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GST Council plans to take up three contentious laws for discussion; targets 1 July roll-out Aiming towards a smooth roll out of Goods and Services Tax (GST) from 1 July, the GST Council will look into the three GST laws in its next meeting, scheduled for 18 February. The session by the Secretaries Panel at CNBC-TV 18 Mint’s ‘Budget 2017: The Verdict’ programme in New Delhi on Thursday evening discussed in detail the GST and its power to arrest, disinvestment plans, mergers and acquisitions, proposals for a new financial year, and other factors. West Bengal finance minister Amit Mitra, who also heads the empowerment panel on GST. AFP file image “Industry is looking forward to the laws and rules. Once they are finalised by the GST council, it will pave the way towards the implementation of GST from 1 July. The agenda of the next meeting is to look into all the three laws. In the subsequent meetings, we’ll take up the rules. As far as rates are concerned, it’s going to be a simplistic formula. The council has said that there would be four slabs: 5 percent, 12 percent, 18 percent and 28 percent, ” said revenue secretary Hasmukh Adhia. After the announcement of the Budget on 1 February, West Bengal finance minister Amit Mitra, who also heads the empowerment panel on GST, sent 16 demands to the Finance Ministry to look into, including the arrest clause, which was described as “draconian” by the West Bengal government. “The power to arrest tax defaulters is already there under excise and service tax laws, and also under VAT in some states. After an extensive debate, a majority in the GST Council decided that no arrests should be made in cases of tax evasion up to Rs 2 crore. However, evaders between Rs 2 and Rs 5 crore could face bailable arrest. Above tax evasion of above Rs 5 crore, it may invite non-bailable arrest, ” he said. Is there a new financial year on cards? Economic affairs secretary Shaktikant Das said, “The report to change the financial year is under consideration by the government. We are examining it, and once the decision is taken, it will be communicated.” On IDBI Bank’s disinvestment plan The government announced in the Budget that it hopes to raise Rs 72, 500 crore in FY18 by divesting stakes in public sector firms. Compared to the revised estimate of Rs 45, 500 crore for FY17, this is an increase of around 60 percent. While discussing the disinvestment plan of the state-run IDBI Bank, Das said, “The divestment of IDBI Bank is not off the table. The work is in progress. Its share value in the market doesn’t reflect the real estate it holds in Mumbai. The real estate valuation needs to be done carefully and a transparent decision needs to be taken in this case.” “We’ve not derailed from the path of financial prudence. Today, our economy needs investment in certain sectors. As per the NK Singh panel, our fiscal deficit target is 3 percent and we’ll improve it in 2017-18, ” Das added. Priorities in 2017: “To ensure people pay tax and society becomes more tax compliant”: Ashok Lavasa, finance secretary. “Budget 2017 is very strong on reforms, and our focus is on implementation”: Shaktikant Das, economic affairs secretary. “Roll out of GST from 1 July 2017 will be the Year of GST”: Hasmukh Adhia, revenue secretary. “Look for a stable and buoyant market”: Neeraj
GST roll out next fiscal: Is the govt looking at changing the financial year? Aiming towards a smooth roll out of Goods and Services Tax (GST) from 1 July, the GST Council in its next meeting on 18 February will look into the three laws in GST. The session by Secretaries Panel at ‘Budget 2017 The Verdict’ of CNBC-TV 18-Mint at Hyatt Regency in New Delhi on Thursday evening discussed GST and its power to arrest disinvestment plan, merger & acquisition, proposal for a new financial year among others in detail. “Industry is looking forward to the laws and rules. Once they are finalised by the GST Council – it’ll pave way towards implementation of GST from 1 July. The agenda of the next meeting is to look into all the three laws. In the subsequent meetings we’ll take up the rules. As far the rates are concerned, it is going to be a simplistic formula. The council has said that there would be four slabs of rates—5%, 12%, 18% and 28%, ” said Revenue Secretary, Hasmukh Adhia. After the announcement of Budget 2017 on 1 February, West Bengal’s finance minister, who also heads the empowerment panel on GST, sent 16 demands to finance ministry to look into, including the arrest clause. The arrest clause has been described as ‘draconian’ by the West Bengal government. “Power to arrest the tax defaulters is already there in excise and service tax, and also under VAT law in some states. After an extensive debate, majority in the GST Council decided that no arrest would be made in the case of tax evasion up to Rs 2 crore. However, evader between Rs 2-5 crore will face arrest but get a bail. But above, Rs 5 crore, it’s non-bailable, ” he said. Is there a new financial year on cards? Economic Affairs secretary, Shaktikant Das said, “The report to change the financial year is under consideration by the government. We’re examining it, and once the decision is taken, it will be communicated.” On IDBI Bank’s disinvestment plan The government announced