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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.
What are the Accounts and other Records you should Maintain under GST Accounts and records are the primary source of data for any organization’s financial reporting. Every law of Direct and Indirect Tax in our country also mandates that information in a prescribed manner has to be captured and preserved for a certain period of time. These accounts and records form the basis for returns filed by tax payers under each law. Current regime In the current indirect tax regime, every tax law mandates certain accounts and records of transactions to be maintained for a specific period of time, apart from the regular books of accounts. Under Excise, the general records to be maintained are the RG-1 register (Daily stock account of excisable goods), Form IV register (Register of receipt or issue of raw material), invoice book and job work register Under Service Tax, the suggested records include the bill register, receipt register, debit/credit notes register, CENVAT credit register, etc Under VAT, the records to be maintained include purchase records, sales records, stock records, VAT account containing details of input and output tax, works contract account, etc These records are required to be retained for at least 5 years from the end of the financial year in which they were effected. GST regime Under GST, the activities of manufacture, provision of taxable service and sale of goods will have a common law and hence, businesses can now maintain consolidated information which was maintained separately earlier. Under GST, every registered taxable person is required to maintain correct accounts of the following details at the principal place of business specified in the registration certificate: – Manufacture of goods Inward and outward supply of goods and/or services Stock of goods Input tax credit availed Output tax payable and paid If more than one place of business is specified in the registration certificate, accounts relating to each place of business must be kept at the respective places. The accounts and records must be maintained in electronic form. Persons whose turnover during the financial year exceeds Rs. 1 crore In addition to maintaining the accounts specified above, a registered person whose turnover during the financial year exceeds Rs. 1 crore is required to, Get the accounts audited by a Chartered Accountant or Cost Accountant and Submit a copy of the audited annual accounts and a reconciliation statement in Form GSTR- 9B while filing the annual return in Form GSTR-9. In the reconciliation statement, the Chartered Accountant or Cost Accountant is required to certify that the value of supplies declared in the annual return reconciles with the audited annual financial statement. Persons owning or operating a warehouse or godown An owner or operator of a warehouse or godown or any other place used for storage of goods, irrespective of whether he is registered or not, is required to maintain records of the consignor, consignee and other details which are yet to be prescribed in the law. How long should accounts and records be retained? Every registered person is required to retain accounts and records for 5 years from the due date of filing of annual return for the year to which the accounts and records pertain. For example: For accounts and records pertaining to Financial Year ’17-’18, annual return must be filed by 31st December ’18. These accounts and records must be retained till 31st Dec 2023.
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
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.
How to Claim Tax Refund under GST A Tax Refund refers to any amount that is due or returnable to the tax payer from the tax department. There are specific scenarios in which refund is allowed and dealers can claim tax refund only in these scenarios, such as excess payment of taxes, unutilized input tax credit on account of output supplies being exports, rate of tax on inputs being higher than the rate of tax on outputs (Inverted duty structure), etc. Let us first briefly see the scenarios in which tax refund is allowed in the current regime. Current Regime In the current tax regime, refund is allowed in the following cases: Excise Refund is allowed in cases of: Tax paid on purchasing goods which have been exported or on inputs used to manufacture goods exported Input tax credit has accumulated due to output supplies being only exports or zero rated supplies VAT Refund is allowed in cases of: VAT paid to purchase goods which have been exported Excess input tax credit- In most states, if the input tax credit exceeds the tax payable on sales in a month, the excess credit will be carried over till the end of the financial year. At the end of the financial year, the dealer has an option to claim the amount as refund or carry forward the input tax credit Service Tax Refund is allowed in cases of: Excess Service Tax paid, where the excess payment cannot be adjusted against a future tax liability When there is accumulated input tax credit used in providing an output service which has been exported without paying Service Tax Let us now understand tax refund under GST. GST regime In the GST regime, the scenarios where tax refund is allowed are similar to the current regime. Following are the most common scenarios where refund is allowed under GST: Tax paid on inward supply of goods and/or services which have been exported or on inputs or input services used in goods and/or services exported. Note that if the goods are