Demystifying Employee Gifts under GST

The rollout of Goods and Service is being dubbed to be the mother of all indirect tax reforms in the country but in reality, it is a business process reform. It changes the way we do business in India after the rollout of GST. There is no room for the words purchase or sale of goods in the GST Laws, it replaces these words with Supply. The word supply includes all activities which are undertaken for consideration or in lieu of consideration i.e barter. This nails down all the disputes which are there in the current taxation.

Similar to this we also have another concept called the taxation of employee benefits, though employee benefits are taxed under the current taxation under Income Tax Act 1961, it is being proposed to tax the same under Goods and Service Tax also in India. The taxation of employee benefits has been taken from Malaysia, where GST is implemented from 1^st of April 2015.

To understand the tax implication of employee benefits let’s see the definition of Supply and Related Parties.

Supply is defined clearly in section 3 and Schedule I &  II states what activities are to be treated as supply as per the Central Goods and Service Tax Bill introduced in the Parliament

Section – 3

1. all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
2. import of services for a consideration whether or not in the course or furtherance of business;
3. the activities specified in Schedule I, made or agreed to be made without a consideration; and
4. the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

Schedule I

1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.
2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

3. Supply of goods—
   1. by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or
   2. by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.
4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

In paragraph 2 we find the wordings “Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as the supply of goods or services or both”.

The basis of the above, here we do not have any consideration received but still, GST has to be paid.

Gifts are not normally given to employees for their exceptional performance or during the festivals and these are not part of the offer letter or the appointment letter. Now under GST, ll such gifts either in kind or in cash or in form of services provided by the company will be taxed and it means that the company has to pay GST on such transactions.  When gifts are issued there is no consideration received from the employee, as discussed it is token of appreciation or for their loyalty.

Now companies or establishments have to pay GST similar to the reimbursement costs collected from the employees like issue of duplicate ID card etc.,

Though the schedule talks about the threshold limit of Rs 50,000 one thing which is not clear is “is GST applicable one the gifts from the one rupee or only on the amount which crosses Rs 50,000. As of now, the law is not clear on this point, we need to wait for the final rules and law.

Another question is how to pay the GST, does the company has to issue a tax invoice? If yes will the buyer and seller will be the same? Under which section of the GSTR – 1 return this tax invoice has to be shown? Clarity is also required in this context also.

Value of gifts issues in a financial year means total values of gifts issued during the financial year from time to time, this means that there should be a provision in the accounting or any other software the taxpayer is using to keep track of the same in the system by employee and that should be able to generate a tax invoice once it crosses Rs 50,000 for an employee.

The next question, can the registered taxable person claim input tax on the gifts procured to be distributed to the employees?  Input tax credit is eligible only if used for the furtherance of business or used for the outward supply of goods or services, this is clear from the section 16 and 17 of the CGST Act.  Say for example A Ltd wants to give  Diwali gift to all its employees Halidram sweet boxes costing Rs 3000 each. A Ltd incurs Rs 1,75,000 for bringing the sweet boxes to it is office as transportation costs, is GST paid on the inward transport cost is eligible to be taken as input tax credit?

Section 16 as input tax credit is eligible only if it used for the furtherance of business but in the case of gifts, it will directly impact the furtherance of business. Say if A Ltd does not give Diwali gifts to its employees their morale will come down and resulting in it lower performance and thereby impacting the furtherance of business. The basis of this logic can A Ltd take input tax credit on GST paid on the transportation charges?

Clarity is required in this context also else it can lead to disputes between the trade and industry.

It is normal practice to provide tea or coffee or any other beverage to the employees, though it is not part of the appointment or offer letter, does the cost of coffee or tea cost should be included gifts value? This is not recommended by the government so technically it has to treated as a gift if we go by the clause A of subsection 5 of Section 17 of the CGST Act.

• the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or

Or we have to wait for the list to be notified by the government, if yes then it should spell out that providing of coffee or tea is not to be treated as gift.

In the meantime, the companies have to relook their practice of giving gifts to employees and also have proper systems in place to pay taxes if any such a need arises. For this, the systems being implemented in place should track the gifts by the employee. The offer letter/appointment letters issued should be revisited and if required the clauses need to be modified in line with the GST requirements. The early they do this activity the better for the organizations.

Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the author may or may not be associated with in professional or personal capacity unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

These examples are based on the information available in the public domain and authors interpretation of the law and may change based on the actual law passed.

GST Impact on E-Commerce Industry

Listening is easier sometimes rather than reading, so listen to this blog

GST is going to impact all industries and E-commerce in specific has additional impact.

the same is explained in this video 

Listening is easier sometimes rather than reading, so listen to this blog

Differences between June 2016 MGL and revised MGL Law, November 2016

The Model GST was released in June 2016 to the public for their review and also make the industry plan for the rollout of GST. Basis the MGL published in June, the trade and industry and professionals have taken a very critical view of the same and submitted the feedback to the Government. Basis of the feedback, the suggestions have been incorporated in the Model GST Law and released to the public in November 2016 as Revised MGL.

This article gives a glimpse of the changes announced in the June MGL and Revised MGL published in November 2016.

click here for more details

GST Tip – 63

In the proposed Goods and Service Tax, the returns are to be filed on monthly basis and same return for all the taxes i.e CGST (Central Goods and Service Tax), SGST (State Goods and Service Tax) and IGST (Integrated Goods and Service Tax) in case of regular tax payers and quarterly for tax payers under composite scheme.

Demystifying Tax Deduction at Source under the Model GST Law

In the current tax regime under VAT we have Tax Deducted at Source, and the same is being continued under GST also. Section 37 of the Model GST Law talks about the Tax Deduction at Source. From the Model GST Law, it is clear that it is not applicable for all transaction and to be recovered by all tax payers.

The tax has to be deducted by a specific set of persons as given in the sub-section 1 of section 37 of the Model GST Law. The list of persons who have to deduct tax will be decided by the State or the Central Government. The list of person as per Model GST Law

(a) a department or establishment of the Central or State Government, or

(b) Local authority, or

(c) Governmental agencies, or

(d) such persons or category of persons as may be notified, by the Central or a State Government on the recommendations of the Council,

Now we need to see who all will be included in the last point. It looks like the government wants to deduct tax on contracts gives for execution of roads, dams, power plants etc. This is to ensure that the contractor pays tax on the income and does not escape from the tax net, thereby minimizing revenue leakage.

