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Goods and Services Tax – Mutual Fund Sector


07TH JUNE 2017

THE POWER OF BEING UNDERSTOOD


FINANCE INDUSTRY IS A BOOMING
SECTOR
GROWTH CHART

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BUSINESS MODEL
PRESENT SERVICE TAX REGIME
MUTUAL FUND
Fund
Management
AGENTS
Taxable under service
services
tax on forward charge

AMC
Pays tax on forward
charge for managing Mutual Fund
portfolio services TRUST
Units

SPONSOR DISTRIBUTORS
Liable to pay GST on
Service tax incidence
reverse charge for
on brokerage for
sponsorship services
distribution and on
received
investment advisory
services if made for
INVESTORS
consideration

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GST TAX REGIME
MUTUAL FUND
Fund
Management
AGENTS
Taxable under GST
services
on forward charge

AMC
Pays tax on forward
charge for managing Mutual Fund
portfolio services TRUST
Units

SPONSOR DISTRIBUTORS
Liable to pay GST on
GST incidence on
reverse charge for
brokerage for
sponsorship services
distribution and on
received
investment advisory
services if made for
INVESTORS
consideration

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GST AND APPLICABILITY TO MUTUAL
FUNDS
What is GST?
• Proposed GST is an Indirect Tax levied on supply of goods and/or services
• Comprehensive destination based value added tax on all goods and services in which tax
incidence is ultimately borne by consumers
• Uniform Tax structure across India to substitute the currently fragmented and
cascading tax structure.
• Procedural Simplification due to uniform registration, compliance and administrative
provisions
• GST to comprise of:
• Central GST (CGST)
• State/UT GST (SGST / UTGST)
• Integrated GST (IGST) levied by centre on inter-state transactions and shared
with states.

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Taxes to be subsumed into GST
Central State

Not to be
subsumed Not to be
subsumed
Basic Custom
Duty Entertainment tax
by local bodies
Excise Duty on
petroleum, Tax on sale of
tobacco & tobacco Petroleum &
products liquor

GST
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Input Tax Credit- Current IDT Vs GST
Existing Scenario
Nature of Input Tax Whether credit available to Mutual Fund Distributors?
Excise Duty Available against service tax output
CST No Credit
VAT No credit
Service Tax Available against service tax output
Under GST
Nature of Input Tax Can be Utilized for:
CGST CGST;IGST
SGST SGST;IGST
IGST IGST;CGST;SGST –(In this order)
• SGST can not be offset against CGST and vice-versa
• CGST and SGST of one registered unit cannot be set-off against CGST and SGST of another registered unit

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Major differences : Service Tax Vs GST
# Particulars Present Taxation GST
1 Incidence of Tax Service tax leviable on fund management and CGST , SGST & IGST- Supply of
investment advisory services. Services by agent and Services and RCM on:
distributor are also taxable services. RCM on: • Legal expenses
• Legal expenses • Arbitrator services
• Arbitrator services • Sponsorship services
• Sponsorship services

2 Base for Tax Gross amount charged Transaction Value

3 Types of Taxes Service Tax CGST, SGST, IGST

4 Place of Taxation As per service tax rules, in respect of services Under GST the location of recipient of
provided to account holders and intermediary services determines the taxability. Only
services, the place of provision of service was the if service recipient is located outside
location of the service provider India the place of supply becomes the
location of service provider
5 Powers to levy tax Central Government CGST & IGST – Central Government
SGST - Respective State Government

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Major differences : Service Tax Vs GST
# Particulars Present Taxation GST

6 Threshold Limit for Service Tax Rs. 10 Lacs Rs. 10 Lacs -North eastern states
registration Rs. 20 Lacs- Other states
7 Classification Classification based on SAC More detailed classification and new
codes system of SAC codes have been
notified
8 Registration Service Tax PAN based RC PAN based GSTIN
9 Returns Service Tax Return in form ST – 3 At a minimum, 36 returns per annum
is to be filed on a half-yearly basis need to be filed. An annual return
also needs to be filed.
10 Administration Central Tax with very limited scope Each service now has a state GST
of litigation component if it is in the course of
intra state trade or commerce

