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GST Basics

FINANCE ACADEMY
(in collaboration with IT Academy)
presents

GST Basics

Date: 12th July 2017


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FinanceCopyright
Academy © 2012 Mahindra & Mahindra Ltd. All rights reserved.
– Excellence for Function; Acumen for All
GST Basics

Learning Outcomes

The following short presentation on GST basics aims to enable participants to impart an understanding of
the
– General principles of GST
– The IT Architecture of GST

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GST Basics

Section A - What does GST imply in common parlance?


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Type of taxes
Currently, the Indian tax structure is divided into two

Direct Tax Indirect Tax

▪ Direct Taxes - levies where liability cannot be passed ▪ Indirect Taxes - the liability of the tax can be passed
to someone else. on to someone else.
– An example - Income Tax where you earn the – An example - a shopkeeper must pay GST on his
income and you alone are liable to pay the tax on supply and can pass on the burden to the ultimate
it. customer.

In effect, You as the customer would pay the price of the item as well as the GST on it, so the shopkeeper can
deposit the GST to the government.

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What is GST?

Goods & Services Tax (GST) is:


▪ an indirect tax throughout India
▪ to replace taxes levied by the central and state governments.
▪ GST was notified under The Constitution (One Hundred and Twenty Second Amendment) Act 2017
▪ GST is administered by GST Council consisting of State and Central Government representatives and its Chairman
is Finance Minister of India.

GST effective from 1 July 2017 (midnight of 30th June 2017)


Across India, all products and services, except those which are exempted hence One Nation, One Tax, One Market

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Imagine you are buying a readymade Shirt from a Shop?


The journey of the Shirt begins with Cotton or Yarn and conversion into cloth, tailoring and shipping to warehouse
and to a retailer and the end customer is YOU. At each of these stages, there is a value creation that takes place on
which GST is to be levied.

Let us understand GST from the above perspective: ( INTRA STATE TRANSACTION)
From point of `manufacture-dispatch-sales’ to `Consumption’
▪ GST Is a comprehensive, multi-stage, destination-based tax
– Multi-stage : from Manufacture or production to the final sale
▪ Stage 1: Buying Raw-Material (The Vendor will levy GST on Manufacturer)
▪ Stage 2: Production or manufacture and Tailoring (Manufacturer will charge GST to Distributor)
▪ Stage 3: Warehousing of materials with Distributor ( Distributor will charge GST to Retailer)
▪ Stage 4: Sale of the Product to retailer (Retailer will charge GST to Customer)
▪ Stage 5: Retailer Sells to end customer – YOU
– This completes the product life cycle

GST will be levied on each of these stages, for the value created, which makes it a multi-stage tax
Under GST, the rate of tax would be as applicable to the product classification, at each of the stages 1 to 5.
Generally, the GST paid at each stage of purchases will be available as INPUT TAX CREDIT ( set off)
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Multi-Stage levy of GST – Pictoral Depiction

Stage 2: Production or manufacture

Stage 1: Buying Raw-Material


Weaving of cloth in a company
Stage 4: Sale of the Product to retailer

Stage 5: Retailer Sells to end customer (YOU) Stage 3: Warehousing of materials


Supply of end product to Distributor to Retailer to end customer

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What are the Salient Features of GST?

Transitions:
From point of `manufacture-dispatch-sales’ to `Consumption’
▪ Is a comprehensive, multi-stage, destination-based Consumption Tax
▪ Is levied on every value addition
▪ Destination based Tax connotes – it is the state where the ultimate customer is located, will get revenue of the
GST.