The tax has to be deducted only in case if the supply of goods or service exceeds Rs 10 Lacs on the list of goods / services notified by the GST Council. The tax base for deduction of tax for TDS under GST is excluding the taxes mentioned on the invoice, this is something different to the valuation for determination of taxes under Section 15. The rate of tax to be deducted is 1%. This is surprising to note that the tax rate has been prescribed in the Act. We need to wait for the final GST Bill and see if the same will be included in the Act or will be announced through notification. If the rate is mentioned in the Act, the Act has to be amended every time government wants to change the tax rate.

The tax so deducted has to be deposited by the deductor by 10^th of next month based on the format and other information to be reported. This will be made available only once the GST Council if formed.

The deductor has to issue a certificate to the deductee, the contractor from whom the tax is deducted with the details like the amount of contract, the  rate of tax deducted, the amount of tax deducted and the amount of tax deposited by the deductor.

The deductor has to issue a certificate within 5 days from the date on which the amount is credited, a  late fee of Rs 100 will be levied per day for delay in issue of a certificate. The amount of late fee will not exceed Rs 5000.

The deductee can take the credit of the tax based on GSTR – 2 filed by the Deductor under Section 27, sub-section 5 of the Model GST Law. The amount will be credited to the electronic cash ledger of the deductee and he can utilize the same for payment of GST taxes.

In case if the deductor fails to deposit the tax to the respective government, he is liable to pay interest on the defaulted amount as per provisions of Section 36 of the Model GST Law.

The deductor can claim for refund as per Section 38 of the Model GST Law provided that the amount is not credited to the electronic cash ledger of the deductee.

The person who has to deduct tax has to obtain registration number by filing of Form GST REG – 07.

GSTR – 7 has to be filed by the deductor on monthly basis using the services of GSP or directly on GSTN servers.

GSTR – 7A is the deduction certificate to be issued on monthly basis to the deductee.

From the provision of this section, it is clear that the government does not want to lose any tax revenue from the small contractors also. One silver lining is that, unlike in tax collected at source there is no matching of records to avail the credit. If the contractor wants to avail in the credit, then he has to be registered with GST. In a  way the government is ensuring that there is no revenue leakage from any transactions at any given point of time.

Demystifying Job Work Under Model GST Law

In normal course of business, when a manufacturing unit is not able to meet it is supply on account of machine line balancing or specific operation being not capable of being performed in the factory or unexpected demand for the product in the market, normally outsources the same to external vendor for getting the processing completed at his premises. This process is called sub-contracting or job work in the tax parlance.

Sub-Section 62 of Section 2 defines Job work as “job work” means undertaking any treatment or process by a person on goods belonging to another registered taxable person and the expression “job worker” shall be construed accordingly;

Goods and Service Tax is levied on the supply of goods and services and transfer of material from factory to the subcontractor’s premises amounts to supply. Till the Model GST Law was made available to the public domain there was a debate going on that is Job work or subcontracting is allowed under GST and to make the industry happy, the Model GST Law has provision for the Job-work under Section 43 A thereby providing lot of relief to the trade and industry. Supplies to job work are specifically excluded as supply in Schedule 1 of the Model GST Law. (for details on supply refer to the blog Demystifying Time of Supply of Goods under Model Law)

Though Job-work provisions are given in the section 43A, there is some change to the existing process of job-work under the Central Excise. As per the Model GST Law, the tax payer I,e the principal is required to obtain a special order from the GST Commissioner for permitting him to send the goods for job work under specific conditions for supply of material without payment of taxes for further processing by the job worker.

The modalities of the form to be used and the process of receiving and sending is not clear now and we need to wait for the relevant notifications once the GST Act is passed.

The principal can send the goods to the job worker from his registered premises and then after processing of the goods at the job workers place, the principal can do any of the following

1. Request for return of goods to his original premises
2. Or any of his registered premises
3. Send the goods from the job workers place to further processing to another job worker
4. Supply the goods directly from the job worker’s premises on payment of taxes within in India
5. Export the goods directly from the job worker’s premises without payment of tax

In case if the goods are to be exported or sold in the domestic market, the job worker has to be registered as an additional place of business of the principal, which is not there in the existing provisions of the Central Excise. The same is not required if the job worker is already registered under GST as per provisions of Section 19. (Refer to blog on Demystifying Registration under Model GST Law)

The goods to be processed can be sent directly from the principals registered premises or ask his supplier to ship the goods directly to the job worker’s premises.

Section 43 A of the Model GST Law does not specify the days under which the goods have to be returned back to the principal’s place but section 150 and 151 under transitional provisions specifies the same as 6 months and Section 16A specifies if the goods are brought back within 180 days eligible for input tax credit. A clarification is required on the period as 180 days or 6 months, if this Is not clarified then there will be two-yard sticks on return of goods from the job worker

1. For claiming input tax credit within 180 days
2. For payment of duties if the goods are not brought back in 6 months.

Section 150 of the Model GST Law, describes the process for the inputs removed for job work and returned on or after the appointed day. The inputs sent on job work prior the appointed day (the date on which the GST is rolled out) within 6 months, then no taxes are to be paid. In case if the same are returned after 6 months, the jurisdictional commissioner can grant  an additional period of 2 months if he is satisfied with the reasons for the delay. In case if such permission is not granted or being returned after a further extension of 2 months, taxes have to be paid under GST.  The principal or the manufacturer has to pay the taxes.

The above process is applicable only if the principal or manufacturer maintains a proper record of the inputs lying in the premises of the job worker as on the appointed date in the format prescribed by the tax authorities.

Section 150 of the Model GST Law, describes  the process for the semi-finished goods   removed for job work and returned on or after the appointed day. The semi-finished goods   sent on job work prior the appointed day (day on which the GST is rolled out) within 6 months, then no taxes are to be paid. In case if the same are returned after 6 months, the jurisdictional commissioner can grant an additional period of 2 months if he is satisfied with the reasons for the delay. In case if such permission is not granted or being returned after  further extension of 2 months, taxes have to be paid under GST.  The principal or the manufacturer has to pay the taxes.

