Guide

What is GST India (Goods & Services Tax)? Indirect Tax Law Guide

Life before GST

During the previous indirect tax regime, there were a significant number of indirect taxes levied by both centre and state. This was in the form of VAT (Value Added Tax) which differed from state to state and CST (Central State Tax) that was levied in the case of interstate sale of goods.

Besides these two there existed a number of indirect taxes like entertainment tax, local taxes levied by states and octroi thus creating a chaotic and complex environment for businesses to operate.

A quick look at the Indirect Taxes replaced by GST

(i) Taxes levied and collected by the Centre:

  • Service Tax 
  • Additional Duties of Customs (also known as Countervailing Duty or CVD)
  • Special Additional Duty of Customs (SAD)
  • Central Excise duty

(ii) Taxes levied and collected by the State: 

  • State VAT 
  • CST 
  • Entertainment Tax
  • Taxes on lotteries, gambling, betting, etc

The setting up of any business under the previous tax system required many different taxes and procedures under different authorities both central and state.

The state-level taxes were different in each state. This made both setting up businesses and calculating and paying taxes difficult. One would have to hire an expert to step in and provide expert advice. Taxes were calculated on the value of the goods or the services that were being sold.

GST only taxes the value addition at each stage of the supply chain starting with the process of raw material through stages of manufacturing distribution and final sale. GST also gives credit for the input tax that has been paid at the previous stage of the supply chain. So, if a person pays the tax that applies to his/her sale and then claims the input credit of the tax that he/she had paid to procure the item sold, it is only the actual difference amount that the person is actually paying.

Example:We can illustrate this with an example of a product XYZ.

Previous Tax Regime

In this example, we presume that the VAT in the first state is 10% and the VAT in the second state is 12%. The interstate central sales tax (ICST) is presumed to be 12%. For the sake of this example, we also presume that the manufacturer of XYZ has paid all the taxes for the manufacturing process of XYZ.

The manufacturer of XYZ sells his product to a wholesaler in the same state at Rs.100 per piece plus taxes. The taxes in the same state are a VAT of 10%. This makes the amount that the wholesaler pays for each item of XYZ Rs. 110. The wholesaler then increases the rate of XYZ to Rs. 200 and sells it to a retailer in another state. 
This attracts an interstate central sales tax (CST) of 12 %. This makes the rate paid by the retailer for each XYZ Rs. 224. The retailer decides to mark the selling price of XYZ at 25% more than he purchased it making it Rs. 280 per piece. When he sells it to the customer it attracts a VAT of 12%. The customer pays Rs. 313.60 for XYZ.

Here we see that as there are different values of VAT that are levied by different authorities in each state it would be impossible to calculate and claim the input tax credit.

GST Regime

Now we can take the same example under the GST system. The manufacturer sells XYZ to the wholesaler in the same state at Rs. 100 per piece plus a GST of 10% making the amount paid by the wholesaler Rs. 110.

This wholesaler then increases the rate to Rs. 200 and sells the product to a retailer in another state attracting an IGST of 10% making the price paid by the retailer Rs. 220. The retailer increases the price by 25% marking it at Rs. 275. The end customer buys it at Rs. 275 plus 10% GST amounting to Rs. 302.50.

Here we can see that the GST levied on the product XYZ has been the same 10% throughout. The interstate IGST was only levied when the product was sold between two states. Each person at each stage of the supply chain can avail input tax credit on the SGST and CGST. The calculation and claiming of the input tax credit at every stage is much easier when it is uniform and under the same authority.

This will benefit the end customer if the sellers choose to pass on this benefit to them. It benefits the manufacturer, wholesaler and the retailer as well as they can claim an input tax credit for their purchases and only bear the burden of the additional tax that their value addition attracts.

What is GST?

GST stands for Goods and Service Tax. It was envisioned to serve as one common indirect tax for the entire country. The implementation of GST is one of the biggest tax reforms in India and for the first time, the nation has a uniform tax structure under a single authority. It replaced a number of indirect taxes that were scattered all across the country paving way for a seamless, less-complex way of doing business in India.

It was implemented as a bill passed in the Rajya Sabha on 03.08.2016 and then in the Lok Sabha on 08.08.2016. It was notified as a Constitution Act (101st Amendment ), 2016 on 08.09.2016.

GST is a tax that is applicable to goods as well as services. Goods are defined as all commodities, materials and articles while services are anything other than goods. The GST law has unique principles and is inspired by the GST structures of other countries such as Australia, the European Union as well as the international guidelines recommended by the OECD (Organisation for Economic Co-operation and Development). Since the country allows both the centre and the states to levy taxes, the GST structure has a dual system that allows the states and the central taxes to function independently.

The Salient Features of the GST

1. The GST is under the purview of the GST council that consists of the Finance Ministers of all the states and headed by the Union Finance Minister.

2. There is concurrent jurisdiction for the centre and the states to levy GST.

3. There is a four-tiered structure of slabs at 5%, 12%, 18%, and 28% for various product and service categories. Some categories of essentials such as wheat and rice have 0% GST.

4. There are goods and services that are not under the GST umbrella, namely; alcohol for human consumption, five petroleum products and the entertainment tax levied by local bodies. The GST Council will decide the date from which GST will be applicable for crude oil, diesel, petrol, natural gas and ATF. Tobacco is a part of GST but the power to levy additional excise duty is still with the centre.

5. GST is levied on the amount value-added at each stage. The final end customer bears the GST only of the final stage.

6. Interstate commerce and imports will come under GST levied by the centre.

Source: https://akm-img-a-in.tosshub.com/sites/btmt/images/stories/gst_660_102917033653_050418012134.jpg

The GST has replaced all the other indirect taxes that were collected earlier such as central excise duties, additional and special additional customs duty, service taxes, state VAT central sales tax, etc.

Earlier there were different central taxes that came under different rules and administrations. There were different procedures for each tax. The state taxes were individual to each state with multiple taxes, rules, acts and procedures.

GST has made the entire procedure computerised and uniform. There is a single law, one administration and uniform procedures. This unified system ensures that there is no cascading and repetitive levy of taxes on the same goods or services. This will support the economic growth of the country by reducing the time, effort and cost that are spent on taxes. It will add to the ease and transparency of transacting business.

