Author Archives: Aristotle Consultancy
Small businesses are the backbone of Indian economics. They drive the velocity of country’s economics, industrial growth, and catalyst for job creation. However, a large number of businesses in the country are unorganized and irregular in filing returns and paying taxes.
This could be due to knowledge gap, situational issue or perception among businessman that they are small in size, operations and earnings, and it is okay to miss the deadline.
As a result, they end up getting a notice from the tax department demanding tax payment, interest, late fee and penalties for non-compliance. Especially in case of VAT dealers, the severity of consequence in terms of monetary impact is lesser to extent of additional cash outflow to the extent of default.
GST, a comprehensive indirect tax system is all set to subsume a host of existing indirect taxes and with its implementation, compliance will become a key factor for the success and credibility of a business. GST works on a self-monitoring mechanism, which is matching the concept of invoice between supplier and recipient of goods and services. Only after matching of invoices and payment of tax by the supplier, the input tax credit will be available to the recipient.
Thus, a customer will always want to do business with vendors who are compliant. This results in a change of relationship between supplier and recipient from ‘customer-cum-emotional relationship to compliance relationship’.
Hence under GST, non-compliance will not only affect your cash outflow in paying fines, interest, and penalties but also affect the continuity your business and compliance rating.
Let us understand the various returns to be furnished under GST and things to be taken care of during return filing.
10th of Subsequent Month – Form GSTR-1
In Form GSTR-1, you need to declare the details of all the outward supplies of goods and/or services effected during the month. Invoice-wise details of outward supplies made to registered dealer and aggregate taxable value of supplies made to consumer are required to be declared. In case, taxable value of supply made to consumer is more than Rs 2.5 lakh and if it is interstate supply, you need to declare invoice-wise details.
11th of Subsequent Month – Form GSTR-2A
On 11th, the visibility of inward supplies is made available to the recipient in the auto-populated GSTR-2A. This is generated based on the outward supplies declared by your supplier in Form GSTR-1.The period from 11th to 15th will allow for any corrections (additions, modifications and deletion) in Form GSTR-2A.
This is the most critical phase of filing of your return, as any omission or correction not reconciled as per the statement in Form GSTR-2A with your inward supplies register, will impact your Input Tax credit eligibility. To save time, quicker and accurate reconciliation, technology will play a key role in your compliance.
15th of Subsequent Month – Form GSTR-2
After reconciling, any additional claim or correction as per Form GSTR-2A needs to be incorporated and submitted in Form GSTR-2 by 15th of subsequent month. Based on the claim reported in Form GSTR-2, ITC will be credited to your E-credit ledger on provisional basis and post matching of invoice, it will be finalized.
16th of Subsequent Month – Form GSTR-1A
The corrections (addition, modification and deletion) reported by you in Form GSTR-2 will be made available to your supplier in Form GSTR-1A. The supplier has to accept or reject the adjustments made by the customer by verifying with suppliers outward supply register.
20th of Subsequent Month – Form GSTR-3
On 20th, based on the Form GSTR-1 and Form GSTR-2, an auto-populated return GSTR-3 will be available for submission along with the payment.
Final Acceptance of Input tax credit in Form GST MIS-1
After the due date of filing the monthly return in Form GSTR-3, the inward supplies will be matched with the outward supplies furnished by the supplier, and then the final acceptance of input tax credit will be communicated in Form GST MIS-1.The following details will be considered in the matching of invoices:
GSTIN of the supplier
GSTIN of the recipient
Invoice/or debit note number
Invoice/or debit note date
Taxable value and
The claim of input tax credit will be considered as matched, if the amount of input tax credit claimed is equal to or less than the output tax paid on such tax invoice or debit note by the corresponding supplier.
Also, the mismatch input tax credit on account of excess claims or duplication claims will be communicated to recipient in Form GST MIS-1 and to supplier in Form GST MIS-2. Discrepancies not ratified will be added as output tax liability along with interest. However, there will be some breathing space since the law provides a window of two months to ratify the discrepancies before reversing the ITC claim on provision basis.
