Levy and Collection of GST

Dual Model of GST

• GST in India is administered by the Central and the State Government. For every transaction, a part of the GST goes to the Central Government in the form of CGST and the remaining goes to the consumption state i.e. the state where the goods / services are getting delivered, which is in the form of SGST.  

• During an intra state transaction, there is an equal levy of Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST). The CGST portion is collected by the Central Government and the SGST part is collected by the State Government where the goods are traded within.

• Whereas, in a inter state transaction, there is a levy of Integrated Goods and Services Tax (IGST). This amount of IGST is collected by the Central Government which retains half of it (CGST part) and hands over the remaining half (SGST part) to the destination state i.e. the state receiving the goods.   

• Let's understand with couple of examples:

1. Mr. Ganesh from Kerala purchases an Apple iPhone from a showroom in Kerala itself for Rs. 1,00,000/-. This becomes an intra state transaction and there will be a levy of GST @ 28%. In a broader sense, there will be a levy of CGST @ 14% and SGST @ 14%. 

Hence, CGST @ 14% of Rs. 1,00,000/- will be Rs. 14,000/- which will go to the Central Government.

And SGST @ 14% of Rs. 1,00,000/-, which is Rs. 14,000/- will go to the State Government of Kerala. 

Thereby, a total GST of Rs. 14,000 + Rs. 14.000 = Rs. 28,000/-

Therefore, the total amount to be paid by Mr. Ganesh will be Rs. 1,28,000/-.

The above split is only because of the DUAL MODEL of GST.

2. Mr. Ganesh from Kerala purchases an Apple iPhone online from store located in Maharashtra for Rs. 1,00,000/-. This becomes an inter state transaction and there will be a levy of GST @ 28%. To be precise, there will be a levy of IGST @ 28%.

Here, IGST @ 28% on Rs. 1,00,000/-, which is Rs. 28,000/- will initially go to the Central Government.

Subsequently, the Central Government transfers half of Rs. 28,000/- i.e. Rs. 14,000/- (SGST part) to the State Government of Kerala being the consumer / destination state.

Here also, the total amount paid by Mr. Ganesh will be Rs. 1,28,000/-.

The above split is only because of the DUAL MODEL of GST.

Provisions of CGST and IGST Act, 2017

CGST Act, 2017 - As per the CGST Act 2017, all intra state transactions will attract a levy of CGST and SGST on the transaction value which is to be collected and paid by the taxable person to the Government. This rate of CGST and SGST cannot exceed 20% and will not be applicable on import transactions. 

IGST Act, 2017 - As per the IGST Act 2017, all inter state transactions will attract a levy of IGST on the transaction value which is to be collected and paid by a taxable person to the Government. This rate of IGST cannot exceed 40%. IGST will be applicable on import of goods. 

A glimpse on GST rates on certain goods and services

Concept of Forward Charge and Reverse Charge Mechanism in GST

The GST Council has made sure that no one can evade GST due to whatever reason. In general, it's the consumer who bears the GST and it's the businessmen who hands over this GST to the Government on behalf of the consumer. The businessmen / supplier should be a registered person in order to be able to collect tax from his consumer. But what if the supplier is not registered under GST? Will GST be applicable? 

Forward Charge Mechanism - When the supplier is registered, he becomes liable to collect tax from the consumer and deposit with the Government. This is called Forward Charge Mechanism.

Reverse Charge Mechanism - This is a mechanism where tax is paid by the recipient of the goods / services instead of the supplier. RCM is applicable on certain notified supplies and in cases where the supplier is an unregistered person. In simple words, when a registered person purchases from an unregistered person, the registered person (recipient) becomes liable to declare the transaction to the Government and pay GST under Reverse Charge Mechanism. For this, both supplier and recipient has to prepare voucher regarding issue / receipt of goods and payment thereupon.

Notified supplies to be compulsorily charged under RCM as per Section 9 (3) of the CGST Act, 2017

As per the provisions of section 9(3) of CGST / SGST (UTGST) Act, 2017 / section 5(3) of IGST Act, 2017, the Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. 

Following are notified goods which are taxed under RCM.

Note: In the below cases, the recipient of the goods is liable to pay tax to the Government.

1. Supply of Un-peeled / un-shelled cashew nuts by an Agriculturist to any registered person.  

2. Supply of Bidi wrapper leaves by an Agriculturist to any registered person.

3. Supply of Tobacco leaves by an Agriculturist to any registered person.

4. Supply of Silk Yarn by an cultivator or silk yarn manufacturer out of raw silk / silkworms for its supply to any registered person.

4A. Supply of Raw Cotton by an Agriculturist to any registered person.