The practical implementation of the GST will be done by the GSTN (Goods and Services Tax Network) which is a non-government firm created with the NDSL (National Securities Depository Limited). The GSTN will be in charge of the provision of IT infrastructure for the implementation and regulation of the GST.

There are around 160 countries that have implemented the GST tax system in different forms since France became the first country to implement it in 1954. Some of the countries are Canada, Australia, United Kingdom, Brazil, Singapore, Spain, Monaco and Italy.

What is GST Return?

If you’re a business owner and a taxpayer, then you will have to declare any income received from your business transactions. GST returns is a document which contains the details of your sales, purchases, tax collected on sales (output tax) and (tax paid on purchases (input tax). After filing the GST return, you’ll need to adjust your existing tax liability.

Source: https://www.avalara.com/content/dam/avalara/public/editorial/us/gst_returns.jpg

Who should file a GST Return?

Firstly it’s important to note that as per the GST rules, any business whose yearly turnover is above a certain threshold is liable to obtain a GST number.

The annual turnover can be classified into two groups:

  1. Rs. 10 lakh for special category states i.e. North East States (Arunachal Pradesh, Assam, Sikkim, Manipur, Mizoram, Meghalaya, Nagaland, and Tripura) and Hilly States (Uttarakhand, Himachal Pradesh, and Jammu & Kashmir) 
  2. Rs. 20 lakh for all other states and union territories (UTs) 

*In a recent announcement, this limit has been increased to

  1. Rs. 20 lakh for special category states
  2. Rs. 40 lakh for all other states and UTs

There are several different types of GST and who files which GST returns depends on the nature of their business and transactions:

  1. Regular Businesses
    • GSTR 1 – Tax return for outward supplies
    • GSTR 2 – Monthly return for inward supplies
    • GSTR 3 – Consolidated monthly tax return
    • GSTR 3B – Temporary consolidated return summary for inward and outward supplies for businesses which recently transitioned into GST
    • GSTR 9 – Annual consolidated tax return
    • GSTR 9C – Audit form for audit of annual reports of businesses whose annual turnover exceeds Rs. 2 crore
  2. Businesses under Composition Scheme
    • GSTR 4 – Quarterly return for compounding vendors
    • GSTR 9A – Annual composition return form
  3. Other Business Owners and Dealers
    • GSTR 5 – Variable return for non-resident foreign taxpayers
    • GSTR 6 – Monthly return for ISDs
    • GSTR 7 – Monthly return for TDS transactions
    • GSTR 8 – Monthly return for ecommerce operators
    • GSTR 9B – Annual return form for ecommerce operators collecting tax at source
    • GSTR 10 – Final GST return before cancelling GST registration
    • GSTR 11 – Variable tax return for taxpayers with UIN
  4. Amendments
    • GSTR 1A – Amendment form to correct GSTR-1 and any mismatches between GSTR-1 of taxpayers and GSTR-2 of their customers
  5. Auto-drafted Returns
    • GSTR 2A – Auto-drafted tax return for purchases and inward supplies by a taxpayer
    • GSTR 4A – Quarterly purchase-related tax return for composition dealers
  6. Tax Notice
    • GSTR 3A – Tax notice issued by GST authorities to defaulters

Types of GST

The three main types of GST are Central Goods & Service Tax (CGST), State Goods & Services Tax (SGST) and the Integrated Goods & Services Tax (IGST).

A fourth type is the Union Territory Goods & Services Tax (UTGST). In India, taxes are levied by the centre and state. The jurisdiction for the centre and the states to levy taxes are concurrent.

Types of GSTAuthority which is benefittedPriority of Tax Credit useWho is it collected by?Transactions which are applicable (Goods and Services)
CGSTCentral GovernmentCGST IGSTCentral GovernmentWithin a single state, i.e. intrastate
SGSTState GovernmentSGST IGSTState GovernmentWithin a single state, i.e. intrastate
IGSTCentral Government and State GovernmentIGST CGST SGSTCentral GovernmentBetween two different states or a state and a Union Territory, i.e. interstate
UTGST/UGSTUnion Territory (UT) GovernmentUTGST IGSTUnion Territory (UT) GovernmentWithin a single Union Territory (UT)

Central Goods & Service Tax (CGST)

The Central Goods & Service Tax (CGST) is governed by the Central Goods & Services Tax Act 2016. It is the tax that replaces all the taxes and duties that were formerly levied by the centre under various heads such as service tax, excise duties, customs duties etc. The taxes that are collected under the CGST belong to the central government and can be amended by a body that functions under the centre. The input tax under this head is given to the state governments and they have to pay the CGST to utilise it.

State Goods & Services Tax (SGST)

The GST that is collected by the states is called the State Goods & Services Tax or SGST. It replaces the taxes and levies that were made by each of the state governments earlier including those such as entry tax, octroi, state sales tax, luxury tax, etc. The revenue collected under the SGST belongs to the state government and functions under the state authority for the SGST. This state authority is governed by the central GST body.

Integrated Goods & Services Tax (IGST)

The IGST or the Integrated Goods & Services Tax is applicable to the goods and services that are supplied from one state to another. This tax is collected by the centre and can be changed whenever required by the Goods and Services Tax Council of India.

Union Territory Goods & Services Tax (UTGST)

The tax that replaces all the taxes and levies that were formerly made by the Union Territories is called the Union Territory Goods & Services Tax or the UTGST.

Zero Rate – 0%: Certain goods and services that are considered to be essentials have been put under the zero-rate slab of the GST structure. They attract no GST. These goods and services include unpacked food grains, milk, health and educational services.

Lower Rate – 5%: Certain other essential items attract a lower rate of GST to protect people from the effect of inflation on daily essentials. These are tea, sugar, spices, edible oils, coal, cotton fabric etc. This lower rate is currently at 5%.

Standard Rate-
12% and 18%: There are two standard rates of 12% and 18 % that are applicable based on the category of goods and services. The 12% rate applies to items such as mobile phones and processed food while the 18% rate applies to computers, capital goods and industry intermediaries.

Higher Rate –
28%: The higher rate of GST is applicable on white goods such as high-end motorcycles, small cars, washing machines, refrigerators, etc.