▪ Goods and services tax (GST) taxes has replaced the central excise duty, services tax, additional customs
duty, surcharges, state-level value added tax and Octroi

▪ Other levies which are currently applicable on inter-state transportation of goods are also done away with, in GST
regime

GST is a consumption based tax, therefore, taxes are paid to the state where the goods or services are ultimately
consumed not the state in which they were produced.
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Assume you are buying a shirt in Maharashtra, manufactured in Gujarat in


the pre GST era
▪ Earlier Position before GST
– Excise duty was levied on Manufacture
– Then, VAT (value added tax) is added by State when Sold
– Cenvat and Set-Off was available, subject to certain condition/reduction

VAT VAT + Excise Duty


Buying Raw Sale to
Materials from Manufacturer
Wholesaler/Warehousing
Vendor
VAT

Final Sale
to Sale to Retailer
Consumer
VAT
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What Is new or the transition to GST:


The following Central & State taxes are bound together by the GST:

INTRA STATE INTER - STATE

Central Excise Duty Service Tax Custom Duty


CGST (CVD/SAD)

Value Added Tax Central Sales Tax


Entertainment Tax IGST
(VAT) (CST)

SGST

Entry Tax Commercial Tax Luxury Tax

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EXAMPLE : GST Impact

Example – Intra State Sale (Within the State)


▪ A dealer in Gujarat supplied goods to a consumer in Gujarat worth Rs. 10,000. The Goods and Services
Tax rate is 18% comprising CGST rate of 9% and SGST rate of 9%. In such cases the dealer collects Rs.
1800 and of this amount, Rs. 900 will go to the central government and Rs. 900 will go to the Gujarat
government.

Example – Inter-State Sale ( One State to Another)


▪ Now, let us assume the dealer in Gujarat had supplied goods to a dealer in Maharashtra worth Rs.
10,000. The GST rate is 18%. In such case the dealer has to charge Rs. 1800 as IGST. This IGST will go to
the Centre.

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Is there not a double taxation and a cascading effect on the purchase of


shirt you made in Maharashtra?

▪ Let us now understand the concept of Input – Tax - Credit


– The shopkeeper has paid a tax when he bought the item from the wholesaler.
– To recover that amount, as well as to make up for the GST he must pay to the government,
– He passes the burden to the customer who has to pay the additional amount.
– There is currently no other way for the shopkeeper to recover whatever he pays from his own pocket
during transactions and therefore, he has no choice but to pass on the burden to the customer

▪ Goods and Services Tax addresses this issue through a system of Input Tax Credit which allows seller to
claim the tax already paid and the final burden on the end consumer is therefore decreased

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Under GST – How would the tax levy work?


If the Buyer and Supplier are in the same state both Central Goods & Services Tax (CGST) and State Goods
& Services Tax (SGST) would be applicable

▪ CGST: where the revenue will be collected by the central government


▪ SGST: where the revenue will be collected by the state governments for intra-state sales
If the Buyer and Supplier are in Different State Integrated Goods & Services Tax – IGST would be applicable

▪ IGST: where the revenue will be collected by the central government

Compensation Cess ranging from 1% to 15% would be applicable on Luxury Goods falling under the Tax Category of
28%

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How as Customer is GST Relevant?

GST - Applicable GST – Not Applicable


▪ You are staying in a society – there is monthly ▪ You buy milk, eggs, food-grains, grocery items
maintenance charges (>INR 5000) ▪ You board a public transport and reach office
▪ You use cellphone for communication – GST is ▪ You use electricity at home
applicable
▪ You have food in a restaurant
▪ You buy a Car
▪ You buy jewelry

From July 1, flat and apartment owners who pay or spend more than Rs 5,000 towards maintenance of their houses
will have to shell out more as the Goods and Services Tax will slap on them an additional 2.5 per cent tax. Earlier rate
was 15.5% and now the GST rates are increased to 18%.

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Who is covered by GST ?

GST applies to all Businesses

▪ Businesses includes trade, commerce, manufacture, profession, vocation or any other similar activity
▪ irrespective of its volume or frequency.
▪ includes supply of goods/ services for starting or closure of a business

▪ GST applies to all persons


▪ Persons includes – Individuals, HUF, Company, Firm, LLP, AOP, Co-operative society, Society, Trust etc.
▪ However, GST does not apply to Agriculturists.

▪ Agriculture includes floriculture, horticulture, sericulture, raising of crops, grass or garden produce. But
does not include dairy farming, poultry farming, stock breeding, gathering of fruit or rearing of seedlings
or plants.

