How to Choose the Tax Return Prepare for Your Business

If you are running your business, then you must understand the laws of the state you are working in. It is necessary for you to pay all of your taxes so you can become a responsible citizen. As a business owner, you must file business tax returns and keep yourself on track.

However, most of the people find it difficult to file the tax return and they always need help from a professional accountant or a tax return preparer. If you have no idea how you can manage your business tax returns, then it is recommended to hire a professional who will help you make things better for yourself. You must always choose the tax prepare wisely.

There are multiple factors that you will have to focus on when you are selecting the tax preparer. We have curated few important points for you to focus on so you can choose the right option. Let’s have a look at how you can choose a tax return preparer wisely.

Check the background

Before you go on to choose the perfect option for preparing your business tax returns, you must go through the detailed research process and check the background of the person you are hiring. It is necessary for you to select the highly professional person that will provide you the best service out there. You can do an online background check and check out the history of the person you are about to hire. Make sure that there are not any disciplinary actions or license issues when you are about to hire a tax preparer. By checking out the history of the tax preparer, you will be able to select the perfect option.

Check the qualification of the person

When you are looking to file a business tax return and you are searching for the professional help, then you should always focus on the qualification of the person that you are hiring. The person you are hiring should have a preparer tax identification number and the tax preparer should be affiliated with the professional organization. Moreover, you need to be sure that you are hiring a certified public accountant to help you out with the tax returns of your business. Make sure that the person you are hiring has all the certifications and license to do business with you.

Look for the affordable service

If you have never hired a tax preparer before and it is the first time that you are looking for a professional service, then you must start your research and look for the affordable service provider. The best way to proceed is by contacting multiple options and then compare the options you have. By checking the history and qualifications of the tax preparers, you will be able to get a clear idea of the professionalism. Make sure that you are comparing your options so you can then choose the perfect tax return preparer for your business. It is the best way to proceed so you can come up with a great solution.

Make sure the tax preparer is easily accessible

Another important thing that you must focus on is to find the tax preparer that you can easily access all the time. When you are preparing your business tax returns, then you should get in touch with the tax preparer that you have hired and prepare the returns wisely. It is always necessary for you to choose the tax preparer wisely so you can avoid multiple problems. In case you need to ask something from the tax preparer, you must have access to him so you can ask all the relative questions and discuss things in detail.

Always review the tax return before signing it

Most of the business owners usually forget to review the complete tax return before signing it. If you are about to file a tax return, and you have forgotten to review the return, then it can create problems for you. You have hired a professional service to do the work but you will still have to review the returns so you can check the overall amount you are paying in the taxes and checking the details on the returns. If you are not reviewing the tax return before signing it, then you are making a huge mistake.

Provide the records and receipts

If you want to keep things smooth and you want to avoid any problems while filing your tax returns, then you must provide all the records and receipts to the tax preparer so it can be done without any hassle. Make sure that you are keeping all the record and receipts to avoid all the problems that you are facing. You must provide the tax preparer all the income statements, expense sheets, and all the important receipts so the tax preparer can prepare your tax return in the best way possible.

How to Calculate the Pure Agent Value in GST

Under the Goods and Services Tax (GST) regime, if you supply goods/services to someone as a pure agent, then its expenditure can be excluded from the value of supply. However, before you learn how this system is implemented, it’s important to know what constitutes as a “Pure Agent” exactly.

Pure Agent Under GST

GST defines a pure agent as someone who:

  • Has a contractual agreement with the recipient of the supply to act on their behalf and pay for the costs in the course of supply of good and/or services
  • Neither has an intention nor holds any title to the goods and/or services procured on the behalf of the recipient  
  • Doesn’t use the goods and/or services for their own interest
  • Receives the exact amount incurred for procuring the goods and/or services

To take a simple example, let’s say Mr. A wants to buy new IT equipment for their law firm. They ask their friend Mr. B, who has a good understanding of such products and services, to arrange it for them.

Mr. B purchases the equipment and provides the same to Mr. A along with the bill. In this arrangement, Mr. B bought goods on the behalf of Mr. A, which is why Mr. B will be considered as a “pure agent”.

“Principal” and Validation Rule

GST defines “principal” as the person/party on whose behalf a pure agent procures goods and/or services.