Additional Cess: To prevent certain goods such as aerated drinks, tobacco etc from being too cheaply available the government has levied an additional cess over and above the higher rate of 28%. This will apply to demerit goods such as pan masala, tobacco, coal, motor vehicles and aerated drinks.

What are the Different Types of GST Returns?

The different types of GST returns (GSTR) are categorised according to the numbers of the GST forms.

1. GSTR-1

The GSTR-1 form for GST returns is for the outward sale or supply of goods and services. It is to be filed every month. The last date for filing is the 11th of the subsequent month. This GST form has 13 sections.

There is a special feature for businesses that have sales of up to Rs.1.5 crores who can file every quarter instead of the monthly returns that have to be filed with businesses with sales exceeding 1.5 crores.

This form has to be filed even when there have been no transactions in that month. Since bulk uploads are time-consuming it is possible to upload invoices throughout the month regularly. These can be changed before the filing. This return once filed cannot be modified. Instead, it can be adjusted only during the next return.

A daily late fee is charged for the CGST and the SGST from the date after the due date of the returns. The actual payment of the tax is made after the filing of the GSTR-3B. 

The following people are exempted from filing this return:

  1. Composition Dealers (who will have to file GSTR-4 instead on a quarterly basis)
  2. Input Service Distributors
  3. Non-resident taxable person
  4. Taxpayer liable to collect TCS or deduct TDS
  5. Suppliers of online information and database access or retrieval services (OIDAR)

2. GSTR-2

GSTR-2 is the return that is filed listing the details of the inward taxable goods and services. It is easy to fill as it is auto-populated by the details that were filled in by the seller or supplier of goods and services. It is meant to verify that the details that are given for the sale by the seller and the details given by the purchaser match each other. This is called buyer-seller reconciliation.

It is necessary to be able to get the input tax credit. It should be filed by the fifteenth of the subsequent month. It is essential to file the GSTR-2 as the GSTR-3 cannot be filed without the GSTR-2 thus attracting penalties. The GSTR-2 has to be filed even when there has been no transaction in that month.

The following people ‘Do Not’ have to file GSTR-2:

  1. Composition Dealers (who will have to file GSTR-4 instead on a quarterly basis)
  2. Input Service Distributors
  3. Non-resident taxable person
  4. Taxpayer liable to collect TCS or deduct TDS
  5. Suppliers of online information and database access or retrieval services (OIDAR)

GST form GSTR-2 has thirteen sections to be filled.

3. GSTR-3

GSTR-3 is an automatically populated form of GST returns that is filled by taking the information from the GSTR-1 and the GSTR-2. It will show the actual tax liability of the person or organisation. It is due to be filed by the 20th of the month.

4. GSTR-3B

The GSTR 3B is a simple return that has the overview or summary of the details of the input tax credit as well as the outward supplies. It is a self-declared GST form. The tax liability of this form must be paid by the GST return due date of the 20th of the subsequent month. It is necessary to file this form even if there have been no transactions.

The GSTR 3B form does not have to be filed by:

  1. Non-resident taxable person
  2. Input Service Distributors & Composition Dealers
  3. Suppliers of OIDAR

5. GSTR-4

The GSTR-4 is the GST returns form that is used by the composition dealer. It is filed quarterly and by the 18th of the month succeeding the quarter. When the ordinary taxpayer files three returns, one in every month of the quarter, the composition dealer files this return every 3 months. Late filing attracts a daily penalty. One cannot file the GSTR-4 for a quarter without having filed the GSTR-4 for the previous quarter.

6. GSTR-5

The GSTR-5 is the return that is filed by a non-resident taxable person. This would mean a person who does not have a business in India but for a short period is making supplies in India. This return will furnish the details of these taxable supplies.

A person who is making such supplies will have to obtain a special certificate of registration that is valid for the period that is specified or for 90 days, whichever is earlier. Supplies should not be made without this registration.

This GST form is to be filed monthly and the GST return due date is the 20th of the next month. Late filing will attract fines and penalties.

7. GSTR-6

The GSTR-6 is the GST form that is filed for an Input Service Distributor on a monthly basis. It is to be filed by the 13th of the next month. This return has details of the input tax credit that is received by the Input Service Distributor. It has 11 sections.

8. GSTR-6A

The GSTR-6A is a read-only report that is automatically generated from the details that are given by suppliers in GSTR-1. Any changes that need to be made should be done in the GSTR-6.

9. GSTR-7

The GSTR-7 is the return that is filed by people and entities who deduct tax at source. It is a monthly report that has to be filed by the 10th of the next month. This return gives details of the TDS, deducted, TDS paid, TDS payable and refund of TDS if claimed.

The TDS deducted can be used as the input credit and used to calculate the output tax liable. The certificate of TDS deducted is the Form GSTR 7A which is generated based on the GSTR-7. The details of the TDS deducted is in Part C of the GSTR- 2A which will be electronically available after the due date of the GSTR-7 filing.

10. GSTR-8

The GSTR-8 is the GST returns to be filed by businesses and individuals transacting through eCommerce and who are required to deduct Tax collected at source (TCS). It gives the details of the supplies that have been made through eCommerce and the TCs that have been collected through the supplies. It is a monthly return that has to be filed by the 10th of the following month.

11. GSTR-9

The GSTR 9 is the GST return that is filed by the normal taxpayer annually. Form 9 GST is to be filed by the 31st of December of the next financial year. Late filing after the GST return due date will attract a penalty.

The GSTR 9 has all the details of the inward and outward supplies for the period of the entire previous financial year under all the different tax heads. Form 9 GST is basically an annual return GST consolidated filing of all returns (monthly or quarterly) that were made in the year, namely the GSTR-1, GSTR-2A and GSTR 3B.

This annual return GST is to be filed with every person or entity that is registered under GST except for the following:

  1. Those under the composition scheme who should file the GSTR-9A instead
  2. Input Service Distributors
  3. Casual Taxable Person
  4. Non-Resident Taxable Person
  5. Those who are paying TDS under Section 51 of the CGST Act

12. GSTR-9A

Those who are paying their taxes under the composition scheme file their annual returns through the GSTR-9A form. Return due date for the GSTR-9A is the 31st December of the next financial year. It is an annual return GST form that contains all the details that were filed quarterly in the financial year.