5. Supply of Lottery by State Government / Central Government / Union Territory / Local Authority to any registered person.

6. Supply of used vehicles, seized goods, old and used goods and scrap by State Government / Central Government / Union Territory / Local Authority to any registered person.

7. Supply of Priority Sector Lending Certificate by a registered person (seller bank) to any registered person (buyer bank). 

(Note: Priority Sector Lending Certificates are issued against loans given to priority sectors such agriculture, small farmers, micro enterprises, export credit, education, housing, social infrastructure, renewable energy, etc. They allow banks to meet their targets and sub targets during priority sector lending by way of buying instruments.)

Following are notified services which are taxed under RCM.

Note: In the below cases, the recipient of the services is liable to pay tax to the Government.

1. Supply by way of Transportation of goods by a Goods Transportation Agency through road to factory, society, registered person, body corporate, firm or casual taxable person.

2. Supply of Legal services provided by an individual / senior advocate or firm of advocates to any business entity located in taxable territory who is litigant, applicant or petitioner.

3. Supply of services by an arbitrary tribunal to a business entity.

4. Supply of services provided by way of sponsorship to any body corporate or partnership firm.

5. Services  provided by Central Government, State Government, Union Territory or Local Authority to a business entity except

• Renting of immovable property

• Services by department of post (speed post, express parcel post, life insurance and agency services provided to a person other than Central Government, State Government, Union Territory or Local Authority

• Services in relation to an aircraft/vessel, inside/outside of a port/airport

• Transport of goods or passengers

to any business entity.

5A. Supply of services provided by Central Government, State Government, Union Territory or Local Authority by way of renting of immovable property to a registered person.

5B. Services supplied by any person by way of transfer of developmental rights or Floor Space Index (FSI) for construction of a project to a promoter. 

5C. Supply of services by way of long-term lease of land by any person against consideration of an upfront amount or upon periodic rent to a promoter.

6. Supply of services by a Director of Company or a Body Corporate to the said Company or the Body Corporate.

7. Supply of services by an Insurance Agent to any person carrying insurance business.

8. Supply of services by a recovery agent to a Banking Company or a Financial Institution or a Non-Banking Financial Corporation.

9. Supply of services by an author, music composer, photographer, artist or by way of transferring or permitting the use of enjoyment of a copyright relating original work to a publisher, music company or a producer. 

10. Supply of services by the members of the Overseeing Committee to the Reserve Bank of India.

11. Supply of services by an individual Direct Selling Agent (DSA) other than a body corporate or partnership firm to a bank / NBFC.

12. Services provided by Business Facilitator (BF) to a banking company. 

13. Services provided by a Business Correspondence (BC) to another Business Correspondent (BC).

14. Supply of security personnel services provided to a registered person other than Central / State Government, any of its Department, Local Authority or Government Agencies. 

15. Supply of services by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient.

16. Supply of services by way of lending of securities under Securities Lending Scheme of the SEBI

Supplies by an Unregistered Dealer URD to be charged under Reverse Charge Mechanism as per Section 9 (4)

As per Section 9 (4) of the CGST Act, 2017, certain supplies made by an unregistered person to a registered person is taxable under Reverse Charge Mechanism. This means, the buyer (registered person) is liable pay GST to the Government under RCM. 

The above provision will apply only if the below conditions are met:

• There should be a supply of goods or services.

• The supply should be in respect of taxable goods/services.

• Supply must be by an unregistered person.

• Supply must be to a registered person.

• Supply must be an intra-state supply as compulsory registration is required for inter-state sales

Note: Till 1st February, 2019, purchases up to Rs. 5,000/- per day from unregistered suppliers were not attracting GST.  In other words, there was a reverse charge on buying from unregistered dealers for payments above Rs. 5,000/-. This rule is not applicable now.

Eg. KGN Stores, Maharashtra an unregistered dealer supplied goods worth Rs. 2,000/- to Ali Express Ltd, Maharashtra which is a registered person. Here, Ali Express Ltd. will be liable to pay GST under RCM. Ali Express Ltd. will have to self invoice matching the goods and the amount as per any kacha bill issued by KGN Stores.

Profit & Loss A/c items which might attract GST under RCM in relation to URD

Inclusions

Following items can attract GST under RCM basis:

Rent, Commission payments, Printing and stationery, Repairs and Maintenance, Office Maintenance, Vehicle maintenance, Computer maintenance, Legal Fees, Consultancy Fees, Professional Fees, Audit Fees, Freight and transportation expenses, Gift expenses, Business promotion expenses, Advertisement, etc.