in the Union Budget on 1 February that it hopes to raise Rs 72, 500 crore in FY18 by divesting stakes in public sector firms. Compared to the revised estimate of Rs 45, 500 crore for FY17, this is an increase of around 60 percent. While discussing the disinvestment plan of the state-run IDBI Bank, Das said, “The divestment of IDBI Bank is not off the table. The work is in progress. The share value of it in market doesn’t reflect real estate it holds in Mumbai. The real estate valuation needs to be done carefully and transparent decision needs to be taken in this case.” “We’ve not derailed from the path of financial prudence. Today, our economy needs investment in certain sectors. As per the NK Singh panel, our fiscal deficit target is 3% and we’ll improve it in 2017-18, ” added Das. Priorities in 2017 Ashok Lavasa, Finance Secretary: To ensure that people pay tax and it should be a more a tax compliant society. Shaktikant Das: Budget 2017 is very strong on reforms and our focus is on implementation. Hasmukh Adhia: Roll out of GST from 1 July. Year 2017 will be the Year of GST.
Supply of Goods or Services between Related and Distinct Persons Feb 15 2017 In our earlier blog GST Impact on Supply without Consideration and Importation of Services, we discussed about supply without consideration and the import of service. This blog discusses, in detail, supplies without consideration between: • Related person • Distinct person Related person The definition of “Related Person” is similar to the current Customs Valuation Rules. The supply is considered as between related persons only if the supply of goods or services is made between: 1.Officers or directors of one another’s businesses: In a supply, the supplier and the recipient are actually officers or directors of the other business. As illustrated above, Mr. Ganesh is a Director in Ganesh Trading Ltd, and an officer in Rakesh Trading Ltd. Mr. Rakesh, is a Director in Rakesh Trading Ltd. Also, Rakesh is an officer in Ganesh Trading Ltd. Therefore, any supply between them, will be treated as supply between related persons. 2. Legally recognized partners in business: The supplier and the recipient are partners in the same business or associated business. As illustrated above, Mr. Ganesh and Mr. Rakesh are partners in Ganesh Trading Ltd. Any supply between Mr. Ganesh and Mr. Rakesh will be treated as supply between related persons. 3. Employer and employee: Any supply of goods and services between employer and employee. Mr. Rakesh is an employee of Ganesh Trading Ltd. Any supply from Ganesh Trading Ltd to Mr. Rakesh is considered as supply between related persons. 4. The supplier or recipient directly or indirectly owns, controls or holds twenty-five per cent or more of the outstanding voting stock or shares. For example, the recipient hold 25% of equity in the supplier’s business. 5. One of them directly or indirectly controls the other: If in any supply, the supplier or the recipient directly or indirectly controls the other, then it is considered as supply between related persons. Direct Control As illustrated above, Ganesh Trading Ltd holds equity in Rakesh Trading Ltd. The supply between Ganesh Trading and Rakesh Trading are related since Ganesh Trading Ltd directly controls Rakesh Trading Ltd.’s business. Indirect Control As illustrated above, Ganesh Trading Ltd holds equity in Rakesh Trading Ltd . Rakesh Trading Ltd. holds equity in Max Trading Ltd. Any supply between Ganesh Trading Ltd and Max Trading Ltd. are related. This is because Ganesh Trading Ltd. indirectly controls Max Trading’s Ltd business by way of ‘Rakesh Trading’s’ business interest in Max Trading Ltd. 6. Both of them are directly or indirectly controlled by a third person: If in any supply, the supplier and the recipient are directly or indirectly controlled by a third person. In the illustration above, Ganesh Trading Ltd holds equity in Rakesh Trading ltd and Max Trading. The supply between Rakesh Trading Ltd and Max Trading ltd are related since both of them are directly controlled by Ganesh Trading Ltd. 7. Together they directly or indirectly control a third person: If in any supply, the supplier and the recipient, together, directly or indirectly control a third person. As illustrated above, Rakesh Trading Ltd holds 80% equity in Max Trading Ltd and 30% in Ganesh Trading Ltd. Max Trading Ltd’ hold 70 %equity in Ganesh Trading Ltd . Now, together, Rakesh Trading Ltd has control over Ganesh Trading Ltd and the supply between them will be considered as supply between related persons. 8. They are members of the same family: A supply made between the members of the same family is considered as supply between related persons. Distinct Person A Distinct Person can be defined as a taxable person who has obtained or is required to obtain more than one registration in the same state or a different state. Or an establishment of a person who has obtained or is required to obtain a registration, and also has the establishment in another state. Each of his/her registration and establishment will be treated as a Distinct Person, and any supply between them will be taxable. Therefore, any stock transfer or branch transfers are taxable in the following two cases: 1.Intrastate stock transfer: Only when an entity has more than one registration in one state. For Example Super Cars Ltd is a car manufacturing unit located in Karnataka. They also own a service unit in Karnataka. Super Cars Ltd have obtained separate registrations for both the manufacturing and service units. The manufacturing unit and the service unit of Super Cars Ltd will be treated as distinct persons, and any supply between them will be taxable, even without consideration. 