Why GST Registration is important for your company?

GST Registration is Important and mandatory compliance for every business entity in India.

If you own a company, you need to obtain GST Registration as per the criteria specified for your business.

It may vary as per the location of your business or the type of work you are involved in.

Besides, not obtaining the GST Registration could lead to heavy penalties against your entity.

So, obtaining one is obligatory.

Why GST is Important?

Businesses with a turnover exceeding 40 lakhs per year for all states and 10 lakhs per annum for North-Eastern states need to obtain registration as a normal taxable person. This process of registration is called GST registration.

Mostly it is mandatory for all businesses to obtain GST Registration. However, for some type of businesses, it is not mandatory to obtain one.

These types of businesses come under the Exempted Category.

Tax Icons Accounting Money - Free image on Pixabay

Who needs to obtain GST Registration?

The following type of business entities need to obtain registration under GST;

  • Individuals registered under the Pre-GST law (for example, VAT, Excise, Service Tax etc.)
  • Businesses with turnover over the threshold limit of Rs. 40 Lakhs and Rs. 10 Lakhs for Uttarakhand, North-Eastern States, Jammu & Kashmir, and Himachal Pradesh. 
  • A casual taxable person or Non-Resident taxable person
  • Input service distributor 
  • Agents of a supplier  
  • People giving tax below the reverse charge mechanism
  • A person who furnishes through e-commerce aggregators
  • All e-commerce aggregator

Penalty if GST Registration is not obtained

Any taxable person who fails to obtain registration under GST is liable for a fine of Rs. 10,000 or amount of tax evaded, whichever is greater as per Section 122 of CGST Act

Documents required for registering under GST

You need to submit the following documents to register under GST;

  • PAN of the Applicant
  • Digital Signature (in case of Company)
  • Identity (PAN and Aadhaar) and Address proof (Voter ID/Passport/DL) of Promoters or Director with their photographs
  • Proof of registration of the business or Incorporation Certificate
  • Board Resolution or Letter of Authorization 
  • Address proof of the location of the business (Electricity Bill and Rent Agreement/Sale Deed)
  • Bank Account statement or Cancelled cheque
  • Brief Objects of the business

GST Registration is important and mandatory compliance for every business entity in India as per their eligibility criterion.

Any company or entity who do not obtain registration under GST is liable for a penalty.

Moreover, it is also compulsory for businesses to file GST Returns after obtaining GST Registration, within the specified period to avoid any legal action against their companies.

HOW TO CLAIM REFUND UNDER GST?

Tax refund refers to the money received back from a tax return. They are a return of excess amounts of tax that a taxpayer has paid to the state or central government throughout the past year. However there are varied situations under which refund can be claimed. GST or Goods and Service Tax is the comprehensive tax brought into effect in order to replace all the other indirect taxes imposed by the state and central government. It is levied on manufacture, sale and use of the goods and services. The amount collected after levying GST will be used to propel the economic growth of the country.

The provisions pertaining to refund contained in the GST law aim to streamline and standardise the refund procedures under the GST regime. Thus, under the GST regime, there is a standardised form for making any claim for refunds. The claim and sanctioning procedure are completely online and time-bound, which is a marked departure from the existing time consuming and cumbersome procedure.

Situations when refund can be claimed

A claim for refund (Source: CBEC GST) may arise on account of:

  1. Export of goods or services
  2. Supplies to SEZs units and developers
  3. Deemed exports
  4. Refund of taxes on purchase made by UN or embassies etc.
  5. Refund arising on account of judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal or any court
  6. Refund of accumulated Input Tax Credit on account of inverted duty structure
  7. Finalisation of provisional assessment
  8. Refund of pre-deposit
  9. Excess payment due to mistake
  10. Refunds to International tourists of GST paid on goods in India and carried abroad at the time of their departure from India
  11. Refund on account of issuance of refund vouchers for taxes paid on advances against which, goods or services have not been supplied
  12. Refund of CGST & SGST paid by treating the supply as intra state supply which is subsequently held as inter-State supply and vice versa

The GST law requires that every claim for refund is to be filed within 2 years from the relevant date.

Procedure for making a refund claim

1. Documentation

Whenever one makes a refund claim, there are a certain set of documents that need to be submitted along with the refund claim. For every claim, the main document prescribed is a statement of relevant invoices (not the invoices itself) pertaining to the claim. In case refund is on account of export of services, apart from the statement of invoices, the relevant bank realisation certificates evidencing receipt of payment in foreign currency is also required to be submitted. If it is a claim made by the supplier to the SEZ unit, an endorsement from the Proper Officer evidencing receipt of such goods/services in the SEZ also needs to be submitted. Further, a declaration is also required from the SEZ unit to the effect that they have not availed ITC of the tax paid by the supplier.

