Goods and Service Tax (GST) LEARNING OBJECTIVES To understand the Meaning and Administration of Goods & Service Tax (GST) in India To leam the classifications of GST- Central GST (CGST), State GST (SGST) or Union Territory GST (UTGST) and Integrated GST (IGST). To Know about the Reverse charge Mechanism To learn the accounting treatment of GST in the books of Accounts. ~ <3 Vv v GOODS AND SERVICE TAX (GST) AND ITS ACCOUN eis sbe have already implemented GST A number of countries around the g instance, Australia introduced GST in 2000, replacing the Federal Whole: Canada replaced the Manufacturer's Sales Tax with GST in 1991. New 2 implemented the reform in 1986, while Singapore did so in 1994. GST in Malaysia was introduced in 2015, and India has also implemented GST to provide benefits to the consumers, the industry, and the government. GST ig one indirect tax for the whole nation, which will make India one unified common market. GST is a single tax which shall be le services, right from the manufacturer to the consumer. ( such as Service Tax, VAT, Excise, CST etc. and shall simplify busines: processes. GST is applicable on both Goods and Services. The Goods and Service Tax Act was passed in the Par ‘The Act came into effect on 1st July 2017. India has adopted DUAL MODEL OF GST wherein 8 Central and the state. All traders who earn turnovers in excess of 2 Year will Have to register under the Goods and Services Tax. The! Registered Dealers. upply of goods and don the § T has replaced indirect taxes and accounting Jiament on 29th March, 2017, 3ST shall be levied by both % 20 lakh in a financial .y shall be calledTaxes to be Subsumed om GST has replaced under me; ws so macise duties, excise “¢ uy Medicinal and ‘Toilet Preparation, Duties) Act, 1955) Service tax Additional Customs Duty (Cvo) Special Additional Duty of Customs (Sap) Central Sales Tax ( levieg by the Central ang collected by the States) Central surcharges ang £28505 (relating to SUPPIY of goods and services) State cesses ang surcha EMertainmont tax (thoy t Dy the local bodes °P than the tax lvieg Central Sales Collected by thy ges Tax (levi 1 States) 'ed by the Central and Goods and Services Tax comiabrehensive value added tax on supply of good services or both = Ie ied at every stage Ensures ses © Atal st. through of production -distribution chain q Put tax credit throughout the supply chain - ‘ages of production and distribution, t and tax is borne by the * No differentiation betwee the supply chain mless inp faxes are a pass final consumer 1 Goods and Services as ST is levied at each stage in Administration of GST in India India is a the powers to to perform, federal country where both the Central and the Si levy and collect taxes. Both the 8 per the Constitution, for which There aré'thrée components of G Integrated GST (Gg, Simultaneously levy GST a, Goods and services, Cen tates have been assigned distinct responsibilities tax revenue. Governments ha they need to raise ~ Central GST (CGST), State GST ( Both Central Government and States Gov ‘cross the value chain. Tax will be le: I Government would levy ate. 3ST) and ament will vied on every supply nd collect Central Goods ai s would levy and collect the State Goods and Services T within a State. IGST is id Central Gover a tax levied on all Inter nment will levy and collect IGST tate suppli fervices an GST comprises of Central Goods and Services {State Goods and ge Integrated Goods a Tax (CG rvices Tax (SGST) or nd 8 nion Territor GST (UTGST), ervices Tax (IGS)Te \ Inter State —) Ist or — (CGST+SGST) “Determination of applicability of CGST, SGST or IGST Tax (SGST) or Integrated Goods & transaction, it is important to firs State supply. + Intra-State sup; and the place o State transaction: The CGST get with State Government + Inter-State supply of goods or services is when the and the place of supply are in differ tes. Also, in cases of € goods or services or when the supply of goods unit, the transaction sumed to be Inter-State. In an Ini a seller has to collect IGST from the buyer. kno location r services Central Goods and Services Tax (CGST) = Under GST, CGST is a tax levied on Intra State supplies of both goods and services by the Central Government and will be governed by the CGST Act. SGST Il also be levied on the same Intra State supply but will be governed by the State Government State Goods and Services Tax (SGST)or Union Territory GST (UTGST) _ Under GST, SGST (or UTGST) is a tax levied on Intra State/ Union Territtty Supplies of both goods and services by the State Government and will be governed by be SGST Act. As explained above, CGST will also be levied on the same Intra State supply but will be governed by the Central Government.