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Tax Impact on Goods Sold Prior to GST, but Returned after GST In a business, return of goods sold is common. Under current regime, the return of goods are allowed to be reduced from the total turnover of sales, provided that the goods are returned within specified time limit. The eligibility to avail reduction from tax varies from state to state, but it is generally 6 months from the date of sale. GST, a major reform in indirect taxation is expected to be implemented by 1st July, 2017. ‘Supply’ being the taxable event, it is very important for businesses to understand the tax implications on the goods sold prior to GST, but returned on or after the implementation of GST. Some questions you may have What will happen if taxable goods are returned by the registered taxable person? What will happen if taxable goods are returned by an unregistered person? What will happen if goods returned are exempt under the current regime but are taxable under GST? For ease of understanding, let us categorize this into: Return of taxable goods Return of exempted goods Return of taxable goods Let us understand a scenario where taxable goods are sold prior to GST, but are returned on or after the implementation of GST. The return of goods could be from a registered taxable person or from an unregistered person. Returned by Registered Taxable Person The return of taxable goods by a registered taxable person will be considered as Supply, and GST will be levied. This is because, on the date of purchase of goods, the tax paid by the recipient was allowed as input tax credit and subsequently it was utilized by him, or was allowed to be carried forward as input tax credit to GST.On such return of goods under GST, the person returning the goods should charge GST, and GST paid on sales returns will be allowed as input tax credit to the original seller. Ravindra Automobiles is a registered dealer in spare parts, located in Karnataka. On 15th June, 2017, Ravindra Automobiles sold 30 Nos of spare parts worth Rs. 1, 00, 000, with VAT @ 14.5%, to Rajesh Auto Parts, who is also a registered dealer in Karnataka .On 5th July, 2017, Rajesh Auto Parts returned 15 Nos of the spare parts to Ravindra Automobiles. The return of goods by Rajesh Auto Parts will be considered as supply, and will attract GST. Hence, on making the purchase return, Rajesh Auto Parts will charge a GST of 18 %. Taxable goods are returned by an Unregistered Person On the return of taxable goods by an unregistered person, the seller will be eligible for refund of duty/tax paid under the current regime. The refund claimed by the seller will be subject to the conditions listed below: The date of sale of the goods returned should not be more than 6 months prior to the date of implementation of GST. The return of goods should be within a period of 6 months from the date of implementation of GST. Ravindra Automobiles is a registered dealer in spare parts located in Karnataka. On 25th June, 2017, Ravindra Automobiles sold a spare part worth Rs. 10, 000, with VAT @ 14.5%, to a customer Mr. Kumar.On 2nd July, 2017, Mr. Kumar returned the spare part to Ravindra Automobiles. Ravindra Automobiles will be eligible for a refund of Rs. 1, 450. This is because, the sale period is within 6 months prior to the implementation of GST, and the return of the spare part is within 6 months from the date of implementation of GST. Return of exempted goods Consider a scenario where exempted goods are sold prior to GST, but these goods are taxable and are returned on or after the implementation of GST. Returned by Registered Taxable Person On exempted goods, which are sold under the current law and are returned after implementation of GST, no tax will be levied. This is applicable subject to the following conditions: The date of sale of the goods returned should not be more than 6 months prior to the date of implementation of GST. 2.The return of goods should be within a period of 6 months from the date of implementation of GST. On 15th June, 2017, Ravindra Automobiles sold a goods worth Rs. 1, 00, 000, which is exempt from VAT.On 20th July, 2017, goods were returned to Ravindra Automobiles On 15th June, 2017, Ravindra Automobiles sold goods worth Rs. 1, 00, 000, which is exempt from VAT.On 20th January, 2018, spare part were returned to Ravindra Automobiles. On return of goods, no tax is payable. This is because, the sale period is within 6 months prior to the implementation of GST, and the return of goods is within 6 months from the date of implementation of GST.2. On return of goods, tax is payable. This is because, the return of goods is not within 6 months from the date of implementation of GST. Taxable goods are returned by an Unregistered Person The Goods which are sold as exempt under current regime and are returned by unregistered person in GST regime, no tax is payable on such return. On 25th June, 2017, Ravindra Automobiles sold a goods worth Rs. 10, 000, to a customer Mr. Kumar. This was exempt from VAT.On 2nd July, 2017, Mr. Kumar returned goods to Ravindra Automobiles. No tax is payable on such returns.