Compliance is ‘No More a One-Day Activity. The return cycle under GST will put an end to the existing practice. Today, most of the small business prepare their returns in a day by summarizing their purchase and sales transactions. This will no longer be relevant since GST Return cycle is spread across the month.
Secondly, the businesses need to move from offline data recording to online data recording to file the return. Today, most of the small businesses port the data from their books to offline tools and file their return. This will prove to be a costly affair since, under GST inward supplies and outward supplies will be auto-populated by GSTN and need to be reconciled with books.
Technology will play a pivot role for businesses under GST as GST is highly transaction based compliance system. The technology should help you to seamlessly prevent, detect and correct the exceptions before the filing of return and reconcile your books with GSTN. With the right technology, businesses will have timely compliance, manage cash flows better and adding up to compliance credibility.
Source – ET RISE
GST is less than a week away. ET brings a last minute check-list by PwC of all the things that businesses need to do.
GET REGISTERED FOR GST
Under GST laws, entities supplying taxable products and services need to be registered in all the states from which these will be supplied. An entity already registered in a state under any existing law should be migrated to the GST regime. Unregistered entities will have to get registered in the specific states from which supplies are made. The window for this is likely to open from June 25 for a month or so.
GEAR UP IT SYSTEMS TO ISSUE INVOICES FROM DAY 1
IT systems will need to be readied, and all the requisite changes made, to issue invoices from the first day of the GST regime. Invoice formats will have to be amended as soon as possible. Moreover, according to GSTIN requirements, customerrelated data as well as tax codes and conditions (used to compute tax on every transaction) will need to be updated in IT systems and configured to generate reports required for GST
TRAIN YOUR TEAM AND STAKEHOLDERS
It is imperative that all employees and supply chain partners, such as vendors, distributors and C&F agents, are trained well on amendments in the law. And since the GST law envisages seamless passing of credit of taxes only on suppliers’ compliance with its requirements, it is imperative that all stakeholders are appropriately educated on compliance-related requirements.
FINALISE YOUR TAX POSITIONS
Supply of goods or services will attract tax in the GST regime. Credit provisions will also see changes. In addition, if a company is registered in different states it will be treated as a distinct entity for levy of GST. Therefore, considering the quantum of changes, each transaction undertaken by a company will have to be identified separately, irrespective of whether GST will be applicable for it or not, in order to determine the tax treatment of the transaction. After the mandatory tax treatment is determined, the transaction will need to be configured in the entity’s IT system.
REVISIT AND UPGRADE YOUR BUSINESS PROCESSES
From taxation being imposed on the manufacture or sale of goods and provision of services under the present system, it will move to GST being levied on supply of goods and services. In addition, there are various other procedural amendments, such as self-invoicing in the case of purchases made from unregistered vendors, reversal of credit in the case of non-payment of consideration for goods, etc. Such amendments in the law will necessitate significant changes in various business processes and it will be necessary for entities to assess the impact of these and change the processes, wherever required.
AMEND YOUR CONTRACTS WITH VENDORS AND CUSTOMERS
Under the existing indirect tax regime, a correlation between the location of receipt of input services and for receipt of invoices for such services at any location in India is not required. In the GST regime, since the credit pool for every state will need to be maintained separately, it will be necessary to ensure that an invoice for input services is received at the place where credit of such services is eligible. This will need an analysis of procurements of services and amendment of contracts with service providers, where required. Similarly, contractual terms with customers will have to be reassessed and revised, if needed.
DETERMINE YOUR PRODUCT PRICING EARLY
At present, the margins of supply chain partners such as distributors and retailers are computed on the assumption that they are only liable to pay VAT on their sale price. Going forward, supply chain partners will also be required to pay GST on their sale price, and accordingly, their margins will need to be recomputed due to the changes in tax rates and availability of credits. And in addition to revised margins for supply chain partners, the impact on tax credits and movement in the tax rate along with the anti-profiteering provisions under GST will require companies to reset the prices of goods or services supplied by them. Therefore, they will need to determine the overall impact of the new taxation regime on their businesses before taking any decisions on pricing.