= Note: 1. Any tax liability obtained under SG! Sehicantatilty obtained under SGST can be wot off against SGT or 1G 2. For discussion purposes, SGST and UGST are referred as SGST. Example for CGST and SGST ————___G0008 AND SERVICE 1, OOPS AND SERVICE TAX (G5) ST input tax Let’s suppose Rajendra is a de y = a ee 8 is a dealer in Gujarat who so wks 7 worth € 20,000. The GST rate is 18% comprising eee peo 9%. In such case, the dealer collects ® 3,600 of which ® 1,800 will go to the Genny | FO, Government and ® 1,800 will go to the Gujarat Government. SS | pati“ : the _Integrated Goods and Services Tax (IGST) mar Under GST, IGST is a tax levied on all Inter-Stat Te eno an on all Inter-State supplies of goods and/or services oe and will be governed by the IGST Act. IGST will be applicable on any mg of ral yiable and/or services or both in cases of import into India and export from India also.Central who government shall levy and collect IGST instead of CGST and SGST . IGST will be shared c. Sul between the Central Government and State Government cl Note: Under IGST i * Exports would be zero-rated { * Tax will be shared between the Central and State Government. ‘ Example for IGST: a ™ a Consider that a businessman Rajendra from Gujarat had sold goods to Ashish from Maharashtra worth %2,00,000. The GST rate is 18% comprised of 18% IGST. In such case, the dealer has to charge % 36,000 as IGST. This IGST will be collected by the Central government and later on shared with State Government, Reverse Charge esseesi on aes ts = = Normally, the supplier of goods or services pays the tax on supply. In the case of Reverse Charge, the receiver becomes liable to pay the tax, i.e., the chargeability gets reversed, NORMAL GST PAYMENT PROCESS Goods/Servico = Supplier of Receiver of | Goods/Services |, Goods/Services Ss fiers = ential 7 GST PAYMENT IN CASE OF REVERSE CHARGE Goods/Servico —_ ‘Supplier of Receiver of ost. ‘ Goods/Services |, Price of Goods/Service | Goods/Services Cover ral Reverse Charge Applicability eee a ‘A, Supply from an unregistered dealer to a registered dealer s goods to a person who This means that the GST ad of the supplier- If a vendor who is not registered under GST, supplie is registered under GST, then Reverse Charge would apply will have to be paid directly by the receiver to the Government inste:! shea £IL HEFL BL=/ Bre Sok far ase ol ty ee \ | a dealer who has to pay GST under reverse charge has to do self- e istered pening fF te purchases made. IB gor inter-state purchases the buyer has to pay IGST. For Intra-state purchased ost and SGST has to be paid under RCM by the purchaser. p. services through an e-commerce operator ( operator supplies services then reverse charge will be applicable to fan e-commerce tne e-commerce opera! For example, UrbanClap provides service peauticians ete. UrbanClap is liable to pay GST beghe registered service providers. Ifthe e-commerce operator does not have a physical presence in the taxable territory \ then a person representing such electronic commerce operator for any purpose will be liable to pay tax. If there is no representative, the operator will appoint a representative tino will be held liable to pay GST Supply of certain goods and services specified by CBEC CBBC has issued a list of goods and a list of services on which reverse cha tor. He will be liable to pay GST of plumbers, electricians, teachers, nd collect it from the customers instead applicable. ‘salient Features of GST 2, ‘The salient features of GST are 1. It isa Dual GST model where both Central and stats levy the taxes most of the commodities and > Ibis a multiple rate structure and at present nder four tax slabs, viz. fervices that are subject to GST have been categorised un 5%, 12%, 18%, and 28%. However, GST Rates are not applicable to some goods ‘as jute, fish, eggs, fresh meat, milk and other esse nitial items. .d consumption principles manufacture (excise), and services, such 3, Taxation is on destination base 4, Taxable event of ‘supply’ as against services (service tax) 5. Dual GST (Central GST and State GST goods and services GST (IGST) on inter-State transactions including stock transfers sales (VAT) and to apply concurrently on supply