For the implementation of GST from July, 2017 , Draft law of GST compensation has been approved by the GST council in 10th meeting. Now, three crucial draft laws — Central GST (CGST), Integrated GST (IGST) and State GST (SGST) expected to be approved in the next meeting held on 4 and 5 march. GST will impact on each and every industry & business in India. In Education and Training Industry, India holds an important place in the global education industry. The country has more than 1.4 million schools with over 227 million students enrolled and more than 36, 000 higher education institutes. India has one of the largest higher education systems in the world. However, there is still a lot of potential for further development in the education system. India has become the second largest market for e-learning after the US. In the Education and Training Industry will also be impacted by GST and impact is elaborate in the following aspects:- Tax Payment Registration Input Tax Credit Returns Refund Tax Payment: In the existing indirect tax structureeducation and training industry enjoy various tax exemptions and tax benefits. Education services provided by an educational institution (i.e. institution providing services of pre-school education and education up to higher secondary school not coaching instituteOR education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in forceOR education as a part of an approved vocational education courseto its students, faculty and staff. In addition of above, Following Services provided to an educational institution(i.e. institution providing services of pre-school education and education up to higher secondary school not coaching institute OR institution providing services of education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force OR institution providing services of education as a part of an approved vocational education course)— (i)Transportation of students, faculty and staff; (ii) Catering, including any mid-day meals scheme sponsored by the Government; (iii) Security or cleaning or house-keeping services performed in such institution; (iv) Services relating to admission to, or conduct of examination by such institution. » Following Services provided by the Indian Institutes of Management to their students as per the guidelines of the Central Government:- 2 years full time residential Post Graduate Programme in Management for the Post Graduate Diploma in Management, to which admissions are made on the basis of Common Admission Test (CAT), conducted by Indian Institute of Management Fellow programme in Management 5 year integrated programme in Management. » Services of National Skill Development Programme implemented by the National Skill Development Corporation (NSDC)OR A vocational skill development course under the National Skill Certification and Monetary Reward Scheme ORAny other Scheme implemented by the National Skill Development Corporation by the following:- National Skill Development Corporation set up by the Government of India Sector Skill Council(SSC) approved by the NSDC Assessment agency approved by the SSC or NSDC A training partner approved by the SSC or NSDC. » Services of skill or vocational training courses certified by National Council For Vocational Training provided by training providers i.e. Project implementation agencies under Deen Dayal Upadhyaya Grameen Kaushalya Yojana under the Ministry of Rural Development. » Services of training or coaching in recreational activities relating to arts, culture or sports. Any education and training service except aforesaid education and training services are liable of Service Tax @15%. In the GST Law, It is expected that any education and training service except exempted in existing tax system will of GST @18% then the price will up by 3%. But the input Tax credit will be allowed on the input goods which was not available in existing tax system resulting some relaxation to the education and training service provider. And it is expected that exempted services in the existing tax system will continue to remain exempt as exempt supply in GST law. 2. Registration: In the existing tax system, Centralized registration facility is available for the taxpayer who provides education and training services from more than one premise. Such premises may be located in the same state or in different states. In the GST Law, State wise registration is mandatory i.e. If any institution supply services from more than one premises located in different states then registration in every state from where services supplied is mandatory. For Example: – ABC smart classes having 20 offices in India and each office is located in different state and provide services and head office is situated in New Delhi. In present tax system, Centralized registration facility may be availed by the ABC smart classes however in the GST law, Registration in all 20 states is mandatory for ABC smart classes. Migration of Existing Taxpayers into GST has been started