Effect of taxes change after implementation of GST

How Will the Taxes Change After GST Implementation?

There are no two ways about the fact that GST will change the course of the Indian economy. Not only it will make taxation a lot simpler and easier, it will also help prevent tax evasion. But how exactly will it change the current taxes regime? Let’s find out.

The Goods and Service Tax will follow a dual taxation system in which there will be just two kinds of taxes:

  1. SGST (State GST): Levied by the State Government
  2. CGST (Central GST): Levied by the Central Government

The Central GST will subsume the following taxes:

  1. Service Tax
  2. Central Excise Duty
  3. Additional Excise Duty
  4. Countervailing Duty (CVD)
  5. Additional duty of customs
  6. Education and Secondary/Higher Secondary cess, surcharge

The State GST will subsume the following taxes:

  1. Sales Tax/VAT
  2. Entertainment Tax
  3. Luxury Tax
  4. Lottery, betting, and gambling tax
  5. Purchase Tax
  6. State surcharge and cesses

GST 4-Tier Tax Structure-

Although GST is all about “One Country One Tax”, or in other words- it will ensure that the same tax is applied in every Indian state, it will follow a 4-tier tax structure.

There will be four different rates under GST viz. 5%, 12%, 18%, and 28%. The lower rates will be levied on essential everyday items, while the higher rates will be implemented on luxury items and demerit goods. In fact, the latter will also attract an additional cess, as decided by the GST council.

Zero Tax Rate:

Keeping affordability in mind, it has been decided that about half of the items belonging to the consumer price index basket like food items such as rice, wheat etc. will be levied a zero-rate tax.

5% GST:

The majority of mass consumption items such as tea, mustard oil, spices, etc. will be levied a 5% tax under GST.

12% and 18% GST:

The 12% and 18% slab will be more of a standard rate and cover the majority of items consumed by an average individual. Examples include toothpaste, soaps, electronics, etc.

28% GST:

The 28% tax slab is reserved for the luxury and non-essential items consumed by the people. These items will also attract an additional cess levied by the Central Government. Examples of some items that will be covered under it include luxury cars, tobacco products, gold, etc.

Taxes Under Composition Scheme

Small businesses whose annual turnover is less than Rs50,000 will be eligible for the composition scheme under GST. Under this scheme, they will have to pay smaller taxes- rates 2%, 1% and 5% for small manufacturers, small traders, and small restaurants, respectively. However, on the downside- they won’t be able to claim ITC (Input Tax Credit).

Taxing of Inter-State Transactions of Goods and Services

The Centre will levy and collect a special form of GST called the Integrated Goods and Services Tax (IGST) for inter-state transactions. This will be the sum of CGST and SGST. Thus:

ISGT= CGST+SGST

Taxing of Imported Goods Under GST

The taxes Special Additional Duty (SAD) and Countervailing Duties (CVDs) that are being applied on imported under the current regime will be subsumed under GST. Thus, instead, IGST will be levied on them. This will be beneficial for the importers in India as they will be able to claim their share of the IGST paid on the goods, as opposed to the current regime in which there is no such provision.

It goes without saying that there will be a slew of changes in the current taxation system once GST is implemented. However, by preparing in advance the businesses will be able to adjust with the transition easily.

Software can make GST transition easier for the businesses

How Can Technology Make GST-Transition Easier for the Businesses?

GST has become a buzzword today, as businesses anticipate its effect on their profits and the consumers wonder whether they will have to shell out more money for their purchases. However, the government is confident that the reforms will be beneficial to everyone.

Now, even though the general consensus is that GST will help curb tax evasion and make taxation system simpler, there is a lot of confusion. The government has tried its best to be transparent about the changes that business owners should expect with GST implementation. However, they have not succeeded so, at least apparently.

For instance, many business owners don’t know what a supply constitutes to? Or how will they file returns or use input tax credits? Well, much of this can only be cleared once GST is implemented and the gears start grinding. However, switching to GST-friendly software can certainly help with the transition, at least to some extent.