of all 6. Integrated 7, Exports zero rated; 8, Imports subject to IG! 9. Concurrent credit chain ST as under the purview of Note: “ 1 Aicaholic beverages for human consumption 7° proposed to be kept aut 0 GST ‘ ied date recommended by the GST 2. GST on petroleum products would be levied from # notified dat mmended b3 Council === jieation and SE Advantages of GST ~ stem, neutral in its appl GST has been e¢! attractive in distribution. The efficient tax red as a more efficien nvisag' mate fe advantages of= ae GOODS AND SERWCE TAK 9, $6008 ANp si For business and industry + Easy compliance: A robust and comprehensive IT system would be a foundation of the GST regime in India. Therefore, all tax payer Services such «° which aeons: Feturs, payments, ete, would be availabe t the taxpayers oni; which would make compliance easy and transparent. 2. Uniformity of tax rates and structure: GST will ensure that indirect tax Fates and structures are common across the country, thereby increasing certainty and ease of doing business. In other words, GST would make doing business in the country tax neutral, Tespective of the choice of place of doing business 3. Removal of cascading: A system of seamless tax-credits throughout the value. chain, and across boundaries of States, welt ensure that there is minimal cascading of taxes. This would reduce hidden costs of doing business, 4. Improved competitiveness: Reduction in transaction costs of doing would eventually lead to an improved competitiveness for the trade a 5. Gain to manufacturers and exporters; The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods and Services and phasing out of Central Sales Tax (CST) would reduce the cost of locally, manufactured goods and services. This will increase the competitiveness of Indian goods and Services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also &0 a long way in reducing the compliance cost s For Central and business nd industry ite Governments 6. Simple and easy to administer: Multiple indirect taxes at the Central State levels are being replaced by GST, Backed with. robust end-to-end IT iam, GST would be simpler and easier to administor than al other indirect taxes of the Central and State levied so far 7 Better controls on leakage: GST will result in better tax compliance due to robust IT infrastructure. Due to the seamless transfey of input tax credit from Toca, mother in the chain of value addition, there is anne built Peshanism in the design of GST that would incentivize ta, compliance by traders. 8. Higher revenue efficienc: tax revenues of the Gove efficiency For the consumer GST is expected to decrease the cost of collection of nment, and will therefore, lead to higher revenue § Single and transparent tax proportionate to the value of goods and ser aun Duc to multiple indirect taxes being levied by the cy ntral Government and State, with incomplete or no input tax eredits avaivaty at progressive stages Pe alue addition, the cost of most goods and services the country today are laden with many hidden taxes, Under GST, ther Would be only one tax from the manufacturer to the consumer, leading to transpar ney of taxes paid to the final consumer.patief 2 overall tax burden: Because of efficiency gains and prevention of 10. po overall tax burden on most commodities wil eome down, which will tenefit consumers: psssratanes or ¢ ere will be dual control on every business by the Central and State Th : re < ment. So compliance cost may go up for smaller businesses, credit will be avai a ray find it difficult to use the system ice tax on some products may become higher than the current lable on online with GST Network. Hence, small businesses VAT and servi 3. levels. States may lose autonomy to change their tax rates. Manufacturing states would lose big revenue Service sector may oppose because they have to register in every state with Central and State Government. So every business at all India level will have ground 60 registrations while they were having just one in previous regime Moreover rates will also go up. implementation of GST 2 For the implementation of GST in the country, the Central and State Governments have jointly registered Goods and Services Tax Network (GSTN) as a not-for-profit, non. Government Company to provide shared IT infrastructure and services to Central and State Governments, tax payers and other stakeholders. The key objectives of GSTN are toprovide a standard and uniform interface to the taxpay