Exceptions

For these items, RCM will not apply for the simple reason that GST is not applicable on these:

Salary and wages, Electricity, Interest, Car fuel (Diesel/petrol), Government Fees (such as MCA fees, land registration fees etc.)

“RCM will not be applicable on exempted goods”

Supply of Services by an Electronic Commerce Operator to be taxed under RCM as per Section 9(5)

As per Section 9 (5) of the CST Act, 2017, GST will be paid by the E-Commerce Operator on behalf of their service suppliers. An E-Commerce Operator can display products or services which are actually supplied by some other person to the final consumer. The E-Commerce Operator provides a market place for selling the dealer’s goods. They collect money from the consumer and remits to the dealer and GST to the Government. It can be transportation services through radio taxi or motor cabs or services by way of providing accommodation in hotels, guest houses, clubs, campsites where the actual service provider is not registered under GST.

In the following services, the E-Commerce operator is liable to collect and pay GST to the Government:

1. Services provided by a driver to any person by way of transportation of passengers in a radio cab, maxi cab or motor cycle through an E-Commerce aggregator.

2. Services by way of providing accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes, except where the supplier of such service is liable for registration under GST.

3. Services by way of housekeeping like plumbing, carpentering, etc. by an unregistered person to any person through an E-Commerce operator. 

Don't forget to read the below examples:

Eg 1. Mr. James is a driver registered with OLA Cabs, India who provided transportation services to some passengers on his vehicle which was booked through OLA Mobile App. Here, GST will be borne by the passengers but Mr. James (driver) will not collect it. It will be collected by OLA and directly paid to the Government. 

Eg 2. AIRBNB is a E-Commerce Operator providing transportation and accommodation services to people through various dealers registered with them. An organization named Diary Travel Ltd. (unregistered person) is listed with AIRBNB for providing camping services in India. Here, if Diary Travel charges Rs. 2,000/- for camping services, then GST on such accommodation will be paid by AIRBNB to the Government under Reverse Charge Mechanism. But if Diary Travels Ltd. is registered under GST, then they only have to pay GST to the Government.

Eg 3. Mr. Kadam, a unregistered person is a plumber listed with JOBOY House Keeping and Maintenance App, India who provided plumbing services at a household. Though physical services of plumbing are provided by Mr. Kadam, but GST will be collected from the customer and paid to the Government by JOBOY House Keeping and Maintenance Co. But if Mr. Kadam is registered under GST, then he will collect and pay GST to the Government. 

Imports and Exports

• Import of Goods

As per Section 2(10) of the IGST Act, 2017, bringing goods from a foreign nation to India is termed as imports. Section 7(2) of the IGST Act, 2017 says that such imports will be treated as inter-state supplies. On such supplies, IGST will be levied as Additional Custom Duty in addition to basic custom duty. This IGST will be charged at the Custom Frontier like customs port, customs airport, international courier terminal, international post office or bonded warehouses.

• Import of Services

As per Section 2(11) of the IGST Act, 2017, import of service means supply of service in India by a person located outside India to a person located in India. Such services shall be treated as inter-state supplies and will be subject to IGST on it's value as per Section 7(4) of the CGST Act, 2017. This IGST will be payable by the recipient of services under Reverse Charge Mechanism.

• Export of Goods:

As per Section 2(5) of the IGST Act, 2017, taking goods out of India to a place outside India is termed as export. Under GST, exports are treated as Zero Rated Supplies and ITC can also be claimed. Good supplied to Special Economic Zones are also treated as deemed exports.

• Export of Services

As per Section 2(6) of the IGST Act, 2017, a service supplier located in India providing services to an independent person located outside India for a consideration is called export of service. Services provided to Special Economic Zones are also treated as deemed exports.

Eg 1. Metko Technologies, a registered person from India purchased goods from UAE which were to be delivered at Jawaharlal Nehru Port Trust, Navi Mumbai. During clearance, Metko Technologies will have to pay IGST in the form of Additional Customs Duty over and above the Basic Customs Duty so as to get the possession of goods. 

Eg 2. Petta Service Ltd., registered and located in India availed consultancy services from a company located in Germany. This will be treated as import of services as services are provided to an Indian company in India. Here, Petta Service Ltd. will have to pay IGST under Reverse Charge Mechanism. 

Eg 3. Rollins Corporation, a registered person in India exported gods to a dealer in Oman. Export of goods are treated as Zero Rated Supplies under GST. Here, Rollins Corporation doesn't need to pay GST to the Government under export declaration. Also, taxes paid on input goods can be claimed under Input Tax Credit.