CLAIM CREDIT FOR TAXES IN TIME
The GST law provides for carry-forward of accumulated tax credit as well as for claiming credit of various taxes paid on stock in hand (which cannot be claimed at present), subject to fulfilment of the prescribed conditions. Furthermore, for carry forward of their VAT credit balance, taxpayers will have submitted their sales tax declaration forms or certificates in Form C, Form F, Form H, etc., as applicable, wherever they have claimed exemption or a concessional rate of CST on such sales. But relevant declaration forms or certificates have not been submitted to the authorities till now. So there is an urgent need to accelerate submission of these forms — sooner rather than later!
Source – ET Retail
NEW DELHI:If you have not been able to register on the GST Network within the deadline ending on Thursday, do not panic! There’s one more chance coming your way as the registration for existing excise, service tax and VAT payers will reopen on June 25.
There are about 80 lakh excise, service tax and VAT assessees as present, of which 64.35 lakh have already migrated to the portal of GST Network — the company readying the IT backbone for GST regime.
The window for migration to the GSTN, which opened on June 1, will close tomorrow and during the fortnight, 4.35 lakh taxpayers have enrolled taking the total to 64.35 lakh. However, this is 80 per cent of the existing assessees.
GSTN Chairman Navin Kumar sought to allay concerns of businesses who have not registered so far saying that the tax department is “obligated” to provide them smooth transition into the GST regime but traders should also come forward and complete the registration process by filing up the application form.
“Whosoever wants to do business under GST and wants to migrate, we will provide facility to them even after June 15. From June 25, anyone who is left out now, can come and file information and migrate to GST,” said Kumar.
Registration with the GSTN is necessary for doing business in the Goods and Services Tax (GST) regime as businesses will have to upload monthly sales data as well as file return forms on this portal.
“People should not panic. If you are left out, you will get another opportunity because the law says anybody who is registered under taxes which are subsumed under GST if they have a valid PAN then they will be given a valid registration.
“So, it is the tax department’s obligation to give them provisional GST registration provided they have PAN. Therefore, even if they miss this window of June 15, they can come back on June 25,” Kumar added.
However, GSTN is prodding taxpayers and has sent emails to over 30 lakh assesses who have not completed their registration process to make them ready by scheduled rollout date of July 1.
When a business registers under GST, it is given a provisional GSTIN. After that, in the second stage, the business has to log in to the GSTN portal and give details of its business, like the main place of business, additional place of business, directors and bank account details.
Thereafter, the business has to verify its registration through digital signature, or by generating electronic verification code (EVC).
Kumar said that of the 64.35 lakh assessees who have migrated into the GSTN portal, about 30 lakh has not completed the second stage of registration since they are having troubles uploading digital signature or getting EVC.
“What we are telling the businesses is if you do not complete the migration process you cannot issue invoices. In the e-mail, we have asked them to complete the registration by filing up the required documents and saving them on the portal. The GSTN will then e-mail them the Application Reference Number (ARN) after June 15,” he said.
Businesses with turnover above Rs 20 lakh has to register with the GSTN. Those with turnover below the threshold too has to register if they want to claim input tax credit.
Kumar said that not all assessees would migrate to the GSTN portal as businesses with turnover of up to Rs 5 lakh are currently exempt from VAT.
Since in GST up to Rs 20 lakh turnover is exempt, so all of the VAT assessees would not migrate to the GSTN. However, if they supplying to other businesses or if they want to pass on credit, then registration of business would be required.
Till April 30, around 60 lakh taxpayers out of total 80 lakh, had migrated to the new payment portal of GSTN. The tally has now gone up to 64.35 lakh.
The process of migration of existing assessees to the GSTN had started in a phased manner from November 2016. The Centre had earlier set March 31 as the migration deadline, which was later extended to April 30.
Last week, Prime Minister Narendra Modi reviewed the IT and other preparedness for the rollout of the GST from July 1 and said it will be “a turning point” in the country’s economy. He had directed the officials that maximum attention be paid to cyber-security in IT systems linked to the GST.