How Tax Computing is Done Today

Most of the competitive enterprises use an Enterprise Resource Planning (ERP) software which runs on a real-time basis and offers a suite of integrated applications that the enterprise can use for managing, recording, and updating the data obtained from all kinds of business activities. The software, being tailored for the country’s regulations and compliance standards, makes the calculation of taxes and expenses, and receiving payments from the clients easier and simpler.

How GST Will Impact ERPs

Enterprises that are using old ERPs won’t be able to adapt to the Goods and Services Tax regime as easily as those that are using GST-friendly business suites. This is because GST is not just not one reform or one tax, it’s a complete overhaul of the current taxation system.

Once GST is launched, there will be no VAT for goods or Service Tax for services. The taxes won’t vary from one Indian state to another, and all the goods and services will fall into only four tax slabs: 5%, 12%, 18%, and 28%. There are hundreds of categories, dozens of compliance requirements, invoice format changes, and more. Clearly, a traditional pen and paper based management system won’t survive one day under the new regime, especially because GST is a completely electronic system. The invoices have to be recorded in digital formats, and the returns have to be filed through the GST portal. All this can pose a number of difficulties unless you replace your resource planning system with one that’s GST-ready.

The following are some of the ways a GST-ready ERP Software can make the transition to the new regime smoother:

  1. Calculations Made Easier

One of the most important reasons to switch to a good ERP software is that it will make the calculation of sales and taxes easier. There are so many moving parts in the GST system that maintaining accuracy can easily become challenging, if not impossible. Even a seasoned accountant can’t expect to keep records without making an occasional mistake. However, since a single mistake can often result in a disaster, bringing in a GST-ready ERP software can be far more assuring than becoming fully dependent on manual calculations.

  1. Compliance

GST Bill was designed to curb tax evasion and increase transparency in the system through stern compliance standards and regulations. In fact, the government is going to monitor businesses’ activities closely which is why it has already notified about different kind of penalties for non-compliance. In some cases, a taxable person could face jail time too. A GST-ready ERP software will ensure that compliance standards are met, and minimize the risk of penalties or any other kind of legal action.

  1. Record Maintenance

As per the GST regime, a taxable person has to maintain and keep the appropriate records for 5 years from their last date of filing annual returns. These include ITC availed, the stock of the goods, the inward and outward supply of goods and services, etc. Even for a modest business, 5 years’ worth of records can be substantial. A GST-ready ERP system can make keeping records easily, help adapt to digital-only GST system, and also make searching individual entries in the database easier.

India is one of the fastest growing economies in the world, and a portion of the credit goes to the government’s push to digitization. GST is one of the movements for the same drive, and an enterprise can greatly benefit by putting a proper GST-friendly ERP software in place.

 

Time of supply under GST

Time of Supply Under GST

Goods and Service Tax commonly known as GST is basically charged on Supply of Goods and Services. In earlier Indirect Taxes taxable event use to be Sales, Removal, or Provision of Services. However, in GST Taxable event in Supply of Goods or Services. Hence, it is must & Important to understand, when is the supply made by dealer. This is the event which triggers liability of GST payment.

Relevant provisions for Time of Supply has been prescribed under section 12,13 &14 of GST Act. Considering the matter is very complicated to understand, I will try and put the same in very simple layman words. However, the wordings are to make you understand concept of Time of Supply under GST and not the legal purpose.

As we are dealing here with two categories are being supplied by any dealers, Goods and Services so let us discuss both the supplies differently.

Time of Supply in Case of Goods (Section 12)

The time of Supply in case goods is determined earlier of following dates:

  1. Date of Issue of Invoice by Supplier OR
  2. Date of Receipt of Payment against supplies

The liberty has been provided for small dealers whose supply value is less than Rs. 1000/-. They have been provided an option to choose any date we have discussed in (1) and (2) earlier.

