27/02/2021

GST

Salient Features
1. Concept of supply

The activity that is taxable is the ‘supply of goods or services or both’.

Hence GST is leviable on all transactions whether import, manufacture,
trading service,
trading, service entertainment or anything else.else
No activity is untaxed in this regime unless specifically exempted by
law.

2. Scope of GST

GST is applicable to all goods and services except alcohol for human
consumption.
GST on 5 specified petroleum products (crude, petroleum, diesel, ATF
& natural gas) would be applicable from a date to be recommended by
the GST council.
Tobacco and tobacco products would be subject to GST. In addition,
the Centre would continue to levy Central Excise duty on these items.

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Salient Features
3. Destination‐based tax

The taxes in the pre‐GST era were mostly origin‐based.

GST is a destination‐based tax and it is levied based on the place where
the goods or services are supplied or likely to be consumed.

4. Goods and Service Tax Council (GSTC)

One of the unique features of GST is that both the Central Govt. and
State Govts. have given up their individual power to levy taxes in
favour of a common constitutional body which is known as the Goods
and Services Tax Council (GSTC).
GSTC comprises of the Union Finance Minister, the Minister of State
(Revenue) and the State finance ministers to recommend the GST rate,
exemption and thresholds, taxes to be subsumed and other matters
relating to GST.

Salient Features
It is specifically provided in all relevant provisions of the GST Act
that Central or State Govt shall act on the recommendations of
GSTC and not take any decision on their own in this regard.

5. Dual Administration

GST is levied simultaneously by the Centre and the States on a

common base.
GST levied by the Centre would be called Central Tax or Central
GST (CGST).
(CGST)
GST levied by the States would be called State tax or State GST
(SGST).
Union territories without legislature would levy Union territory
GST (UGST).

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Salient Features
6. Taxes subsumed in GST

1. Central excise duty

2. Service Tax
3. Cess and surcharges insofar as they relate to supply of goods
or services.
4. State VAT
5. Central Sales tax
6. Purchase tax
7. Luxuryy tax
8. Entry tax
9. Entertainment tax (except those levied by local bodies)
10. Taxes on advertisements
11. Taxes on lotteries, betting and gambling

Salient Features
7. Common threshold limit for GST

A common threshold exemption limit applies to both CGST and

SGST.
Taxpayers with an annual turnover of Rs. 20 lakhs would be
normally exempted from GST.
The limit shall be Rs. 10 lakhs for some special category states as
specified in Article 279A of the Constitution.

8 Composition
8. C iti scheme
h

GST Act provides the option of the composition scheme to all

small taxpayers having an annual turnover up to Rs. 1.5 crores.
For selected category states it is Rs. 75 lakhs .

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Salient Features
The threshold exemption and composition scheme would be
optional.
Under the scheme, a taxpayer shall pay tax as a percentage of his
turnover during the year.
A tax payer opting for composition levy shall not collect any tax
from his customers nor shall he be entitled to claim any input tax
credit.

9. Registration of taxpayers

GST Act provides for online application for getting registration.

Registration shall be deemed to have been granted if no
deficiency is communicated to the applicant within 3 common
working days of the tax administration.

Salient Features
PAN is made mandatory for obtaining a registration under the
CGST/SGST Act.
However, certain persons required to deduct tax may, in lieu of a
PAN, use a Tax Deduction and Collection Account Number issued
under the Income Tax Act, in order to be eligible for registration.
PAN is also not mandatory for a non‐resident taxable person who
may be granted registration on the basis of documents as may be
prescribed by the Govt.

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Taxable event
• Taxable event under GST is supply of goods or services or both.

Hence, if there is no supply, there is no GST.

The meaning and scope of supply can be understood in terms of
the following six parameters.
1. Supply of goods or services. Supply of anything other than
goods or services does not attract GST.
2. Supply should be made for a consideration.
3. Supply should be made in the course or furtherance of
b i
business.
4. Supply should be made to a taxable person.
5. Supply should be a taxable supply.
6. Supply should be made within the taxable territory.

Taxable event
• Exceptions :

1. Any transaction involving supply of goods or services without

consideration is not a supply
pp y barringg few exceptions.
p
2. Import of services for a consideration, whether or not in the
course or furtherance of business is treated as supply.

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Harmonised system and classification in GST
• The supply of goods in GST regime are to be classified an taxed
using HSN (Harmonised System of Nomeclature) Codes.