GSTR-9A is not to be filed by the following:

  1. Input Service Distributors
  2. Casual Taxable Person
  3. Non-Resident Taxable Person
  4. Those paying TDS under Section 51 of the Act
  5. E-commerce operators who are paying TCS under Section 52 of the Act

13. GSTR-10

The GSTR-10 is a final return that is to be filed when the GST registration of a person or entity has been cancelled or surrendered. It is to be filed within three months of the date of the cancellation or the date of the cancellation order whichever is later.

14. GSTR-11

The GSTR-11 is the return to be filed by persons or entities that have a Unique Identity Number (UIN). They can use this return to receive a refund for the goods and services that they have paid for in India. A UIN is the special number classification that is assigned to foreign diplomatic missions and embassies who are not taxable in India. This is a monthly return with a GST return due date of the 28th of the following month.

A UIN can be obtained by the following using the Form GST REG-13:

  1. Any specialized agency under the United Nations Organization
  2. Any Multilateral Financial Institution or Organization that is notified under the United Nations (Privileges and Immunities) Act, 1947,
  3. Embassy or Consulate of a foreign country
  4. Any other person or class of persons notified by the Commissioner

Due Dates of Filing GST Returns
These returns are as per the CGST Act*
Return FormParticularsFrequencyDue Date
GSTR-1Details of outward supplies of taxable goods and/or services affectedMonthly11th* of the next month with effect from October 2018*Previously, the due date was 10th
GSTR-2SuspendedDetails of inward supplies of taxable goods and/or services affected claiming the input tax credit.Monthly15th of the next month
GSTR-3SuspendedMonthly return on the basis of finalization of details of outward supplies and inward supplies along with the payment of tax.Monthly20th of the next month
GSTR-3BSimple Return in which summary of outward supplies along with Input Tax Credit is declared and payment of tax is affected by taxpayerMonthly20th of the next month
CMP-08**Return for a taxpayer registered under the composition levyQuarterly18th of the month succeeding quarter
GSTR-5Return for a Non-Resident foreign taxable personMonthly20th of the next month
GSTR-6Return for an Input Service DistributorMonthly13th of the next month
GSTR-7Return for authorities deducting tax at source.Monthly10th of the next month
GSTR-8Details of supplies effected through e-commerce operator and the amount of tax collectedMonthly10th of the next month
GSTR-9Annual Return for a Normal TaxpayerAnnually31st December of next financial year*
GSTR-9AAnnual Return a taxpayer registered under the composition levy anytime during the yearAnnually31st December of next financial year*
GSTR-10Final ReturnOnce, when GST Registration is cancelled or surrenderedWithin three months of the date of cancellation or date of cancellation order, whichever is later.
GSTR-11Details of inward supplies to be furnished by a person having UIN and claiming a refundMonthly28th of the month following the month for which statement is filed


What is a GST Audit?

Source: https://blog.saginfotech.com/wp-content/uploads/2018/05/audit-provisions-under-gst.jpg

A GST audit can be defined as the process of verifying and inspecting the relevant documents and records maintained by a business or an individual. Some of the activities that fall under the GST audit process are checking the genuineness of taxes paid, turnover as claimed by the owner, and refund claims as applicable under the GST rules.

Types of GST Audits

There are three types of GST audits:

  1. If a business owner or an individual has a turnover of more than 2 crores, then it’s compulsory for them to get audited. The GST audit process can be carried out by a Chartered Accountant or a Cost Accountant (CA) annually.
  2. If a business owner or an individual has received a specific order from the SGST/CGST Joint Commissioner, then they’ll be intimated 15 days prior to the audit. The audit will be carried out by the Joint Commissioner or an authorised official.
  3. If a business owner or an individual has received a specific order from the Deputy/Assistant Commissioner, then the audit will be conducted by a CA authorised by the Commissioner.

What are the Documents Required for a GST Audit Process?

The following documents, reports, and invoices need to be submitted in case of a GST audit:

  1. Invoices and GST returns filings on tax, sales, and credit payments.
  2. Representation letter, offer letter, engagement letter, or appointment letter of the auditor.
  3. GST audit checklist.
  4. Report on gap analysis of internal controls identified during the audit.
  5. Critical points and risk assessment procedures in areas of high, medium, and low risks.
  6. Evidence and findings report during the internal audit.

What should be included in the GST Checklist?

Some of the points to keep in mind during the internal GST audit are:

  1. Filing monthly return of GSTR-3B and monthly or quarterly return of GSTR-1. Ensure there’s no mismatch between values in GSTR-3B and GSTR-1.
  2. Awareness about penalties and offences under the GST Act.
  3. Ensure the invoices used are in the right format as mentioned in the GST Act. In case of errors, there can be a penalty of Rs. 25,000.
  4. The invoice and GST paid to the supplier should be within 180 days of issuance of the invoice.
  5. Ensure the right policies have been implemented for issuance of E-way bills. For example, there should be supporting E-way bills for use of non-motor vehicles during transport of goods valued at more than Rs. 50,000.
  6. Ensure that goods and services entrusted with workers or labourers are deposited back to the business within a year for goods and within two years for machines or equipment.

GST Payments

Different types of payments that need to be made under GST:

  • IGST – Payable to the center in case of an interstate supply
  • CGST – Payable to the center in case of intrastate supply
  • SGST – Payable to the state in case of an intrastate supply
CIRCUMSTANCESCGSTSGSTIGST
Goods sold from Delhi to BombayNONOYES
Goods sold within BombayYESYESNO
Goods sold from Bombay to PuneYESYESNO

Apart from this, you’ll have to pay tax collected at source (TCS) and tax deducted at source (TDS).

How to calculate GST payments?

The total GST payment can be calculated by deducting the input tax credit (ITC) from the outward tax liability. From this, the TCS and TDS will be deducted followed by adding any interest or late fees.

In case of a regular dealer, the GST payable is the difference between outward tax liability and ITC since the regular dealer can claim ITC on the purchases made by him/her/them.

In case of a composition dealer, the GST payable is a fixed percentage on the total outward supplies made based on the type of business – manufacturing goods or services.

Who should make the GST payment?