The section also explains how one should determine date of receipt of payment by the supplier. Such receipt date should be earlier of following:

  1. Date on which the payment is entered in his books of accounts OR
  2. The date on which the payment is credited to his bank account

Time of Supply where Reverse Charge is applicable

In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earliest of the following dates, namely—

  1. the date of the receipt of goods
  2. the date on which the payment is made
  3. the date immediately following thirty days from the date of issue of invoice by the supplier
  4. date of entry in the books of account of the recipient of supply

Supply by way of Voucher

When supply is made by way of coupons, Redemption voucher to any person, GST is also applicable on the same. The time of supply in such case is earlier of the following:

  1. the date of issue of voucher
  2. the date of redemption of voucher

Overriding provision for all above cases where it is impossible to determine the date of supply by above method date of supply shall be:

  1. In a case where a periodical return has to be filed, be the date on which such return is to be filed
  2. in any other case, be the date on which the CGST/SGST is paid.

To simplify the above, please refer to below diagram to understand the complicated provisions of time of supply.

Time of Supply of Services (Section 13)

Now let’s talk about time of supply of services determined by GST law. The time of supply of services shall be the earlier of the following dates,

  1. the date of issue of invoice by the supplier
  2. the last date on which he is required, under section 28
  3. the date on which the supplier receives the payment

The liberty has been provided for small dealers whose supply value is less than Rs. 1000/-. They have been provided an option to choose any date we have discussed in (1) and (2) earlier.

The section also explains how one should determine date of receipt of payment by the supplier. Such receipt date should be earlier of following:

  1. Date on which the payment is entered in his books of accounts OR
  2. The date on which the payment is credited to his bank account

Time of Supply where Reverse Charge is applicable

In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earliest of the following dates, namely—

  1. the date of the receipt of Services
  2. the date on which the payment is made
  3. the date immediately following Sixty days from the date of issue of invoice by the supplier
  4. date of entry in the books of account of the recipient of supply

Supply by way of Voucher

When service supply is made by way of coupons, Redemption voucher to any person, GST is also applicable on the same. The time of supply in such case is earlier of the following:

  1. the date of issue of voucher
  2. the date of redemption of voucher

Overriding provision for all above cases where it is impossible to determine the date of supply by above method date of supply shall be:

  1. In a case where a periodical return has to be filed, be the date on which such return is to be filed
  2. in any other case, be the date on which the CGST/SGST is paid.

Time of Supply in case of Tax rate changes (Section14)

Considering Normal Scenarios here, for Time of supply, let us now consider situation of Tax rate change. It seems that, law maker has learned a lot from previous history of law. Hence, at the inception itself, they have provided for such situations and how to deal with tax in such circumstances. Following Table will provide you god insight for the same.

PARTICULARS GOODS OR SERVICES SUPPLIED BEFORE RATE CHANGE GOODS OR SERVICES SUPPLIED BEFORE RATE CHANGE
Invoice Issued After Rate Change Before Rate Change After Rate Change Before Rate Change Before Rate Change After Rate Change
Payment Received After Rate Change After Rate Change Before Rate Change After Rate Change Before Rate Change Before Rate Change
Time Of Supply Earlier Of Above Date Of Invoice Date Of Receipt Date Of Receipt Earlier Of Above Date Of Invoice
Applicable Tax Rate Old Tax Rate Old Tax Rate Old Tax Rate New Tax Rate Old Tax Rate New Tax Rate

 

Preparing Tax Invoices Under the GST System

Preparing Tax Invoices Under the GST System

Invoices have always been an important part of business operations. However, as the GST regime is going to be implemented from July 1, the government has laid down new rules and formats for issuing GST-compliant invoices.

By following the correct procedure for the GST invoices, a taxpayer will be able to claim Input Tax Credits, which is one of the biggest reforms in the regime.

Under the GST system there can be two types of invoices, which are:

  1. Tax Invoices

Every businessperson who is registered under GST as a standard taxpayer is required to issue tax invoices for their supply of goods and/or services.

