GST in India

By: K.L.Paliwal
 GST - Concept

GST in India
One Country
One Tax
One Market
 GST - Concept
GST in India - Introduction
The Constitution (One Hundred and Twenty-Second
Amendment) Bill, 2014

- Facilitate the introduction of Goods and Services Tax (GST)

in the country.
- Confer powers to both Central & State Govt. to make laws to
levy GST on supply of Goods & Services on the same
transaction
 GST - Concept
GST in India Rational

Exclusive divisions of fiscal powers:

Exclusive divisions of fiscal powers among Central & State Govt. to levy
of Excise, Service Tax, VAT, and other jurisdictional local taxes.

This exclusive division of fiscal powers has led to a multiplicity of

indirect taxes in the country.

CST levied by Central Govt. and collected by State Govt. of exporting

state.

Multiplicity of taxes resulted into Complex Indirect Tax Structure, hidden

costs for trade & industry, No uniformity of tax rates and structure
across states. Contd.
 GST - Concept
GST in India Rational

Cascading of Taxes:
Cascading of Taxes due to Tax on Tax.

No credit of Excise and Service Tax paid at the manufacturing

stage to Traders while paying State level taxes, and vice versa.

No credit of state taxes paid in one state can be availed into other
state.

Hence, the prices of goods and services get artificially inflated to

the extent of this tax on tax.
Contd.
 GST - Concept
GST in India Rational

To reduce the complexity

Broaden Tax base, better tax compliance, due to Robust IT structure
and Transaction monitored by GST network deployed Govt. portal

Ensures transparency, Seamless credits on Inputs available at each

value addition stage during supply chain for the discharging the
liabilities of output GST.

Uniform Tax Rates applied as per classification of Goods and Services.

Harmonize the indirect tax regime in the country and expected to

reduce cost of Production and inflation in the economy, foster a
common and seamless Indian market, thereby making Indian Trade &
Industry more competitive domestically and internationally, and
finally contribute to the growth of Indian economy.
 GST - Concept
Central Taxes to be subsumed:
Central Excise Duty
Additional Excise Duty
The Excise Duty levied under the Medicinal and
Toiletries Preparation Act
Service Tax
Additional Customs Duty, commonly known as
Countervailing Duty (CVD)
Special Additional Duty of Customs-4% (SAD)
Cesses and surcharges in so far as they relate to
supply of goods and services.
 GST - Concept
State Taxes to be subsumed:
VAT/Sales Tax
Central Sales Tax (levied by the Centre and collected by the States)
Entertainment Tax
Octroi and Entry Tax (all forms)
Purchase Tax
Luxury Tax
Taxes on lottery, betting and gambling
State cesses and surcharges in so far as they relate to supply of goods and services.

All goods and services, except alcoholic liquor for human consumption, will be brought under the
purview of GST. In case of alcoholic liquor for human consumption, States would continue to levy the
taxes presently being levied, i.e., State Excise Duty and Sales Tax/VAT.

Petroleum and petroleum products have been constitutionally included as goods under GST.
However, it has also been provided that petroleum and petroleum products shall not be subject to
the levy of GST till notified at a future date on the recommendation of the GST Council. The present
taxes levied by the States and the Centre on petroleum and petroleum products, viz. Sales Tax/VAT
and CST by the States, and excise duty the Centre, will continue to be levied in the interim period.

Taxes on tobacco and tobacco products imposed by the Centre shall continue to be levied over and
above GST.
 GST - Concept
GST in India Machanism

Dual GST:
Within State Transaction SGST levy by State Govt. & CGST levy by
Central Govt.
Inter State Transaction IGST levy by Central Govt.

Cross utilization:
No cross utilization between SGST and CGST

Input Credit available while paying:

SGST Input of SGST, IGST (in that order)
CGST - Input of CGST , IGST (in that order)
IGST Input of IGST, CGST, SGST (in that order)

Destination Based Tax:

1. The Inter State Supplier would pay IGST to Central Govt.
2. The State Govt. (exporting State) will transfer to the Central Govt.
the credit of SGST used in payment of IGST,
3. the importing dealer would claim credit of IGST while payment of
SGST & CGST.
4. The Center will transfer to the Importing State the credit of IGST
used in payment of SGST
 GST - Challenges
For Governments:
Education to Traders and small vendors
Clearing of Credits among Assessee
GST Clearing at the portal of Central Govt.
Training to Assessing Officers

For Assessee:
Accounting system compatible with GST
Large number of Returns
Classification of Goods and Services as per applicable GST slab

For SAP IT:

CIN and SP
Masters
Document number ranges
Business State wise registrations
Open transactions & PO
Unutilized input credit
 GST & SAP
Prerequisites:
Tax Procedure TAXINN
Minimum SP Level SAP Note No. 1175384