The GST payment are required to be paid by the following dealers:

  1. Registered dealer with GST liability
  2. Registered dealer liable to tax payment under Reverse Charge Mechanism (RCM)
  3. E-commerce operator required to pay TCS
  4. Dealers required to deduct TDS

When should the GST Payment be made?

The GST payment should be done in concurrence with the filing of GSTR-3. i.e. by the 20th of the following month.

How to make the GST Payment?

There are two ways to make the GST payment:

  1. Through Credit Ledger – For the credit of ITC 
  2. Through Cash Ledger – Where the tax liability is below Rs. 10,000

As per the present GST return filing process, you’ll have to file GSTR-1 to report GST sales, GSTR-3B to report GST input tax credit (ITC) and clear all the necessary payments. Moreover, to claim any GST refund, you’ll need to file specific forms. 

Let’s look at the GST refund and payment process in detail.

GST Refund

What is the meaning of GST Refund?

In simple words, the situation of a GST refund arises when you pay a GST amount that’s more than your liability in a particular situation. There are standardised statutes to the GST process to avoid any ambiguity or confusion. The GST procedure is online with specific time limits set for the same.

When can you claim the GST Refund?

There are some cases where you may need to claim a GST refund as per the GST refund rules:

  1. In case of exports, including deemed exports, with a cumulative balance of input credit or a rebate claim
  2. In case of an excessive tax payment
  3. In case of a credit accumulation due to non-existent output tax or tax exemption
  4. After a provisional assessment
  5. In case an appeal is for a respondent, then the deposited amount for the appeal shall be refunded back to the appellant
  6. After an investigation or certain findings by an adjudicating officer
  7. Offered to foreign embassies or United Nations (UN) bodies in case of any purchases
  8. When the output tax is lesser than the input tax which creates an accumulation of credit
  9. GST paid by foreign or international tourists

How do you calculate a GST Refund?

The GST return process calculation can best be understood with the help of an example: 

If a person has a GST liability of, say Rs. 40,000 and has paid a GST amount of Rs, 4,00,000, then the person can file a GST refund application and claim a refund of the remaining amount of Rs. 3,60,000.

What is the time limit for a GST Claim for Refund?

Generally, the time limit for a GST claim for refund is 2 years from the relevant date. The relevant date can vary as per the situation.

Reason for claiming GST RefundRelevant Date
Excess payment of GSTDate of payment
Export or deemed export of goods or servicesDate of despatch/loading/passing the frontier
ITC accumulates as output is tax exempt or nil-ratedLast date of financial year to which the credit belongs
Finalisation of provisional assessmentDate on which tax is adjusted

Some of the relevant dates as per GST refund rules are as follows:

  1. In case of an excess GST payment, the relevant date is the date of payment
  2. In case of an export or deemed export of goods and services, the refund date is the date of loading
  3. In case of a provisional assessment, the relevant date is the date of adjustment

The interest on delayed payment under GST payable by the government is 24% p.a. 

What is the process of claiming a GST refund? 

You have to file a GST refund application and file the RFD-01 within 2 years from the relevant date. 
The Giddh GST registration and return filing software can help you file a GST claim for refund.

GST Penalties

There are fixed rules laid down under GST in case of any GST penalty and offense. This is important information for business owners, CAs and tax personnels to avoid any mistakes or delays.

What are the GST Offences?

The GST rules lay down around 21 offenses and penalties. Some of the most important are:

  1. Ignoring GST registration even though it’s required by law
  2. Supplying goods and/or services without an invoice or a false invoice
  3. Submission of false information during GST registration
  4. Opting for composition scheme inspire of ineligibility

What are the GST Penalties?

As per the GST penalty rules, the following penalties will apply for the specific charges:

  1. Late filing – Also known as late fee, the late filing penalty is Rs. 100 per day per Act. It’s levied on CGST and SGST, but not IGST. The maximum penalty is Rs. 5,000. Along with the late fee, the interest on GST late payment is 18%.
  2. Not filing – The penalty for non-filing of GST is that the subsequent returns won’t be possible to file leading to a cascading effect of penalties and fines.
  3. 21 offenses with no intention of fraud or evasion – In this case, an offender has to pay a minimum penalty of Rs. 10,000 and a maximum penalty of 10% of the unpaid tax.
  4. 21 offenses with intention of fraud or evasion – In this case, an offender has to pay 100% penalty of the evaded tax subject to a minimum of Rs.10,000.
  5. Cases of fraud can result in arrest, persecution, and penalties. The jail term can be upto 1 year for a fraud of 100-300 lakhs, upto 3 years for frauds of 200-500 lakhs, and upto 5 years for frauds above 500 lakhs with fines in all three scenarios.

What does Inspection under GST mean?

In case an SGST/CGST Joint Commissioner believes that any person has suppressed a transaction or claimed excess ITC in an effort to evade tax, then the Joint Commissioner may authorise other officers in writing to inspect the offender’s places of business.

What does Search and Seizure under GST mean?

The Joint Commissioner may also order for a search after inspection in case he/she/them believes that there may be some goods which may be confiscated or any hidden items which may be helpful during the investigation.

What are the Penalties in case of Goods in transit?

In case a person carrying goods worth more than Rs. 50,000 is not carrying an invoice or bill or challan of the delivery or a copy of the e-bill, then he/she/they may be inspected by an officer, the goods, documents, and vehicle may be seized, a GST fine may also be levied.

What is compounding of Offences under GST?

This is a shortcut process to avoid the hassles of litigation. As per the GST rules, it’s necessary to appear in front of the Magistrate at every hearing during prosecution, which may be sometimes expensive and time-consuming. To avoid this, the accused may pay a compounding fee that shouldn’t exceed more than the applicable fee under GST.

What is Prosecution under GST?

The prosecution process involves carrying out legal proceedings against an accused for any criminal offence under GST rules such as obtaining false refund, issuing false invoices all with the intention of committing fraud.

What is Arrest under GST?

In case the Joint Commissioner of CGST/SGST is under the impression that a person has committed an offence, then he/she/they may be arrested. They have to appear before the Magistrate within 24 hours in case of a cognizable offence.