For crossing the bar of unjust enrichment, if the refund claim is less than Rs.2 Lakhs, then a self-declaration by the applicant to the effect that the incidence of tax has not been passed to any other person will suffice to process the refund claim. For refund claims exceeding Rs. 2 Lakhs, a certificate from a Chartered Accountant/Cost Accountant will have to be given. It is to be noted that such document need not be given if it is a claim arising on account of zero rated supplies or claim of accumulated ITC or payment of wrong tax (integrated tax instead of central tax and state tax and vice versa) or a claim where supply is not done or a refund voucher has been issued.

2. Compliance with Natural Justice

If there is any case arising where the applicant’s claim is to be rejected, he/she is given an online notice for the same stating the ground on which the refund is sought to be rejected. The applicant needs to respond online within 15 days from the receipt of such notice. Thus no claim can be rejected without putting the applicant to notice.

3. Payment to be credited online

Digital transfer of payment takes place for crediting the refund. The amount is directly transferred to the applicant’s bank account and he need not come to authorities to collect cheques or cash.

4. Power with the Commissioner to Withhold Refund in Certain Cases

In extreme cases such as the ones where further proceedings may be required or in default cases, Commissioner has the rights and power to withhold refund in such cases. He may, after giving the taxable person an opportunity of being heard, withhold the refund till such time as he may determine.

To summarize, following figure is a step by step depiction to easily understand the process.

For step 5, In the case of non-qualification, the refund would be transferred to CWF (consumer welfare fund). The application for refund can be made after every quarter. An amount less than 1000 is not eligible for the refund.

Starters’ CFO has well – trained professionals for resolving your queries regarding refund mechanism under GST. Any other assistance in relation to compliance with GST and related procedures can also be provided here.

HOW IS GST ON EXPORT OF SERVICES LEVIED?

GST or Goods and Service Tax is the comprehensive tax that is brought into effect in order to replace all the other indirect taxes imposed by the state and central government. It is levied on manufacture, sale and use of the goods and services. The amount collected after levying GST will be used to propel the economic growth of the country. Through this article, we will discuss the levy of GST on Export of Services.

Exports are classified as zero-rated supply.

In layman terms, zero-rated supply refers to items that are:

  • Taxable, but the rate of tax is nil on their supplies and
  • Input tax relating to them can be availed

Meaning of Export of Services

 Section 2(6) of IGST Act defines Export of Services as ‘the supply of any service when –

  • the supplier of service is located in India;
  • the recipient of service is located outside India;
  • the place of supply of service is outside India;
  • the payment for such service has been received by the supplier of service in convertible foreign exchange; and
  • the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8

Mandatory Registration

 As per Section 7(5) of the IGST Act, in such a scenario, the supply is ‘inter-state’ supply and accordingly shall be classified as ‘inter-state’ sale. Section 24 of the CGST Act specifies that any person engaging in ‘inter-state’ sale is required to be registered under GST law irrespective of threshold.

Also, as per section 22 of the CGST act, every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees: Provided that where such person makes taxable supplies of goods or services or both from any of the special category states, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees. However, the limit of 20 lakhs is not applicable where inter-state supplies are made. Since export has been deemed to be an inter-state supply, all exporters of services would mandatorily be required to take registration under GST.

Are Exports Taxable?

 Section 16 of IGST act defines zero rated supply as:

  • “zero rated supply” means any of the following supplies of goods or services or both, namely:–
    a.) export of goods or services or both; or
    b.) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit
  • Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero-rated supplies; notwithstanding that such supply may be an exempt supply.
  • A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:–
    a.)he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input tax credit; or
    b.) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder.

How to Claim Refund?

 Section 54 of CGST Act deals with refund of tax

  • Section 54 (1): Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed: Provided that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49, may claim such refund in the return furnished under section 39 in such manner as may be prescribed
  • Section 54 (6): Notwithstanding anything contained in sub-section (5), the proper officer may, in the case of any claim for refund on account of zero-rated supply of goods or services or both made by registered persons, other than such category of registered persons as may be notified by the Government on the recommendations of the Council, refund on a provisional basis, ninety per cent. of the total amount so claimed,excluding the amount of input tax credit provisionally accepted, in such manner and subject to such conditions, limitations and safeguards as may be prescribed and thereafter make an order under sub-section (5) for final settlement of the refund claim after due verification of documents furnished by the applicant

In the Conclusion

Though export of services continues to be exempt, as per GST experts, exporter will either have to take a bond for making exports or deposit GST on exports and then claim refund. This has lead to lot of hardship to service providers, Start ups and freelancers.

For any further enquiry regarding the export of services under GST, you can contact Starters’ CFO.

AVAILING INPUT TAX CREDIT UNDER GST

Input tax credit is the credit manufacturers receive for paying input taxes towards inputs used in the manufacture of products. Similarly, a dealer is entitled to input tax credit if he has purchased goods for resale. Earlier Input tax credit was available for different indirect taxes, but now, with the new GST scheme it is really important for you to know some pre-requisites before going for input- tax credit under GST.

