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How will Goods and Services Tax (GST) work in practice…


Posted on 12-Jul-2017 Comments  0

With the Goods and Services Tax (GST) officially implemented from 01st July, one of the longest pending fiscal reforms has taken off. The enduring pictures on television may be the massive strike by small traders in Surat and Ahmadabad but that is more of the teething problems that any new venture is likely to face. Here are 6 things you must know about how GST will practice…


  1. Who needs to register for GST?


As per the GST Rules any business with an annual turnover of more than Rs.20 lakhs per annum will have to register and pay the GST on their transactions. In case of North Eastern states, this limit has been further reduced to Rs.10 lakhs. However, if your business is going to sell outside the state of operation then you need to register and pay GST irrespective of the turnover. Additionally, the GST Council is offering a special Composite Scheme for small businesses with annual turnover of less than Rs.75 lakhs. Such businesses can opt for the Composite Levy Scheme and pay between 1.5% and 5% on the value of the turnover. However, most service providers are outside the ambit of the Composite Scheme. Also any business that is into inter-state sales cannot opt for the Composite Scheme. Also, the businesses that opt for the Composite Scheme will not get the benefit of input tax credit (we will see this in detail later).


  1. How to register for GST?


For fresh applicants, one can apply for the GST ID online on the GST website. The GST id is a 15-digit number where the first 2 digits represent the state code and the next 10 digits will represent the PAN number of the business. The last 3 digits will be random alphanumeric variables. Here it needs to be remembered that each business location in a state will require a separate GST registration. So if you are headquartered in Mumbai and have branches in 12 other states then you will require a total of 13 GST registrations. While there are 3 separate GST viz. CGST, SGST and IGST, you only need to register once under GST. If you are already a tax payer under service tax, excise duty, VAT or other subsumed in direct taxes, then you will be automatically migrated to GST and anew code allotted to you. The point is that the entire process is online and entirely seamless.


  1. Understanding the CGST, SGST and IGST…


The GST has been further subdivided into 3 sub-categories. For example,when there is an intrastate sale (within a state) then the GST will be split equally between CGST and SGST. So, if the GST on service is 18% then while preparing the invoice 9% will be payable as CGST and 9% will be payable as SGST, which will be apportioned equally between the centre and the state. However, the treatment is slightly different in case of interstate sales. For example, if your business is based in Mumbai and you sell to a customer in Chennai, then it becomes an inter-state sale and will attract IGST at the full rate prescribed.


  1. How will the input tax credit (ITC) and set-offs work?


Avery important feature of GST is the input tax credit (ITC). GST is a value added tax and therefore you are only required to pay tax on the value added. This prevents cascading of tax liability and reduces the eventual tax burden on the end customer. For example if your GST for the month is Rs.25,000 and have paid Rs.7,000 as taxes on inputs,then you only need to pay the net tax of Rs.18,000 to the government.Here two things need to be remembered. Firstly, under GST you can get seamless credit for service inputs against manufactured output.Secondly, you can set off  SGST against SGST and CGST against CGST only. IGST can be set off against both.


  1. How and when the GST must be paid to the government…


All GST invoices raised during the current month will entail GST payment by the 10th of the next month. Of course, for the first few months till the time the GST system stabilizes, the GST Council has given additional time till 20th of the month. There will be quite a few returns to be filed based on the number of operations you have . For example, if you are present in 13 cities then you need to file 3 returns per operation per month making it 39 returns. In addition 3 consolidated returns need to be filed taking the total number of returns to 42. However, the good thing is that the entire process can be managed online, reducing cost and complexity.


  1. GST will create a single market but will not be inflationary…


One of the big advantages of GST is that it will create a national market without boundaries. Large companies will see their goods transported across India without any checkpoints. This shift also means that their distribution and logistics network will become more efficient and business driven. GST will also bring small and medium sized businesses into the GST ambit. There is also a worry that GST could be inflationary, as has been the case in many countries like Malaysia and Australia. However, the input tax credit and the low rates of GST on food items will ensure that inflation remains in check.


Ina nutshell, GST is likely to bring in efficiencies in the form of a national market, easier credits, more efficient logistics and regulatory simplicity. Above all, it will give an incentive to small businesses to achieve economies of scale by graduating into the organized sector!

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