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Charging provisions - CGST, SGST and IGST
There shall be levied a tax called GST (CGST/SGST or IGST) on the value
of all supplies of goods / services at the notified rates to be payable by the
taxable person.
Intra-State supplies = SGST & CGST Inter-State supplies = IGST
Rate may be balanced

Location Location
Place of Same Place of Different
of of
Supply State Supply State
Supplier Supplier

Place of Supply (POS) has been defined under the IGST Act
Location of supplier (LOS) has been defined under the CGST / SGST Act

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“Supply”
All forms of supply of goods and/or services such as sale, transfer, barter, exchange,
1 license, rental, lease or disposal made or agreed to be made for a consideration in
course or furtherance of business
2 Importation of service, whether or not in the course or furtherance of business

3 Specified supply made without consideration


1. Permanent transfer/disposal of business assets where ITC availed
2. Supply of goods / services between related persons, or between distinct taxable persons, when made in the
course of furtherance of business. (Except of gift not exceeding Rs. 50,000/- in value in FY by employer to
employee.)
3. Import of services by a taxable person from a related person or from any of his foreign establishment, in the
course of furtherance of business.
4. Supply of goods –
(i) By a principal to his agent where the agent undertakes to supply such goods on behalf of the principal, or
(ii) By an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

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“Supply”
“Services” means anything other than goods, money & securities. Services include
includes activities relating to the use of money or its conversion by cash or by any other
mode, from one form, currency or denomination, to another form, currency or
denomination for which a separate consideration is charged
Transactions deemed to be supply of services
• Any transfer of goods without the transfer of title thereof / Transfer of right to use any goods
• Any lease of land / Building
• Any treatment or process on another person’s goods
• Business assets put to personal use
• Renting of immovable property
• Construction of a complex, building, civil structure or a part thereof (except where consideration received after OC or
occupation)
• Temporary transfer or permitting the use or enjoyment of any intellectual property right
• Development, design, etc. of IT software
• Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act
• Works contract /Transfer of right to use any good/ Supply of any food, article or drink

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“Supply”
Transactions which are neither supply of goods nor a supply of service

• Services by an employee to the employer in the course of or in relation to his employment.


• Services by any Court or Tribunal established under any law for the time being in force.
• Sale of land
• Sale of building *
• Actionable claims, other than lottery, betting and gambling

* Where entire consideration has been received after issuance of completion certificate or after its first
occupation, whichever is earlier.

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Supplier & Location of Supplier
Supplier
In relation to any goods and/or services shall mean the person supplying the said goods and/or
services and shall include an agent acting as such on behalf of such supplier in relation to the goods
and/or services supplied;

Location of supplier of service


Supply made from:
N N Supply made N Usual Place of
Registered place Fixed
from more than 1 residence of
of business Establishment
establishment supplier
Y Y Y
Location of such Establishment most
Location of such
fixed directly concerned
registered place with supply
establishment

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Place of Supply – General Rule
General rule of Place of Supply

Goods Services

Made to Registered Made to unregistered


Location of goods at the Person person
time at which movement
of goods terminates for Location of recipient
delivery to the recipient Location of registered
person where the address on
record exists

Otherwise, Location of
supplier

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Place of Supply of Service – Banking and other financial services

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Place of Supply of Service – Insurance services

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Place of supply for provision of financial services
Location of supplier Location of recipient Category of recipient Place of Supply Intra Vs. Inter Levy of GST

Account Holder –
Location of receiver on
Maharashtra Maharashtra address on records Intra State CGST/SGST
records
available
Account Holder –
Maharashtra Gujarat address on record not Location of supplier Intra State CGST/SGST
available

Outside India Account Holder Location of service


Maharashtra Intra State CGST/SGST
(eg. NRI) provider

Not an account holder


Maharashtra Outside India Location of receiver Export Zero rated supply
– address on record