The manufacturer or principal can ship the goods directly from the job worker’s premises to any other registered tax payer on payment of duties or export the same without payment of duties.

The above process is applicable only if the principal or manufacturer maintains a proper record of the semi-finished goods   lying in the premises of the job worker as on the appointed date in the format prescribed by the tax authorities.

We need to have further information on the job work under GST

1. The format of the letter to be sent the commissioner for requesting permission for job work.
2. The format of the document under which the goods can be shipped without payment of taxes.
3. The format of the document under which the goods can be sent directly from the supplier to job worker.
4. Clarity on the time period under which the goods have to be returned back from job worker – 180 days or 6 months.
5. The format for declaring the goods laying at the job worker as on appointed date.
6. Applicability of Section 61 of the Model GST Law for the moment of goods from tax payers location to job workers location.

There are some changes that need to be adopted by the tax payers going forward under GST for job work.

1. If the job worker is not a registered taxable person, then his address is also to be included in the place of business of the taxpayer in his registration application. This needs to be updated from time to time as the goods can be sent to different job workers based on the business requirements.
2. Reverse charge will be applicable on the charges paid to the job worker  if the job worker is not a registered tax payer.
3. In case of goods not returned within 180 days from the job worker, before payment of duty proper care has to be taken to identify if the goods sent are before the rollout of GST, if yes, then 180 days should be considered from the rollout date and not from the actual date on which the goods are sent to the job worker.

Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

 

 

Demystifying Collection of Tax at Source under the Model GST Law

e-commerce is a booming industry and this is enabling the local and small sellers to sell their products in wider markets and from the consumer perspective he is having a wide range of products at his door step at a competitive price.  In this process, the buyer and seller are getting benefited and in between the e-commerce operator who does not own any stocks but sells on behalf of the seller by providing his infrastructure and reach, for this services the e-commerce operator charges some amount from the seller. So far it is so good but the real issue starts from the taxman’s perspective.  In the whole game, the e-commerce operator issues an invoice on behalf of the seller to the buyer and on this respective taxes are collected. Now the question raised by the taxman is the transaction between the e-commerce operator and the seller is taxable, there are various disputes on this matter and the interpretation is even more complex like does the transaction between the e-commerce operator and the seller amounts to sale of goods and VAT is applicable on the commission or is it a service or is it a composite contract. Various state governments have taken different views on the same and started collecting VAT.

Now let’s see what is there in the store in Model GST Law for the e-commerce. Section 43B lays down the definitions in context to the above services.

Aggregator has been clearly defined in the sub-section ( a)  of Section 43B. it literally nails down who is an aggregator, it says any person who provides services either by an application or communication device which enables a buyer and seller to connect and procure goods or services under any brand / trade name is termed as an aggregator. This means that cab operators like Ola or Uber or selling of goods electronically like Amazon, Flipkart or food delivery mobile applications like Swiggy or Tinmen all are defined as aggregators. And they are required to take registration under GST as per Section 19 of the Model GST Law.

Sub-section (b) defines what is brand or trade name clearly. It says any brand or trade name, registered or not, for using a name or mark or symbol or monogram or writing or logo or symbol or signature which is used for service or furtherance of business. That means all the brand / trademarks are also under the purview of the GST.

Sub-section (c) defines what is branded service. It says branded service is service which is supplied by an e-commerce operator under his name whether registered or unregistered is a branded service like Amazon or Flipkart etc.

The final nail in the coffin is given in Sub-section (d), where it defined what is electronic commerce. It did not spare a word which used in the today’s’ internet era like download, File transfer, shopping cart, electronic data interchange (EDI), download, messaging in any form, web services, services for transmitting funds or data, etc are termed as e-commerce. This means any entity which provides any of the above services falls under the definition of electronic commerce operator and has to obtain registration under GST irrespective of the turnover refer to Schedule III of the Model GST Act. This means all the startups have to register themselves under GST. What is left over in the definition of electronic commerce operator is Internet of things (IOT).

Section 43C gives in details about the process of collecting money from the supplier of goods or service provider by the e-commerce operator before paying them.

Section 43 (C) sub-section 1

(1) Notwithstanding anything to the contrary contained in the Act or in any contract, arrangement or memorandum of understanding, every electronic commerce operator (hereinafter referred to in this section as the “operator”) shall, at the time of credit of any amount to the account of the supplier of goods and/or services or at the time of payment of any amount in cash or by any other mode, whichever is earlier, collect an amount, out of the amount payable or paid to the supplier, representing consideration

towards the supply of goods and /or services made through it, calculated at such rate as may be notified in this behalf by the Central/State Government on the recommendation of the Council.

Illustration 1

XYZ is an e-commerce operator and many sellers are registered with them for selling their products on the portal. A, who is small time seller of handicrafts also places his products on xyz.com. B, an end consumer places an order for few handicrafts items from xyz.com supplied by A. B Pays an amount for his order of Rs 15,000 to xyz.com. xyz.com has to pay A for the item being purchased by B. As of now xyz.com is paying Rs 15,000 less commission charged by them. Going forward under GST, xyz has to deduct certain percentage as specified by the GST council and then only pay the net amount to A.

Now the question here arises is does xyz.com have to recover the tax after deducting commission or on the full amount? If we go by the valuation under Model GST Law as given in section 15, is clearly says on the gross amount, so xyz.com has to recover tax on Rs 15,000 but not on Rs 15,000 net of commission if any.

The amount collected from the supplier of goods and service provider by the e-commerce operator has to be deposited with the tax authorities by 10^th of the next month.

Every operator has to submit a report electronically within 10 days from the end of the month, this report is to be filed separately other than the regular returns filed. The format of the report will be announced in due course and it should contain the details of all the suppliers of goods / services from whom the amount is being withheld and paid to the respective governments like supplier name, amount, date, tax recovered etc.,

The details filed by the e-commerce operator are verified with the returns filed by the sellers and if there is any mismatch, the same is informed to both the parties for correction. In case if there is any discrepancy and which is communicated to the supplier and no corrective action is taken, then the same is added as a liability to the suppliers return in the month in which it is communicated. The supplier is liable to pay tax along with interest, as determined by the concerned officer to the department.

