GST – Dutch Uncles

Will GST be waived on Vaccine?

Vaishali Das — Mon, 03 May 2021 03:35:05 +0000

GST on medicines and medical supplies in India is taxed at four rates, NIL, 5%, 12% AND 18% among which the lowest GST rate of 5% is charged on life-saving drugs like vaccines and medicines like Tuberculosis, AIDS, Diabetes, Malaria, among others.

Centre may waive GST on vaccine

The government has already waived 10% import or custom duty on most essential pharmaceutical raw materials required for the manufacturing of the COVID vaccine plus a 16.5% I-GST and social welfare surcharge vaccines coming from overseas. Moreover, the government is now thinking about scrapping the 5% GST also on similar grounds.

As a Philanthropic gesture, Pune-based Serum Institute of India on Wednesday announced the price reduction of ‘Covishield’ vaccine from Rs. 400 to Rs. 300 per dose to the states. According to some of the sources, there’s not likely much of a discussion on tax exemption on COVID Vaccine as India is already struggling massively with the second wave of the virus and people are suffering drastically.

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A waiver in GST, if approved, will decrease costs for governments, as well as boost more private players to purchase and distribute vaccines.

Why is Government waving off the GST on Vaccine?

Under the third phase of India’s Vaccination drive, the vaccine will no longer be free of cost, manufacturers will be required to supply 50% of their monthly production to the government and rest they can sell it to the state government or the open market. Amidst all these, the government has asked the manufacturing companies to lower down the rates. As mentioned by the Serum Institute that reducing the cost of vaccines will ensure more vaccinations and will save countless lives. A waiver in GST, if approved, will decrease costs for governments, as well as boost more private players to purchase and distribute vaccines. This move will support inoculations and will give some respite from the current crisis. It will also provide relief to people in all states and beside all this it will not have any significant revenue implication.

How will it affect the State?

Earlier, Serum Institute has declared that it will value its Covishield at Rs. 400 and Rs. 600 for state and private clinics respectively. Whereas Bharat Biotech will be charging their Covaxin for Rs. 600 and Rs. 1200 for the same sectors for each portion. The two manufacturing companies have been supplying the doses at Rs. 150 to the central government which is being distributed free of cost to the government employees and frontline workers. This creates a situation where the state will have to purchase vaccines from Serum Institute at over double the value it is charging central government and from Bharat Biotech, four times the value it is charging the center. While the center has undertaken to inoculate 30 crore individuals, states will bear double of that burden but will have to spread across all of them.

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Do I Need to Register for VAT or GST to Start a Business?

Anju Nambiar — Sat, 24 Apr 2021 11:35:04 +0000

Goods and Service Tax (GST) was introduced with a vision to make tax compliance simpler and easier while starting a business.

Is GST registration vital?

GST registration is mandatory only if your annual turnover is above 20 lakhs which is not the case for entrepreneurs just starting a business. GST has simplified the process of tax compliance for start-ups. Ever since it came about, start-ups need not file a separate VAT and service tax. Instead, they need only file one GST.

Start-ups and small businesses thus are not burdened with the looming dangers and fears around tax compliance.

Do you need VAT?

Value-Added Tax (VAT) is a tax levied by the Central Government for the sale of products and services when the end customer purchases. VAT registration is simplified just like GST registration, both of which are done online. Entrepreneurs preferred VAT registration over other taxes like sales tax.

Currently, VAT registration and filing of VAT is mandatory for businesses once they cross the annual turnover threshold of 5-10 Lakhs. The amount of VAT that needs to be paid depends on the state which the business is registered in. The VAT registration act of India mandates all business organisations and manufacturing units to be registered. If you are a manufacturing or trading start-up and your annual sales have exceeded INR 5 Lakhs, then registration and payment of VAT is compulsory.

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If you are a small business or about to start a new business, then you are exempted from paying GST or VAT.

The difference between GST and VAT

GST has replaced VAT since July 1, 2017. When VAT was in effect, it was a ‘cascading effect of taxes’ on the economy and GST has put an end to it.

‘Cascading effect’ refers to a product tax that takes on additional taxes with every step that it moves towards the end consumer. This ‘tax on tax’ was severely affecting the economy and was very tedious for new start-ups. With GST, start-ups can see less compliance issues as opposed to what they were experiencing with VAT.

What’s in it for me?

If you are a start-up registering for GST, the complete registration process is online. There are no long queues, and no endless waiting around for lunch breaks in Government offices. If you are an e-commerce start-up, you no longer need to worry about confusing compliances that were in place.

As a start-up, you can register for GST which has replaced VAT and you will see more streamlined compliance for your start-up.