The following is a sample invoice format for the GST tax invoices:

The typical entries that have to be filled in a GST tax invoice are:

  • Your name, address, and the GSTIN number.
  • A consecutive serial number that doesn’t contain any special symbols (alphabets and numbers only) and is different for every financial year. For instance, for the financial year 2017-2018, you can use 2017NameOfCompany.
  • Issuing date.
  • The total value of the goods and services.
  • The rate of tax levied (CGST, SGST, or IGST).
  • Place of supply and state name, in case supplied to someone in another state.
  • Description of the goods and services.

Every invoice for the supply of goods has to be issued when:

  • The goods are removed from your place (if the goods are supplied to some other place)
  • The goods are given to the buyer (if the goods are sold at the same place)

Every invoice for the supply of services has to be issued when:

  • Within 30 days from the date, you have supplied the service.
  • Within 45 days from the date, you have supplied the service (if you are a bank or NBFC).

Copies of Invoices

If you are supplying goods then you will have to make two copies of the original invoice:

  • Duplicate- for the transporter of your goods.
  • Triplicate- for yourself.

Of course, the original invoice will be issued to the buyer/recipient. If you are supplying services then you will have to make only one copy for yourself, and the original one will be issued to the buyer/recipient.

  1. Bill of Supply

If you are not liable for GST registration but have opted for the GST composition scheme, then you have to issue a bill of supply instead of a tax invoice. The same is also to be issued when you are supplying exempted goods and/or services. The typical entries that have to be filled in a GST bill of supply are:

  • Your name, address, and the GSTIN number.
  • A consecutive serial number that doesn’t contain any special symbols (alphabets and numbers only) and is different for every financial year. For instance, for the financial year 2017-2018 you can use 2017NameOfCompany.
  • Issuing date.
  • The total value of the goods and services.
  • Accounting code (in the case of services) or HSN code (in the case of goods).
  • Place of supply and state name, in case supplied to someone in another state.
  • Description of the goods and services.

How to Fix Mistakes in Issued Invoices?

You are allowed to rectify errors in the invoices issued by you through credit and debit notes. You can provide the tax and value details of the concerned goods and/or services through these notes which are already given in GSTR-1 and GSTR-2.

While a debit note has to be issued when a short tax is charged (smaller than the applicable tax), a credit note is issued when an excess tax is charged.

Understanding the new invoice formats and regulations is important for every business to become GST-ready. If you haven’t learned about these yet, then it’s best to familiarize yourself as soon as possible.

Transfer Your Existing Input Tax Credit to the GST System

How to Transfer Your Existing Input Credits to the GST System?

The introduction of the GST regime has left many businesses, especially the SMEs in bewilderment. There are many doubts concerning how it will affect them, and one of these is the migration of the input tax credit from the current VAT or Service Tax system to the new GST system.

Transfer of Credits

The GST taxation system allows a taxable person to collect the credits of the taxes paid by them in the current regime and carry them to the new regime. However, you will need to show a proof of your last return filed under the previous regime.

For instance, since the implementation date for the GST regime is July 1, 2017, you must make sure you have taken the account of your stock you have with you on June 30, 2017.  This way, you can claim the input credits when you will file the returns for the period ending on June 30, 2017.

Central Excise Credits

You can carry forward the balance of your CENVAT credit to the GST regime. However, the closing balance of the credit must reflect in the last return filed by you.

Let’s consider an example. Say, you are an electronics manufacturer in Mumbai and registered under the Excise and Maharashtra VAT. Let’s assume you have a CENVAT closing balance of Rs. 30,000 on March 1, 2017. So, the question is- can you transfer this balance credit in the new regime? The answer is both “yes” and “no”.

The answer is “yes” if you can meet the two requirements:

  • Your returns filed under ER-1 must show the CENVAT balance
  • The transfer must be allowed as per GST’s Input Tax Credit system

For CENVAT, the input tax credit will be called CSGT credit.