The operator may be asked to furnish information relating to the details of his suppliers like quantity of goods held by him under his custody along with other places of business of the supplier.

From the above, it is clear that government does not want to lose a single penny in form of tax revenue. This process is ensuring that all the suppliers who are dealing with e-commerce are registered, in order to utilize the amount deducted by the e-commerce operator while receiving his payments. The amount deducted by the e-commerce operator one paid to the tax authorities is reflected in the electronic cash ledger of the supplier and he can utilize the same for payment of GST taxes.

Though it is titled as “Collection of Tax At Source” it is technically “tax deducted at source”, the reason is when the e-commerce operator is paying to the supplier of services or goods, certain amount is withheld and then only paid, it is similar to the tax deduction at source in direct taxes. In a way now TDS is applicable on goods also in indirect taxes for e-commerce transactions.

This provision has put an end to all the confusions which are there for the e-commerce currently.

The amount deducted by the e-commerce operator will be reflected in the GSTR -2 return of the seller on the e-commerce website as well as in the electronic cash ledger maintained by the common portal for the seller on the e-commerce website.

The amount to be paid by the e-commerce operator will be part of the monthly outward supplies in GSTR – 1 and also will be shown in the Electronic Liability Register maintained in the common portal. The E-commerce operator has to file another return separately called GSTR – 8 under GST with all the relevant details as required.

The taxes applicable will be of CGST and SGST for TCS in the case of intra state transaction and in the case of interstate transactions it will be IGST for TCS. This is based on the information provided in the Draft Invoice Formats.

Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

These examples are based on the model law and may change based on the actual law passed.

Demystifying Invoicing Under Model GST Law

Invoice is a document between the buyer and seller which confirms the sale / purchase of goods or services along with the details like item or nature of service, cost per unit, if any applicable taxes on the transaction, any incidental charges like freight, packing charges, etc., apart from the buyer and seller details. Invoice is to be serially numbered for tracking and reference purpose. If the transaction is being taken for a taxable good or service, then the invoice becomes a tax invoice. The tax invoice apart from having the above-mentioned details, it will also have the tax registration number of the buyer and seller along with the address under which jurisdiction the buyer and seller falls.

In the current tax regime in India we have the following invoices which are considered as tax invoice from taxation perspective Excise Invoice, VAT Invoice & Service Tax Invoice. All these invoices are also required to be numbered serially and the tax payer has to  inform the tax authorities the tax invoice numbering sequence being followed for the financial year.

Under GST also there is a requirement to issue tax invoice as per section 23 of the Model GST Law at the time of supply of goods or services as per Section 12 and Section 13 of the Model GST Law. Section 23 of the Model GST Law prescribes the information to be shown on the tax invoice in case of supply of goods

• Description of the goods
• Quantity of the goods being sold
• Value of the goods being sold
• CGST / SGST or IGST levied on the goods
• And any other information as requested

The following information is to be shown in case of supply of services

• Description of the service
• Value of the service
• CGST / SGST or IGST levied on the goods
• And any other information as requested

If we dissect the Section 15 of the model GST Law (value of taxable supply) it says that all the amounts being collected or reimbursed from the buyer has to be included in the valuation of the taxable supply of goods / services. This means that all charges related to the transaction directly or indirectly have to be shown on the tax invoice. The charges or reimbursable expenditure on which the tax have to be levied are freight, insurance, packing charges, loading charges, unloading charges, special / specific charges being levied, subsidies if any, royalties or any other incidental charges have to be included in the tax base and these amounts are being paid by the buyer to the seller or being reimbursed by the buyer to pay to third parties.

THE JOINT COMMITTEE ON BUSINESS PROCESS FOR GST on Returns has given the tentative formats of the Returns to be filed under GST Regime once rolled out. If we review the GSTR 1 Report, monthly outward supplies report to be filed by the tax payer has the following information

• GSTIN / UIN
• Invoice – Number, Date, Value, HSN/SAC, Taxable Value
• Tax Rate and Amounts – CGST / SGST / IGST
• State of the buyer
• Reverse Charge applicable for the transaction

Though the reports to be filed under GST are not yet notified, on interpreting the information given in the Model GST Law and the Business Process Reports for Returns we can conclude that the following information is to be shown on the tax invoice else reporting will become complex

• Description of the goods / service
• Quantity of the goods being sold – applicable only in case of supply of goods
• Value of the goods / services
• CGST / SGST or IGST levied on the goods
• GSTIN / UIN
• Invoice – Number, Date, Value, HSN/SAC, Taxable Value
• Tax Rate and Amounts – CGST / SGST / IGST
• State of the buyer
• Reverse Charge applicable for the transaction
• Free goods if any issued

We can also conclude that if goods or services being supplied are applicable or eligible under reverse charge, the same needs to be shown on the tax invoice stating that tax applicable is under the reverse charge and the tax amount should not be included in the invoice total. This is similar to the existing service tax provision for invoicing under reverse charge.

As per the valuation rules, if goods are being issued as sample or freebie on the purchase of any other goods, then GST has to be levied on such free good or freebie. It will be a business decision to collect the tax from the customer or absorb it as business expenditure. This is not applicable under VAT currently not it is getting extend to SGST or IGST under the new tax regime.

As per the Model GST Law, post to issue of a tax invoice for supply of goods or services, if there is any change in the price of goods / service or tax rates, a debit memo or credit memo can be issued for such cases and the debit / credit memo should have the reference of the original tax invoice. In GSTR – 1, the debit / credit memos have to be reported under table / section 8.

In case if the tax payer is supplying both taxable goods / services along with non-taxable goods / services, a separate bill has to be issued. This is similar to the existing VAT provisions where a non-vatable invoice has to be issued for sale of non-vatable goods. Now the same is getting extend to CGST and IGST under GST regime.

As in the current excise or VAT requirements there will not be likely a format being suggested by the GST Council and the tax payers can issue tax invoice based on their business need but have to ensure that all the required information is shown / printed on the tax invoice being issued under section 23 of the Model GST Law.