nd shared infrastructure and services to Central and State/UT governments. GSTN has developed a state-of-the-art comprehensive IT infrastructure including the common GST portal providing frontend services of registration, returns and payments to all taxpayers, as well as the backend IT modules for cettalt States that Inchide processing of returns, registrations, audits, assessments, appeals, etc All States, accounting authorities, There would no manual filing of returns. All taxes are to be paid online. Accounting and Records under GST___— -equired to keep and maintain all records at his principal Every registered person is place of business. It is the responsibility of the following persons to maintain specified records- © The owner any other place used for storage of goods * Operator of warehouse or godown oF neial year exceeds the « Every transporter ntant or a cost Every registered person whose turnover during prescribed limit (2 crore) will get his accounts aus Ny a accountant. records must be maintained under GST? a final chartered accounUnder Gst = pala ts calsdlnputaanaaie dia set of againat That is, Input CGS Ta Input CGST, sag individually in a Da Recessary that sepa fe arriviaanet This helps the taxpayer is weit 7ST a8 wall at output ¢ Srniving at the net figure of GST payable cnn 8 ot each Following GST accounts are required to be 1. Input CGST. Input CST is ccs tate purck Services or both. Input CGST can be set-om tpt IST ana ta a an be set-off against output IGST . < that order. If taxpayer pays CGST in Government aun tars ‘iiss aha that hat is also called as Tapas 2. Input SGST. Input SGST is SGST paid on intra-state purchases of goods a services or both. Input SGST can be set-off against output IGST an ‘output & ST a order. Any SC Iso called as Input SGgp ST collected in called Output 4 specified order, » aecutut COST, SGST and togp Secounting purposes, it bees oma os output GST should fy ategory of GST and fin ‘88 paid, to be adjusted in next ¢ = intained ST paid on intr, T paid by taxpayer in Government account is Note : It may be remembered that both CGST and SGST are levied at 50% of the az rate. That is revenue is collected equally by Central Government and State Government. If rate of GST is 18%, then CGST levied shall be 9% and SGST levied shall also be 9% ‘ 3. Input IGST. Input IGST is the IGST paid on inter-state purchase of goods and services. IGST paid can be set-off against IGST collected, then CGST collected, and SGST collected, in this order only. If goods and/or services are imported from of country, then also IGST is to paid. If tax payer pays IGST in Government Account is also called as Input IGST. 4, Output CGST. CGST collected on intra-state sale (supply) of goods andlor sera is referred to as Output CGST. 5. Output SGST. SGST collected on intra-state sale (supply) of goods andlor sera is referred to as Output SGST 6. Output IGST. IGST collected on inter-state sales (supply) of goods andlor semis is referred to as Output IGST. 0 COS Yote : In case of inter-state purchase/sale, only IGST is levied. It is not divided in Pee il Peeeciacee For example, if purchases are made and SGS like in case of intra-state purchase/sale. Fo Delhi by a taxpayer in Punjab, it will be subject to IGST only Account Exa not allé = SSN input GST (GST paid) __ a {GST (paid) is to be set-off against output G en (GST collected). However, ther = xin cases where GST paid is not allowed to be set-off as per GST ie ane ‘Accounting treatment of GST paid on purchase shall differ on whether G te set-off against GST collected or not * > (a) In case where GST paid on purchase can be set-off against GS' lea etiirteales, where GST pald on parchates of poods andr sorriccn vas te ser POU, im GST collected on sale of goods and/or services, the GST shall be debited toa te account head i.e,, Input CGST/Input SGSTVInput IGST as may be the case. Till paid rT Tetley iptime, it 6 set-off against GST collected, it shall be shown as an asset in the books of : ee | shoutg ST pal be () In case where GST paid on purchase of goods and/or services cannot be And finaly _etoff against GST collected. Where GST paid on purchase cannot be set-off ate CYele, GsT callected, it shall be debited to the asset head or expense head on which it has been poid. That implies that the GST paid shall be added to the cost of asset or expense made For example, Sandeep pays a membership fee of € 15,500 of the club inclusive of ? 