Service Tax Credits

In the current regime, a service provider has to inflate the prices on the basis of the following taxes that are levied:

  • A standard service tax of 14%
  • Krishi Kalyan Cess of 0.5%
  • Swachh Bharat Cess of 0.5%

However, the input tax credit facility is available only for Krishi Kalyan cess and Service Tax. If you want to carry forward these input credits then you must file your returns under Form ST-3. The closing balance of the service tax input credit will be transferred to the GST regime as CGST input tax credit.

Value Added Tax (VAT) Credits

Businesses that are registered under VAT have to file returns on a monthly as well as a quarterly basis. Just like in the case of Service Tax and CENVAT, you can carry forward the balance of input VAT credit to GST regime as SGST input tax credit.

Let’s take an example. If your business’s VAT Form 100 reflects credit forwarded as Rs. 10,000 as of March 31, 2017, then your input VAT credit balance is also Rs. 10,000. Again, you are entitled to carry forward this balance if your returns reflect this balance and if GST approves it as input tax credit. If both conditions are met then you can transfer the credits as SGST credit.

In all the three instances that are given above, you are allowed to transfer your pre-GST input credits to the GST regime if you meet the following requirements:

  • You must be eligible for claiming Input Tax Credits under GST
  • You should have all the invoices or other relevant documents regarding the closing stock of the inputs that you want to claim input tax credits for.
  • The invoices must not be older than 12 months from the date of GST migration.
  • The benefit of transferred credits must be forwarded to your customers through reduced prices.

As the date of GST roll-out is coming closer, it’s important that you prepare accordingly. Delaying the same can rob you of the benefits that can claim now.

E-Ledgers Under GST

E-Ledgers Under GST: Here’s What You Need to Know

GST is all about transparency, simplicity, and growth. However, adopting digital technology is a must for all of these. This is why GST Model Law will ensure that the records of all the transactions, generated invoices, refunds, tax credits, etc. are maintained online. This resulted in the need of e-ledgers.

A taxable person who comes under GST regime has to create an account on the GST portal. Once this is done they will get access to three e-ledgers:

  • e-cash ledger
  • e-credit ledger
  • e-liability ledger

But what are these ledgers, and how do they work? Let’s take a look at them, one at a time.

e-Cash Ledger

The e-cash ledger will reflect your payments towards tax, penalty, interest, etc. You can make these payments through any of the following modes:

  • Debit or credit card
  • Internet banking
  • NEFT or RTGS
  • Over the Counter (OTC) payment for amounts up to Rs. 10,000 in cash, or through DD or cheque

e-Credit Ledger

All the input credits under the main heads i.e. SGST, CGST, and IGST will be credited to the e-credit ledger. In other words- the total amount of tax payable will be reflected in this ledger. However, if you will claim refunds through input tax credits, the appropriate amount will be debited from it.

Note: you will be allowed to use the balance of this ledger for the payment of taxes only. For other payments such as interest, fee, etc. you will have to use e-cash ledger.

e-Liability Ledger

The e-liability ledger will reflect your tax liability for a particular month after final netting is done. It is also auto-populated.

To understand how all the 3 e-ledgers will work in reality, let’s consider an example:

  • S is a supplier who has to file the GST return for a month. So, he/she will use the form GSTR 1 and add the details of outward supplies for the month.
  • B is the buyer who will find the details of the supplied filed by S in the form GSTR 2a.
  • S will check his/her e-ledger to find out their tax liability and the payment of the same. He/she will check the e-liability ledger for checking the tax amount liable to him and e-credit ledger to see if he/she has enough credits for the payment of CGST, SGST, and IGST. If there are, he/she will pay the taxes using the same. If not, then he/she will use the e-cash ledger to pay the taxes through any of the modes mentioned above.

Note: It seems there is no provision for cross adjustments in the GST scheme. So, you can pay CGST only from the CGST balance, IGST only from the IGST balance, and SGST only from the SGST balance in your e-credit ledger.