Malaysia which has implemented GST from 1^st April 2015 have suggested some invoice formats also. It has also recommended that simplified tax invoice can be issued and on which input tax credit can be availed if the tax amount is not exceeding RM 30. As per Malaysian GST, under specific conditions simplified tax invoice can be issued and such invoices need not show the buyer details like in the case of regular tax invoice. In India, we do not see any such provisions as the Model GST Law has made it clear that input tax credit can be availed on supplier payment of GST Liability.

Some of the common issues which the trade and industry may face with rollout of GST on the Tax invoice front are

1. Free Samples – as per the Model GST Law, the tax has to be levied on free samples also, this may impact the pharmaceutical industry where samples are given to Physicians for promotion. Now going forward GST has to be paid before the issue of samples. The pharmaceutical industry may have to absorb the same that means it impact their profitability. Same in case of consumer goods also where freebies are given on merchandise.
2. Loading Charges – will there be a separate Service Accounting Code for loading and unloading charges, which are collected from the buyer. This is applicable in case of commodities like iron, steel, aluminum etc
3. Insurance Charges – in some case where the goods are transported are high value, insurance is also part of such contracts / sales. The insurance charges may be collected from the recipient or the tax payer may pay himself. Whatever may be the case, does the tax payer has to levy GST on the insurance premium and also mention in his registration form “Insurance” also as his business?
4. Packing charges – in some cases, the customers may ask for special packing based on their business requirements, in such cases also GST is to be levied on packing charges. As such packing charges may not be having a separate HSN code in few cases like material being shipped in gunny bags / jute bags, in such cases what will be the HSN code?

Another change from the existing business process

1. In the case of purchase of goods or services from non-registred tax payers, the reverse charge is applicable and basing on the rules provided in Model GST Law, the time of supply for the reverse charge is either accounting or creation of receipt or payment of supplier whichever is earlier. At this point, a tax invoice is also required to be issued. Currently the same is not required in the Service Tax.
2. In the draft rules it is clearly mentioned that separate invoice has to be issued for non-gst supply of goods or services individually if the transaction amount is less than Rs 100 or at the end of the month a consolidated document to be issued called bill of supply for all the transactions where bill of supply has been not issued during the day.
3. The existing invoice number series has to be modified as the draft rules talks about only invoice series being alphabetical or numeric
4. There is also a requirement to print the reference number generated from the common portal on the tax invoice
5. There is no concept of tax invoice being cancelled under GST once issued, in case if there is a need for such a case, then taxpayer has to issue a debit or credit memo.

At this point of time we may not have the full information on the Tax Invoice under GST, but we have an overview of the same based on that we need to do critical analysis of the business and come out of open issues where clarity is required and make representations to the concerned authorities to avoid last minute surprises, which may impact the continuity of business when GST is rolled out.

From the Model GST Law and the Business Process Reports on Returns, it is clear that government wants to track each and every transaction and avoid possible revenue leakages. A silver lining for the trade and industry is that the Model GST Law has clearly stated that input tax credit can be claimed on the debit / credit memos also.

Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

Demystifying Time of Supply of Services under Model GST Law – Part II

In the First Part “Demystifying Time of Supply of Services under Model GST Law” we have seen the various provisions for the time of supply for services under the Model GST Law. Now in the section of the article, we will see the impact of the rate change on the time of supply of services along with few open items for which we need to have clarity in the GST Bill. Section 14 of the Model GST Laws lays down the various provisions for the tax rate implications on the supply of services for tax rate changes.

Service Provided before the change of tax rate

Sub-Section 1 (a) of section 14, lays down the provision for the treatment of tax change in case the taxable service has been provided before the change in the effective tax rate.

For our analysis let’s consider a case that the tax rate till 30^th Nov 2017 is 18% and from 1^st Dec 2017 the tax rate is being increased to 18.5%.

Sub-Section 1 (a) of Section 14

(i) where the invoice for the same has been issued and the payment is also received

after the change in effective rate of tax, the time of supply shall be the date of receipt of

payment or the date of issue of invoice, whichever is earlier; or

Illustration -1

A Ltd agrees to do the service of diesel generator and accordingly it has issued an invoice on 5^th Dec 2017 and completed the service on 20^th Nov 2017 and received the payment on 10^th Dec 2017.

In this case, the service has been provided before the change of the tax rate i.e prior to 1^st Dec 2017 and the earliest date and the time of supply is 5^th Dec 2017 as invoice is issued on 5^th Dec 2017 and payment is received on 10^th Dec 2017 (earliest of the invoice or the payment date). The tax rate applicable here is 18%.

Illustration -2

A Ltd agrees to do the service of diesel generator and accordingly it has issued an invoice on 15^th Dec 2017 and completed the service on 20^th Nov 2017 and received the payment on 7^th Dec 2017.

In this case, the service has been provided before the change of the tax rate i.e prior to 1^st Dec 2017 and the earliest date and the time of supply is 7^th Dec 2017 as payment is received 7^th Dec 2017 invoice is issued on 15^th Dec 2017 (earliest of the invoice or the payment date). The tax rate applicable here is 18%.

Sub-Section 1 (a) of Section 14

(ii) where the invoice has been issued prior to the change in effective rate of tax but the

payment is received after the change in effective rate of tax, the time of supply shall be

the date of issue of invoice; or

If the invoice is issued prior to the date of the change in effective tax rate and service is completed before the same date, then the effective tax rate will be the older rate only.

Illustration -3

B Ltd enters into a contract to provide special security with C Ltd for their factory located in Badi from the period 1^st Nov 2017 to 30^th Nov 2017. B Ltd issues an invoice on 25^th Nov 2017 and receives payment on 9^th Dec 2017.

Invoice has been issued on 25^th Nov 2017 and service is completed on 30^th Nov 2017 and these two dates are before the date of effective change of tax rate, the time of supply for services is 25^th Nov 2017, so the effective tax rate will be 18%.

Sub-Section 1 (a) of Section 14

(iii) where the payment is received before the change in effective rate of tax, but the

invoice for the same has been issued after the change in effective rate of tax, the time of

supply shall be the date of receipt of payment;

If service is completed and payment is also received before the tax rate change, then the tax rate applicable will be old rate only and not the new tax rate.