If you are a small business with a turnover between 20 lakhs to 1 crore, then you have a scheme which will allow you to pay lower taxes. This optional scheme, called the composition scheme, will give you relief from being overburdened with tax if your business is newly established.

This means that if you are a small business or about to start a new business, then you are exempted from paying either taxes.

The only challenge is for the manufacturing sector. Before GST, start-ups from the sector had to pay excise duty only if the turnover was more than 1.5 crores. But after GST, the limit was reduced to 20 lakhs which is definitely a burden for start-ups in this sector. However, the benefits outshine the burden.

Foremost, India will become one single market where manufacturing goods can move freely about. And second, manufacturing start-ups will have less compliance issues than before.

The bottom line is that when starting a business, you may register for both GST and VAT, but your start-up is exempted for paying either until your annual turnover crosses the threshold (20 lakhs for GST and 5-10 lakhs for VAT). Also, you need only file GST since it has replaced VAT as single compliance for business.

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What GST Changes Are Implemented Since 1 Jan 2021?

Aakash Sharma — Mon, 01 Feb 2021 02:30:50 +0000

2021 started with many GST regime changes that will directly impact the business already registered under the GST regime and the entrepreneurs who are planning to get themselves registered within the tax system. Even after more than three and a half years of GST implementation, most businesses are still struggling to understand the indirect tax regime.

Across sectors, be it education and training, retail, or e-commerce, trends indicate that companies are struggling to make profits post GST. As the fourth anniversary of the tax reforms approaches in 2021, most Indian businesses believe that GST has not proven suitable for their businesses even in the long run.

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The new rules do not permit the taxpayer to file GST returns if the taxpayers have not furnished the return for the preceding two months.

The New Changes

Decreased Input Tax Credit Limit

The Central Board of Indirect Taxes and Customs (CBIC) has revised the limit of provisional Input Tax Credit (ITC) claims from 10% to 5%. Earlier, a taxpayer filing a GST return could claim up to 10% of the eligible credit available. Now, that limit is set at 5%. This has further increased the complexity for businesses as they have to match the input and output costs in a lesser limit to claim the credit.

Registration Revocation Rules

The CBIC has revised the suspension or cancellation of GST registration of businesses. The new rules state that a business’s registration can be suspended if it avails input tax credit in violation of the new provisions, i.e., beyond the 5% limit.

Mandatory Cash Payment

All the registered businesses will now have to pay 1% cash liability to curb tax evasion through fake invoicing. The rule applies to only those registered persons whose taxable supply value, other than exempt supply and export, in a month exceeds Rs 50 lakh.

New Registration Rules

The CBIC has amended the rules regarding new GST registration, which provides for the biometric verification, i.e., Aadhaar authentication and verification of other KYC documents. In the case of those opting not to use Aadhaar, GST registration would be given only after physical confirmation of the business premise, which could take up to 21 days and if a notice is issued.

Previous Records

The new rules do not permit the taxpayer to file GST returns if the taxpayers have not furnished the return for the preceding two months.

E-Bill Period Reduced

The CBIC has amended the rule related to E-way Bill wherein the available travel time has been enhanced to 200 km. For example, if goods are dispatched to a destination located at a distance of 550 km on 1 Feb 2021, as per the existing rule, the validity of the E-way bill generated would have expired on 7 Feb 2021, i.e., one week for 100 km from the midnight of its generation. According to the new rules, the e-way account will expire on 4 Feb 2021, thereby substantially shortening the time frame.

Quarterly Return Filing and Monthly Payment of Taxes (QRMP) Scheme

The CBIC has launched Quarterly Return Filing and Monthly Payment of Taxes (QRMP) scheme under the new changes. This will help small taxpaying businesses with a turnover of less than Rs.5 crores as it will allow them to file GST returns every quarter and pay tax every month.

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Simplifying Goods and Services Tax (GST)

Aakash Sharma — Sat, 19 Dec 2020 09:01:08 +0000

GST is a relevant topic for everyone involved in business.

It doesn’t matter if you are starting out new or have had a business for years, GST is equally new and important for you.

The Goods and Services Tax, abbreviated as GST, is an ‘indirect tax’ applied in India on the supply of goods and services. It is an all-inclusive, destination-based multistage tax. It is hailed as a comprehensive tax as it has replaced many of the indirect taxes that previously existed in the Indian tax system, like central excise duty, central sales tax, service tax and many others. Goods and Services Tax came into effect from July 1, 2017, when the government implemented the 101stAmendment of the Constitution of India.

To better understand the much complex and high-octane ‘revolutionary’ tax, let us take you through the GST system step by step.

What is GST?

Simply put, Goods and Services Tax is imposed on the supply of goods and services and paid by any consumer availing these from a producer or a provider. Unlike the taxes in the previous tax system, it is a tax is that it is collected at the point of consumption and not at the point of origin. That is why it is also called a destination-based tax. In such a system, the government collects the tax at the point where goods are consumed.