Summing it Up

To simplify the entire system:

  • e-cash ledger is for recording your payments, taxes, fees, etc.
  • e-credit ledger is for reflecting your SGST, CGST, and IGST credits available through ITC (Input Tax Credits) which you can also use for paying these taxes.
  • e-liability ledger is for showing your tax liabilities in an easy and simple manner.

Understanding the working of all these three e-ledgers is important to move to the GST regime smoothly. If you have a strong grasp of the basics, that’s enough to get you going when the Goods and Services Tax is rolled out on 1st July.

Composite supply and Mixed supply under GST

What is Mixed Supply and Composite Supply in GST?

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GST is different than the current taxation system in many ways. However, one of the biggest changes is what constitutes as a taxable event. Talking about today, while the taxable event for VAT is the “sale of goods”, and of Service Tax is “provision of taxable services”, and of Central Excise is “removal of excisable goods”, GST has just one, which is “supply of goods and/or services”. Once GST is implemented, the concept of manufacturing, selling, etc. will be eliminated from the taxation point of view. Instead, the focus will be only on the “supply” of goods and/or services.

Supply in GST

While the concept of “supply” is fairly easy to understand in GST, there are two categories of the same which may be somewhat confusing for an individual.

These are:

● Composite supply

● Mixed supply

Understanding the difference between the two is important as it will help you determine how GST is levied in both cases.

Composite Supply

Composite supply is not something that’s entirely new. It’s similar to the concept of bundled services under the Service Tax Law. As per GST Act, Section 2(30), composite supply means a supply of two or more goods/services in a bundle, in which one is the principal supply (the predominant or primary item in the bundle).

For a supply to be considered as a composite supply the following two conditions must be met:

● It should comprise of 2 or more goods and/or services

● It should be a natural bundle. In other words- the goods and/or services

In the bundle should be provided together in the normal course of business and can’t be separated.

Since in a composite supply there are multiple items which may attract different GST rates, the bundle is taxed at the rate of the principal supply.

Let’s consider an example:

A hotel offers a 3 days-2 nights package under which food is also covered. Now, let’s say the rate of GST for accommodation is 28%, and that for food is 18%.

Since the whole package is supplied as a natural bundle, and the principal supply is the accommodation, the rate of tax levied on the entire bundle would be 28%.

Mixed Supply

As per GST Act, mixed supply is a supply of two or more supplies of goods and/or services that are combined together for a single price. However, unlike composite supply (refer the second condition), here the supplier can sell both supplies individually too.

In a mixed supply, the rate of tax on the bundle is determined by the item that has the highest rate of tax.

Let’s consider an example:

A trader is selling pastries, cakes, and namkeen in a bundle. This would constitute as a mixed supply because it’s possible for the seller to sell these items separately. Now, since pastries and cakes attract an 18% GST rate, and namkeen a 12% GST rate, the rate applicable on the complete bundle would be 18% (it being the highest).

If you are going to sell goods/services under GST regime then you can bundle them in a way that you can get the maximum benefit. And of course, understanding the types of supply- composite and mixed is essential for that.

GST Impact on Tourism and hospitality Industry

GST Impact on Hospitality and Tourism Industry

The tourism and hospitality industry is very diverse. It encompasses a variety of elements including food, entertainment, accommodation, and services like spa, yoga, etc. for the visitors/travelers.

Needless to say, there is a lot going on here, and now that the government has finally issued taxation slabs under the GST bill, the impact of the same on the tourism and hospitality industry would be a major one.

So, what are the exact changes that one must expect? Let’s find out

Industry Now

In the current taxation system, there are three main types of taxes that the hospitality industry has to pay:

  1. Value Added Tax, or VAT

VAT is usually applicable on food bills only. However, a hotel owner may include it with the room rent if the customer has also ordered food from them during their stay.

The rate of VAT varies from one state to another and is levied on the total bill amount (which may or may not include service charges). It typically ranges from 12% to 14.5%.