2. Inter State Stock transfer: Transfer between two entities located in different states is taxable. For Example Super Cars Ltd is a car manufacturing unit located in Karnataka. They also own a service unit in Delhi. The manufacturing unit and the service unit of Super Cars Ltd located in Delhi will be treated as distinct persons, and any supply between them will be taxable, even without consideration.
Understanding Mixed and Composite Supply in GST. If you look at the market today, you will notice very often, two or more goods, or a combination of goods and services, are supplied together. This could be due to either of the following reasons: A sales strategy – to attract more customers The nature or type of goods or services, which requires them to be bundled or supplied together Under Service Tax, this mechanism is called Bundled Service – which is the rendering of a service or services with another element of service of services. Under the revised model draft GST law, supplies which are bundled with two or more supplies of goods or services or combination of goods and services are classified, with distinct characteristics, as: Mixed Supply Composite Supply Mixed supply The supply of two or more individual supplies of goods or services, or any combination of goods and services, by a taxable person, for a single price, is called Mixed Supply. In Mixed Supply, the combination of goods and/or services are not bundled due to natural necessities, and they can be supplied individually in the ordinary course of business. Determining mixed supply Let us understand this with an example. Consider a kit which contains a tie, a watch, a wallet, and a pen, as a combo, for Rs. 4, 500 GST Mixed Supply As per the example, Tie, watch, wallet, and pen are bundled as a kit The supply of a tie does not naturally necessitate the supply of other elements (watch, wallet, pen) and vice versa. The kit is supplied for a single price. Hence, the supply of this kit is a mixed supply. Tax liability on mixed supply To calculate the tax liability on mixed supply, the tax rate applicable on the goods or services attracting the highest rate of tax, in the combination of goods and services, will be considered. Let us consider the example of the kit again. Product Rate of Tax* Tie 12% Watch 18% Wallet 12% Pen 5% *Indicative rates In this case, the watch attracts the highest rate of tax in the mixed supply i.e., 18%. Hence, the mixed supply will be taxed at 18%. Composite supply Composite Supply of goods and services is made by a taxable person to a recipient, and: It comprises two or more supplies of goods or services, or A combination of goods and services, which are naturally bundled and supplied, in the ordinary course of business. This means that the goods and services are bundled owing to natural necessities. The elements in a composite supply of goods and services are dependent elements on the ‘principal supply’ of goods or services. What is principal supply? The pre-dominant element in the supply of goods or services, forming part of composite supply, is principal supply, and any other dependent supply, forming part of composite supplies, are secondary to principal supply. Determination of Composite Supply Let us understand this with an example, A 5-star hotel in Mumbai provides a 4 days/3 nights package, with breakfast.GST Composite supply This is a composite supply as the package of accommodation facilities and breakfast is natural combination in the ordinary course of business for a hotel. In this case, the hotel accommodation is the principal supply, and breakfast is ancillary to the hotel accommodation. 2. A 5-star hotel in Mumbai provides a 4 day/3 nights package with the breakfast and one day Mumbai Darshan. The inclusion of Mumbai Darshan in this package is not a natural requisite to accommodation in the hotel. Hence, this does not amount to composite supply. This is a mixed supply. 3. Sale of laptop with bag -this is a composite supply because laptop bag is natural requisite to carry the laptop. But if the customers opts for a multipurpose bag like backpack bag, it is not a composite supply since it is not naturally bundled. Tax liability of composite supply For purpose of calculating tax liability, the rate of tax applicable on the principal supply of such goods and services will be effected on the composite supply. Let us consider the same example, A 5-star hotel in Mumbai provides a 4 days/3 nights package with the breakfast. Let us assume, the hotel accommodation attracts 18% tax and the restaurant service attracts 12% tax. As per the example, hotel accommodation is the principal supply, and the entire supply will be taxed at 18%. It is important for businesses to look at the types of supplies made by them and re-assess them in order to achieve the objectives of bundling the goods and services, in context with the concepts of mixed supply and composite supply.
