KEY FEATURES OF GST

KEY FEATURES OF GST

1. DUAL GOODS AND SERVICE TAX

The GST shall have two components: one levied by the Centre (hereinafter referred to as Central GST), and the other levied by the States (hereinafter referred to as State GST). Rates for Central GST and State GST would be prescribed appropriately, reflecting revenue considerations and acceptability. This dual GST model would be implemented through multiple statutes (one for CGST and SGST statute for every State). However, the basic features of law such as chargeability, definition of taxable event and taxable person, measure of levy including valuation provisions, basis of classification etc. would be uniform across these statutes as far as practicable.

2. APPLICABILITY OF GST TO ALL TRANSACTIONS

The Central GST and the State GST would be applicable to all transactions of goods and services made for a consideration except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. The Central GST and State GST should be levied on common and identical tax base. The tax base should comprehensively extend over all goods and services ( with no distinction being made between treatment of goods and services) up to the final consumer point.

3. DESTINATION BASED MULTI POINT LEVY

It is recommended that the Centre and States should adopt a consumption based GST with no distinction being made between raw materials and capital goods , in avaliment of Input tax credit. GST is based on destination principle, thus tax base will shift from production to consumption of goods. The taxable event is Consumption of goods or services. As a result, revenue will accrue to the state in which consumption takes place or deemed to take place.

4. COMPUTATION OF GST ON THE BASIS OF INVOICE CREDIT METHOD

The liability of CGST and SGST is computed the basis of Invoice Credit method i.e. allow credit for tax paid on all intermediate purchases of goods and services on the basis of invoice issued by the supplier. As a result, all different stages of production and distribution can be interpreted as a mere tax pass-through, and the tax will effectively stick on final consumption within the taxing jurisdiction. This will facilitate elimination of the cascading effect at various stages of production and distribution. In an Invoice based VAT system, the issue of invoices in the proper form is an essential part of the procedure for imposing and enforcing the VAT. Therefore, it should be mandatory for a supplier making a taxable supply to another taxable entity to provide a VAT invoice.

5. PAYMENT OF GST

The Central GST and State GST are to be paid to the accounts of the Centre and the States separately. It would have to be ensured that account-heads for all services and goods would have indication whether it relates to Central GST or State GST (with identification of the State to whom the tax is to be credited).

6. UNIFORM PROCEDURE FOR COLLECTION OF GST

To the extent feasible, uniform procedure for collection of both Central GST and State GST would be prescribed in the respective legislation for Central GST and State GST.

7. THRESHOLD LIMIT

The present threshold limits prescribed in different State VAT Acts below which VAT is not applicable varies from State to State. A uniform State GST threshold across States is desirable and, therefore, it is considered that a threshold of gross annual turnover of Rs.10 lakh both for goods and services for all the States and Union Territories may be adopted with adequate compensation for the States (particularly, the States in North-Eastern Region and Special Category States) where lower threshold had prevailed in the VAT regime. Keeping in view the interest of small traders and small scale industries and to avoid dual control, the States also considered that the threshold for Central GST for goods may be kept at Rs.1.5 crore and the threshold for Central GST for services may also be appropriately high. It may be mentioned that even now there is a separate threshold of services (Rs. 10 lakh) and goods (Rs. 1.5 crore) in the Service Tax and CENVAT.

8. COMPOSITION SCHEME UNDER GST

The States are also of the view that Composition/ Compounding Scheme for the purpose of GST should have an upper ceiling on gross annual turnover and a floor tax rate with respect to gross annual turnover. The first discussion paper suggests that there would be a compounding cut-off at Rs. 50 lakh of gross annual turnover and a floor rate of 0.5% across the States. The scheme would also allow option for GST registration for dealers with turnover below the compounding cut-off.

In reference to Composition scheme, the task force has recommended rate of 1% each on account of CGST and SGST for dealers with the turnover between Rs 10 lacs to Rs 40 lacs.No credit for the same will be available if the dealer opts for the compounding scheme.

9. REGISTRATION & TAX PAYER IDENTIFICATION NUMBER

All the taxable entities with turnover above the threshold limit will be required to register and obtain GST registration number. The taxable entities with lower turnover will also have the option to register.

