6%
2. Intermediate goods/services will attract 9% + 9%
3. Luxury goods/services will attract 12% + 12%
4. 100 goods & services will remain tax-free all over India.

When goods are supplied in inter-state transactions, IGST will be levied, which will essentially comprise of CGST+SGST. IGST will also be payable on imports in addition to Customs Duty.

Input Tax Credit (ITC) will be available to an assessee, ie manufacturer or service provider having turnover beyond the exempt limit (10.00 lacs). ITC will be operated as follows:

1. Credit of IGST, CGST & SGST will be separately availed & accounted
2. IGST credit will be first used for payment of IGST liability
3. IGST credit remaining in balance will be utilised for payment of CGST liability
4. IGST credit remaining in balance will be utilised for payment of SGST liability
5. CGST credit will be first used for payment of CGST liability
6. Balance of CGST credit will be then be used for payment of IGST liability
7. CGST credit cannot be used for payment of SGST liability
8. SGST credit will be usable for payment of SGST liability ONLY.

The above mechanism is intended to ensure inter-state credit movement.

ITC will not be available on supplies received from an assessee opting for composition scheme & paying 1%.

All assessee will have IT-PAN based registration number. Existing assessees will automatically migrate to GST registration mechanism. Internet connectivity & NSDL+RBI driven software will drive GST administration. Assessees will have to file returns in electronic mode stating details of purchases of inputs + input services. Credit availed by an assessee will be matched with GST payment by the vendor/service provider. This is similar to matching of form 26AS TDS credits with Income Tax Return. Mismatch will disentitle the assessee from credits. The assessee will not have much say about credit management because the credit register maintained at the assessee’s desktop must also be uploaded into the NSDL+RBI driven software, for computation of net GST liability. GST liability will be computed through the output register maintained by the assessee & uploaded on the RBI+NSDL software. The following chart explains the ITC & cash payment mechanism:

	CGST	SGST	IGST
Opening Balance
Fresh Credits
Credit Available
Credits Utilised
Closing Balance/Cash Payment

ISD mechanism remains intact. Branch transfer will attract GST. Exports will remain zero-rated.