If you look at the market today, you will notice very often, two or more goods, or a combination of goods and services, are supplied together. This could be due to either of the following reasons: A sales strategy – to attract more customers The nature or type of goods or services, which requires them to be bundled or supplied together Under Service Tax, this mechanism is called Bundled Service – which is the rendering of a service or services with another element of service of services. Under the revised model draft GST law, supplies which are bundled with two or more supplies of goods or services or combination of goods and services are classified, with distinct characteristics, as: Mixed Supply Composite Supply Mixed supply The supply of two or more individual supplies of goods or services, or any combination of goods and services, by a taxable person, for a single price, is called Mixed Supply. In Mixed Supply, the combination of goods and/or services are not bundled due to natural necessities, and they can be supplied individually in the ordinary course of business. Determining mixed supply Let us understand this with an example. Consider a kit which contains a tie, a watch, a wallet, and a pen, as a combo, for Rs. 4, 500 GST Mixed Supply As per the example, Tie, watch, wallet, and pen are bundled as a kit The supply of a tie does not naturally necessitate the supply of other elements (watch, wallet, pen) and vice versa. The kit is supplied for a single price. Hence, the supply of this kit is a mixed supply. Tax liability on mixed supply To calculate the tax liability on mixed supply, the tax rate applicable on the goods or services attracting the highest rate of tax, in the combination of goods and services, will be considered. Let us consider the example of the kit again. Product Rate of Tax* Tie 12% Watch 18% Wallet 12% Pen 5% *Indicative rates In this case, the watch attracts the highest rate of tax in the mixed supply i.e., 18%. Hence, the mixed supply will be taxed at 18%. Composite supply Composite Supply of goods and services is made by a taxable person to a recipient, and: It comprises two or more supplies of goods or services, or A combination of goods and services, which are naturally bundled and supplied, in the ordinary course of business. This means that the goods and services are bundled owing to natural necessities. The elements in a composite supply of goods and services are dependent elements on the ‘principal supply’ of goods or services. What is principal supply? The pre-dominant element in the supply of goods or services, forming part of composite supply, is principal supply, and any other dependent supply, forming part of composite supplies, are secondary to principal supply. Determination of Composite Supply Let us understand this with an example, A 5-star hotel in Mumbai provides a 4 days/3 nights package, with breakfast.GST Composite supply This is a composite supply as the package of accommodation facilities and breakfast is natural combination in the ordinary course of business for a hotel. In this case, the hotel accommodation is the principal supply, and breakfast is ancillary to the hotel accommodation. 2. A 5-star hotel in Mumbai provides a 4 day/3 nights package with the breakfast and one day Mumbai Darshan. The inclusion of Mumbai Darshan in this package is not a natural requisite to accommodation in the hotel. Hence, this does not amount to composite supply. This is a mixed supply. 3. Sale of laptop with bag -this is a composite supply because laptop bag is natural requisite to carry the laptop. But if the customers opts for a multipurpose bag like backpack bag, it is not a composite supply since it is not naturally bundled. Tax liability of composite supply For purpose of calculating tax liability, the rate of tax applicable on the principal supply of such goods and services will be effected on the composite supply. Let us consider the same example, A 5-star hotel in Mumbai provides a 4 days/3 nights package with the breakfast. Let us assume, the hotel accommodation attracts 18% tax and the restaurant service attracts 12% tax. As per the example, hotel accommodation is the principal supply, and the entire supply will be taxed at 18%. It is important for businesses to look at the types of supplies made by them and re-assess them in order to achieve the objectives of bundling the goods and services, in context with the concepts of mixed supply and composite supply.