Illustration -4

B Ltd enters into a contract to provide special security with C Ltd for their factory located in Badi from the period 1^st Nov 2017 to 30^th Nov 2017. B Ltd receives payment on 19^th Nov 2017 and issues an invoice on 4^th Dec 2017.

Payment has been received on 19^th Nov 2017 and service is completed on 30^th Nov 2017 and these two dates are before the date of effective change of tax rate, the time of supply for services is 19^th Nov 2017, so the effective tax rate will be 18%.

Service provided after the tax rate change

Sub-Section 1 (b) of section 14, lays down the provision for the treatment of tax change in case the taxable service has been provided / completed after the change in the effective tax rate.

For our analysis let’s consider a case that the tax rate till 30^th Nov 2017 is 18% and from 1^st Dec 2017 the tax rate is being increased to 18.5%.

Sub-Section 1 (b) of Section 14

(i) where the payment is received after the change in effective rate of tax but the

invoice has been issued prior to the change in effective rate of tax, the time of supply

shall be the date of receipt of payment; or

Illustration -5

X Ltd agrees to do preventive maintenance for all the critical machinery in the factory by 25^th of Dec 2017 and accordingly it has received payment on 28^th of Dec 2017 and issued an invoice on 27^th of Nov 2017 on completion of service.

In the above case, the time of supply will be the date on which payment has been received i.e 28^th Dec 2017 and the effective tax rate would be 18.5% as service is completed after the tax rate change.

Sub-Section 1 (b) of Section 14

(ii) where the invoice has been issued and the payment is received before the change in

effective rate of tax, the time of supply shall be the date of receipt of payment or date of

issue of invoice, whichever is earlier; or

In case if the invoice is issued and payment is also received before the date of tax rate change, then the time of supply of service will be earlier of the invoice date or payment receipt date and the tax rate applicable will be old rate only.

Illustration -6

A Ltd agrees to do the service of diesel generator and accordingly it has issued an invoice on 15^th Nov 2017 and completed the service on 20^th Dec 2017 and received the payment on 17^th Nov 2017.

In the case, the effective tax rate would be 18%, as the time of supply is 15^th Nov 2017, this is the earliest date of issue of invoice or receipt of payment.

Illustration -6

A Ltd agrees to do the service of diesel generator and accordingly it has issued an invoice on 10^th Nov 2017 and completed the service on 20^th Dec 2017 and received the payment on 7^th Nov 2017.

In the case, the effective tax rate would be 18%, as the time of supply is 7^th Nov 2017, this is the earliest date of issue of invoice or receipt of payment.

Sub-Section 1 (b) of Section 14

(iii) where the invoice has been issued after the change in effective rate of tax but the

payment is received before the change in effective rate of tax, the time of supply shall

be the date of issue of the invoice.

A Ltd agrees to do the service of diesel generator and accordingly it has issued an invoice on 10^th Dec 2017 and completed the service on 20^th Dec 2017 and received the payment on 7^th Nov 2017.

In this case, the time of supply will be the issue of invoice date i.e 10^th Dec 2017 and the tax rate will be 18.5%

Though the law is very clear on the time of supply of services in case of tax rate changes, the following are the challenges

1. What should be the treatment in case if the payment received is partial to the contract value. In such cases, will the tax rates apply to the extent of the amount received? We need clarity on this, hope it will be taken into consideration.
2. Though GST is dubbed to the ease of doing business but seeing the laws above, it is clear that is very complex and manual intervention is required as any of the accounting packages will not be able to handle this correctly. Persons handling this portion of the business have to be trained to ensure that there are no compliance issues.
3. What should be the accounting treatment if there is change in financial year in case of Illustration 5 if we extrapolate the same with this example

As per law – (i) where the payment is received after the change in effective rate of tax but the invoice has been issued prior to the change in effective rate of tax, the time of supply shall be the date of receipt of payment; or

Assuming tax rate change is from 1st of April 2018 i.e from new financial year

X Ltd agrees to do preventive maintenance for all the critical machinery in the factory by 25th of April 2018 and accordingly it has received payment on 10th of April 2018 and issued an invoice on 27th March 2017.

In the above case, the time of supply will be the date on which payment has been received i.e 10th April 2018 and the effective tax rate would be 18.5% as service is completed after the tax rate change.

4. Will there be similar rules for the supply of goods also, there can be cases like this when goods also ?

All the above issues need to be addressed before the GST bill is passed else we will have lot’s of confusion and leads to compliance issues.

Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

These interpretations and examples are based on the model law and may change based on the actual law passed.

 

Demystifying Input Tax Credit under the Model GST Law

Input Tax Credit, the word which every business person, accountant or cost accountant loves to listen to this and also avail the same on all the purchases made for business. We have seen tax reforms in India for input tax credit under various name, MODVAT was introduced in the year 1986 on certain items with an intention of passing on the tax credit on the purchases, and it has been modified from time to time and finally CENVAT Credit Rules 2004 were introduced where the input tax credit for the Central Excise Taxes was available on most of the inputs and in case of capital goods with some conditions. The taxes levied by the state governments is known as sales tax before the introduction of VAT, and the same were not eligible for input tax credit. As a result, there is an increase in the cost of production of goods and services. When Value Added Tax was introduced, this issues is also addressed, and input tax credit was available.  In spite so many tax reforms from time to time on the input tax credit front, the trade or industry is not happy as it is very restrictive when we take a holistic approach like

1. Input tax on value added tax is not available for service providers
2. Taxes on inter-state sales, e., CST is not eligible for input tax credit
3. Inter utilization of input tax credit like VAT cannot be used for payment of Service tax or vice versa.
4. Input tax credit cannot be availed on capital goods immediately as in the case of inputs for central excise or VAT. In the case of VAT, it varies from state to state.

These were some of the challenges which the trade or industry is facing with input tax credit, but going forward under GST, the same are addressed but with some restrictions / limitation. Input tax credit under the Model GST law is given to a large extent very clearly under sections 16 to 18 of Chapter V, Section 28 and Section 29 explains the process of input tax credit, provisional claim, reversal, etc. in chapter VIII, section 37A explains the process of transfer of input tax credit and Section 147 on the transitional provisions for cenvat and VAT tax credit.