As a pure agent, you can exclude the costs made on the behalf of the “principal”. However, this has to be done under the valuation rule which states that the following conditions must be satisfied first:

  • You have made a payment to a third party on the behalf of the “principal”
  • The “principal” is the only person to use the services procured by you
  • The “principal” is liable to make a payment to the third party from which the services/goods have been procured
  • The “principal” is aware that the supply is provided by the third party
  • You have indicated the payment you have made on the “principal’s” behalf in the invoice separately
  • You have recovered the exact amount you paid to the third party
  • The services procured from the third party are in addition to those provided by you on your own

Pure Agent Value Calculation

The best way to understand how pure agent value is calculated through a real-life example.

Example: Kumar Enterprises is an IT company that provides software solutions to other businesses. One of their products gets tangled up in red tape in a case of copyright infringement. To solve the problem, it approaches a law firm named APC.

APC offers to help at a flat fee of Rs. 60,000. However, as they started working on the case, they had to pay Rs. 5,000 as registration fee for the involved product of Kumar Enterprises from their own pocket. They also had to travel to Delhi from Mumbai for case-related purposes, that set them back by another Rs. 5,000. However, both expenses were approved by Kumar Enterprises and promised to be reimbursed by them as well.

After the case was solved, APC sent an invoice of Rs. 70,000 (60,000+5,000+5,000) to Kumar Enterprises. Now, while Kumar Enterprises will pay the full amount i.e. Rs. 70,000 to APC, they will need to pay GST to the government only on Rs. 60,000 and not the remaining 10,000 as this amount is pure agent value, i.e. expenses incurred by APC on their behalf.  

Note: To be eligible for excluding the pure agent value from the total value of supply, the conditions of the validation rule (given above) must be met.

GSTN Impact on the Businesses in India

It’s no secret that the old taxation system is out, and the new Goods and Services Tax (GST) regime is in. Although it was met with a mixed response at the time of launch, businesses are slowly becoming accustomed to it which is a good sign.

One of the most highlighted features of GST is the GST Network, popularly known as GSTN. But what’s it exactly, and how has it affected the businesses? Let’s find out.

Goods and Services Network (GSTN)

Simply put, the GSTN is a centralized network set up for the businesses so that they can upload invoices, collect and pay taxes, and claim Input Tax Credits.

One of the many reasons GSTN was developed was to improve transparency by encouraging the businesses to maintain and share their records such as tax receipts, invoices, etc. in a digital format. It also aimed at tackling the problem of tax evasion and for the implementation of governmental policies and regulations in an organized manner.

GSTN is regulated by a non-government and not-for-profit company called GST Network Limited. While the government is involved at the administrative front of the system, the company is responsible for the technological front.

GSTN and Businesses

GSTN has had a huge impact on old and new businesses alike. The following points address some of the changes observed in the industry because of GSTN:

Seamless Flow of Taxes

In the past, it would take a long time for the funds to flow from the Central Government to a State Government. Naturally, the latter struggled with the finances, especially during the weakest moments of the economy. Thus, GSTN was designed to solve that problem and it’s going great so far.

Since GSTN is managed by a private limited company that’s solely dedicated to managing and running the network, the control is greatly enhanced and funds can now flow smoothly through various administrations- thanks to its paperless approach.

Easy Tax Management

Another major change that GSTN has brought is, in the area of tax collection and tax regulation. Previously, payment of taxes was complicated as the laws varied on the basis of the states and the size of the businesses. However, GSTN has been able to bring organization and uniformity in the system for the taxpayers and tax authorities alike. Not only it’s become easier to detect tax leaks and tax evasion, administrative costs have also come down greatly as now the same policies will be administered in the center and the states.

Easy Business Registration

Setting up a business was riddled with all kinds of problems in the pre-GST era. For instance, if a company was selling goods or offering services in different states, then it had to register for VAT with every state’s sales tax department, each having varying rules and regulations. Moreover, the owners had to pay procedural fees for each registration and even deal with the Tax- “Babus” who demanded bribes.

Today, a businessperson can register their company easily with the GSTN portal according to rules and regulations that are the same all across the India. Moreover, there are no middlemen to create unfair interferences.