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When is registration mandatory under GST

GST registration is MANDATORY in the following cases:

TURNOVER BASIS

▪ You must collect and pay GST when your turnover in a financial year:
– exceeds Rs. 20 lakhs.
– limit is Rs 10 lakhs for some special category (North Eastern states].

▪ “Aggregate turnover” means:


– the aggregate value of all taxable supplies,
– exempt supplies, exports of goods and/or services and
– inter-State supplies
– of a person having the same PAN,
– to be computed on all India basis and
– excludes taxes, if any, charged under :
– the CGST Act, SGST Act and the IGST Act, as the case may be.

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Irrespective of aggregate turnover when is registration necessary?


▪ Inter-state supply of goods/services
– Any person who supplies goods/services in a taxable territory and
– has no fixed place of business –
– referred to as casual taxable persons.
– Registration issued to such a person is valid for a period of 90 days

▪ Any person who supplies goods/services


– and has no fixed place of business in India
– referred to as non-resident taxable persons
– Registration issued to such a person is valid for a period of 90 days

▪ Person required to pay tax under reverse charge mechanism


– Reverse charge mechanism means where the person receiving the goods/services has to pay tax instead of the
supplier

The Act now provides that when a registered buyer buys from an unregistered dealer, then reverse charge is
applicable, i.e. the buyer (recipient of goods/services) is liable to pay GST. This is similar to the current purchase tax on
purchase of goods from an unregistered dealer applicable in many states.
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Composition Scheme & Exports/Imports

▪ Composition Scheme
– Small Businessmen or Traders dealing with goods can opt for composition scheme
– Having Turnover limit of Rs. 75 lakhs
– Applicable tax would be 2% for manufacturer, 5% for caterers 1% for other traders

▪ Exports & Imports


– Exports are exempted from levy of GST
– On Import GST is payable on reverse charge mechanism

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Irrespective of aggregate turnover, when is registration necessary?

▪ Agents or any other person who makes supply on behalf of other registered taxable persons
▪ Distributors or input service distributors
– This person has the same PAN as the office of the supplier.
– This person is an officer of the supplier, he receives supplies and issues tax invoice to distribute credit of
CGST/SGST/IGST

▪ E-Commerce Operator
– Persons who supplies (except branded services) via an e-commerce operator

▪ Aggregator supplying services under his brand name


▪ Person supplying online information and database access or retrieval services from a place outside India to a
person in India, other than a registered taxable person

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Some basics on registration

▪ Having a PAN is mandatory to obtain GST registration.


– However, non-resident person can get GST registration on the of basis other documents, which the government
may prescribe

▪ One registration shall be required for each state

▪ The taxpayer can choose to get separate registrations for its different business verticals in the State

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Various `Returns’ to be furnished under GST Law – an overview

▪ A return is a document that a taxpayer is required to file as per the law with the tax administrative authorities

▪ All these returns are required to be filed digitally


– Online through a common portal to be provided by GSTN, non-government, private limited company promoted
by the central and state governments with the specific mandate to build the IT infrastructure and the services
required for implementing Goods and Services Tax (GST)

▪ Under the GST law, a normal taxpayer will be required to furnish three returns monthly and one annual return
▪ Similarly, there are separate returns for a taxpayer registered under
– The composition scheme
– taxpayer registered as an Input Service Distributor,
– a person liable to deduct or collect the tax (TDS/TCS)

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GST Returns – type, what to file, by whom and when?

Return Form What to file? By Whom? By When?


GSTR-1 Details of outward supplies of taxable goods Registered Taxable Supplier 10th of the next month
and/or services effected
GSTR-2 Details of inward supplies of taxable goods Registered Taxable Recipient 15th of the next month
and/or services effected claiming input tax
credit.
GSTR-3 Monthly return on the basis of finalization Registered Taxable Person 20th of the next month
of details of outward supplies and inward
supplies along with the payment of amount
of tax.

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GST Returns – contd.

Return What to file? By Whom? By When?