Section 2, sub-section 54 defines what are inputs  “input” means any goods other than capital goods, subject to exceptions as may be provided under this Act or the rules made thereunder, used or intended to be used by a supplier for making an outward supply in the course or furtherance of business;

The input means any goods other than capital goods used or to be intended to be used for making the supply of goods or services. It means all inputs used for making of taxable supplies are eligible for input tax credit.

Section 2, sub-section 55 defines “input service” means any service, subject to exceptions as may be provided under this Act or the rules made thereunder, used or intended to be used by a supplier for making an outward supply in the course or furtherance of business;

Input service means any service used by the taxpayer / supplier for making of outward supplies.

Section 2, sub-section 57 defines input tax “input tax” in relation to a taxable person, means the {IGST and CGST}/{IGST and SGST} charged on any supply of goods and/or services to him which are used, or are intended to be used, in the course or furtherance of his business and includes the tax payable under sub-section (3) of section 7;”

Taxes paid on the purchase of goods and services which are eligible for input tax credit are used for making the output tax liability on the supply of goods and services.

Section 2, sub-section 20 defines capital goods as “capital goods” means: –

(A) the following goods, namely:-

(i) all goods falling within Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the Schedule to this Act;

(ii) pollution control equipment;

(iii) components, spares and accessories of the goods specified at (i) and (ii);

(iv) moulds and dies, jigs and fixtures;

(v) refractories and refractory materials;

(vi) tubes and pipes and fittings thereof;

(vii) storage tank; and

(viii) motor vehicles other than those falling under tariff headings 8702, 8703, 8704, 8711 and their chassis but including dumpers and tippers used-

(1) at the place of business for supply of goods; or

(2) outside the place of business for generation of electricity for captive use at the place of business; or

(3) for supply of services,

 (B) motor vehicle designed for transportation of goods including their chassis registered in the name of the supplier of service, when used for

(i) supplying the service of renting of such motor vehicle; or

(ii) transportation of inputs and capital goods used for supply of service; or

(iii) supply of courier agency service;

(C) motor vehicle designed to carry passengers including their chassis, registered in the

name of the supplier of service, when used for supplying the service of-

(i) transportation of passengers; or

(ii) renting of such motor vehicle; or

(iii) imparting motor driving skills;

 (D) Components, spares and accessories of motor vehicles which are capital goods for the taxable person.

Reading the above section, it is apparent that the definition is taken from the current provisions of the central excise and replaced with few words here and there. Going forward under GST also the treatment for inputs and capital goods will be same to a large extent expect in case of definition what is capital good and what is input.

Section 16 of the Model GST Act provides the provisions for input tax credit. Similar to the age-old excise registers, RG 23 Part I / II  – A /C for tracking the input credit maintained by the assesses, we have similar concept called electronic credit ledger and this ledger is maintained by the tax authorities / infrastructure provider of GST and all the taxes paid by the suppliers for the supplies made to this tax payers gets updated in the electronic ledger, the amount can be utilized for making payment of out liability, penalty, interest, or any amount as per provisions of section 35 of the Model GST Act.

Sub-section 2 of Section 16 provides a clear mandate that in case of a business or entity which has opted for the GST registration, the taxes paid by him on the stock held by him on input, semi-finished goods and finished goods immediately on the day he is eligible to pay tax, will be eligible to take input tax credit of such goods. The reason for providing such a provision is that as the tax is being levied on the sales immediately from the date of registration, the taxes paid on his purchases. These provisions are available for the following person

1. Persons who have opted for registration on crossing of the threshold as specified under section 8, person who crosses the thresholds
2. Persons who have opted for voluntary registration in spite of not crossing the threshold limits as prescribed

The eligible input tax credit in the above cases will be computed based on the following

1. The tax invoice should not be more than 12 months old
2. The amount of tax credit eligible will be computed based on the accepted accounted principles.

What does these accepted principles mean? There is no clarity on this. Hope this will not lead to some interpretation issues from the department on the valuation and also on the amount of input tax credit.

Sub-section 5 explains about the usage of goods and services brought but used for business as well as for personal consumption.

Where the goods and/or services are used by the registered taxable person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.

Illustration

A Ltd buys laptops each costing Rs 45,000 and in that he gives one of the laptops for his college going, son.

In the above case, the input tax credit is eligible for only 4 laptops as the fifth one is not used for business purpose.

Sub-section 6 explains the manner of taking input tax credit in the case in the inputs procured are used for making taxable supplies and non-taxable supplies.

Where the goods and / or services are used by the registered taxable person partly for effecting taxable supplies and partly for effecting non-taxable supplies, including exempt supplies but excluding zero-rated supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the taxable supplies including zero-rated supplies.

Illustration

XYZ Ltd is an electronic goods manufacturer and manufactures both taxable and non-taxable supplies. XYZ Ltd purchases Polyvinyl chloride (PVC), and he makes industrial goods along with doors and windows for residential purpose. Industrial goods manufactured are taxable, and doors and windows used for the residential purpose are tax exempted. When PVC is purchased, it is not known who much will be used for taxable and non-taxable supplies.

The input credit on the purchase of PVC should be reversed to the extent used for manufacturing / sale of doors and windows as they are exempted from tax.

The government will notify the amount of the input tax credit to be reversed and the process to be followed in the above two cases. Based on that it has to be reversed.

In the normal course of business, the business establishment can be sold or merged, or the constitution of it can change from a partnership to the company, etc., in all such cases, the input tax credit will be allowed to be used by the new legal entity. The same is described in sub-section 8 of section 16.

Where there is a change in the constitution of a registered taxable person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provision for transfer of liabilities, the said registered taxable person shall be allowed to transfer the input tax credit that remains unutilized in its books of accounts to such sold, merged, demerged, amalgamated, leased or transferred business in the manner prescribed.

Input tax credit is allowed only under the following conditions

1. The supplier of goods and services has paid the tax
2. The goods or services must be received / deemed to be received
3. The buyer / recipient is in possession of the tax invoice
4. The tax returns are filed by the supplier of goods / services
5. Input tax credit can be taken within 1 year from the date of issue of tax invoice
6. In case if input tax credit is taken on a provisional basis and the supplier does not pay the tax, the same will be reversed along with interest.
7. In case if the supplier pays the tax after reversal, then he is eligible to take the input tax credit along with the interest.