Type of GST OffenceApplicable GST Penalty Amount
Delayed filing of GST ReturnsRs. 200 per day (Rs. 100 per day under CGST and an additional Rs. 100 per day under SGST) up to a maximum of Rs. 5000. Late fee not applicable to IGST unpaid by delayed filing
Not filing GST ReturnsHigher amount among – Rs. 10,000 or 10% of tax due under GST
Committing FraudHigher amount among – Rs. 10,000 or 100% of tax due under GST (may include jail term for fraud cases of higher value)
Aiding and Abetting FraudRs. 25,000 irrespective of whether offender is GST registered or not
Charging wrong GST rates (higher rate than actual)Higher amount among – Rs. 10,000 or 100% of the tax amount due (applicable only if excess tax is not submitted with the government)
Not issuing an invoiceHigher amount among – Rs. 10,000 or 100% of tax amount due
Not Registering Under GST (even though required to by law)Higher amount among – Rs. 10,000 or 100% of tax amount due
Issuing incorrect invoiceRs. 25,000

*The list is indicative and penalties are subject to periodic change.

GST Appeals

In case the accused is unhappy with any decision or order passed against him under the GST rules, then the same can be appealed. The first appeal is heard by the Appellate Authority followed by the National Appellate Tribunal, the High Court, and finally the Supreme Court.

To avoid the long process, the accused may also opt for advance ruling under GST where they can ask for clarification from the GST authorities before the hearings.

Appeal levelOrders Passed ByAppeal toSections of Act
1stAdjudicating AuthorityFirst Appellate Authority107
2ndFirst Appellate AuthorityAppellate Tribunal109,110
3rdAppellate TribunalHigh Court111-116
4thHigh CourtSupreme Court117-118

Extended Dates for GST Returns Filing and Relief from Penalties and Late Fees during COVID-19

With an aim to provide relief to businesses struggling with economic instability during Coronavirus, the Government of India (GoI) has extended the dates for filing of GST returns.

Some of the announcements in this respect are as follows:

  1. The last date for GST returns filing for Financial Year 2018-2019 and Annual Year 2019-20 is extended from 31st March 2020 to 30th June 2020. Moreover, the interest for late payment of GST is also reduced from 12% or 18% to 9% p.a.
  2. Taxpayers who have an annual turnover of upto Rs. 5 crore can submit their filed GSTR-3B for February, March, and April 2020 have been extended till 30 June, 2020. Moreover, there’ll be no late fee, interest, or penalty levied on them.
  3. For taxpayers registered under the composition scheme, the deadline for filing the statement and challan in CMP-08 is extended till 30th June, 2020. The last date for opting for the composite scheme has also been extended to 30th June, 2020.
  4. The last date for availing the Sabka Vishwas Scheme LDRS has been extended to 30th June, 2020. Moreover, no interest will be levied if the dues are paid before the deadline.
  5. The time limit for compliance matters such as issue of notifications, approval and sanction orders and filing of appeals, furnishing returns, statements, and applications have been set between 20th March and 30th June 2020.

Understanding SGST, CGST & IGST

The division of the taxes into SGST, CGST and IGST is very straightforward.

Source: https://taxadda.com/wp-content/uploads/igst-cgst-sgst.png

Central Goods & Service Tax (CGST)

CGST stands for the Central Goods & Service Tax (CGST). The CGST is the levy that is paid to the central government. It is governed by the Central Goods & Services Tax Act 2016. The taxes that were levied by the centre in the former tax regime have all been replaced by this one CGST. It functions under one central authority.

State Goods & Services Tax (SGST)

SGST is the State Goods & Services Tax or SGST. It is paid to the state government and it replaces the taxes such as octroi, entry tax, state sales tax, luxury tax, etc that were collected by the state governments.

All the levies that are collected under this head belong to the state government and it is controlled by the state authority that in turn is governed by the central GST body. It is this tax reform in particular that has given a big relief to business people. It was not practically achievable in the earlier regime to collect an input tax benefit when the tax on the input and the tax on the sale were levied and collected by two totally different bodies.

In some cases, the tax that was collected on the input would not even exist in the state where the next sale was being made. Having the SGST of all the states under the control of one central body has made a straightforward and simple process to claim the input tax benefit without any special regard to the source and destination states. It has truly made the nation one unified level playing field for all companies and individuals.

Integrated Goods & Services Tax (IGST)

The IGST is the Integrated Goods & Services Tax applicable to interstate supply of goods and services. It is collected by the centre and given to the respective states. It is governed by the central body. This tax has revolutionised the entire logistics and interstate scenario of the country.

When the earlier regime had many interstate check posts and different taxes applied to enter each state, it resulted in bottlenecks and holding up of goods at borders. There was a lot of paperwork and the entire process was risky and time-consuming. There was no telling how long the goods would take to cross the state border. This tax has made the state borders much easier to cross and made the entire country one market.

Who should register for GST?

The implementation and functioning of the GST regime are wholly dependent on proper coverage of every person involved at every stage of the supply chain of any goods or services. Therefore, the proper coverage and new registration of GST for all applicable businesses and individuals are very important. To register for GST, business owners can apply online.

Registration under GST is required for the following categories of people/businesses:

  1. Any entity that was previously registered for any tax whether state or central.
  2. Businesses with a turnover that is above the threshold limit set.
  3. A casual taxable person.
  4. A non-resident taxable person
  5. Supply agents and Service Distributors
  6. Reverse Charge Taxpayers
  7. E-Commerce aggregator suppliers
  8. Provider of online database access or information retrieval to a person in India from outside India (other than a registered taxable person)

Documents required for New GST Registration

New GST registration can be made online. The documents that are required to apply for GST online registration are:

  1. The PAN of the applicant
  2. The Aadhaar card of the applicant
  3. Incorporation certificate or registration proof of the business
  4. ID proof and address proof of the individual or the promoters/Directors of the business
  5. Address proof of the business
  6. Cancelled cheque or bank account statement
  7. Digital signature
  8. Board resolution or letter of authorisation to authorise the authorised signatory

Advantages of GST

Source: https://www.anakeen.net/india-gst-advantage/

The unified indirect tax system under GST has significantly boosted the development of Indian economy by eliminating indirect tax barriers between Indian states and unifying the country under a uniform tax rate.

The advantages of GST have been felt in businesses ranging from the smallest startups to Pan Indian corporates. It is also greatly beneficial and a great boost to the country’s economy.