Conclusion

In a nutshell- GSTN has brought a big reform in the business industry. Having no other option, more and more businesses are adopting ethical practices and contributing to the tax revenue. Corruption in the system is also gradually losing its intensity. Thus, it won’t be an exaggeration to say that in the next few years Indian Economy will grow tremendously with GSTN’s impetus.

Consequences of Not Forwarding GST Benefits to Your Customers

It’s been a while since the Goods and Services Tax (GST) regime was implemented all across the nation and the improvements are already apparent. However, the government wants GST to work at all costs. So, taking no chances, it has set up an anti-profiteering clause to check the businesses that are non-compliant in the GST system.

As a business owner, you are expected to pass on the benefit of GST to your customers under the Section 171(1) in the following two manners:

  1. Reducing the Tax Rates on Eligible Goods and/or Services

For the majority of the goods and services, the tax rates have been either dropped or remained close to the previous tax rates. So, you are required to pass on the benefit of the reduced taxes to your customers by offering the same products and services at reduced prices.

For instance, In the older regime, eating out was taxed at about 20% (14% VAT + 5% Service Tax + 0.5% Swacch Bharat Cess + 0.5% Krishi Kalyan Cess). However, under the GST regime, the same is taxed at a flat 18%. So, you are required to adjust the rates of the food items you are selling accordingly.

In some cases, the tax rates have actually increased. For instance, broadband services are now taxed 3% higher than the previous regime (as it jumped from 15% to 18%). So, in this case, you are allowed to increase the rates of your services in this case as well.

  1. Adjusting Prices with Input Tax Credits

One of the biggest changes that GST brought was the elimination of double-taxes. Businesses can now deduct the repeat-taxes by claiming input tax credits on eligible products and/or services. However, you are expected to pass on this benefit to your customers by reducing the prices on the products and/or services offered by you.

For instance, previously you had to pay taxes on the raw materials used for production of a certain item and again when selling the same to the traders.  However, under the GST regime, you can deduct the tax paid on the former from the total tax paid. This benefit has to be passed to your customers in the form of discounts or offers.

Anti-Profiteering Committee

Since GST is a new tax regime, most of the average consumers don’t know about the benefits it has to offer. Thus, it’s possible for the businesses to exploit the system and make excessive profits through exploitation. This why the finance ministry and the GST Council decided to set up an anti-profiteering clause that’s managed by an anti-profiteering committee.

The sole purpose of the anti-profiteering committee is to ensure that the businesses don’t exploit the GST system by overcharging their customers or by not passing on the benefits the regime has to offer.

If you are found guilty of not-passing the benefits to your customers then the anti-profiteering committee can:

  • Order you to reduce the prices of your goods and/or services
  • Ask you to return the benefit amount not passed on to the buyer with an additional 18% interest
  • Penalize you as per its discretion
  • Cancel your registration altogether

The government has authorized the anti-profiteering committee to intervene in the business operations of a company if it has a reason to believe that some unfair practices are involved.

In conclusion, to safeguard your business it’s extremely important that you adjust the rates of your services and/or goods according to the GST benefits available to you. Failing to do so can invite a legal action or possible shutting down of the business altogether.

Impact of GST on Wholesale Market in India

How will GST Affect the Wholesale Market in India?

India is one of the most popular destinations in the retail arena around the world. Thanks to high market potential and low economic risk it is considered as a highly profitable country for the retailers.

Although India provides an ideal atmosphere for doing business, more than 90% of the retail industry is unorganized.  GST regime is expected to change this but at a cost.

The following are some of the major changes that GST will bring in the Indian wholesale market:

  1. High Taxation

In the current taxation system, wholesalers usually buy in bulk and pay in cash. They sell the goods at extremely low profits (about 1% or so) but are still able to generate high revenues due to the scale itself.

One of the reasons why wholesalers are happy with their business in India is because most of them don’t come under the tax radar. They deal with next to no formal paperwork and use cash for transactions for the most part. However, GST will take that comfort away from them.