Form
GSTR-4 Quarterly return for compounding Composition Supplier 18th of the month succeeding
taxable person. quarter
GSTR-5 Return for Non-Resident foreign Non-Resident Taxable Person 20th of the next month
taxable person
GSTR-6 Return for Input Service Distributor Input Service Distributor 13th of the next month
GSTR-7 Return for authorities deducting tax at Tax Deductor 10th of the next month
source.
GSTR-8 Details of supplies effected through e- E-commerce Operator/Tax 10th of the next month
commerce operator and the amount of Collector
tax collected

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GST Returns – contd.

Return What to file? By Whom? By When?


Form
GSTR-9 Annual Return Registered Taxable Person 31st December of next
financial year
GSTR-10 Final Return Taxable person whose registration has Within three months of the
been surrendered or cancelled. date of cancellation or date
of cancellation order,
whichever is later.
GSTR-11 Details of inward supplies to be Person having UIN and claiming refund 28th of the month following
furnished by a person having UIN (For UIN definition refer next Slide) the month for which
statement is filed

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Employer’s Gifts to Employee exceeding Rs. 50000 would be taxable under


GST

▪ Supply of goods or services between related persons made during the course of business is treated as
‘supply’ even when there is no consideration. Employer and Employee were covered in the definition of
related person

▪ Gifts above (and equal to) Rs. 50,000 will attract GST

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GST not Applicable when you sell Land/Building

▪ Generally ‘Goods’ included:


– all movable property including actionable claims
– Only money and securities were excluded
– “Services” had a vague definition of “anything other than goods”

▪ In Schedule III - sale of land and/or building will neither be treated as a supply of goods nor a supply of services
and GST will NOT apply on sale of land/building (Stamp duty will continue to apply)

▪ GST will apply on:


– renting, leasing of land and/or building
– works contract, i.e., constructing a building
– sale of an under-construction building

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Time of Supply of Services

Determining time of supply for services shall be earlier of the following dates:
(a) If the invoice is issued within time prescribed:
– Invoice issue date,OR
– Date of receipt of payment
– whichever is earlier

(b) If the invoice is not issued within time:


– The date of providing of services,OR
– The date of receipt of payment
– whichever is earlier

▪ If clauses (a) & (b) are not applicable then:


– The date on which the recipient shows the receipt of services in his books of accounts.

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Conditions for Disallowing ITC

▪ If the recipient/buyer failed to pay the service provider within 6 months,


– then the input credit tax (ITC) availed by the buyer would be disallowed.
– He would be required to pay the amount of ITC availed along with interest.
This is for both Goods & Services

▪ As and when, payment is made after 180 days then the ITC, will be re-allowed.

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GST - website references (For Further Learning)

▪ http://www.cbec.gov.in/htdocs-cbec/gst
▪ http://www.cbec.gov.in/htdocs-cbec/gst/draft-rules-format
▪ http://www.gstn.org/
▪ https://www.egov-nsdl.co.in/gst.html
▪ http://meity.gov.in/GST
▪ https://aces.gov.in/
▪ http://www.mahavat.gov.in/Mahavat/index.jsp

GST Bare Act in pdf format:


http://www.cbec.gov.in/resources//htdocs-cbec/gst/cgst-act.pdf

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Section B - GST IT Overview & Readiness


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Strategic Realignment of Supply-


chain

Are we ready Compliance

Transaction Processing & Vendor Credit


Finance Academy – Excellence for Function; Acumen for All Reconciliation 31
GST Basics

GSTN Portal

GSP = GST Suvidha Provider

Repository and a link between the ASP & GSTN Portal

GSP Provider GSP Provider


ASP = Application Service Provider
Storage + Applications + Reconciliations
Convert data in prescribed formats for GNTN uploads,
Statutory Returns, Bank Transfers and reconcile transactions
ASP Provider between Suppliers & Buyers routed through GSTN ASP Provider

• Mico ERP (SAP) = Transactional System


• Lucas TVs
• MRF Tyres Master data, Transaction Codes, Invoice Verifications,
reconciliations with GSTN and suppliers/dealers
Suppliers / Sellers Manufacturers / Buyers