GST is advantageous to the Indian economy in the following ways:

  1. The simplified tax structure is easier to plan and administer. There is far less regulation, legislation and administration involved in the GST system.
  2. The whole country can easily do business and transport goods.
  3. Registration under GST is very easy. Compliance is easier to verify and ensure. Since every step is computerised it is extremely easy to track taxes.
  4. There will be strict control over black money as the GST tracks the supply chain through every step. If one person neglects to show taxes it will immediately show up when the next person claims input credit.
  5. No more cascading taxes.
  6. The easing of the tax burden on manufacturers will help encourage the sector. With fewer taxes, the sector will grow to manufacture at full capacity.
  7. The ease of the tax burden, when transferred to the end customer, will help reduce prices.
  8. The reduced tax burden will over time increase consumption and therefore spending also.
  9. Increased demand and supply will increase production having a beneficial effect on the economy.

GST is Advantageous to Business People in the Following Ways

1. Unification

The biggest relief that the implementation of the GST has given all business people is freedom from the cascading tax regime. The earlier regime had various taxes that were levied by different authorities. Each tax had different compliance requirements.

There were many tax heads that had to be calculated, collected and paid depending on the type of goods. Services were taxed differently. To add to the complications, the states levied taxes differently making doing businesses in different states rather complicated.

The levies of taxes on interstate transport of goods was another time-consuming process that often saw transported goods being held up at the border check post queues. The taxes under the older regime were by different authorities making the claiming of input tax credit difficult. So, at each stage, the entire value of the goods or services were charged taxes.

GST has unified the collection of taxes under one body making it very easy to claim input tax credits. So at each stage, the business person only has to bear the tax for the value addition for the goods. The interstate taxes are collected by the centre eliminating the cumbersome process of transporting goods across the state and being levied varying taxes depending on each stage.

Some of the heads under which taxes were collected in the previous regime were:

  • Duties of Excise
  • Central Excise Duty
  • Additional Duties of Customs
  • Additional Duties of Excise
  • Special Additional Duty of Customs
  • Central Sales Tax
  • Cess
  • State VAT
  • Purchase Tax
  • Entertainment Tax
  • Luxury Tax
  • Entry Tax
  • Taxes on lotteries, betting, and gambling
  • Taxes on advertisements

All these taxes have been replaced by the GST scheme with a simple division of taxes as Central Goods & Service Tax (CGST) to the centre, State Goods & Services Tax (SGST) to the state and the Integrated Goods & Services Tax (IGST) for interstate business.

Example:

If we take the example of a goods item that was manufactured and supplied to the wholesaler @ Rs. 100 attracting 10% of tax. This would amount to Rs.110. This is then supplied to a retailer after increasing the price to Rs. 150 again attracting 10% tax making it valued at Rs. 165. The retailer again adds Rs. 15 to the value making it Rs. 180 plus 10% tax making it Rs. 198.

So, everybody adds their profit margin and the final buyer pays tax on the entire amount including all the taxes previously paid making it a tax on a tax. Under the GST regime, the very same goods item would be supplied to the wholesaler @ Rs. 100 attracting 10% of GST. This would amount to Rs. 110. This is then supplied to a retailer after increasing the price to Rs. 150 again attracting 10% tax making it valued at Rs. 165.

But after claiming the input tax credit the actual tax burden is only on the added value of Rs. 50. The retailer again adds Rs. 15 to the value making it Rs. 180 plus 10% tax making it Rs. 198. But the actual tax borne by the retailer is only on the Rs. 15.

So, even when everybody adds their profit margin they each pay the tax only for the amount that they have added and get the input tax credit for the tax that has already been paid on the incoming item. The final buyer is the person who is relieved of bearing the burden of everybody’s value addition as well as the tax on the tax paid.

2. Threshold and Composition Schemes

GST has a threshold below which businesses are given certain exemptions that are aimed at encouraging startups and small businesses. Smaller businesses would find it very difficult to close books and file their taxes every month and so they have been given the benefit of being able to file every quarter thereby reducing the work involved.

Under the composition scheme, the dealer does not have to worry about the supplier filing his GST to avail input tax credit. For example, if a normal taxpayer is collecting an 18% GST and then claiming input credit, a composition scheme taxpayer would only be levied 2% GST but would not be claiming an input tax credit at all.

So, the composition scheme taxpayer would not get his capital locked up awaiting the input tax credit payment. This makes it easier for the smaller business owner to do businesses without worrying about compliance and penalties.

3. Online Payments

The system of paying the GST online makes the whole system more transparent and easy for the businessperson to manage without the need for any additional help. This will eliminate the need for any middlemen or corruption at any level. It makes the entire system easy to access, verify and track. Having one place to manage taxes is a huge change from the previous cascading tax system.

4. Easier to Comply

The earlier tax regime had many different heads and authorities that levied and collected taxes. To make matters even more complicated, the system was totally different in each state. For a person who was starting a business especially in more than one state, it would mean a whole lot of paperwork and red tape involved in taxation. It also meant that it was very difficult to comply with each and every aspect of the taxes. With the different entry taxes and interstate levies added to the tax structure, it was a very expensive and cumbersome task to run a nationwide business.

5. Logistics Made Easy

The past scenarios of trucks and transport vehicles getting log jammed at interstate check posts sometimes for hours and days on end is in the past. In extreme cases, perishable goods would spoil and be unfit for sale due to the holdup. Interstate and countrywide logistics are now made simple and there is no fear of problems with paperwork and compliance differing in each state. The entire process is absolutely transparent and the whole country is now one level marketplace for business people.

6. Regulation and Better Coverage

With the unorganised sector being the input providers for many manufacturing industries, there is now better coverage and compliance under GST. With the ability to claim input tax credit, the entire supply chain including the unorganised sectors is getting covered under the GST scheme. This is excellent for the revenues for the government as well as for the entire financial aspect of the industries getting their taxes and books maintained properly. This helps smaller businesses maintain liquidity.

Impact of GST on Small and Medium Enterprises

The impact of the GST reforms is multifold. The most immediate and salient benefits for small and medium businesses are:

1. Simple and Easy to Understand

The earlier cascading tax regime was exceedingly hard to understand and comply with, especially for a business person not familiar with the rules of another state. It would take a taxation expert to be able to easily manage and file the taxes properly to different authorities. With the GST regime, there are only two authorities, the central and the state and the GSTN portal makes filing an easy process.