Technology preparedness is an important aspect of the proposed indirect tax regime, as the GSTN would be processing about 300 crore invoices every month.
Source – ET Retail
The impending implementation of GST would undoubtedly impact one’s personal finances especially when it comes to financial services, albeit marginally. From the present rate of 15 percent, the GST on banking, insurance and investments such as real estate, mutual funds will see a hike of 3 percent as the GST will now be 18 percent on them.
Let’s see how each of them gets impacted.
GST and Insurance
Primarily, there are three major kinds of life insurance products – Term insurance plans, Ulips and Endowments (including money back). The applicability of service tax (in the current format) on their premium is not similar in all three of them.
The premium paid in life insurance policies represents two portions – risk coverage and savings. The service tax is only on the risk portion of the premium and not on savings portion.
As per the GST rules, the value of services (on which GST is to be imposed) in relation to life insurance business shall be:
(a) The gross premium reduced by the amount allocated for investment, or savings on behalf of the policy holder.
(b) In case of single premium annuity policies, ten per cent of single premium charged from the policy holder.
(c) In all other cases, 25 per cent of the premium in the first year and 12.5 cent of the premium in subsequent years. So, if the premium of an endowment plan is Rs 100, the GST of 18 percent will be applicable on the 25 percent of the premium i.e. on Rs 25, so, Rs 4.5 will be the GST amount.
(d) If the entire premium paid by the policy holder is only towards the risk cover in life insurance such as in term insurance plans, the GST of 18 percent will be on the entire premium.
Therefore, the immediate impact of GST would be the higher outgo (premium plus GST) in term and endowment plans, due to the increase in rate of tax on insurance following implementation of the GST. “In theory, this could mean an increase of 3% in premium from the existing applicable premium effective from 1st July 2017, across life, health and general insurance, however, some of this should be offset if tax on services availed by the industry are allowed to be taken into account to decrease insurance.
The policyholders may stand to benefit only if the insurance companies are allowed the benefit of input tax credit. “This unfortunately is not clear as of yet given the complexity of the state/centre structure of GST, this might drive some confusion as well as higher compliance and administrative costs for insurers. If these are not passed on to customers, prices might either go up, or stay low but will affect the market’s solvency and financial health,” says Verillaud.
Similar will be the impact on general insurance such as car, health and other non-life policies i.e. service tax (when replaced by GST) will increase by 3 percent of the premium amount. This would increase total outgo (premium plus tax).
Impact : : The overall impact could be nominal but once implemented, both, existing and new policyholders will have to bear the additional cost. If the current premium of a term plan is Rs 10,000, (excluding the service tax of 15 percent) the GST impact will up the premium including tax by Rs 300 i.e from Rs 11,500 to Rs 11,800. While, comparing premium especially of term plans, make sure you are looking at premiums including or excluding GST for all the insurers. Nothing changes in the selection process as the GST impact will be same across insurers. Stick to a proper selection process while getting the right insurance policy.
GST and real estate
Real estate sector is marred with plethora of taxes both at the state and central level. GST hopefully will put in a more streamlined tax structure in place. “The heavily taxed real estate sector welcomes a single stable 12% GST rate, inclusive of the value of land and with full input tax credits,” says Rajeev Talwar, Chairman, NAREDCO.
But, will the home prices be lower than they are now in the post GST era? “NAREDCO is of the view that the actual tax incidence under GST would match or be lower than the existing multiple indirect taxes on the sector. The GST rate for work contracts which will also be offset by input credits, will provide for a seamless and simplified tax policy”, says Talwar.
However, it seems arriving at a conclusion regarding price impact could be a bit premature. “The GST rate is not the only important factor. The abatement rules as applicable under the service tax regime and the input tax credit facility for developers will determine if the effective tax incidence on real estate is lower or higher under GST,” says Anuj Puri, chairman of JLL Residential.