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It is important to note that GST is a tax regime that is modelled to cover a major sector of the goods and service industry.

Then versus Now: How is the Tax Structure Transformed?

GST is an attempt at removing multiple taxes by creating a single tax which covers all goods and services taking place in a market. But before we discuss the critical importance of GST, it is imperative to understand how the previous indirect taxes functioned, and what has changed with the new tax system.

The following figure shows the changes in the Pre-GST era versus the Post-GST era:

Pre GST vs Post GST

Turnover– Turnover, also referred to as revenue, is the sum total of all money that passes through a business each year as a result of the sale of goods and services. If you only provide services, your turnover will be the sum total of the money earned by charging customers for the services you have provided.

Tax structure prior to the new system worked on the ‘tax on tax’ model. With multiple taxes in place, goods were taxed at every stage of production. Goods were taxed till they were finally sold to the consumer. Each succeeding transfer of goods was taxed, inclusive of the taxes charged on the preceding transfer. This increased the taxes as high as roughly 25-30 per cent, ultimately increasing the end cost of the goods and services. With this tax, direct benefit is given to the common consumers by sparing them from paying ‘tax on tax’ and paying taxes directly at the point of consumption.

GST Rate Slabs

It is important to note that GST is a tax regime that is modelled to cover a major sector of the goods and service industry. Necessary services and food items are placed in the lower tax brackets of the new tax system, while luxury services and products are situated in the higher tax bracket. Government has put over 1,300 goods and 500 services within the ambit of four tax slabs under GST. Here is a look at those rate slabs:

5 per cent

12 per cent

18 per cent

28 per cent

Almost all farm produces and indigenous products like hulled grain, bangles, local jewellery, etc. are outside the purview of the GST. This is a significant measure for small farmers and indigenous businesses of the country.

Types of GST: Who Gets What

GST has three components to determine who collects the tax and how the money is shared between the Centre and the state governments. These include:

Central Goods and Services Tax (CGST): As the name suggests, it is collected by the central government whenever an ‘intra-state’ sale/business transaction takes place.

State Goods and Services Tax (SGST): It is collected by state governments when ‘intra-state’ business transactions take place.

Integrated Goods and Services Tax (IGST) is collected by the central government for any ‘inter-state’ sale.

Let’s understand the components of GST with simple examples.

Suppose Ramesh is a manufacturer in Maharashtra who sold goods worth Rs 10,000 to Suresh in Maharashtra only. The GST rate applicable is, say, 18 per cent, which includes a CGST rate of 9 per cent and SGST rate of 9 per cent. In this situation, Ramesh (the manufacturer) will collect Rs 1800 as GST from the Suresh (buyer), out of which Rs 900 (CGST) will go to the Central Government and Rs 900 (SGST) will go to the Maharashtra Government.

Now, consider that Ramesh, the manufacturer from Maharashtra, sold goods worth Rs 10,000 to Amit from Gujarat. Here also, let’s say the GST rate is 18 per cent, inclusive of 18 per cent IGST. Ramesh will charge Rs 1,800 as IGST. This IGST will then be distributed equally among the central and state government where the goods are consumed; meaning Rs 900 will go to the central government and Rs 900 will go to the Gujarat state government.

In essence, CGST and SGST are applied when a sale of goods and services happens ‘within’ a State; the revenue generated is shared equally between the Central and the State governments. When the business is done with another state, the IGST is applied as a single central tax. The Centre then shares the IGST revenue based on the destination of goods.

Tax Processing– Input Tax Credit and Stages of Deduction

Any commodity or product has to go through different stages before it reaches the end consumer. A single tax is collected at different stages, unlike the multiple taxes at multiple places earlier.

With taxation at multiple stages, you get the credit benefit called Input Tax Credit. An input tax credit means that at the time of paying tax on output (goods to be sold), you can reduce the tax which you have already paid on inputs (raw material bought for making goods). The input tax credit is the credit that manufacturers, suppliers, aggregators, or any business owner registered under the GST receive for paying taxes on the material procured during the manufacturing/ production of goods. You are also entitled to the input tax credit if you have purchased goods for reselling. You are eligible to claim input credit for tax paid by you on your Purchases.

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You are also entitled to input tax credit if you have purchased goods for reselling.

Here’s a use case to help you understand the working of GST and the tax credit process.

Consider the GST Slab Rate used- 5 per cent, Base Price – Rs 500.

At Manufacturing Stage

Consider a manufacturing unit which has to pay 5 per cent as the GST applicable. Here, the manufacturer procures raw material worth Rs 500. This price of the raw material includes GST, in this case, Rs 25 (5 percent of 500).