GST regime is a based on an interconnected system in which manufacturers, wholesalers, distributors, and retailers will need to work in sync to avoid penalties and enjoy the tax benefits it has to offer. So, wholesalers who will come under a tax bracket will have to pay their taxes, or they won’t get business at all. This is because the other entities (distributors, retailers, etc.) in the chain would want to stay compliant to claim input tax credits. Moreover, the GST council is especially determined to check tax evasion under the new taxation system to increase tax revenue.

  1. Stock Problems During Migration

The entire wholesale industry is based on small margins and large inventories. Thus, in an event of cash crunch, stock clearance can become a big problem. In fact, the same happened last year when the government launched the “note-ban” operation. Industry experts believe that the same can happen after GST implementation.

Wholesalers who still have stocks are supposed to pay VAT on them at the day of GST launch as per the existing laws. For their convenience, the government has made provisions that allow them to use the VAT paid as input tax credits in the GST scheme. However, they need to satisfy certain conditions to qualify, which is not possible for every business.

Another problem with the new tax regime is linked to excise duty. Wholesalers who have paid excise duty can receive 100% tax credit but only if they can furnish appropriate invoices. If that’s not the case, they will only get 40% of the excise in the form of tax credits.

  1. Increased Business Costs

To be GST-complaint and avail its benefits, wholesalers will need to maintain and record their transactions, furnish returns, and do a lot more.  Plus, the majority of them will also need to pay higher taxes. So, doing business is going to become an expensive affair.

Since manufacturers can’t do without someone selling their products, they are likely to try helping the wholesalers through better pricing and higher commissions, etc. Distributors, on the other hand, would have already adapted to the GST regime to protect themselves, albeit at a smaller cost. Thus, the manufacturers are likely to start leaning towards direct distribution rather than through wholesale networks- a misfortune for the wholesalers.

For the most part, the life of an average wholesaler is going to be tough under the GST regime. According to industry stakeholders, they will need at least a few months to adapt to the changes and get back on track. However, they will still benefit with an organized system, in the long run, that’s for sure.

GST Bill’s anti-profiteering Clause

GST Bill’s ‘Anti-Profiteering’ Clause: Things You Need to Know

The Goods and Services Tax Council has made several revisions of the Goods and Services Tax model on the basis of the representations provided by the industry stakeholders. These include simplification of work procedures, allocating lower tax slabs to certain goods, elimination of taxes on securities, etc.

One of the most important changes made in the GST model law is the introduction of the “anti-profiteering” clause.  As per Clause 171 businesses are required to pass on the benefits of reduction in taxes and refunds received through input tax credits or otherwise to their customers by lowering the prices of their goods and services appropriately.

Importance of Anti-Profiteering Clause in the GST Regime

Earlier, when Goods and Services tax was introduced in other countries viz. Australia, New Zealand, Canada, etc. they observed a high surge in inflation, albeit for a limited period. This was mainly because of the gaps between the concept and its execution.

GST can only serve its purpose when the entire chain of a business works in sync. So, manufacturers must lower taxes to benefit retailers which must again revise the rates to benefit the consumers.

Even though GST is meant to eliminate the cascading effect of taxes and thus reduce costs of goods and services for the end consumers, the responsibility lies with the manufacturers, traders, and service providers that are a part of the business cycle. The anti-profiteering clause was created to keep this in check and punish those who engage in unfair business practices.

GST Anti-Profiteering Panel

The government has set a five-member anti-profiteering panel with a sunset date of two years. This committee will ensure that the businesses pass on the benefits of tax reduction to their consumers. It will also have the authority to take appropriate action on the non-compliant taxpayers.

The government has released the anti-profiteering rules under the GST regime which will empower the anti-profiteering panel so that they can:

  • Order reduction in prices in accordance with the lowering of taxes under GST.
  • Charge penalties on those found guilty or even cancel their registration on reasonable grounds.
  • Seek return of the undue profits earned from not passing on the benefit of reduced taxes to the consumers along with an 18% interest rate.
  • Recover funds that are not claimed through returns by eligible taxpayers, or in case the taxpayers are unidentifiable. As per Section 57 of SGST and CGST Acts, the recovered amount has to be deposited in the Consumer Welfare Fund.

What Should You Expect?

In the words of India’s revenue secretary Hasmukh Adhia, the government wants the companies to cooperate and hopes that it doesn’t have to use the anti-profiteering “weapon”.

