Four GST Bills
Introduced in Parliament
· Countdown to “Most
Disruptive Law” Begins
Finance
Minister Arun Jaitley moved four GST (Goods and
Services Tax) bills in Lok Sabha today. Calling it a
revolutionary step which would benefit all, Jaitley
said both states and the Centre had pooled in their sovereignty into the GST
council. Some 12 meetings of the GST council were held to make it a process
based on consensus and recommendations.
India’s
most ambitious indirect-tax reform may roll out on July 1.
CGST
to replace a web of levies including central excise duty, central sales tax and
service tax
Proposed
law will harmonize the indirect tax system in the country as well as reduce the
cost of production and inflation in the economy
Maximum
GST rate of 20 percent to be levied on all goods and services
E-commerce
operators to collect up to 1 percent tax at source
Proposed
law to provide for self-assessment of taxes payable
Proposed
law provides for an anti-profiteering clause to ensure that businesses pass on
the benefit of reduced tax incidence on goods/services to consumers
It
also lays down transitional provisions for the smooth transition of existing
taxpayers to the new tax system
IGST
to be levied on inter-state trade -- it will allow businesses to take credit
for the tax paid
Tax
rate to be capped at 40 percent
Suppliers
of online information and database access (for instance downloading content
from, say, Netflix) will have to pay tax
It
will ensure refund of GST paid by tourists leaving India
The
law will ensure compensation to states for loss of revenue due to
implementation of the new nationwide tax system for five years.
FY16
to be the base year for calculating compensation payable to states
A
duty is to be levied on goods recommended by the GST Council, which is a panel
of federal and state finance ministers, over and above the GST rate
Proceeds
of the duty to be credited to GST Compensation Fund
Funds
left after five-year compensation period to be shared equally between the
federal and state governments
1.
Non-Applicability of GST Law in the State of Jammu and Kashmir:
Earlier
the GST Law was proposed to be applicable to J&K as well.
However
in the Bill, the applicability of GST Law is extended to whole of India except
the state of J&K.
2.
Change in the Scope of Taxable Event i.e. Supply:
Earlier
the supply of goods or services between related persons, when made in the
course or furtherance of business was treated as Supply even when there is no
consideration.
Employer
and Employee were covered in the definition of related person.
Thus
any supply of Goods or services by employer to his employees even if that
supply is free of cost would have been covered under the scope of GST.
Now
the bill provides that such gifts not exceeding Rs.
50,000 by an employer to an employee shall not be treated as supply for the
purpose of GST.
3.
Removal of uncertainty relating to chargeability of GST on Supply of Immovable
Property:
Earlier the “Goods” were defined as every kind of
movable property other than money and securities but includes actionable claim.
Further the “Services” were defined as anything other
than goods.
Thus there was an apprehension that Government may levy
GST on supply of Immovable Property such as Land or building apart from levy of
Stamp duty on such transactions.
Now
in the bill introduced in the parliament, the government has removed that uncertainty
by providing in Schedule III that, “Sale of land and, sale of building except
the sale of under construction building will nether be treated as a supply of
goods not a supply of services. Thus GST can’t be levied in those supplies.
4.
Non Chargeability of GST on Actionable Claims:
As
“Actionable claim” were included in the definition of “Goods”, there may be
chargeability of GST on supply of Actionable Claim under earlier law.
In
the Schedule III of newly introduced bill, Actionable Claim, other than
lottery, betting and gambling will neither be treated as a supply of goods not
a supply of services. Thus GST can’t be levied in that case.
5.
Fixing the Upper cap of GST rate at 20% in case of CGST Law, and 40% in case of
IGST Law:
Earlier
the upper cap fixed was 14% and 25% respectively in both the laws.
With
a view to keep some flexibility to increase the rates in future, the upper cap
has been fixed at 20% and 40% respectively under CGST and IGST Law.
However
the applicable slab rate will be same as approved by council i.e. 5%, 12%, 18%
and 28%.
6.
Payment of GST by recipient under Reverse Charge in case of supply of taxable
goods or services or both by a unregistered supplier to a registered person.
In
line with the purchase tax on purchase of goods from an unregistered dealer
prevailing in many of the states, the GST Bill has introduced the same.
Liability
to pay GST in such cases will be on the recipient of such goods or services.
7.
Reduction in Composition rates, a welcome move for MSME sector:
Earlier
it was proposed to levy 1% composition rate for trader and 2.5% for
manufacturer.
Further
composition scheme was not allowed for a supplier of services.
Now
in the bill, some reduction in composition rates has been made which is a
welcome move for the MSME sector.
1%
of composition rate will be applicable in case of a manufacturer instead of
earlier 2.5%.
Further
0.50% of composition rate will be applicable in case of a trader instead of
earlier 1%.
Further
the composition scheme will now be allowed to Restaurant Sector with a
composition rate of 2.5%.
8.
Requirement to seek permission from proper officer for composition scheme is
dispensed with:
Now
a registered person, whose aggregate turnover in the preceding financial year
did not exceed, may OPT to pay under composition scheme.
9.
Change in the provision for determining the liability to pay tax in case of
Services (Time of Supply of Services):
Earlier,
the time of supply of services was the earlier of date of issue of Invoice, or
the last date on which the invoice should have been issued or date of receipt
of payment by the supplier.
Now
in the bill, as introduced in the parliament, the provisions of service tax for
determining liability to pay service tax has been incorporated in the GST bill.
Thus
the time of supply of services shall be earlier of the following dates:
a)
If the invoice is issued within the period prescribed, the date of issue of
invoices or the date of receipt of payment, whichever is earlier;
b)
If the invoice is not issued within the period prescribed, the date of
provision of services, or the date of receipt of payment, whichever is earlier;
c)
The date on which the recipient shows the receipt of services in his books of
accounts, in a case where aforesaid clause (a) or (b) does not apply.
10.
Change in Actual Payment Condition for Non-reversal of Credits:
Earlier
where a recipient fails to pay to the supplier of services, the amount towards
the value of supply along with taxes thereon within a period of 3 months from
the date of issue of invoices by the supplier, an amount equal to ITC availed
were required to be paid along with interest thereon.
Thus
the aforesaid provision was restricted only in case of Services.
Further
there was no provision made in the law for re-allowing the credit reversed
earlier due to application of aforesaid provisions.
Now
in the bill, the aforesaid provision is also extended to supply of Goods.
Further
the time period for payment is extended to 180 days from earlier 3 months.
Further
provision has also been made for re-availing the credit reversed earlier at the
time of actual payment.
11.
Credit of Rent-a-cab, life insurance, and health insurance allowed, if used for
making an outward taxable supply of same category.
Earlier
the credit of rent-a-cab, life insurance, and health insurance were fully
denied 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.
The
aforesaid provision of denial of credit would have multifold consequences. For
example, a life insurance company, in case re-insurance of life insurance, will
not be eligible to take credit of GST paid on re-insurance amount.
With
a view to avoid the genuine hardships, the credit of aforesaid services will be
allowed if used for making an outward taxable supply of same category or as a
part of taxable composite or mixed supply.