As in the current taxation, input tax credit is not allowed in some cases, and such cases are listed clearly in the Model GST law clearly under sub-section 9 and 10 of section 16.

(a) motor vehicles, except when they are supplied in the usual course of business or are used for providing the following taxable services—

(i) transportation of passengers, or

(ii) transportation of goods, or

(iii) imparting training on motor driving skills;

(b) goods and / or services provided in relation to food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as leave or home travel concession, when such goods and/or services are used primarily for personal use or consumption of any employee;

(c) goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery;

(d) goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form) to any other person, which are used in the construction of immovable property, other than plant and machinery;

(e) goods and/or services on which tax has been paid under section 8; and

(f) goods and/or services used for private or personal consumption, to the extent they are so consumed.

Sub-Section 10   Where the registered taxable person has claimed depreciation on the tax component of the cost of capital goods under the provisions of the Income Tax Act, 1961, the input tax credit shall not be allowed on the said tax component.

Section 16A of the Model GST Act lays down the procedures for claiming input tax credit for materials / capital goods sent for job work.

Section 43 of the Model GST Act, gives the procedure for job work on GST. In the normal course of business, the material is received at the taxpayers place and then the same is shipped to the job worker or subcontractor if required for further processing. In such cases where the material is shipped directly to job worker, the input credit can also be claimed, and the process is prescribed under section 16A of the Model GST Act.

Input Credit in case of Inputs

• Input tax credit on the material sent to job worker is allowed only when they are returned within 6
• Credit can be availed only if the supplier pays the tax.
• In the case of material already sent before the rollout of GST, 6 months should be computed from the accounted date of the GST rollout, mentioned in the transitional provisions of Section 150 of the Model GST Act.

Input Credit in case of Capital goods

The treatment for capital goods is different from that of the inputs for availing input tax credit.

• The input credit for capital goods can be taken if the goods capital goods is used by the job worker and the same is returned within 2 years from the date on which it is sent out to job worker.
• In case if the inputs or the capital goods are not returned within in the stipulated period, the taxpayer has to pay an equivalent amount of input tax credit availed along with interest. In such cases, interest is also required to be paid as prescribed under sub-section 1 of section 36.

The input tax credit will be allowed only if the supplies of the seller and buyer are matched, in the case of any mismatch, the same is informed to the supplier and recipient by the GSTN for rectifying the mistakes. The returns have to be matched as well as the taxes have to be paid for availing the credit. The process is mentioned in sub-section 28 and 29 of the Model GST Act.

There is a provision to take input tax credit on provisional basis by the recipient without waiting for the tax being paid by the supplier of goods or services. In such cases, the recipient has to enter these invoices manually in the GSTR -2. A window period of two months is given for matching of the records, and if the same does not happen within this period, the input tax credit taken on such invoices will be reversed along with the interest for the two months.

Once the supplier pays the same, the records will be verified and matched by GSTN, once it is matched, the recipient will be eligible to take the input tax credit along with the interest paid. The only challenge with is process is that the ratings of the recipient will be impacted as the department has taken the approach of giving ratings for all the taxpayers based on their tax payment, the filing of returns from time to time.

The taxpayer has to take a judicious call on to take the credit on the provisional basis or wait for payment of taxes till the supplier pays the taxes. In the case of the second approach, there may be some impact on the cash flows and working capital management. While making purchases or entering into contracts, the tax history of the supplier of goods and services also has to be considered along with the quality, delivery, prices and other factors. This will amount to change in the business process, and for this to be implemented, the concerned teams have to be trained accordingly.

Input Service Distributor

Under GST also there is a provision for registration as Input Service Distributor similar to the current provisions. Section 17 of the Model GST Act lays down the procedure for distribution of the input tax credit by Input Service Distributor.

The credit of CGST can be transferred as IGST input tax credit if the input service distributor and the recipient of credit are located in different States.

The credit of SGST can be transferred as IGST input tax credit if the input service distributor and the recipient of credit are located in different States.

The credit of SGST & IGST can be transferred as SGST input tax credit if the input service distributor and the recipient of credit are located in same State.

To conclude the input tax credit process is simple under GST as per the Model Law provisions but only the difference with the current regulations is that input tax credit can be availed only on payment of taxes by the supplier. The government wants to ensure that there is no revenue leakage on account of black sheep and also safeguard its revenue collections.

Utilization of Input Tax Credit

This is one the most important change in the input tax credit process compared to the current process under various tax regulations. The major drawbacks under the current tax regulations are

1. Input tax credit on all business expenses is not allowed like VAT credit is not allowed for a service provider
2. Excise / Service Tax credit, e., CENVAT Credit is not utilized for payment of VAT liability or vice versa
3. Input tax credit is not eligible for all taxes like CST applicable on interstate transactions.

All these are being addressed in the GST to a large extent with some restrictions but by large very useful for the business / industry as a whole. This will ensure that input tax credit is available in whole supply chain process seamlessly and thereby providing a feasibility of lowering the cost of goods and services and pass on the benefits to the end consumer.

Central Goods and Service Tax – input tax credit of Central Goods and Service tax has to be utilized for payment of Central Goods and Service Tax liability, and if any amount is remaining, the same can be used for payment of a liability of Integrated State Goods and Service Tax.

State Goods and Service Tax – input tax credit of State Goods and Service tax has to be utilized for payment of State Goods and Service Tax liability, and if any amount is remaining, the same can be used for payment of a liability of Integrated State Goods and Service Tax.

Integrated State Goods and Service Tax – input tax credit of Integrated Goods and Service tax has to be utilized for payment of Inter-State Goods and Service Tax liability, and if any amount is remaining, the same can be used for payment of liability of Central Goods and Service Tax and if credit is still available the same can be used for payment of liability of Inter-State Goods and Service Tax.

To conclude the input tax credit process is simple under GST as per the Model Law provisions but only the difference with the current regulations is that input tax credit can be availed only on payment of taxes by the supplier. The government wants to ensure that there is no revenue leakage on account of black sheep and also safeguard its revenue collections.

Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

These examples are based on the model law and may change based on the actual law passed.