1000 of z Sean ot 8d CGST and € 1,000 of SGST. GST paid on membership fee of the club is not allowed to be CGsqj, _ set-off against GST collected. It means that Sandeep should debit Business Promotion 1 as Inpy Account by * 15,500. Example of Supply (Purchase) of Goods andlor Services on which GST paid is not allowed to be set-off against GST collected. ods andlor ST in that () Membership fees of club, gyms, or any other health services ut SGST, (i) Food and beverages bills. eo (iii) Motor vehicles and conveyances except in certain cases ent. Ifthe (iv) Free gifts to staff. S (0) Travel expenses on personal account. ds and/or (vi) Goods and services for personal consumption. and then (vii) Goods and/or services purchased for sale which are exempt from levy of GST. on Any GST paid on items like above shall add to the cost of that asset or expense unt, 2. Output GST (GST collected) Ls "i "services Whatever GST is collected on sale of goods and/or services shall be set-off against Input GST (GST paid) and then if the balance remains, it is to be paid to government services Therefore, it is a treated to be a liability and. accordingly cred ‘ed to output GST as per ‘ applicable category, ie., Output CGST Account, Output SGST Account or Output IGST servic) “count. Input Tax Credit (ITC) = ae > COST ‘Throughout the chapter till now, we have been using the term seting of again: tel, spade ot ea ST te npr Credit, When you buy a product/serviceGOODS AND SERVICE TAX (og an asset or pay if the balance is outstanding in Output CGST Ave SGST Alc or pay if the balance is outstanding in Output SGST Ave Note : ITC can be claimed only in the order mentioned above A\c or pay if the balance is outstanding in Output IGST Ave = | and only for business purposes. sales made by you, you collect GST, The Act allows you to adjust taxes paid at the time ss y of ” Purchase with the amount of taxes collected and balance of liability of tax (GST collecteg Fi minus GST paid) has to paid to the Government. The mechanism is called utilization op w Input Tax Credit. a & i) For Example 5) G A businessman dealing in items of stationery made following business transactions Purchases Sales us of8 Trem Cost Paid Tem ale T @ @ « (2) | Collected ii) P Pens 1,000 150 Pens 1,500 180 (io ? paper 200 || Paper 2,300 230 he 8 Staplers 180 _| Staplers 2,000 220 yt Total GST on Input 530 Total GST on Output 630 Oe ‘Tax to be paid by businessman on Input less GST on Output (git = 630-530 =2 100 a Taput tax Credit = 530 = Input GST In other words, ITC is Input GST (GST paid). ITC can be claimed in a prescribed order only as per GST Act. The order is presented below Input Credit Mechanism Order z Input CGST input SGST. Input IGST i Sotof against Beech againet |. Setot against a — eee 4 1. Output igsT +| 1. Output iast +{1. Outputicst | 5. | = 6. 2. Output cast 2. Output § {2 ouput cast . La, oupasast] 8 = — 8 10, ‘ = } n Carry forward the Balance | Carry forward the balance | | Carry forward the balance 2 in Input CGST Account as as an asset in input | | as.an asset in Input IGST they are made for non-business (personal) purpos 30 oF for Making exempt supplies, ITC cannot be claimed,TAX (GS! aoe eee Bs Sir ay be reversed in the following cases me ) Non payment of invoices within 180 days U0 Goods destroyed, lst, stolen or written off. Uy Goods given as free samples, gifts, cha Ui Goods and services as may be prescribed and/or services exempt from levy of GST : (i) Supply fo goods/services to UNO; (i) Payment of Electricity and water bills; ) Payment of Salaries and wage: or used for personal purposes re Supply to Embassies of other countries; (v) Health services given by doctors as consultancy (not medicines) (vi) Educational services; (vii) Supply of services to government; (viii) Royalty of Copyright. EEE QUESTIONS EE Order is preseing 3ST 1. What is Goods and Service Tax’ against 2. Is it necessary for all traders to register under the Goods and Services Tax’ 3. What are the taxes that got replaced by GST? 4. How would GST be administered in India? Output IGST 5. What is Central Goods and Services Tax (CGST)? ~__ an 6. What is State Goods and Se Tax (SGST)? autaaiGe=y 7. What is Integrated Goods and Services Tax (IGST)? utput SGST 8. Explain what is Reverse Charge? Wh is Reverse Charge Applicable? 9. What are the benefits of GST? intaining accounts under GST? 10. What are the disadvantages of GST 11, Who is responsible for m: 12, Which Accounts which must be maintained under GST?