According to Puri, here’s why it will take time to conclude if the GST is tax neutral or tax adverse for the real state sector, ““Effectively, the composition scheme allowing for abatement against cost of land to the extent of 75% of the house cost for residential units priced under Rs 1 crore and less than 2000 sq. ft. makes the effective rate at 3.75%. In other cases, the abatement goes down to 70%, making the effective rate at 4%. This will go a long way in determining whether GST is tax neutral or tax adverse for real estate”.
The situation may not be same in the luxury segment. Surendra Hiranandani, Chairman & MD, House of Hiranandani says, “In the case of a premium development, the entire input tax credit is not sufficient to bring down the fresh tax liability to nil because of the taxes paid on other expenditures, having negligible impact.”
The actual impact may be few months away after the implementation of GST. “More clarity will prevail once the GST gets implemented and the government clears its stand on the abatement available for the land cost for calculating service tax on under-construction projects.” says Hiranandani .
GST and banking
Transaction fees in financial services are likely to increase as the government has put these under the 18% tax bracket in the new GST regime. These services were so far taxed at 15% and the hike in the tax rate means that individuals will have to pay Rs 3 more for every Rs 100 paid as charges/fees for banking transactions. It may be mentioned that recently several banks starting with SBI introduced or increased service charges for multiple banking transactions including cash withdrawals exceeding a certain number of times in a month.
GST and mutual funds
The impact of GST on the returns of mutual funds will be largely marginal. The levy of GST will be on the total expense ratio (TER) of the mutual fund. The TER, commonly known as expense ratio of mutual fund houses, will also go up by 3 per cent. Expense ratio is the measure of the cost incurred by an investment company to operate its mutual fund.
As per the SEBI guidelines, AMC’s can levy charge within the limits prescribed under the regulations. So, if the limit is say, 2.25 percent of total assets under management, the service tax of 15 percent has to be within it.
Impact : Let’s assume the return on equity (market return) is 15 percent when the scheme’s TER is 2.25 (regular scheme) including the service tax. This means, TER without tax is 1.96. Now, to maintain the same TER (as it is capped), at a higher GST rate of 18 percent, the TER has to be lower at 1.91 percent. The AMC’s may have to absorb this marginal difference unless SEBI increases the TER cap.
Even though the hike will be nominal, taken together for all the insurance covers, the increase in the outflow could be something to account for by many policyholders. For someone paying annual premium for car, household, health, term plan, personal accident cover, a total of say Rs 50,000 a year could see a jump in premium outflow by Rs. 1,500 a year, with no additional risk coverage or benefits. The actual impact of GST on financial services including banking, insurance will however, be known only once it gets implemented. As a policyholder and an investor, no change, as of now, is required to be made in advance when it comes to GST.
Source – ET Retail
The GST Council, the apex decision-making body for the new tax, has fixed the tax framework under the Goods and Services Tax (GST) which is to be rolled out this July 1. Tax rates have been finalised for 1,211 items with a majority of items being kept under the 18 per cent slab.
Here’s a complete list of GST rate card.
Nil rate (0%):
No tax will be imposed on items like fresh meat, fish chicken, eggs, milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, prasad, salt, bindi. Sindoor, stamps, judicial papers, printed books, newspapers, bangles, handloom etc.
Items such as fish fillet, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, kerosene, coal, medicines, stent, lifeboats will attract tax of 5 percent.
Frozen meat products, butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, fruit juices, Bhutia, namkeen, Ayurvedic medicines, tooth powder, agarbatti, colouring books, picture books, umbrella, sewing machine, and cellphones will be under 12 per cent tax slab.
Most items are under this tax slab which include flavoured refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, mineral water, tissues, envelopes, tampons, note books, steel products, printed circuits, camera, speakers and monitors.
Chewing gum, molasses, chocolate not containing cocoa, waffles and wafers coated with chocolate, pan masala, aerated water, paint, deodorants, shaving creams, after shave, hair shampoo, dye, sunscreen, wallpaper, ceramic tiles, water heater, dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum cleaner, shavers, hair clippers, automobiles, motorcycles, aircraft for personal use, and yachts will attract 28 per cent tax – the highest under GST system.
Source – ET Retail