While the government may have noble intentions with its anti-profiteering clause, the end result may be far from the expectations. The authority set for exercising this clause is meant to ensure that businesses don’t generate unfair profits by increasing the prices of goods and commodities arbitrarily. However, it also makes it easier for them to interfere with the businesses unnecessarily. They may force a taxable person to reduce prices at their discretion even if it results in an undeserving loss. Moreover, they can create unnecessary hurdles and affect the flow of business operations with tedious formalities and investigations.

In the past, Malaysia also tried an anti-profiteering and price control law which turned out to be an utter disaster. The initiative backfired and was abandoned shortly as a result. Thus, we can’t rule out the possibility of something similar happening in India too.

Conclusion

For now, the impact of the anti-profiteering clause is open to interpretation and speculation. However, as a business owner, it’s in your best interest to comply with GST regulations and reduce the prices of your goods and/or services in accordance with the provision of input tax credits and reduction in taxes as applicable.

input service distributor under gst regime

Input Service Distributor Under GST Regime

Businesses usually have their network of head offices and branch offices apart from the manufacturing and distribution units all over the country. Without a doubt, the system is intricate and complex to handle at times. To centralise the entire system, and make it simpler in the process, Input Service Distributor (ISD) was created under the CENVAT regime. This entity was responsible for the management and regulation of input tax credits generated by the businesses. However, with the new Goods and Services Tax regime effective now, the role of ITD will slightly change.

ISD Under the Old Regime

An ISD under the old taxation system was a manufacturer or provider of output services. It received invoices as per rule 4A of the Service Tax Rules, 1994 against the purchase of input services. In return, it would issue invoices or bills for the distribution of the credits paid on the service tax

In other words, ISD would receive the service invoices and then distribute the CENVAT available to it to the other manufacturers under a centralised system.

ISD Under the GST Regime

The role of an Input Service Distributor under the GST regime would be similar to that of the old regime, but with a few minor differences.

GST Model Law defines Input Service Distributor as an office of the supplier of goods and/or services that has received an invoice for input services and is authorised to distribute the tax credit to the supplier.

Under the GST regime, an ISD issues the appropriate documents for the distribution of the credit of CGST, SGST and IGST paid on the services and/or goods to a supplier who has the same PAN as the aforementioned office.

Distribution of Tax Credit by ISD under GST

The following explains the applicability of taxes under the GST regime:

  • CGST and SGST: For transactions within the same state
  • IGST: For imports and transactions between two different states
  • CGST and UGST: For transactions within a union territory

Now, an ISD will distribute credits according to the location of the credit receiver and the location of ISD itself. There are two possibilities with this arrangement. These are:

  1. When ISD and the Receiver of the Tax Credits are Located Within the Same State

In this, the ISD distributes the credit of ISGT, CGST, SGST, and UGST based on the tax invoices provided by the recipient.

Let’s consider an example now- Jayanti Enterprises is an Electronics Dealer and a registered ISD based in Jaipur. It has two other units based in Jodhpur and Rewari.

Jayanti Enterprises received an invoice of Rs. 2 lakh on which a GST of Rs. 36,000 was paid (Rs. 18,000 CGST and Rs. 18,000 SGST) from its Jodhpur unit. So, it will distribute the credit of Rs. 18,000 as CGST and Rs. 18,000 as SGST.

  1. When ISD and the Receiver of the Tax Credits are Located in Two Different States

In this, the ISD distributes the credit in the form of IGST. So, considering the same example of Jayanti Enterprises explained above, if it receives the same invoice of Rs. 2 lakh on which a GST of Rs. 36,000 was paid (Rs. 18,000 CGST and Rs. 18,000 SGST) but from its Rewari unit (which is another state i.e. Haryana) then it will distribute the credit of CGST Rs. 18,000 and SGST Rs. 18,000 to the Rewari unit as IGST Rs. 36,000.

To sum it up, the role of ISD is not much changed from that of the old regime to the new GST regime. However, apart from the few major changes given above, one other change is that the ISD under the GST regime will have to file monthly returns by 13th of the following month unlike earlier when they had to file half-yearly returns.