subjected to export duty, refund will not be allowed. Unutilized input tax credit due to output supplies being exports or zero rated supplies Unutilized input tax credit due to inverted duty structure. This is when the rate of tax on inputs is higher than the rate of tax on output supplies. In the current tax regime, this is not allowed for refund. However, in the GST regime, this scenario is eligible for claim of tax refund. Note that in this case, refund is not applicable when supplies are NIL rated or fully exempt. Process for claiming GST refund 1. Application for Refund A person claiming refund of tax or interest or any other amount paid must file an application for refund in Form GST RFD-1 before the expiry of 2 years from the ‘relevant date’. The ‘relevant date’ in each scenario of refund is given below: Scenario Relevant Date Goods exported by sea or air Date on which the ship or aircraft in which the goods are loaded, leaves India Goods exported by land Date on which the goods pass the frontier Goods exported by post Date of dispatch of goods by the concerned post office Services exported, where the supply of service has been completed prior to the receipt of payment Date of receipt of payment Services exported, where the payment has been received in advance, prior to the date of issue of invoice Date of issue of invoice Unutilized input tax credit End of the financial year in which the claim for tax refund arises Note: A claim for refund of the balance in the electronic cash ledger must be made through the relevant monthly return, i.e., Form GSTR-3 in case of a regular dealer, and Form GSTR-4 in case of a composition dealer. Documents required for claiming refund under GST If the amount claimed as tax refund is less than Rs. 5 Lakhs – The person needs to file a declaration, based on the documents or other evidence available with him, certifying that the incidence of tax or interest being claimed as refund has not been passed on to another person. If the amount claimed as refund is more than Rs. 5 Lakhs – The application for refund must be accompanied by: Documentary evidence to establish that the refund is due to the person. Documentary or other evidence to establish that the amount was paid by him/her, and that the incidence of the tax or interest has not been passed on to another person. 2. Order for refund Refund on account of export If the refund is on account of export of goods and/or services, the authorised officer will refund 90% of the total amount claimed as refund on a provisional basis in Form GST RFD-4. Thereafter, after due verification of the documents furnished, the officer will issue an order for final settlement of the refund claim. Provisional refund will be granted subject to the following conditions: The person claiming refund has not been prosecuted for tax evasion of an amount exceeding Rs. 250 Lakhs during the preceding 5 years. The person’s GST compliance rating is not less than 5 on a scale of 10. No pending appeal, review or revision exists on the amount of refund. Refund in any other case If the officer is satisfied that the whole or part of the amount claimed as refund in the application is refundable, he will issue an order for the refund in Form GST RFD-5. This will be done within 60 days from the date of receipt of application. If the refund is not sanctioned within 60 days, interest on the refund amount will be paid for the period after expiry of 60 days till the date of actual refund of tax. Note: No refund shall be made if the amount claimed as refund is less than Rs. 1, 000. Exceptional scenarios of GST refund Following are few exceptional scenarios in which refund is allowed under GST: Tax on supply of goods regarded as deemed exports. For example: Supply of goods or services to an SEZ (Special Economic Zone) or EOU (Export Oriented Unit). Tax is refundable as a consequence of a judgement, decree, order or on the direction of an Appellate Authority, Appellate Tribunal or any court. Tax has been paid on a supply which has not been provided, either wholly or partially, and for which an invoice has not been issued. For example: A supplier has received an advance from the recipient on 28th November ’17 for a supply to be made on 20th December ’17, but which finally did not take place owing to a disagreement. While filing the return for November ’17, the supplier has to pay tax on the advance received. This tax is eligible for refund. Tax wrongly collected and deposited with the Central or State Government- If a person has paid CGST and SGST on an interstate supply or IGST on an intrastate supply, the person is eligible for refund of the amount once the tax has been remitted correctly. IGST paid on supply of goods to tourists travelling out of India, if the goods are taken out of India. The ‘relevant date’ in these scenarios of refund is given below: Scenario Relevant Date Goods regarded as deemed exports Date on which the return relating to the deemed exports is filed Tax refundable as a consequence of a judgement, decree, order or on the direction of an Appellate Authority, Appellate Tribunal or any court Date of communication of the judgement, decree, order or direction Tax provisionally paid Date of adjustment of tax after the final assessment In the case of a person, other than the supplier Date of receipt of goods or services by the person Any other case Date of payment of tax The process for claiming refund in these exceptional scenarios remains the same as discussed in the process for claiming refund section above.
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