from 08th Nov 2016. In the migration, taxpayers can log in to GST Portal i.e. www.gst.gov.in to fill the required fields and submit scanned documents. Input Tax Credit: In the existing tax structure, education and training services are provided by the various institution and they procure various goods and services for providing education and training services. Service provider avail the credit of service tax paid on input services however can not avail the credit of input tax on procured goods for providing services. In the GST law, institution which will provide education and training services can avail the credit of CGST+SGST or IGST (as the case may be) paid on input goods and services procured for providing education and training services in the following manner: Cross utilization of CGST and SGST will not be permitted i.e. for the payment of SGST, input of CGST is not available and vice-a-versa. For the payment of CGST, first input of CGST to be used then input IGST to be used. For the payment of SGST, first input of SGST to be used then input IGST to be used. For the payment of IGST, first input of IGST to be used then input CGST and then input of SGST to be used. Returns: In the existing tax structure, Education and Training service provider are required to file the following returns:- Half Yearly Service Tax return. Annual Service Tax return. In the GST law, institution which will provide education and training services are required to file the following returns:- Return Particulars Due Date Applicable For Form GSTR-1 Outward Supplies 10thdayof next month Normal tax payer GSTR-2 Inward Supplies 15thdayof next month Normal Taxpayer GSTR-3 Monthly return 20thdayof next month Normal Taxpayer GSTR-8 Annual return 31st Dec of the next FY Normal Taxpayer GSTR-4 Quarterly Return 18th day of next month qtr. Compounding Taxpayer GSTR-5 Return by Non Resident Taxpayer Ø If registration period is less than month -within 7 days after the date of expiry of registration. Ø If registration period is more than one month then to be furnished on monthly basis -20thday of next month. Non Resident Taxpayer In addition of above returns, GSTR- 6 and GSTR- 7 are required to be filled by Input Service Distributer and Tax deductor respectively. Refunds Same as refund in existing tax structure, Refund under GST by Educational and Training institution may be availed in the following situations:- In case of excess payment In case of export of services In case of Finalization of Provisional Assessment. In case of pre deposit in case of Appeal. Further, Refund application shall be filled within 2 years from the relevant date.
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.
The Goods and Services Tax (GST) is India's biggest indirect tax reform since independence. The GST bill, proposed to be implemented on July 2017, will simplify the tax framework for businesses It is important therefore, that you are prepared for this significant transition! GST is going to impact your cash flow, profitability and tax compliance. Input Tax Credit Now you can claim Input Tax Credit on all taxes paid on your business expenses Tax Return Filing If you do not file your return and pay the tax, your customer will not be eligible to avail Input Tax Credit . Also, if you miss a monthly filing, you will not be allowed to file for next month unless you have cleared previous month filing. Compliant Vendors Vendors need to be chosen carefully, as their credibility and compliance will impact your business. Similarly, your buyer will start choosing his vendors (you and your peers) based on your discipline and compliance. To ensure that business is able to transition to GST, you need to ensure that : Tax returns matches books of accounts during filing Maintain invoice level details to track and claim Input Tax Credit Meet tax filing timelines on 10 th, 15th and 20th of every month Your first step towards being GST ready
The Goods and Services Tax (GST) is India's biggest indirect tax reform since independence. The GST bill, proposed to be implemented on 1 July 2017, will simplify the tax framework for businesses. It is important therefore, that you are prepared for this significant transition! GST is going to impact your cash flow, profitability and tax compliance. Input Tax Credit Now you can claim Input Tax Credit on all taxes paid on your business expenses Tax Return Filing If you do not file your return and pay the tax, your customer will not be eligible to avail Input Tax Credit . Also, if you miss a monthly filing, you will not be allowed to file for next month unless you have cleared previous month filing. Compliant Vendors Vendors need to be chosen carefully, as their credibility and compliance will impact your business. Similarly, your buyer will start choosing his vendors (you and your peers) based on your discipline and compliance. To ensure that business is able to transition to GST, you need to ensure that : Tax returns matches books of accounts during filing Maintain invoice level details to track and claim Input Tax Credit Meet tax filing timelines on 10 th, 15th and 20th of every month Your first step towards being GST ready