Understanding place of supply

From Editor’s Desk: Understanding Place of Supply

About the Author
Swapnil Gorde
Domain Expert, GST
Swapnil is a tax expert having expertise in direct and indirect taxation for over 15 years. He has been speaking at ICAI conferences on E-governance and has post qualification expertise of more than 20 years. Currently, he is working with
numberz as GST consultant.

To understand the Place of Supply under GST, let us first understand Taxable Event of tax. It is important to know the taxable event under any law because it is the activity which attracts the tax levy. This enables the reader to know when he is liable to pay tax under various law concerned.

So, let us first understand various taxable events in the present tax structure.

Taxable events under current structure

 

From above, you can make out that, for different, laws there are different taxable events and that makes it complicated for the user to understand the law and their implication on his business.

Now under proposed GST structure, there is only one taxable event i.e. Supply of Goods or Services. It is very important, therefore, to understand the place of supply in determining the right charge of tax on supply. The model GST Law lays down the criteria to determine the place of supply. Based on these criteria, you can treat the supply of goods or services as either Intra-State (within the State) or Inter-State (Outside the State).

The location of Goods supplied or Service provider will decide which tax to levy. Based on place of supply, one will able to determine whether to charge CGST & SGST or IGST. So, it is very important for dealers to identify the place of supply.

There are two important components which determine the which tax to be charged for.

  1. Location of Supplier: Registered Place of Business
  2. Place of Supply: It is registered place of business of recipient.

Let’s now understand how a place of supply will change the taxability under GST with some examples.

M/s Alert Car Accessories & Components Pvt. Ltd., having registered office in Mumbai, Maharashtra, had supplied spare parts to M/s True Value Car Services Pvt. Ltd. has registered place of business in, Pune, Maharashtra.

 

Let’s now consider another Scenario. M/s Alert Car Accessories & Components Pvt. Ltd., having registered office in Mumbai, Maharashtra, had supplied spare parts to M/s True Value Car Services Pvt. Ltd. Having registered place of business in, Hyderabad, Telangana State.

 

Apart from the above example following are also treated as Inter State Supply under GST

  1. Import of goods or services
  2. Export of goods or services
  3. Supply of goods or services to or by a SEZ developer or SEZ unit, even if the supply is within the state.

Section 70 under Model GST Act, make it necessary for the Taxpayer to collect the right amount of Tax. If assessee fails to deduct correct tax, then there will be the penalty which needs to be paid by dealers. The dealer must prove that the place of delivery mentioned is correct, so considering this, a dealer needs to maintain such records of the place of delivery which enables the GST officer to verify the place of supply. Failing which dealer will be liable to pay tax as determined by the GST officer.

E-Way Bills Rules Under GST

All You Need To Know About The E-Way Bill Under GST

Movement of goods in India, especially from one state to another has been a problem since years. The reason? Waybill compliance that’s riddled with all kinds of complexities. However, the Goods and Services Tax is expected to mark a significant improvement with the e-way bills.

Movement of Goods Now

Let’s first understand what happens when goods are transported from one place to another within the same state and when to a different state.

Under the current regime, the state government is responsible for imposing taxes on the intrastate transportation of the goods and the central government is responsible for imposing taxes on interstate transportation of the goods.

To prevent tax evasion and compliant transportation of goods, most states have established multiple check-posts on the national highways and borders. When a transporter arrives at a check-post, they have to furnish certain documents such as waybill, invoices, challan, etc. to receive clearance.

Some states have made compliance easier for the suppliers through digitised procedures. For instance, in Karnataka, e-Sugam is an electronic system that allows the registered dealers to upload the details of the shipments and receive unique IDs in return. The transporters can use these IDs at the check posts for verification and clearance.

Movement of Goods Under GST: Enter e-way Bill

Once GST is implemented, the current waybill will be replaced by the e-way bills which is an electronic waybill.  Taxpayers moving goods worth more than Rs. 50,000 are required to generate e-way bills under the GST regime.