Not an account holder


Maharashtra Outside India Location of supplier Intra State CGST/SGST
– no address on record
Time of Supply – Services
Tax payable under RCM (Sponsorship)
General Rule
The earliest of the following dates:
Invoice issued within 30 days Earlier of date of issue of
 The date of payment as entered in books of accounts
of provision of service invoice or date of receipt of
 Date of debit of payment in bank
payment
 Date immediately following 60 days from issue of invoice
 If not determinable as per above, date of entry in books
Invoice not issued within 30 Earlier of date of completion of accounts of recipient of supply
days of provision of service or date of receipt of payment In case supplier AE outside India, date of entry or date of
payment, whichever is earlier
Other case Date of showing receipt in
books of accounts by
Supply by vouchers
Continuous Supply of Services
recipient
- Date of issue of voucher, if supply identifiable
- In other case, date of redemption
Due date of payment ascertainable
The date on which payment is liable to be made
Due date of payment not ascertainable
If time of supply indeterminable
Earlier of date of issuing invoice or receiving payment
If periodical return has to be filed, due date of filing return
Payment linked to completion of event In other case, date of payment of tax
Time of completion of event

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Examples related to Time of Supply
Date of receipt of Date of completion of Date of receipt in
Date of Invoice Time of Supply
payment service books of accounts

23 August 2017 27 August 2017 25 September 2017 26 August 2017 23 August 2017

23 August 2017 27 August 2017 17 July 2017 27 August 2017 17 July 2017

31 October 2017 25 August 2017 20 September 2017 26 August 2017 25 August 2017

31 October 2017 25 November 2017 20 September 2017 25 November 2017 20 September 2017
Valuation
Transaction Value to include:

Supplier and  Taxes levied under other statute


recipient not except GST
 Liability of supplier paid by
related
recipient
 Incidental expenses
 Interest or late fee or penalty for
Value of Transaction Price is the sole delayed payment of any
consideration consideration
Supply Value
 Subsidies (except where
provided by Govt.)
 Reimbursable expenditure in
Valuation in following cases to be as per GST Valuation (Determination of the Value of Supply relation to supply
of Goods and Services) Rules, 2017:  Discount / Incentive after supply
1. The consideration is not wholly in money if not as per agreement or ITC
2. Supply between distinct or related persons attributable to discount not
3. Supply made or received through an agent reversed by recipient
4. Supply of service in case of pure agent
5. Supply where consideration received in foreign exchange
6. Certain other supplies

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GST Rate Structure: Services

Services by
RBI/IRDA and Transportation
SEBI 0% 5% services

Proposed Business class


GST Rate
Structure 12% air travel

All services
Entertainment
events and 5
star dining
28% 18% under MF
ecosystem
come in 18%

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Classification of Services under GST
SAC code number Description Rate
under
GST
997131 Pension services 18% with full Input tax credit
Life insurance services (excluding reinsurance
997132 18% with full Input tax credit
services)
997133 Accident and health insurance services 18% with full Input tax credit

997134 Motor vehicle insurance services 18% with full Input tax credit
Marine, aviation, and other transport insurance
997135 18% with full Input tax credit
services
Freight insurance services & Travel insurance
997136 18% with full Input tax credit
services
997137 Other property insurance services 18% with full Input tax credit
Other non-life insurance services (excluding
997139 18% with full Input tax credit
reinsurance services)

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Classification of Services under GST
Service Description Rate
code
under
GST
Brokerage and related securities and commodities services 18% with full Input tax
997152
including commodity exchange services credit
18% with full Input tax
997153 Portfolio management services except pension funds
credit
18% with full Input tax
997154 Trust and custody services
credit
18% with full Input tax
997155 Services related to the administration of financial markets
credit
18% with full Input tax
997156 Financial consultancy services
credit
18% with full Input tax
997157 Foreign exchange services
credit
18% with full Input tax
997158 Financial transactions processing and clearing house services
credit
18% with full Input tax
997159 Other services auxiliary to financial services
credit

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Input Tax Credit
 Entitled to claim credit of input tax admissible on inward supplies which are used or intended to be
used in course or furtherance of business.
 Condition of making payment to supplier within 180 days of issue of invoice
 Depreciation (on tax component) and ITC cannot be availed together on capital goods
 No ITC in respect of any invoice for supply after:
Filing return for the month of September following the end of
F.Y. to which such invoice or invoice relating to such debit
note pertains Whichever is earlier
OR
Filing of annual return
 Reversal of credit attributable to:
– Non taxable supplies including exempt supplies but excluding zero-rated supplies
– Supply used partly for any other purpose other than business