Area of Impact:
Tax Registration Define GST Registration Levels
Master Data Maintenance Business Partner Tax Data, GST Accounts
Tax Configuration & Computation Configure Tax & Pricing Procedure; Tax
Computation
Document numbering Outgoing Invoice Numbering
Business Process Localization Extend support to currently localized
Business Processed
GST Tax Posting GST input and output tax posting
Utilization Input Tax Credit utilization against GST liabilities
Reporting Tax Registers
 GST & SAP - Prerequisites
Prerequisites:

Tax Procedure TAXINN

Minimum SP Level SAP Note No. 1175384
 GST & SAP - Area of Impact:

Tax Registration :

Define GST Registration Levels -

- Manufacturing Plant
- Service Provider Place
- Sales Office
- Depot

Features -
- GSTIN GST Identification number
- Single registration for CGST, SGST and IGST
- Individual registration to be obtained in each state of business establishment
- PAN based registration number Up to 15 character in length

In SAP
- Field proposed to be provided in Plant Master under Tax Information
heading
 GST & SAP - Area of Impact:

Master Data Maintenance:

Business Partner Tax Data -

- GST reg. no. to be maintained for each Registered Customer and Vendor in
Masters

GST Tax Accounts -

- Separate tax A/P and A/R accumulation might be required at GST registration
level
- Input Tax Credit GLs are suggested to be maintained at GST registration level
- To be defined for CGST, SGST and IGST
- T Code OB40, OBYC
 GST & SAP - Area of Impact:

Tax Configuration & Computation:

Configure Tax & Pricing Procedure; Tax Computation -

- Intra-state transactions - CGST and SGST applicable

- Inter-state/Import transactions - IGST applicable
- Export Transactions - Zero rated

- Region level rate variations may exist

- New condition types/access sequences and account determination required
- Rates are to be applied as per classification of Materials
- Provision of Additional Tax by manufacturing state @ 1%
 GST & SAP - Area of Impact:

Document numbering Outgoing Invoice Numbering:

Unique sequential numbering for outgoing GST invoices

- Criteria for legal numbering may be specified by govt.

- It could be for example:

Registration level
Document type (Invoice / Credit Memo)
A combination of above

New Document Class & numbering - Suggested to define as per business

process classification e.g. Invoice documents, Goods Issue, Goods Receipt,
Inventory document

Document Numbering - Suggested to maintain Registration / Business Place wise

 GST & SAP - Area of Impact:

Business Process Localization :

Sales Processes
Procurement Processes

Stock Transfers
Subcontracting

Others

Condition Types and calculation steps to be defined for above

Posting to be routed through Clearing Account while initial transaction
 GST & SAP - Area of Impact:

GST Tax Posting GST input and output tax posting:

Separate accumulation of credit and payables for

- CGST
- SGST
- IGST

Separate accumulation at Registration level

Automatic Tax posting to respective accounts from business processes
 GST & SAP - Area of Impact:

Utilization Input Tax Credit utilization against GST liabilities:

Utilization of Input tax credit would be as under -

Input CGST to be utilized against output CGST and IGST
Input SGST to be utilized against output SGST and IGST
Input IGST to be utilized against output IGST, CGST and SGST in the order of
IGST, CGST and SGST

New Program may provided by SAP for periodical utilization

 GST & SAP - Area of Impact:

Reporting Tax Registers

Tax register
- CGST
- SGST
- IGST

Segregation of Reports:
Segregation of Report required having details at Registration Level, Plant, Profit
Center, Business Partners, Materials, Ledgers, Transactions Types, Quantity,
Amount, Input, Output, GST Classification, Tax Code, Reference documents of
relevant module
 GST Business Processes

Threshold limit:

North East and hill States Annual Turnover 10 Lac

Rest of India - Annual Turnover 20 Lac

Administrative Control over indirect tax assessees :

Sole jurisdiction of State Govt. Turnover 1.5 Crore or Less

Both State & Central Govt. - Turnover above 1.5 Crore

Tax Leviable on - Supply of Goods and Service

Supply:
Sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed
to be made;
Importation of service, whether or not for a consideration; and
Specified in Schedule I, made or agreed to be made without a consideration.
 GST Business Processes

Turnover under GST:

Aggregate value of:

(i) all taxable and non-taxable supplies within and outside state
(ii) exempt supplies, and
(iii) exports of goods and/or service of a person having the same PAN
And
Excludes taxes charged under the CGST Act, SGST Act and the IGST Act.

Composition scheme to Small dealers:

Composition of GST would be available with upper ceiling and floor tax rate with
respect to Annual Turnover, as notified by the Govt. in due course.
 GST Business Processes

Value supply chain:

GST Module
12%12%
Supply Chain Stage Basic Margin Total CGST SGST

Manufacturer to Wholesaler 5000 2000 7000 840 840

Wholesaler to Retailer 7000 700 7700 924 924
Retailer to Consumer 7700 770 8470 1016.4 1016.4

Input Credit available with CGST SGST Total

Wholesaler 840 840 1680

Retailer 924 924 1848
 GST Business Processes

IGST Module Example 1

A registered dealer has manufactured 1800 units, normal process loss was
equivalent to 200 units. He has input tax credit for CGST & SGST Rs. 750/- & Rs.
1050/- respectively against purchase of inputs and Capital goods. Final product
sold @ 10/- per unit. Rate of CGST, SGST, and IGST are 5%, 7% , and 12%
respectively.