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GSTN Portal

Monthly Returns & Payment

GSP Provider • 10th Seller has to upload his sales data - GSTR 1

• 15th GSTN will provide a provisional purchase register - GSTR 2A

• 15th to 20th ASP will reconcile GSTN credits with Purchases booked
ASP Provider
• 20th Final Reconciled Purchases - GSTR 2
• Mico
• Lucas TVs • 20th Payment to Banks
• MRF Tyres
• 20th Final Monthly Return GSTR 3
Buyers/ Sellers
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GSTN
Portal

GSP GSP

ASP ASP

ASP Reports
Sales Data

• GSTR2A – Provisional Purchase Register


• GSTR 2 – reconciled GSTN credits with Invoice Book
• GSTR1A - Purchase not in GSTN but Invoiced by
vendor
• GSTR3 - Monthly Return (Sales – Purchase GSTN
base)
• Tax Inn • GSTR 6 - Input Service distributor (HO)
• GSTR 7 - Return for TDS
• New GL • GSTR 8 - Annual Return
• Notes & Patches • GSTR 9 - Reconciliation statement
• GSTR 10 - Final Return
• Mobile App GST Box/ ERP System • Vendor Invoice credit reconciliation
• API to ASP/GSP • Emails to vendors for discrepancies
• MIS
Co SAP
Finance System
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GST Basics

GSTN
Portal

GSP GSP

ASP
ASP Compliant
ASP Data

GSTR 1

ASP Reports
• GSTR2A – Provisional Purchase Register
• GSTR 2 – reconciled GSTN credits with Invoice Book
• GSTR1A - Purchase not in GSTN but Invoiced by
vendor
• GSTR3 - Monthly Return (Sales – Purchase GSTN
base)
GST Box • GSTR 6 - Input Service distributor (HO)
• GSTR 7 - Return for TDS
Sales Data

• GSTR 8 - Annual Return


• GSTR 9 - Reconciliation statement
• GSTR 10 - Final Return
GST Box/ ERP System • Vendor Invoice credit reconciliation
• Emails to vendors for discrepancies
Co ERP System Enabling the Eco System
(SAP or Non SAP)
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Milestones Achieved:
• Co Creation with SAP Labs for changes in R3

• Required fields for GST mapped with R3 Masters

• SAP Notes applied on our SAP System

• Digitization of outgoing invoices with relevant formats

• Evaluations in progress for selection of ASP & GSP

• Financial Statement at State Level

• System for collation for GST Nos

• Technical & Commercial Evaluation of ASP & GSP

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Business Specific Challenges

Vendors (Component & Services) Dealers

• System to exchange data with Suppliers & Dealers


• Inventory at Stockyards & Dealers
• Renegotiate Credit & Payment Terms
• Split of Liability
• Reconciliation Exceptions
• Financial Statement at State Level
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Selection Criteria for ASP & GSP

Application

• Data protection and privacy


• Data authentication
• Data Archival & Retrieval
• Audit Features
• Application & Process Control

Infrastructure

• Platform being Used


• Scalability
• Network & Bandwidth
• Uptime & Redundancy

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You have the Power, It all depends how well you glue it together
To deliver a Beautiful Transformation

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Feedback on GST Basic e-course : FINANZACUMEN@mahindra.com

▪ Do rate the Basic GST Short PPT on a scale of 1 to 5 ( 1: low – 5: high)


▪ Please Mention: Function/Process/Department and location

FEEDBACK PARAMETER by employee 1 2 3 4 5


Programme Relevance to Self (knowledge perspective)
Presentation Design and Content (Post-GST coverage)
Programme Results : Meets the learning objective
Learning would be useful for application/awareness in role
Will recommend this programme to my colleagues
Overall Satisfaction Score

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Do share your views & Queries on GST with FINANZACUMEN@mahindra.com

▪ Other programs on GST by FINANCE ACADEMY:


– GST Orientation Programme 28th June 2017: Recorded version on LMS
– GST Basics: Available on Rise Portal, Finance Academy Portal, LMS
– GST – Demystified : To be Launched in due course
– GST – Experts Live: To be launched in due course
– E-Learning Course: To be launched in due course

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