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
March 2, 2017 • No Comments Why is Technology the Epicentre of GST Implementation Share 262 Tweet Share 12 +1 2 SHARES 276 Technology-assisted compliance is not an entirely new concept in India. Way back in the 1990s, taxation departments used technology for tax administration. However, this was mainly as a backend mechanism. A major shift in behaviour occurred when online filing of returns was introduced. This was largely a result of different computer systems being integrated, thus enabling taxpayers to directly interact with the tax department. Under the current taxation system, data or information broadly flows in one direction to the Government, which we can describe as a B to G or Business to Government data flow. With the use of technology, the time and cost has reduced significantly while accuracy of compliance has been greatly enhanced. Technology for GST compliance – what is different this time? With technology already a driving force for compliance today, what then is the need to revisit issues that concern the right technology for GST implementation and compliance? Why will technology play a pivotal role in GST implementation and administration from both a government and business perspective? With GST, the two major goals that the government intends to achieve are: • Reduce tax evasion • Simplify compliance for taxpayers In the prevailing tax systems, there are several cases where the government has not been able to detect evasion and loss of tax revenues. As a result, it has become a challenge for the department concerned to track the input claims against the liability of the seller. There have also been numerous cases of duplication of claims on input tax, fraudulent claims, input tax claims that do not correspond with tax liability declared by the seller, or seller who has not furnished his tax liability. In order to overcome this, GST has introduced invoice matching of buyer and seller. It has been estimated that the taxpayer base under GST is around 8 million. With billions of invoices to be matched on a monthly basis, there is a critical need for a real time invoice matching capability, supported by robust IT infrastructure. There is no way invoice matching at this scale can be achieved manually. What is GSTN’s role in simplifying compliance for taxpayers? The GSTN is currently working on rolling out state-of-the art IT infrastructure that will introduce changes that are significantly different from the current system. Equipped with an open API (Application Program Interface), the GSTN server will seamlessly connect with third party applications used by taxpayers, thus providing an all-user interface, and convenience via desktops, mobiles, and tablets. This will assist taxpayers to automate their invoice matching from within their software rather than by logging onto the portal. This will save time, and drive simplicity of compliance procedures. GST will drive a lot of discipline in filing returns at regular intervals, and automation will help businesses achieve this with less pain. Use of technology will also enable efficient tax administration for registration, returns filing, data exchange, and effective investigation, monitoring, auditing and performance analysis with little or no human intervention. It will also provide several user-friendly features such as offline capabilities, alerting capabilities, mobile/tablet interface, and additional mechanisms to avoid duplicity of data. As this tax system is being implemented for the first time in India, businesses will encounter several challenges during the initial stages of implementation. However, once systems are streamlined, the two important objectives envisaged – curbing tax evasion, and increasing tax revenue and ease of compliance for taxpayers will be achieved. The success of this transformation will help our nation create history in the world of GST compliance. So what should businesses do now? The GST regime which begins on July 1, 2017, will ride on the strength of technology with seamless interface with the GSTN server. Businesses must automate their manual systems, and install software that is robust enough to interact with the GSTN system, and assist in immediate, accurate, and reliable compliance. Invoice matching is a very critical requirement of GST. Because of the clear timelines dictated by GST, compliance will no longer be a month-end or quarter-end activity. Therefore, invoice matching and other compliance related activities cannot be achieved using a manual or a low-tech system. Speed and accuracy are both critical. Businesses will have to start interacting frequently with the GSTN system. This will require a GSTN-enabled business application or accounting software so that the task ahead become seamless and efficient.