Goods sold units Rate Total CGST SGST IGST

Within state 800 10/- 8000/- 400/- 560/-
Inter state 650 10/- 6500/- 780/-
Consignment (out of state)350 10/- 3500/- 420/-
Total 1800 18000/- 400/- 560/- 1200/-

Less: Input Tax credit

CGST 750/- 400/- 350/-
SGST 1050/- 560/- 490/- *
Total 1800/- 400/- 560/- 840/-

Balance Payable (GST Liability) NIL NIL 360/-

 GST Business Processes

IGST Module

Comments on Example :
No treatment for normal loss during process.
Input credit of CGST could be used for payment of IGST after meeting with CGST
liability
Input credit of SGST could be used for payment of IGST after meeting with SGST
liability
No cross utilization is allowed between CGST and SGST or vice versa

SGST balance input credit Rs. 490/- used for payment of IGST Exporting state
Govt. will get debit of s. 490/- from the Central Govt.
 GST Business Processes

IGST Module Example 2

Now, we discuss, how tax liability calculation will placed where a registered
dealer has IGST input credit of Rs. 2000/- and liability of CGST, SGST, and IGST is
Rs. 400/-, 560/-, and 1200/- respectively.

Liability CGST SGST IGST Total

400/- 560/- 1200/- 2160/-

Less: Input Tax credit

CGST NIL NIL NIL NIL
SGST NIL NIL NIL NIL
IGST 400/- 400/- 1200/- 2000/-
(2) (3) (1)

Balance Payable (GST Liability) NIL 160/- NIL 160/-

Comments on Example :
Input tax credit of IGST is used sequentially for meeting liability of IGST, CGST,
and SGST to the extent balance available.
 GST Business Processes

GST on Export & Import

Export:
GST on Export would be ZERO rated.

Import:
Both CGST & SGST would be levied on Import of goods and service into India.
The incidence of Tax will follow the destination principle. Means SGST goes to the
state where imported goods and services consumed. Complete set off will be
available on GST paid on import of goods and services.
 GST Business Processes

GST on Import:

A manufacturer imported goods worth Rs. 10000/- as input material, CVD

applicable @ 10% , after manufacturing process carried on he sale the goods
within state at Rs. 45000/-, applicable CGST and CGST are applicable @ 5% and
@7% respectively.

Cost of Import:

Goods Value 10000/-

CVD @10% 100/-
Total 11000/-

Add:
CGST @5% 550/-
SGST @7% 770/-
Cost of Imported goods 12320/-
 GST Business Processes

GST on Import:

Calculation of Sale Value after Import:

Sale Vale before Tax 45000/-

Add:
CGST on Import @5% 2250/-
SGST on Import @7% 3150/-
Sale Value 50400/-

Tax Liability: CGST SGST

Output GST 2250/- 3150/-
Input Credit CGST 550/-
Input Credit SGST 770/-
Net Payable 1700/- 2380/-
 GST Business Processes

GST on Export:
Example: Suppose the goods in previous example exported after 1 year after
addition of margin and other cost Rs. 10000/- and use factor of 1 year of refund
calculation is 0.20. Therefore the refund will be 0.80 of duty amount.

Calculation of Export Value:

Cost of Imported goods 50400/-

Add:
Margin & Other Cost 10000/-
Sale Value 60400/-
Add:
CGST on Export @0% NIL
SGST on Export @0% NIL
Sale Value 60400/-
 GST Business Processes

GST on Export:

Calculation of Refund :
Basic Custom duty 1000/-
Refund Factor 0.80

Refund amount of BCD 800/-

Add:
CGST on Import @5% 550/-
SGST on Import @5% 770/-
Sale Value 2120/-

Comment on example:
The example follows the principles;
(a) GST on Export is ZERO rated, and
(b) Incidence of tax will follow the destination principle
(c) Refund factor are notified by concerned state Govt.
 GST Points remains

Taxes may not included into GST regime:

Stamp duty
Vehicle Tax
Electricity duty
Other entry taxes and Octroi
Entertainment Taxes (by local bodies)
Basic Custom Duty and safeguard duties on Import of goods into India

Some good may be taxable in one state while exempt into other

Sector to be covered (time will tell)

Real Estate being highly revenue generating sector
FMCG Since implementation of GST and opening FDI may boost
Rail Sector Unifying Budget (One common budget) may be path to cover this
sector to contribute significantly.
IT enabled services being transferred in electronic form (to be considered as
service), and if transmitted on media or in other tangible property then to be
classified as goods. A full challenge with Govt. on classification issue.
Transporters Negotiation on Check Posts and Tolls