The following are some of the key aspects of the e-way bill:

  1. An e-way bills must be generated when there is a movement of goods of value above Rs. 50,000 by a registered person. However, they or the transporter can carry an e-way bills even if the value of the goods is less than Rs. 50,000.
  2. The following are some of the ways an e-way bills can be generated:
  • A registered person can generate an e-way bills by filling part A of Form GSTINS-1.
  • A recipient of the goods can generate an e-way bills by filling part B of Form GSTINS-1.
  • A registered person who is also a consignor or consignee and goods are handed over to a transporter can generate an e-way bills by filling both part A and part B of Form GSTINS-1.
  • A transporter can generate an e-way bills by filling form GSTINS-1 himself, in case the consignor hasn’t.
  1. Each e-way bills will have a certain validity will be based on the distance travelled by the goods. The following can be referred for the relation between the distance and validity:
  • Less than 100 km: 1 day
  • 100km to 300km: 3 days
  • 300km to 500km: 5 days
  • 500km to 1000km: 10 days
  • 1000km or more: 15 days
  1. While e-way bills are to be generated and cancellated through GSN Network portal, registered taxpayers can also do that through SMS.

An Example of e-way Bills Under GST

  • Trader A hands over goods to transporter T to deliver them to another Trader
  • Trader A enters the details of the stock and the transporter in Part A and Part B of Form GST INS 01 respectively.
  • Transporter T generates an e-way bill using the details from Part A of Form GST INS 01.
  • As the e-way bill is generated, a unique e-way bill number (EBN) is shared with A, T, and B.
  • B can now accept or reject the goods mentioned in the e-way bill. If no response is given in 72 hours, the consignment is considered accepted.

E-way bill is designed to make compliance of transportation of goods easier and to prevent tax evasion. So, for a smoother transition to GST, it is best that you get around the e-way bill system as soon as possible.

Impact of GST on service providers

GST Impact on Service Providers

The Goods and Services Tax is all set to be rolled out on July 1. Needless to say, both manufacturers and service providers are anxiously waiting for the same.

On one side, there are concerns about increased compliance burden, and on the other side, there are expectations of simplicity and excellent features such as input tax credits.  But how exactly will GST impact the service providers? Let’s find out.

The Good:

The following are some of the positive changes that GST will bring for the service providers:

Credits of CENVAT, Repairs, and Maintenance

In the current regime, VAT and CST paid on the inputs are added to the costs of the service provider and thus increase the cost of services for the end customers. However, under the GST regime, a service provider will be able to claim input tax credits as IGST and SGST/CGST. This will allow them to offer lower service rates to their customers.

Similarly, under the current regime, services providers can claim credits for only the input services. However, under GST they will be able to claim credits for the repair and maintenance costs of machinery and equipment as well.

Elimination of Double Taxation in Works Contract

A works contract is already complex in the current taxation system. In this, there is a transfer of goods as a part of the service contract, which means the invoice contains both the value of the services provided and the value of goods/materials used.

As a works contract involve both goods and services, it attracts VAT and Service Tax both which are levied on 70% of each (total becomes 140%). However, GST will consider both as just a supply of service, and thus a single tax will be levied.

Composition Scheme

Service providers that have a small annual turnover (less than 50 lakhs) will be able to enjoy small tax rates in the form of composition levy. This is to promote the growth of small businesses and services providers in the country.

The Bad:

Although GST is designed to provide as many benefits as possible to the service providers, there are potential drawbacks of the same as well:

High Rate of Taxes

The service tax in the current regime is 15%. However, in GST there will be four tax slabs- 5%, 12%, 18%, and 28% which is applicable to high-end restaurants, hotels, race club service providers etc. Thus, these service providers will have to pay a high rate of tax.

Returns Burden

Service providers will need to file as many as 37 returns every year from each of their service locations. This is a far cry from the current regime under which most providers have to file only 2 returns per year.

No Centralized Registration

There is no concept of centralized registration for business locations in different states. Thus, a service provider will need to get his business registered for every state they have a business facility in.

Anti-Profiteering Risks

GST comes with an “anti-profiteering” clause which empowers the tax inspectors to take measures against businesses who don’t pass on the benefit of input tax credits to their customers. However, it’s possible that the officers misuse the same and create a hindrance for the businesses instead.

Conclusion

GST is expected to make some things simpler, and some things complicated. However, it will certainly improve the system by eliminating the cascading effect, and several types of taxes (luxury tax, service tax, VAT) that create complications. If you are a service provider yourself, then you can certainly make the transition smoother by doing your homework in advance and start the preparations.