As per First Discussion paper, each taxpayer would be allotted a PAN-linked taxpayer identification number with a total of 13/15 digits. This would bring the GST PAN-linked system in line with the prevailing PAN-based system for Income tax, facilitating data exchange and taxpayer compliance.

However, the Task force report has recommended that the GST Registration number should be twelve digit alphanumeric numbers. The first ten digits should be the alpha-numeric Permanent Account Number (PAN) followed by a space and two more digits indicating the state code. This number scheme should be publicised widely and should be self-generated after obtaining a PAN . There will be single GST registration number for all branches in a State. Therefore, a dealer having branches across States will have as many GST registration numbers as the number of States in which he operates. The registrant dealer should be required to furnish a form, only by way of information, indicating the registration number for every State in which he operates. He should not be allowed to use the registration number, though self-generated, unless he has furnished the form.

Since the number is PAN based, it is not necessary to have any pre- registration verification. However, the states may, if necessary, undertake post-registration verification to eliminate any potential abuse. To begin with, on the eve of the introduction of GST, the dealer must furnish a consolidated form for all States in which he operates. If, at a later stage, the dealer extends his operation to a new State, he should be required to furnish a form for extension of activities and register the self- generated number for the new State.

10. INPUT TAX CREDIT (ITC) SET OFF

Since the Central GST and State GST are to be treated separately, taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST. Further, the rules for taking and utilization of credit for the Central GST and the State GST would be aligned.

11. CROSS UTILIZATION OF ITC

Cross utilization of ITC between the Central GST and the State GST would not be allowed except in the case of inter-State supply of goods and services under the integrated goods and service tax (IGST) model.

12. CREDIT ACCUMULATION ON ACCOUNT OF REFUND

Ideally, the problem related to credit accumulation on account of refund of GST should be avoided by both the Centre and the States except in the cases such as exports, purchase of capital goods, input tax at higher rate than output tax etc. where, again refund/adjustment should be completed in a time bound manner.

13. ZERO RATING OF EXPORTS

The first discussion paper has suggested that the exports would be zero-rated. Similar benefits may be given to Special Economic Zones (SEZs). However, such benefits will only be allowed to the processing zones of the SEZs. No benefit to the sales from an SEZ to Domestic Tariff Area (DTA) will be allowed.

14. GST ON IMPORTS

Imports will be brought under the scope of GST with necessary Constitutional Amendments. They will treated at par with inter-state transactions and Integrated goods and service tax (IGST) will be levied on imports. The incidence of tax will follow the destination principle and the tax revenue will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the IGST paid on import on goods and services.

15. SPECIAL INDUSTRIAL AREA SCHEME

After the introduction of GST, the tax exemptions, remissions etc. related to industrial incentives should be converted, if at all needed, into cash refund schemes after collection of tax, so that the GST scheme on the basis of a continuous chain of set-offs is not disturbed. Regarding Special Industrial Area Schemes, it is clarified that such exemptions, remissions etc. would continue up to legitimate expiry time both for the Centre and the States. Any new exemption, remission etc. would not be allowed. In such cases, the Central and the State Governments could provide reimbursement after collecting GST. The Task force also recommends doing away with any area based exemptions (at present provided in CENVAT) and to provide direct investment linked cash Subsidy, in case it is considered necessary to provide support to industry for balanced regional development.

16. MAINTENANCE OF RECORDS

A taxpayer or exporter would have to maintain separate details in books of account for availment, utilization or refund of Input Tax credit of CGST, SGST and IGST.

17. PERIODICAL RETURNS

The taxpayer would need to submit periodical returns, in common format as far as possible, to both the Central GST authority and to the concerned State GST authorities.

18. ADMINISTRATION OF GST

The administration of the Central GST to the Centre and for State GST to the States would be given. This implies that the Centre and the States will have concurrent jurisdiction on the entire value chain and on all taxpayers on the basis of thresholds for goods and services prescribed for the States and the Centre.

As per the recommendation of Task force report on GST, The Central Board of Excise and Customs(CBEC) shall be responsible for implementation of CGST and state tax administrations will be separately responsible for implementation for SGST.