Eg 4.  MaxVal Technologies, a registered person in India supplied Real Estate service to a client based in USA. Such services provided overseas will be treated as export of services. Here, input services availed by MaxVal Technologies can be claimed as Input Tax Credit. MaxVal Technologies doesn't need to pay taxes on export and such exports will be treated as Zero Rated Exports.

Composition Scheme under Section 10 of the CGST Act, 2017

Indian GST law has provisions for small dealers to get rid of stressful compliance which every tax payer has to bear in general. These provisions also allow dealers to pay tax at very low rates so as get maximum gains. These provisions are covered under Section 10 of the CGST Act 2017, which is called Composition Scheme. Check out the following points to know more:

• It's optional / voluntary scheme for certain dealers to have a hassle free tax compliance.

• It's suitable for small taxpayers having lower economies of scale.

• The dealer registered under Composition Scheme need to pay a certain amount of fixed lower rate of tax on on his aggregate turnover on quarterly basis.

• The tax paid is a cost to the dealer and hence, cannot be recovered from the consumer through tax invoice.

• The dealer cannot issue tax invoice.

• The dealer cannot claim any Input Tax Credit.

• Different segments like textiles, electronics , groceries, etc. under the same PAN must registered collectively under the scheme.

• The dealer has to mention “Composition Taxable Person / Composition Scheme" on a signboard at their place of business.

• With effect from 1st February, 2019, a manufacturer or trader can also supply services to an extent of ten percent of turnover.

Who is eligible for registration under Composition Scheme?

Rest of India

For goods: A person having an Aggregate Turnover up to Rs. 1.5 Crores in the Previous Year (w.e.f 1st April, 2019).

For Services: A person having an Aggregate Turnover up to Rs. 50 Lakhs in the Previous Year (w.e.f 1st April, 2019).

For Goods and Services both: A person having can provide services @ 10% of the previous year's total turnover or provide services worth Rs. 5,00,000/- whichever is higher. 

(Service amount post opting Composition Scheme should not exceed 10% of PY Turnover or Rs. 5,00,000/-, whichever is higher)

For Special Category States

A person having an Aggregate Turnover up to Rs. 75 Lakhs for Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand.

How is the Aggregate Turnover Computed?

Aggregate Turnover includes taxable supplies, exempt supplies, export supplies and inter-state supplies between distinct person with the same PAN but excludes Inward supplies under RCM and CGST, SGST, UTGST, IGST and CESS.

Turnover of all business with same PAN shall be considered for calculating turnover.

Eg. Sadguru Enterprises has its manufacturing unit in Mumbai Central, Sion, Goregaon and Navi Mumbai with an annual aggregate turnover (2021 - 2022) of Rs. 15,00,000/-, Rs. 20,00,000/-, Rs. 25,00,000/- and Rs. 35,00,000/- respectively all registered under same PAN. Adding up all the above values, the Aggregate Turnover of Sadguru Enterprises comes to Rs. 95,00,000/-. As this figure is less than the threshold limit of Rs. 1.5 Crores, Sadguru Enterprises is eligible to register under Composition Scheme in 2022 - 2023. Here, if the aggregate turnover exceeds Rs. 1.5 Crores, then the enterprise is not eligible for registration under Composition Scheme.

Who is not eligible for registration under Composition Scheme?

• A person involved in interstate supply of goods and services.

• Manufacturers of Ice Cream, Pan Masala, Tobacco and Tobacco products, Aerated Water, Fly ash blocks, bricks of fossil meals, building bricks, earthen or roofing tiles.

• A person registered as a Casual Taxable Person or a Non-Resident Taxable Person.

• Business organizations supplying goods and services through an E-Commerce Operator.

What is the evidence for transactions?

A dealer registered under Composition Scheme cannot issue a tax invoice. A 'Bill of Supply' can be issued with a mentioning of 'Composition Taxable Person' and 'GSTIN'. The dealer doesn't need to upload invoices in the GST portal as there is no invoice matching. The dealer has to pay GST through GSTR CMP - 08 on quarterly basis by 18th day of next month. A Composition dealer need to disclose aggregate value of supplies and pay taxes on them. 

What are the compliances?

• A Composition dealer has to file GST CMP - 08 on quarterly basis by 18th day of next month.

• Annual Return on GSTR - 4 has to be filled with complete annual details by 30th April of the next Financial Year.

What are the rates of tax for a Composition dealer?

• Manufacturer and Traders - 0.5% CGST and 0.5% SGST [1% GST]

• Restaurants and outdoor catering services - 2.5% CGST and 2.5% SGST [5% GST]

• Other Service Providers - 3% CGST and 3% SGST [6% GST]