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Input Tax Credit
Such registered taxable person is in possession of tax invoice, debit note,
supplementary invoice or such other taxpaying document as prescribed,
issued by supplier registered under IGST or CGST/SGST

The goods / services are received. However, In respect of goods received in


ITC lots or installments, registered taxable person shall be entitled to credit upon
receipt of last lot or installment
entitled
The tax charged in respect of such supply been paid to the credit of
only if: appropriate government either by cash or utilization of input tax credit (except
where ITC availed on provisional basis)

The return has been filed

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Input Tax Credit – Non Admissible Credits
Motor vehicles and other conveyances except when they are used for
(a) For making the following taxable supplies: Further supply of such vehicles or conveyances;
or Transportation of passengers; or Imparting training on driving, flying, navigating such
vehicles or conveyances
(b) For transportation of goods

Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic
surgery except where such inward supply of goods or services of a particular category is used
by a registered taxable person for making an outward taxable supply of the same category of
goods or services

Membership of a club, health and fitness Centre


Rent-a-cab, life insurance, health insurance except where the Government notifies the services
which are obligatory for an employer to provide to its employees under any law for the time
being in force
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Input Tax Credit – Non Admissible Credits
Travel benefits extended to employees on vacation such as leave or home travel concession

Works contract services when supplied for construction of immovable property, other than plant
and machinery, except where it is an input service for further supply of works contract service

Goods / services received by a person for construction of an immovable property on his own
account, other than P & M, even when used in course or furtherance of business.

Goods / services on which tax has been paid under composition scheme

Goods / services used for personal consumption

goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples

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Input Tax Credit – Electronic Credit Ledger
IGST IGST CGST SGST
credit
CGST CGST IGST SGST
Credit
SGST SGST IGST CGST
Credit
To be utilized in the sequence from left to right

Each registered units and establishments in different states considered as distinct persons

CGST and SGST input tax of one registered unit / one state shall not be allowed to be set-off against the
CGST and SGST output tax of another registered unit / another state

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Input Tax Credit & Returns
R GSTR 9
E Annual Return
G GSTR 2A GSTR 1A
Auto generated inward 31st December of Outward supply not
I supply
next FY
reconciled
S Before 15th of 17th of following
T following month month
E
R GSTR 1 GSTR 6 GSTR 2 GSTR 3
Outward Supplies ISD Inward Supplies Monthly Return
E
D 10th of following 13th of following 15th of following 20th of following
U month month month month
N
I • Invoice to Invoice Matching for ITC
T • In case of discrepancy, the same needs to be rectified by
supplier or recipient
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Registration
 Every supplier shall be liable to be registered in the state or union territory from where he makes taxable supply, if his
turnover exceeds Rs. 20 lakhs (The turnover limit is Rs. 10 lakhs for special category states)

 Every person registered under the existing law, shall be liable to be registered under GST from the appointed day

 Option for separate registration for separate business verticals in same state

 Compulsory registration in case of -

 Persons making any inter-state taxable supply


 Casual taxable persons making taxable supply
 Persons liable under RCM
 Categories of services the tax on which shall be paid by the e - commerce operator
 Non-resident taxable persons making taxable supply
 Persons who are required to deduct TDS
 Persons who supplies on behalf of other registered taxable persons whether as an agent or otherwise
 Input service distributor
 Persons who supply, through e- commerce operator who is require to collect TCS
 Electronic commerce operator
 OIDAR from a place outside India to unregistered person in India
 Such other person or class of persons as may be notified.

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Invoice

A Registered Person in case of

Taxable Supply of Tax payable under Receipt of Changes in value


Exempt Supply or tax payable /
goods / services RCM advance
goods returned

Issue Tax Issue Bill of Issue invoice Issue receipt Issue credit /
Invoice Supply to supplier voucher debit notes
The above documents shall be issued with specified contents and within time and manner prescribed.