Arguably the biggest indirect tax transformation will be upon us in a few weeks from now. The law makers are deliberating on the specific clauses and contours of it – so that the appropriate legislations can be passed. There is no doubt that this will be one of the great levelers in the market, and open out the Indian market for the businessman. The barriers of inter-state trade will disappear, and one will be able to find more customers and more suppliers than the present. Less people will be able to take undue advantage of law provisions, or by evasion of taxes, and so more businesses will flourish since competition will have a level playing field. Absorbing multiple current taxes into a single tax regime will reduce time and cost of compliance. It is indeed time for celebration. Except for the Small Businessman. CLICK TO TWEET In general, Small Businesses are generally ‘more honest’, and generally suffering ‘more cash flow problems’. Whether the increased relative honesty comes due to fear of social stigma, or inability to ‘settle’ when problems are detected, or the benefit of dishonesty is not large enough to be a temptation, or just the basic moral fibre not being tested with enough temptation, is actually a moot point. It is well known that the Micro Lending space sees the highest repayment ratios of any other lending business. At the same time, the Small Business suffers frequent unevenness of cash flow. Even a simple one-week delay in receiving money for goods sold throws their routine out of gear. A marriage in the family? The cycles take several weeks to repair. A promising auction or offer for materials which would give them higher profitability, and they have to readjust their cash cycles for a few weeks to take advantage of it. A marriage in an employee’s family? Their desire to help out comes at a cost of their cash flow management. The current statement by the Government in their Draft Model Law for GST has a few proposals which will slowly, but with certainty, drive almost every Small Business to eventual closure. This is not the INTENT of the Government, it is simply an unexpected consequence of other good intent. It is also CORRECTIBLE, provided the causes, and the consequences, are appreciated. The provision for ‘input tax credit available to buyer only if supplier has paid tax inside a given window’ is one problem which a reasonable percentage of Small Business will face in their life-cycle. Most (if not all), will have no bad ‘intent’ of evasion or not paying. Nor will they be taking the Govt. for granted. It is just that they may sometimes need to delay payment, due to other exigencies – some of which I described above. Sometimes, the choice of ‘paying salary to my workers on time’ and ‘paying a penalty to the Govt. for delayed payment’ is a conscious call they take, otherwise they may lose their people. Sometimes, the pressure of paying their supplier becomes critical, else their material cycle is broken and they may permanently lose business of their customers – so again the ‘penalty for delayed payment’ becomes acceptable. And, they eventually pay. A related and even more frightening provision is that the Government intends to make public a ‘Compliance Rating’ – so you will know before you buy whether your supplier has a ‘good or poor’ rating. The objective being, that since your input tax credit is dependent on this ‘quality’ of the supplier, you will try to avoid buying from people with ‘poor’ rating – which means, that people will do everything they can to AVOID a poor rating. And the rating becomes ‘poor’ not just because you delay filing your data, but because you may have delays in your payment. In essence, when you take these provisions together, any difficulty a Small Business may have faced, will now have ‘visible and public’ knowledge and corresponding snowball impact. So, the moment you face a problem, the problem magnifies the next month since your buyers will ‘play it safe’ and buy from others (the fact that the market is now a ‘more open market’ is a boon here). This will simply increase your problem, leading to further payment delays and/or further reduction of your rating, losing even more customers – till you eventually face closure. The need of ‘emergency funds at any cost to pay GST and avoid bad rating’ for Small Business is going to lead to usurious scenarios, and cost burdens which they will be unable to sustainably bear. As it is, they are unable to manage costs through economies of scale. Now, just trying to keep their ‘business afloat’ in a GST regime, will become prohibitive. And the paradox is, GST was expected to REDUCE compliance costs! CLICK TO TWEET There is no doubt at all that the Government has every right to deny input credit