Budget 2017, highlights 1-Turnover of companies upto 50 crore - tax will be 25 percent instead of 30percent 2-MAT credit carry forward for 15 instead of 10 years 3-LTCG on immovable period reduced from 3 to 2 years 4- Base Year for indexation now 2001 instead of 1981 5- Presumptive tax for small traders with turnover upto 2 crore under 44Ad now 6% instead of 8 % for full non cash turnover 6- Cash expenditure now allowed only 10000 instead of 20000 per transaction 7- No transaction above 3 lac will be allowed in cash 8- Trust cash donations max allowed only 2000 instead of 10000 9- Political parties - max cash donations from 1 person Rs 2000. 10- Domestic transfer pricing - only if 1 party enjoys tax benefits 11- 44AD - turnover limit increased to 2 crores for business. - 12- Professionals can pay advance tax in 1 installments if below 50 lac 13-Time for revising income tax return now reduced. 14- Scrutiny time limit reduced to 18 months 15- Individual tax reduced for income 2.5 to 5 lac tax rate now reduced to 5% 16- Surcharge of 10% on those who earn income from 50 lac to 1 crore 17- TDS - no Tds on insurance agents if 15 h filed 18- Simple 1 page income tax return for persons having non business income upto 5 lac
Get the latest on GST Under the current indirect tax structure, the taxable event differs for each type of tax. The taxable events under the current indirect tax structure are captured below: Type of Tax Taxable Event Central Excise Removal of excisable goods VAT On sale of goods Service Tax Provision of taxable services The taxable event under GST is the Supply of Goods and/Services. All taxes such as Central Excise, Service Tax and VAT/CST will be subsumed under GST, and the concept of manufacture of goods, sale of goods, and provision of services would no longer be relevant. Thus, for every business, it is crucial to understand the relevance of supply which sets the scope of transactions liable for the levy of GST. Relevance of Supply under GST The term ‘supply’ includes all forms of supply of goods or services, supplied or to be supplied, for a consideration, in the course of or for furtherance of business. However, there are specific types of supplies mentioned in the law which need to be considered as supply even without a consideration. Let us understand by categorizing the different types of supply as; • Supplies made for a consideration in the course of or for furtherance of business • Supplies without consideration • Supplies made for a consideration whether or not in the course of or for furtherance of business Supplies made for a consideration in the course of or for furtherance of business The following are considered as supply with consideration: Any sale of goods or services which broadly result in the transfer of title in case of goods, and transfer of right to use in case of services. Any transfers between branches form a part of supply and are taxable. However, GST paid on branch transfers are fully available as Input Tax Credit. When the consideration is paid through goods instead of money. For example: a seller has supplied goods and the buyer, supplies goods to the extent of payment. Or when one product is exchanged with another product.