2. Takes the Pain Out of Starting a Business

When a startup had to register to do business across states it involved a lot of paperwork. The entire process was different in different states and the business would have to go through the process in all the states that they intended to do business in. However, with a uniform tax and uniform rules, the process of registration under GST is transparent and simple. And growing to expand to more regions and states is easy.

3. Interstate Logistics are Easier

Under the earlier tax regime, the physical transportation of goods across state borders would need endless paperwork and cause long queues at border check posts. This would result in added costs of transportation and labour with the goods and their transport lying idle sometimes for days on end at check-posts. Now, this bottleneck to the smooth flow of goods across the country has been removed. This makes doing interstate business easier and less expensive and risky than before.

4. Goods and Services

Goods and services had different taxes and an invoice would have to be made separately for each with taxes being levied under different heads. With the new integrated goods and services regime, the tax is levied on the amount making it easier for SMEs to calculate and avail tax benefits for input goods and services.

5. New Threshold Limits for Startups

The threshold limit for the GST taxes on smaller businesses, especially startups, is a great benefit to SMEs. The lower taxation rate for businesses with a smaller turnover is creating an ideal environment to help small and startup businesses to grow with a lesser tax burden.

Certain Disadvantageous Features of the GST for SMEs

1. Transition Pains

It is always a little difficult for people who are set in the old ways to change to something new even if it is easier. The entire process is online and people who are unfamiliar with the internet have a steep learning curve.

2. Monthly Returns

GST requires that you file your returns every month. So, a business will have to be up-to-date with their accounts and paperwork and close accounts every month. A missed return will be fined and there will be a negative impact on the rating of the business with GSTN. With an SME failing to file a return, it cannot claim any tax credits and the customers who have transacted with the business cannot claim their input credit.

3. No Threshold Exemptions for eCommerce

All businesses that are involved in eCommerce will have to register under GST. They do not have the threshold exemptions that a smaller non-eCommerce business would enjoy. An eCommerce firm would mandatorily have to register in every single state that they supply to.

Checklist for Businesses to be GST Compliant

To make your business GST compliant you will have to ensure the following:

  1. Update yourself on the required frequency and due dates of the filing of GST returns to avoid penalties and to maintain a good rating.
  2. Update the transaction classifications using HSN/SAC codes as well as interstate transactions and intrastate transactions.
  3. Record the place and time of supply clearly
  4. Update the tax rate slabs applicable
  5. Register all locations, factories, outlets, warehouses and supply points.
  6. Get registrations for different business verticals and different jurisdictions (states).
  7. Offset existing inventory against GST.
  8. Update chart of accounts
  9. Reconcile accounts as per the new schedule
  10. Change the marketing and sales policies to match with GST
  11. Update the logistics and the payment models to reflect the destination-based GST.
  12. Update all supply chain agreements and contracts to reflect the obligations that GST entails.
  13. Update all the required information that is required by GST for input and output filing.

FAQs

Q1. How do I get a GST Registration?
A1.
A person or entity can make a GST application for GST enrollment using the portal of Goods & Services Tax.

Q2. How to file GST Return?
A2. GST returns are to be filed online through the software or apps provided by Goods and Service Tax Network (GSTN). You can file GST online at www.gst.gov.in

Q3. Can a person have more than one GST Registration?
A3. A person who has multiple businesses in different verticals within each state can have a different GST for each vertical within that state.

Q4. What is the Composition Scheme?
A4. The GST regime has created a composition scheme to reduce the burden of taxes and the time spent computing and calculating taxes for small businesses. At present, the scheme is applicable to businesses that have a turnover that is less than Rs. 75 lakhs. They have to pay a very nominal tax of .5% or 1% of CGST and SGST each. This is only applicable to sellers of goods. It is not applicable for sellers of services, eCommerce sellers, eCommerce operators and interstate sellers.

Q5. Who is ineligible for the Composition Scheme?
A5. The composition scheme does not apply to the following:

  1. Service providers, i.e., sellers of services (exception for restaurant owners serving non-alcoholic beverages and food) Sellers of non-taxable goods
  2. eCommerce sellers
  3. eCommerce operators
  4. Interstate sellers
  5. Suppliers of certain goods such as ice cream, pan masala and tobacco

Q6. What is a Bill of Supply?
A6. A person who is under the composition scheme cannot claim the tax credit and hence has to issue a bill of supply.

Q7. Can a regular registration be converted into a composition scheme registration?
A7. A person desiring to convert from a normal registration to composition scheme would have to file an intimation in the GST form GST CMP-2 and ITC-03 within 60 days of the beginning of the financial year.

Q8. Can a composition scheme registration be withdrawn?
A8. Yes. The GST CMP-04 form should be filled before withdrawal from the composition scheme.

Q9. Is there a format to create a GST invoice?
A9. Yes, there is a recommended format to create a GST invoice.

Q10. What is an HSN code?
Q10. HSN is the Harmonized System of Nomenclature. It is a 6 digit code developed by the World Customs Organization (WCO) that is used worldwide for the classification of products. It has been in effect since 1988.

Q11. Do you need a GSTIN for the place from which the goods are originating?
A11. Yes, the GSTIN has to be at the place where the goods are originating. However, GST is a destination-based tax. So, the tax would accrue to the place that has jurisdiction over the place of supply.

Q12. Are the GSTIN & TIN numbers different?
A12. Yes, the TIN number is registered under the VAT law and the GSTIN number under the GST law.

Q13. How will GST be applied to imports?
A13. Imports of goods and services will be taxed as interstate supplies thereby attracting IGST based on the destination-based nature of the tax. The SGST tax will accrue to the state being supplied/consumed.

Q14. How will GST be applied to exports?
A14. There will be no tax that will be payable on exports. Exports are treated as zero-rated supplies and the exporters can claim input tax credits. The exporter can pay the output tax and claim IGST refund or export without IGST and claim input tax credit refund.

Q15. What is to be done when goods are returned by the purchaser?
A15. When goods are returned, the supplier issues a credit note to the recipient. This note will be matched with the reduction in the input tax claim.

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