GST Compliance

A tax trigger aimed to replace the current complex structure of multiple indirect taxes in favour of a comprehensive dual Goods and Services Tax (GST) is becoming a reality soon. With clear road map being laid down by the Finance Ministry, the Government seems on course to fast track the entire process to achieve targeted GST implementation effective 1 July 2017.

GST is expected to be a destination-based tax that should replace the current Central taxes and duties such as Excise Duty, Service Tax, Counter Veiling Duty (CVD), Special Additional Duty of Customs (SAD), central charges and cesses and local state taxes, i.e., Value Added Tax (VAT), Central Sales Tax (CST), Octroi, Entry Tax, Purchase Tax, Luxury Tax, state cesses and surcharges and Entertainment tax (other than the tax levied by the local bodies).

It will be a dual levy with State/Union territory GST and Central GST. Moreover, inter–state supplies would attract an Integrated GST, which would be the sum total of CGST and SGST/UTGST.
Petroleum products, i.e., petroleum crude, high speed diesel, motor spirit, aviation turbine fuel, natural gas will be brought under the ambit of GST from such date as may be notified by the Government on recommendation of the Council. Alcohol for human consumption has been kept outside the purview of GST.
A well-designed GST in India is expected to simplify and rationalize the current indirect tax regime, eliminate tax cascading and put the Indian economy on high-growth trajectory. The proposed GST levy may potentially impact both manufacturing and services sector for the entire value chain of operations, namely procurement, manufacturing, distribution, warehousing, sales, and pricing.

On 12 April 2017, the Central Government enacted four GST Bills:

  • Central GST (CGST)
  • Integrated GST (IGST)
  • Union Territory GST (UTGST)
  • Bill to Compensate States

Till date, most of the states have passed the State GST (SGST) law in the respective State assemblies, while other States are expected to do it by end of June 2017. Union territories with legislature, i.e., Delhi & Puducherry, will adopt SGST Act and the balance 5 Union territories without legislatures will adopt UTGST Act.

The second phase of enrolment process for migrating existing taxpayers to the proposed tax regime through GST common portal has already commenced from 1 June 2017. GST Network, an IT backbone of GST, has also carried out the test run of its Portal.

The GST Council consisting of representatives from the Central as well as state Government, met on sixteen occasions in last seven months and cleared –

  • GST laws
  • GST Rules
  • Tax rate structure including Compensation Cess
  • Classification of goods and services into different rate slabs
  • Exemptions
  • Thresholds
  • Tax administration

Rate Classification for Goods

Exempt 5% 12% 18% 28% 28% + Cess
Food grains
Common Salt
Tea & Coffee
Drugs & Medicine
Edible Oil
Indian Sweets
Fruit Juices
Vegetable Juices
Beverages containing milk
Bio-gas fuel
Capital goods
Industrial intermediaries
Hair Oil
Air conditioner
Small cars
(1% / 3% cess)Luxury cars
(15% cess)

Rate Classification for Services

Exempt 5% 12%-18% 28%
◦  Education

◦       Healthcare

◦       Residential accommodation

◦       Hotel/ Lodges with tariff below INR 1000

   ◦   Goods transport

◦       Rail tickets (other than sleeper class)

◦       Economy class air tickets

◦       Cab aggregators

◦       Selling space for advertisements in print media

◦  Works contract

◦       Business Class air travel

◦       Telecom services

◦       Financial services

◦       Restaurant services

◦       Hotel/ Lodges with tariff between INR 1000 and 5000

◦  Cinema tickets

◦       Betting

◦       GamblingHotel/ Lodges with tariff INR 7500 above

Only rates of select goods and services have been mentioned here

◦     GST rate on pearls, precious or semi-precious stones, diamonds (other than rough diamonds), precious metals (like gold and silver), imitation jewellery, coins – 3%

◦     GST rate on rough diamonds – 0.25%

Benefits of GST

GST has been envisaged as a more efficient tax system, neutral in its application and attractive in distribution. The advantages of GST are:

◦     Wider tax base, necessary for lowering the tax rates and eliminating classification disputes

◦     Elimination of multiplicity of taxes and their cascading effects

◦     Rationalization of tax structure and simplification of compliance procedures

◦     Harmonization of center and State tax administrations, which would reduce duplication and compliance costs

◦     Automation of compliance procedures to reduce errors and increase efficiency

Destination principle

The GST structure would follow the destination principle. Accordingly, imports would be subject to GST, while exports would be zero-rated. In the case of inter-State transactions within India, the State tax would apply in the State of destination as opposed to that of origin.

Taxes to be subsumed

GST would replace most indirect taxes currently in place such as:

Central Taxes State Taxes
Central Excise Duty [including additional excise duties, excise duty under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955] Value Added Tax
Service tax Octroi and Entry Tax
Additional Customs Duty (CVD) Purchase Tax
Special Additional Duty of Customs (SAD) Luxury Tax
Central Sales Tax ( levied by the Centre and collected by the States) Taxes on lottery, betting & gambling
Central surcharges and cesses ( relating to supply of goods and services) State cesses and surcharges
Entertainment tax (other than the tax levied by the local bodies)
Central Sales Tax ( levied by the Centre and collected by the States)

Impact On Companies

With the proposed implementation of GST from 1 July 2017 gaining intensity, it is critical for industry:

◦     to understand the broad contours and framework of the proposed GST law,

◦     likely impact of the new levy on the business,

◦     take appropriate steps to undertake necessary changes in business processes,

◦     assess financial impact,

◦     frame pricing strategy,

◦     align internal organization and IT systems and

◦     Be GST ready.