  1. Luxury Tax

The Luxury tax is levied on the room rent and just like VAT, it varies from one state to another. The rate also varies on the basis of the rent a hotel charge per day.  For instance, for a hotel in Delhi, there is no luxury tax applicable if the rent per day is less than Rs. 750. However, a rate of 3% is applicable if the rent is higher than Rs. 750 but lower than Rs. 1000. Similarly, a 10% rate is applicable if the rent is higher than Rs. 1000.

  1. Service Tax

Hotels where the room rent is more than Rs. 1,000 per day a service tax of 15% is applicable. However, a relaxation of 40% if allowed which makes the actual tax about 9%.  Service tax is also applicable on food and beverages served in the hotel. However, they are two separate categories with two different rates.

Industry After GST

One of the biggest problems that the hospitality industry has been facing since a long time is the bifurcation of goods and services. This is because hotels tend to offer service (rooms for rent) and goods (food and beverages) both. However, GST will bring standardization and uniformity by considering goods and services as the same.

Since GST has the provision for ITC (Input Tax Credits), the hospitality industry will be able to offer lower rates, and it will help attract more tourists in comparison to other neighbor countries.

With multiple taxes subsumed into one, calculation of taxes will become easier. Moreover, tourists will see only a single tax on their bills, which will help them get a better idea of what they are paying for. They will also save time as preparing bills will be easier.

Even though the government is certain that GST will have a positive impact on the hospitality industry, many people are rather upset. The following are some of the reasons why:

Varying Tax Liabilities

The GST Council has set a GST rate of 18% for air-conditioned restaurants and 12% for non-air-conditioned restaurants. A 12% rate has been fixed for hotels when the room rent is between Rs. 1,000 and Rs. 2,500. 18% when it’s between Rs. 2,500 and Rs. 5,000, and 28% when it’s higher than Rs. 5000. Thus, while the rate burden is reasonable for the budget hotels, for the luxury hotels it could be a lot.

Increased Competition with Other Countries

The tax rates in other popular tourist destinations in Asia are quite low.  For instance, in Singapore and Japan, the tax rates are 7% and 8% respectively. However, the lowest tax slab for hotels in India is fixed at 12% which could put a dent in the country’s tourism industry.

At this point, it’s unclear how GST will impact the tourism industry exactly. While it may bring a financial challenge for the luxury hotels, the budget hotels that are paying a high tax under the current regime may benefit from the fixed 12% rate. At any rate, GST will make taxation simpler, transparent, and easier. For the actual results, however, we will have to wait and observe.

 

Consequences for GST taxpayer on Non-Compliance

Is it ok if I don’t Register for GST? What are the Consequences of Non-Compliance?

One of the many reasons behind the implementation of the GST Model Law is to prevent tax evasion and make the system more transparent. Thus, the government will take stringent measures against those who will be found non-compliant with the set regulations. 

To better prepare against non-compliance, the center is also establishing several departments that will handle business intelligence, analytics, etc. The current tax department will also be bolstered in according to the new GST regime. Thus, if you are liable to register for GST then you must absolutely get your business registered if you don’t want to face any kind of legal action.

Penalties Under GST 

You are liable to pay a fine up to Rs. 10,000 or more if you have been found guilty of any of the following:

  • Obtaining tax refunds through fraudulent ways.
  • Supplying goods and/or services without releasing invoices.
  • Releasing invoices without supplying the goods and/or services.
  • Providing false registration information, invoices, etc.
  • Not paying the tax collected within 3 months.
  • Forging financial details such as profits and supply of goods, etc.
  • Misrepresenting annual turnover with an intent of tax evasion.

Although the penalties imposed under the GST regime are stringent themselves, a taxpayer may also need to do a jail time under some serious offenses. These are discussed below.