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Supply between Related Persons / Distinct Persons
 Related Persons –
 Officers or directors of one another’s businesses;
 Legally recognized partners in business;
 Employer and employee;
 Any person directly or indirectly owns, controls or holds twenty-five per cent or more of the
outstanding voting stock or shares of both of them;
 One of them directly or indirectly controls the other;
 Both of them are directly or indirectly controlled by a third person;
 Together they directly or indirectly control a third person; or they are members of the same family;
 Persons who are associated in the business of one another in that one is the sole agent or sole
distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related

 Distinct Persons –

 Each registered unit


 Establishment in different states

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Supply between Related Persons / Distinct Persons
 Supply between related persons in course or furtherance of business is a supply even if made
without consideration.

 Import of service from related person or his foreign establishment in course or furtherance of business
treated as supply even if made without consideration

 In the case of services from an AE outside India, the time of supply - earlier of the date of debit in the
books of accounts or the date of payment

 Branch Transfer is a supply leviable to GST and provisions of related persons apply.

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Supply between Related Persons / Distinct Persons
Value of taxable supply
Open Market Y
Value
determinable Where the
N recipient is
Value of
eligible for full
supply of like Y input tax credit,
kind and Value of the value
quality
supply declared in the
N
In case of supply of
invoice shall be
services, the supplier
110% of the
Y deemed to be the
may value at reasonable open market
cost
means disregarding
value as per 110% value of goods or
N services
Reasonable Y
and consistent
means

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Reverse Charge Mechanism
 Taxes to be paid under reverse charge in case of -

• Purchase from unregistered dealer


• Import of goods / services
• Notified supply (notification pending)

 ITC available on taxes paid under RCM

 Issue invoice and payment voucher to the supplier in a time and manner and with contents in a
prescribed manner

 Separate provision of time of supply in case of RCM.

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Service under Reverse Charge – Industry specific
% payable % payable
Service Tax
Description of Service by Service Service receiver by Service
Provider Rate
provider receiver
Any person located
Taxable services provided or agreed
in the taxable
to be provided by any person who is Any person who
territory other than
located in a non-taxable territory and is located in a
Nil non-assessee 100% 18%
received by any person located in the nontaxable
online recipient
taxable territory other than non- territory
(Business
assessee online recipient (OIDAR)
Recipient)
Services provided or agreed to be
An individual
provided by an individual advocate or Any business
advocate or firm Nil 100% 18%
firm of advocates by way of legal entity.
of advocates
services, directly or indirectly
Services provided or agreed to be An arbitral
Nil Any business entity 100% 18%
provided by an arbitral tribunal tribunal
Service under Reverse Charge – Industry specific
% payable % payable
Service Tax
Description of Service by Service Service receiver by Service
Provider Rate
provider receiver

Any body corporate


Sponsorship Services Any person Nil 100% 18%
or partnership firm

Services provided or agreed to be


A director of a
provided by a director of a company A company or a
company or a Nil 100% 18%
or a body corporate to the said body corporate
body corporate
company or the body corporate;
Services provided or agreed to be Any person
provided by an insurance agent to An insurance carrying on
Nil 100% 18%
any person carrying on insurance agent insurance
business business.
Transitional Provisions – Open Contracts
Sr. No. Supply Invoice Payment Supply of Services

1 Before Before After Service Tax

2 Before After Before Service Tax

3 Before After After GST *

4 After After Before Service Tax

5 After Before After Service Tax

6 After Before Before Service Tax

* If invoice not raised within time limit (i.e.30 days of completion of service) then Service Tax

Price Revision in pursuance of open contract

 Supplementary invoice, debit note, credit note, etc. to be issued within 30 days of such revision of price
 Deemed to have been issued in respect of outward supply made under GST
 In case of downward revision in price, GST liability to be reduced only if the recipient has reduced the ITC accordingly

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GST Impact on Financial Services Sector

Positive Impact Negative Impact


• Seamless credit across • Overall increase in tax
the ecosystem rate by 3%
• Single rate across the
ecosystem
• Availability of input tax
credit on goods
• Availability of input tax
credit on capital goods

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Thank you
for your time
and attention
Questions and answers?

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