for possibly fraudulent claims on false bills. With the current provisions of suppliers needing to register their supplies with GSTN, and input credit only being available on such invoices, this is already a plugged problem. By demanding that all businesses must have uploaded their invoices fully establishes their liability, and their payment (or the right of the Government to demand/collect the payment) is almost certain. It is rumored that the key reason for such an unsustainable provision in law is due to the problem of IGST distribution to various states, particularly when a given business fails to pay. Alternate methods to deal with this are all under consideration by the Government, but the present Draft Law continues to reflect the provisions above – but the unofficial sentiment is that this problem can be solved later, and the first implementation happen along the present Draft Law framework. Yet, this is not a problem to solve later. There is no such thing as temporary death. Enough small businesses will be wrongly ‘branded’ as ‘why take risk in dealing with them’, and they will not be able to recover even if law changes later. The reverse is true. If the Government does not find tax fraud dramatically going down even WITHOUT this provision, they can always introduce it later as ‘the only way to control’. The change being requested is – do not link ‘payment’ to statement of ‘valid return’. Let a ‘valid return’ be one which is correct in its computation, and defines the liability of the tax payer. Let a ‘valid return’ of a supplier be the only basis on which a customer can claim ‘input credit’ (this is already the current provision of law, except that it is treated as ‘valid’ only if the liability is ‘paid for’). This simple change will anyway unlock the businesses, improve compliance, and dramatically reduce fraud due to the triangulated nature of GST. Linking payments to tax credit is not just a ‘flaw’, but a major ‘anomaly’. CLICK TO TWEET Taking a simple chain of 3 businesses, assume Company A raises an invoice of 1 Cr + 20 Lacs GST (total value 1.2 Cr) on Company B. Company A also discharges the tax of 20 Lacs to the Government. Company B now raises an invoice of 1.2 cr + 24 lacs GST (total value 1.44 cr) on Company C. Company B is liable to pay 24 lacs, and take credit of 20 lacs, and therefore, needs to pay 4 lacs to the Government. However, due to some situations, it fails to pay it. Company C now raises an invoice of 1.5 cr + 30 lacs GST (total value 1.8 cr) – and assume this is end of the chain (that is, sold to an end consumer). Company C was liable to pay 30 lacs after taking input credit of 24 lacs – or net of 6 lacs. However, due to Company B’s inability to pay the tax on time, this input tax credit is denied, and Company C has to pay the full 30 lacs. Now, IF Company B had paid the tax, the total tax collected by the Government would have been 20 by Company A, 4 by Company B, and 6 by Company C – or a total of 30 lacs. However, since Company B failed to pay in time, the Government actually collected 50 Lacs! 20 by Company A, and 30 by Company C. Suddenly, non-payment of Tax by Company B has become a bonus to the Revenue Department! Also, it is entirely possible, that Company B either voluntary, or through recovery action initiated by the Government, lands up paying a part of the 4 lacs. Making the total collections become even more than 50 lacs! This anomaly of law will be inherently unsustainable. Suddenly, non-payment of tax by Company B will be seen (albeit wrongly) as something good for the nation, since the revenue of the country will go up! Suddenly, non-payment of tax by Companies will be seen (albeit wrongly) as something good for the nation, since the revenue of the country will go up! CLICK TO TWEET That is certainly neither the intent of the law, nor can it be upheld as a valid outcome. It is VERY IMPORTANT that all of us, as citizens, help the Government to formulate a law which will give the benefits that it has the capability of, rather than create the problems which are not required to be created. The present laws are already giving tremendous security and protection against tax evasion, and only some minor technicalities require to be resolved (for IGST, for example) – and this artificial and unsustainable provisions can be replaced with the simpler ‘input tax credit available only on invoices registered with GSTN’. In fact, the current laws also allow for ‘provisional input credit even if the invoice is currently not registered’, and businesses will be more than happy to give up this ‘luxury’, if the ‘payment linkage’ is removed. Let us all pray for a Great GST Law which we will welcome with open arms, and not one which we will struggle under.