Imprisonment Under GST

The following are some of the conditions that can actually cause imprisonment:

  1. If a taxpayer is found to be tampering with evidence or obstructing any officer in carrying out their duties, or withholding any information that’s required from them as per the law then they can face imprisonment of 6 months with fine.
  2. If a taxpayer is found guilty of tax evasion or wrongly availing the Input Tax Credit then they can face imprisonment and a fine according to the following structure.

 

  • Imprisonment up to 1 year with fine if the amount of tax evaded or wrongly claimed ITC lies between Rs. 50 lakhs and Rs. 1 crores.
  • Non-bailable imprisonment up to 3 years with fine if the amount of tax evaded or wrongly claimed ITC lies between Rs. 100 lakhs and Rs. 2.5 crores.
  • Non-bailable imprisonment up to 5 years with fine if the amount of tax evaded or wrongly claimed ITC is more than 2.5 crores.

To ensure that a proper flow is maintained in the GST system the government has also decided to charge late fees. So, for every single day that has passed since the due date for furnishing details of inward or outward supplies, a taxpayer will need to pay Rs. 100 with the maximum total amount being Rs. 5,000. Similarly, Rs. 100 will be charged for each day that is passed after the due date for furnishing the annual return with the maximum total limited to 25% of the taxpayer’s annual turnover.

Conclusion

GST is one of the biggest government’s moves to tackle tax evasion and corruption in the country. Thus, you must ensure you are compliant with the set standards and regulations. Besides, by doing so you and your customers will both be benefited by saving money and contributing towards the betterment of the country.

Impact of GST on traders

GST Impact on the Traders in India

The Goods and Services Tax will bring several changes in almost every industry in India. However, the manufacturers and traders will be affected by it the most.

The following are some of the most important changes that the traders will need to wrap their head’s around with:

Goods vs Services

One of the biggest reasons why the current tax regime is so complicated is because there are frequent disputes on certain transactions as to whether they should be categorized as goods or services. Creating invoices is also difficult for the traders for the same reason as two separate rates are charged for goods and services. However, since GST will consider both of these equally and levy the same charge on both, it will make doing business a lot simpler and easier.

Common Market

At present, goods are mostly sold within the state to prevent the CST and entry tax. However, once GST is implemented, traders will be able to sell their products to the farthest corners of the country without worrying about taxes, as there will be no entry tax or CST.

Entry Tax

The business industry has to deal with great losses in the current system because the trucks responsible for goods transportation waste a lot of time at the check-posts. In fact, it has been found that long-distance trucks are parked 60% of the time.

Since GST aims at eliminating the practice of tax collection at the borders, it will benefit the businesses in two ways:

  • They will save money on the border tax.
  • They will be able to deliver goods to their customers faster and thus improve business efficiency and also minimize transportation costs.

Rate of Tax

The GST regime will follow a four-tier tax structure of 5%, 12%, 18% and 28%, with lower rates for the essential goods and higher rates for the luxury goods. In fact, for the essential items such as food, a zero rate will be levied. On the other hand, luxury items such as tobacco and aerated drinks will be levied an additional cess apart from the base rate itself.

To extend relief to small traders, the Goods and Services Council has also settled for the rates 2%, 1% and 5% for small manufacturers, small traders, and small restaurants, respectively. These entities will come under the new Composition scheme, the eligibility criteria for which is an annual turnover of less than Rs.50 lakhs.

Input Tax Credit

One of the most anticipated reforms of GST is Input Tax Credit which allows the traders to claim the repeat tax paid by them. However, there are a few challenges to this system. For instance, if a trader has paid a repeat tax to their supplier then they can claim a refund (credit) only if the supplier paid the tax themselves. Since there is a chain of vendors, manufacturers, and traders in the process, they all have to comply with the GST law and pay taxes so that the eligible taxpayers can claim input credit.

GST will make invoicing, filing of returns, and registration electronic, and the traders will have to deal with these by entering information through their accounts via the Internet. Although some of the traders and small business owners might not be happy with the implementation of digitization in terms of the same, replacing the traditional way, it’s in their best interest to adapt accordingly.