Scenarios where you cannot Avail Input Tax Credit we will discuss the scenarios where you cannot avail Input Tax Credit. 1. Registration not applied for within 30 days from the date on which you become liable to register If you have not applied for registration within 30 days from the date on which you become liable to register, you will lose the eligible ITC on inputs and inputs contained in semi-finished or finished goods in stock, on the day before the date on which you become liable to pay tax. 2. After the time limit for availing Input Tax Credit is crossed ITC must be availed within the earliest of the following dates- • 1 year of date of the invoice OR • The date of filing of the return for September of the next financial year OR • The date of filing of the annual return (due date is 31st December of the next financial year) Let us understand this with an illustration. Example: Rajesh Apparel Pvt Ltd is a dealer in men’s apparel. It purchases apparel for Rs.1, 00, 000 from the manufacturer on 15th July, 2017. GST paid on the purchase is Rs.18, 000 (18%). They have filed their annual return for the year ‘17-’18 on 31st July 2018, and the return for September 2018 is filed on 20th October 2018. Here, the three dates to be checked are- 1 year from date of invoice 14th July 2018 Date of filing of return for September of the next financial year 20th October 2018 Date of filing of annual return 31st July 2018 As 1 year from the date of invoice, i.e. 14th July 2018 is the earliest among the three dates above, ITC on the invoice must be availed before 14th July 2018. 3. On goods and/or services used as inputs by a composition tax payer A composition tax payer cannot avail ITC on goods and/or services used as inputs. Example: Laxmi Kirana Stores is registered as a composition tax payer under GST. It purchases grocery items from the manufacturer for Rs.20, 000 and GST is charged @ 12% amounting to Rs.2, 400. As Laxmi Kirana Stores is registered as a composition tax payer, it cannot avail ITC of Rs.2, 400 on the purchase. This GST paid will become part of their material cost. 4. On goods and/or services used for personal consumption Example: Rajesh Apparel Pvt Ltd purchased apparel for Rs.50, 000 from the manufacturer. GST paid on the purchase is Rs.9, 000. Out of the apparel purchased, apparel worth Rs.2, 000 is taken by the owner for his personal use. The remaining apparel are sold to customers. Here, the ITC to be availed on the purchase is Rs.8, 640 (48, 000 *18%). 5. On goods and/or services used for making exempt supplies ITC cannot be availed on goods and/or services used for making exempt supplies and supplies where the receiver pays tax on reverse charge basis. Example: You manufacture an exempt good. You purchase the following inputs (used to manufacture the exempt good) on 4th September 2017- Inward supplies- 4.9.2017 Inputs Value (Rs.) GST paid on inputs @ 18% (Rs.) Raw material A 3, 00, 000 54, 000 Raw material B 30, 000 5, 400 Total 3, 30, 000 59, 400 Here, you cannot avail the ITC of Rs.59, 400 as these inputs have been used for manufacturing an exempt good. 6. On services received for which payment has not been made within 3 months from the date of invoice If the recipient of a service has not made payment for the receipt of the service along with the tax payable within 3 months from the date of invoice, the ITC availed will be added to the recipient’s liability, along with interest due. Example: You have taken auditing and consultancy services from a Chartered Accountant. The value of the service is Rs.50, 000 and the GST charged is Rs.9, 000 (@18%). If you do not make the payment of Rs.59, 000 within 3 months of the invoice date, the ITC of Rs.9, 000 availed by you will be added to your liability, along with the interest due. 7. On goods lost, stolen, destroyed, written off or disposed as gift or free samples Example: You are an electronic goods dealer. On 1st Nov, 2017, you purchase 20 computers @ Rs. 25, 000 each from the manufacturer. GST charged is Rs.90, 000 (@18%). On 2nd Nov, 2017, 1 of the computers gets destroyed completely and cannot be used any more. You cannot avail the ITC on that computer, i.e., Rs. 4, 500. 8. On motor vehicles and other conveyance ITC is not allowed on motor vehicles and other conveyance unless they are: • Further supplied OR • Used for transporting passengers or goods OR • Used for imparting training on driving, flying, or navigating such vehicles or conveyances Example: Super Cars Pvt Ltd, a car manufacturer, purchased a Tempo Traveler for the transport of employees within the factory premises. Super Cars Pvt Ltd cannot avail ITC on the Tempo Traveler as it has not been used for the above activities. Let us look at another scenario. Mukesh Travels, a tour operator, purchased a Tempo Traveler for the purpose of transporting tourists during their package tours. Here, Mukesh Travels can avail ITC on the Tempo Traveler, as it is used for transporting passengers – a business activity for Mukesh Travels. 