In all probability, India will roll out its biggest financial reform since independence – the Goods and Services Tax or GST from July 01, 2017. Though delayed by three months (the original date for its roll out was fixed for April 01, 2017), the new taxation regime promises to create a single seamless national market by consolidating a range of disparate central and local taxes into one levy. The 9th meeting of the GST Council was held in New Delhi wherein the center broadly consented to the states’ demand on dual control of assessing, administrative and auditing powers. Meanwhile, a panel of bureaucrats from the center and the states firmed up the list that would specify the tax slabs for each goods and services. Given that this exercise would spill over to March, July 1 comes across as a tenable date for GST’s introduction. As the deadline for the new tax regime is approaching fast, SAP customers are understandably anxious about this change. While there has been a deluge of information related to GST on the Internet (published by SAP and others), it has only created a more confusing scenario for customers. Amidst all the confusion, we demystify the situation and bring in clarity for all. Here is a point-by-point look at what SAP customers need to mandatorily do, and the changes that need to be carried out in their SAP implementations to align with GST. Compulsory Requirements The mandatory prerequisites for migrating to GST include: The necessary minimum patch level for SAP Application must be SAP ERP 6.0 (600) SP26 or higher (for instance, if you’re on SAP 4.7, you must first upgrade to SAP ERP 6.0 before moving to GST). For more details, refer SAP Note number 1175384. You need to be having Tax Procedure TAXINN (which is condition-based). In case you’re live on SAP with tax procedure TAXINJ (which is formula-based), you must first migrate to tax procedure TAXINN. Refer SAP Note/KBA numbers 2252781, 2014164, 2153807, 827268. The last two Notes talk about SAP’s standard programs for migration of open Purchase Orders and open contracts. Incidentally, both the requirements are akin to mini-projects with each taking a minimum of 3-6 man-months depending on the scale and complexity involved. Areas Impacted in SAP Below are the changes that need to be carried out in SAP. You may also refer to SAP Note No 240580. Organization setup: Create Business Place and assign to Plants. Tax Registration: Maintain GST Registration Number (also called GSTIN as explained earlier) at the business place level configuration. Master Data maintenance – Maintain GST registration number for each registered customer and vendor. Also affected will be Material Master and Services Master. Please refer to SAP Notes Numbers 2405502 and 2385575 which explain the changes to master data. GST Tax Accounts: Define for CGST, SGST and IGST separately – Business place based G/L account determination for both MM and SD. Define new Condition Types under tax procedure TAXINN. For instance, JICG, JISG, and JIIG for central, state and integrated GST respectively. Maintain SD Access Sequence and MM Access Sequence Maintain document number range for outgoing GST invoices Business Processes affected that, therefore, need to be tested thoroughly after the configuration include: Sales Order Billing document Purchase Order Goods receipt Vendor Invoice Outgoing GST invoice Incoming GST invoice Stock transfer Subcontracting Need to have GL accounts for Separate accumulation of credit and payable for CGST SGST IGST Separate accumulation at Registration level Utilization of Input tax credit would be as below: Input CGST to be utilized against output CGST and IGST Input SGST to be utilized against output SGST and IGST Input IGST to be utilized against output IGST, CGST and SGST in the order of IGST, CGST and SGST Reporting: Tax Register CGST IGST SGST The most important parameters to be reported to GSTN include — GSTR-1 (Outward supplies made by the taxpayer); GSTR-2 (Inward Supplies/Purchases received); GSTR-8 (Annual return); Custom-developed objects (RICEF). It is recommended that every form/layout, report, interface, which involves fields related to taxes is tested. Some changes may need to be carried out through ABAP/4. Commercials Involved As for CXOs, they would be interested in knowing how much budget needs to be allocated for GST implementation in SAP. Since the efforts vary greatly from organization to organization (depending on the scale and complexity involved), a fixed number can’t be put here. However, the common requirement across all organizations of all sizes is the need for human resources with the following skills. SAP FI SAP MM SAP SD SAP ABAP/4 SAP Basis Project Lead The number (how many from each skill) and duration (man-weeks) would vary from case-to-case.
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