The manufacturer then adds her/his own value of Rs 50 to the materials during the manufacturing process. This brings the total value of the product to Rs 550. Now, the total tax amount of the product comes to Rs 27.5 (5 percent of 550). In the previous tax system, the manufacturer would have paid a tax of Rs 27.5.

However, with GST, s/he can claim input tax credit as s/he has already paid it while purchasing the raw materials. Therefore, the final GST that the manufacturer will incur will be of Rs total tax amount till now minus the tax s/he has already paid, which is Rs 2.5 (27.5-25).

At Wholesale Stage

Here, the product is passed from the manufacturer to the wholesaler at Rs 550 that is inclusive of the GST of Rs 27.5 (5 percent of 550). The wholesaler then adds her/his value of Rs 50, making the total Rs 600 (550 + 50). This brings the tax amount to Rs 30 (5 percent of 600).

Like the manufacturer, the wholesaler too can claim input tax credit on account of the tax that s/he has already paid while purchasing the goods from the manufacturer. Thus, the final GST for the wholesaler would be Rs 2.5 (30- 27.5).

At Retail Stage

The retailer buys the product from the wholesaler at Rs 600, inclusive of the GST Rs 30 (5 percent of 600). S/he then adds her/his value of Rs 50 making the total cost of the goods Rs 650. The tax applicable here is Rs 32.5 (5 percent of 650).

Since the retailer has already paid tax while purchasing the goods, s/he can claim input tax credit and set off this amount. Thus, the final GST amount for the retailer would be Rs 2.5 (32.5- 30).

End User

Finally, as the retailer sells the product at Rs 650, the tax paid by the end consumer will be Rs 32.5 (10 percent of 650).

How to claim an input tax credit under GST?

To claim input credit-

You must have a tax invoice (of purchase) or debit note issued by a registered dealer.

You should have received the goods/services.

The tax charged on your purchases has been deposited/paid to the government by the supplier in cash or via claiming input credit.

The supplier has filed GST returns.

The most important point to be remembered here is that you can claim the input credit ONLY if your supplier/predecessor has deposited the tax s/he collected from you. Thus, every input credit has to be matched and validated before it can be claimed. For checking the GST compliance of your predecessor in the GST input tax credit chain, you can use the e-Ledger. It is an electronic passbook for GST and is available to all GST registrants on the GST Portal.

An e-ledger can tell you the following details:

Amount of GST deposited in cash to the government in Electronic Cash Ledger.

Balance of Input Tax Credit available (ITC) in Electronic Credit Ledger.

Manner of Setoff of GST liability and balance liability Electronic Liability Ledger.

In the case of a wrongly claimed input tax credit, or tax liability on the part of your predecessor in the tax chain, you have to return the credit by making a reverse payment of that amount in the next tax payment month. This is called ITC reversal.

GST Registration

As GST is levied on the sale of goods and services, it is applicable to a business whose annual turnover exceeds:

Rs 40 lakh in goods production/manufacturing sector, and

Rs 20 lakh in the service/labour sector,

in a financial year. There is no requirement for re-registration or renewal under GST as it has no expiration date.

The following documents are required for GST Registration:

PAN of the Applicant

Aadhaar card

Proof of business registration or Incorporation certificate

Identity and Address proof of Promoters/Director with Photographs

Address proof of the place of business

Bank Account statement/Cancelled cheque

Digital Signature

Letter of Authorization/Board Resolution for Authorized Signatory

Upon registration on the GST Network portal, you will be given a GSTIN (Goods and Services Tax Identification Number) which will be used in the future for all the activities related to GST.

What is GST Return?

A GST return is a document containing details of your income which you are required to file with the government. It is similar to filing income tax returns and serves the same purpose- to calculate your tax liability. To file GST returns, GST compliant sales and purchase invoices are required. Under GST, a business registered with the government has to file GST returns that include the record of their:

Purchases

Sales

Output GST (On sales)

Input tax credit (GST paid on purchases)

Any regular business has to file two returns in a month and one annual return. This amounts to a total of 26 returns a year. Quarterly filers have to file their GST returns 17 times in a year.

Conclusion

In a nutshell, GST proposes a tax environment that is transparent and corruption-free, removing the shortcomings in the indirect tax structure. Despite these utopian promises, GST must be amended and worked upon further to make it truly business as well as consumer-friendly.

A well-formulated and well-implemented GST will allow India to better negotiate its terms in the international trade forums as the business thrives in the country. The aim of increasing the taxpayer base by bringing SMEs and the unorganized sector under its compliance will only be achieved by the extremely precise implementation and a top to down simplification.

Learn about other legal and regulatory measures like GST including EPFO, Copyrights, PAN, Professional Tax, and much more on our website.

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