9. On food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery ITC cannot be availed on food and beverages, outdoor catering, beauty treatment, health services and cosmetic and plastic surgery, except where they have been used for making outward supply of the same category of goods or services. Example 1: Super Cars Pvt Ltd take the services of a caterer, Rakesh Caterers, for Diwali Celebration event for its employees. Super Cars Pvt Ltd cannot avail ITC on the catering service, as their business activity is not catering service. Example 2: Rakesh Caterers take the services of a Shamiana provider while providing the catering service to Super Cars Pvt Ltd. Here, Rakesh Caterers can avail ITC on the Shamiana services, as they have been used for making outward supplies of the same category of services. 10. On membership of clubs and health & fitness centres, rent-a-cab services and life & health insurance taken for employees, except notified services which are obligatory to be provided to employees Example: Mukesh Travels, a tour operator, takes an annual membership of a fitness centre, Pratham Fitness Centre, for the use of its employees. Here, Mukesh Travels cannot avail ITC on the GST paid on membership charges. 11. On travel benefits to employees on vacation, such as leave or home travel concession Example: Super Cars Pvt Ltd reimburses its senior employees on travel expenses as part of LTA (Leave Travel Allowance). Super Cars Pvt Ltd cannot avail ITC on the GST component of the travel fare reimbursed. 12. On tax component of cost of capital goods, if depreciation has been claimed on the tax component ITC cannot be availed on the tax component of cost of capital goods, if depreciation has been claimed on the tax component in Income Tax return. Example: Super Cars Pvt Ltd purchases machinery for Rs.50, 00, 000 to be used for the manufacture of cars. The GST paid on the machinery is Rs.9, 00, 000. Super Cars Pvt Ltd claims depreciation of Rs.59, 00, 000 on the machinery under Income Tax, which is including the GST component. In this case, Super Cars Pvt Ltd cannot avail the ITC of Rs.9, 00, 000 on the machinery. Treatment of Input Tax Credit already availed in exceptional scenarios When a regular dealer who has availed ITC switches to the composition scheme When a regular dealer who has availed ITC switches to the composition scheme, the person must pay back the ITC availed on inputs in stock, inputs in semi-finished state, finished goods in stock and capital goods (reduced by the prescribed percentage points) on the day before the date of switching to the composition scheme. Example: You are registered as a regular dealer. You switch to the composition scheme on 1st September 2017 as your turnover does not exceed Rs.50 Lakhs. On 31st August 2017, you have the following inputs in stock on which ITC has already been availed- Closing stock- 31.8.2017 Inputs Value (Rs.) GST paid on inputs @ 18% (Rs.) Raw material A 1, 50, 000 27, 000 Raw material B 20, 000 3, 600 Total 1, 70, 000 30, 600 On switching to the composition scheme, you have to pay back the ITC of Rs.30, 600 availed on the inputs in stock. When taxable goods and/or services become exempt When taxable goods and/or services supplied by a person are notified as exempt, the person must pay back the ITC availed on inputs in stock, inputs in semi-finished or finished goods in stock and capital goods (reduced by the prescribed percentage points) on the day before the date of exemption. Example: You manufacture a taxable good, which is notified to be exempt from GST with effect from 15th September 2017. On 14th September 2017, you have the following inputs in stock on which GST has already been availed- Closing stock- 14.9.2017 Inputs Value (Rs.) GST paid on inputs @ 18% (Rs.) Raw materials 1, 00, 000 18, 000 Inputs in semi-finished goods 50, 000 9, 000 Total 1, 50, 000 27, 000 The ITC availed on the inputs in stock, ie. Rs.27, 000 will have to be paid back. Note: GST rates are not finalised yet and the rates mentioned in the examples are for illustration purpose only.
20th Feb, 2017GST council OKs draft law on relief to states Prospects of a rollout of the Goods and Services Tax (GST) by July 1 brightened with the GST Council approving on Saturday a draft law that seeks to compensate states fully in case of revenue loss as a result of the tax reform. The council is now expected to approve three other laws when it meets on March 4-5, paving the way for the legislations to be brought to Parliament by around March 9. The decision on categorisation of goods in tax slabs is not part of the law and will be worked out by the council after the enabling laws are passed. Briefing reporters after a meeting of the council, finance minister Arun Jaitley said he expected the panel to approve the C-GST, I-GST and S-GST laws at its next meeting in Delhi. "It's essential that enabling laws for GST are passed in the second half of the budget session to ensure rollout from July 1, " Jaitley said. The approval to the draft compensation law is read as a positive development as it was a contentious issue, improving the prospects of the ambitious indirect tax reform meeting its latest July 1 deadline. Parliament has been subject to disruptions and the heated poll rhetoric in the midst of assembly elections can be a worry. Source - Times of India
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