• The Harmonised Commodity Description and Coding System is

an internationally
i t ti ll standardised
t d di d system
t off names and
d numbers
b to t
classify traded products.

• HSN is developed by the World Customs Organisation (WCO).

• HSN comprises of about 5,000 commodity groups each identified

by a six digit code,
code arranged in a legal and logical structure and is
supported by well‐defined rules to achieve uniform classification.

• HS is divided into 21 sections, which are sub‐divided into 96

chapters. The 96 chapters are further sub‐divided into
approximately 5,000 headings and sub‐headings.

Value of supply
• The taxes levied on the supply of goods and services in GST are
usually ad valorem in nature.

• It means that the GST is in p

proportion
p to the value of supply.
pp y

• Higher the value of supply, more the tax.

• The value of a supply of goods or services or both shall be the

transaction value which is the “price actually paid or payable
f the
for th supplyl off goods
d or service
i or both
b th where
h th supplier
the li
and the recipient of the supply are not related and the price is
the sole consideration for the supply”.

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Value of supply
• The value of supply shall include :
‐ any taxes, duties, cesses, fees and other charges levied under
any law for the time being in force other than the GST Act.
‐ any amount that the supplier is liable to pay in relation to such
supplyl but
b t which
hi h has
h been
b i
incurredd by
b the
th recipient
i i t off supplyl
and not included in the price actually paid or payable for the
goods or services or both.
‐ incidental expenses, including commission and packing,
charged by the supplier to the recipient of a supply and any
amount charged for anything done by the supplier in respect of
the supply of goods or services or both at the time of, or before
delivery of goods or supply of services.
‐ interest or late fee or penalty for the delayed payment of any
consideration for any supply
‐ subsidies directly linked to the price excluding subsidies
provided by the Central Govt and State Govts.

Value of supply
• The value of supply shall not include any discount which is given:
‐ before or at the time of supply if such discount has been duly
recorded in the invoice issued in respect of such supply
‐ after the supply
pp y has been effected if :
a. Such discount is established in terms of an agreement entered
into at or before the time of such supply and specifically linked to
relevant invoices.
b. Input tax credit as is attributable to the discount on the basis
of document issued by the supplier has been reversed by the
recipient of the supply.

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Input Tax Credit (ITC)
• A registered person is entitled to take credit of input tax charged on
supplies which are used or intended to be used in the course or
furtherance of business, subject to other conditions and restrictions.

• No registered d person shall

h ll be
b entitled
l d to the
h creditd off any input tax in
respect of any supply of goods or services or both to him unless :
‐ he is in possession of a tax invoice, debit note issued by a supplier
registered under this Act.
‐ he has received the goods or services or both
‐ the tax charged in respect of such supply has been actually paid to
the Govt either in cash or through utilisation of ITC.
ITC
‐ he has furnished the return under Sec. 39
Where goods against an invoice are received in lots or instalments, the
credit shall be taken upon receipt of the last lot or instalment.

GST Calculation
• The example below illustrates a chain of transactions involving a manufacturer,
wholesaler, retailer and consumer using a standard GST rate of 12.5%.

Manufacturer Wholesaler Retailer Consumer

Price payable 11,250 13,500 16,200
GST recoverable
GST recoverable 1 250
1,250 1 500
1,500
Net Cost 10,000 12,000
Profit 2,000 2,400
Net Selling Price 10,000 12,000 14,400
GST charged 1,250 1,500 1,800
Sale Price + GST 11,250 13,500 16,200
• Cross‐checkingg
Selling price of manufacturer 10,000
Profit of wholesaler 2,000
Profit of retailer 2,400
Total 14,400
GST paid at all stages 1,800
Total consumer price 16,200

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GST Calculation
• GST accounting
Manufacturer Wholesaler Retailer Consumer
GST payable 1,250 1,500 1,800
GST recoverable 1,250 1,500
Net GST paid 1,250 250 300
GST borne 1,800
• You will notice two things in the above transaction.
• First, the total amount of GST paid is Rs. 1,800. This represents
12.5% of the value added in the full chain of transactions.
• Second, the consumer pays Rs. 1,800 as GST. The parties involved
earlier in the chain have all paid GST, but they have either
recovered it, or, to the extent that they have not, passed it on
down the line to the ultimate consumer who is the last link in this
chain.
• GST paid by a registered person on his purchases is his input tax.
• The GST charged on his supplies or sales is his output tax.