Talking about the current tax regime, input tax credit is available for VAT and service tax paid on inputs as shown below:

Under the new GST scheme, Input tax credit has been defined as credit of Input GST/Central GST/State GST charged on any supply of goods and or services used or intended to be used in the course or furtherance of business and includes the tax payable under reverse charge. However, in order to claim input tax credit, one needs to be a registered taxpayer of all inputs used or intended to be used in the course of or for furtherance of business.

Conditions for availing ITC under GST

Before going for input tax credit under GST, you need to fulfil certain necessary conditions:

In this article, we will look at the following situations:

Availing Input Tax credit by applying for registration

You can apply for registration under GST in two situations:

  1. When you are liable to register
  2. When you voluntarily apply for registration

When you are liable to register

When you apply for registration under GST (on becoming liable to register), you can avail 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, only if you have:

  • Applied for registration within 30 daysfrom the date on which you become liable to register and
  • You have been granted registration

Let us understand this with the help of an example:

Suppose you are a manufacturer of a footwear firm and have crossed the threshold limit for registration on 1stOctober 2017. Now if you have stock of raw materials worth Rs. 6,00,000 on this date and have paid GST @ 18% (Rs 1,08,000) on them. You must ensure that you apply for registration within 30 days from 1st October 2017. If not, you will lose ITC of Rs 1,08,000 on the raw materials in stock that you are eligible for.

When you voluntarily apply for registration

Although you have not crossed the threshold limit for registration, provisions of the Law allow you for ‘voluntary registration’. If you voluntarily apply for GST registration, you can avail ITC on inputs and inputs contained in semi-finished or finished goods in stock on the day before you are granted registration.

Let us understand this with the help of an example:

Suppose, you are a dealer of consumer durable products (television, cameras, kitchen appliances etc.) and because of your day to day business operations, you voluntarily apply for registration under GST, even though the threshold limit has not been crossed. Now if you have been granted registration on 10th September 2017 and have consumer durable products worth Rs 4,00,000 in stock, on which GST @ 18% (Rs 72,000) has been paid. You can avail the ITC of Rs 72,000 on the products you have in stock.

What if you leave the Composition Scheme and become a regular dealer?

Under GST, a composition scheme has been introduced which will make compliance with tax laws hassle free for eligible businesses opting for the scheme. This is particularly for small businesses operating in the country. Rate of tax as prescribed will be less than regular GST but not less than 1% of the turnover during the Financial Year. Tax rates under the scheme are expected to be between 1% and 3%. This scheme is primarily aimed to reduce the burden of compliance for small and medium businesses. Also businesses registered for composition scheme need to file returns quarterly (not monthly).

Now, if you are registered under the composition scheme and your aggregate turnover crosses Rs 50 lakhs, you need to move away from the composition scheme and become a regular dealer. When you leave the composition scheme and become a regular dealer, you can then avail ITC on inputs, inputs contained in semi-finished or finished goods in stock, and capital goods on the day before the date on which you become liable to pay tax. The credit on capital goods will be reduced by percentage points, which will be notified accordingly.

Let us understand this with the help of an example:

Suppose you have been registered as a composition dealer under GST and your turnover has now crossed Rs 50 lakhs hence, you have to leave the composition scheme and become a regular dealer now. Now if your turnover has crossed Rs. 50 lakhs on 20th October 2017 and your stock on 19th October 2017 contains the following inputs-

You can avail the full ITC of Rs 99,000 and ITC on capital goods (reduced by the notified percentage points).

What if an exempt good under GST becomes taxable?

If at one point of time you are dealing with goods that are exempt under GST law, then, when these goods (or services) declared as exempt from GST are made taxable, you can avail ITC on the following on the day before the supply becomes taxable:

  • Inputs in stock and inputs contained in semi-finished or finished goods in stock, which are relatable to the exempt supply.
  • Capital goods exclusively used for the exempt supply. The credit on capital goods will be reduced by percentage points, which will be notified.

Let us understand this with the help of an example:

Suppose you manufacture an exempt good. This exempt good is made taxable on 7th November 2017. You have the following inputs (used to manufacture the exempt good) in stock on 3rd November 2017-

You can avail the full ITC of Rs. 81,000 on the inputs used to manufacture the exempt good which has been made taxable. You can also avail ITC on capital goods exclusively used for the exempt supply, reduced by percentage points, which will be notified accordingly.

If a sale/merger/demerger/amalgamation/lease/transfer of the business occurs, then?

In a merger/sale/transfer etc occurs, then only if there is a specific provision for transfer of liabilities, the unutilized ITC can be transferred to the sold, merged, demerged, or transferred business.

Let us understand this with the help of an example:

Suppose ‘A’ Ltd sold its business to ‘B’ Ltd. At the time of sale, suppose A Ltd had unutilized ITC of Rs. 3,00,000. Also if in the sale agreement, it was agreed that all liabilities and assets of A Ltd will be transferred to B Ltd. In this case, A Ltd can transfer the unutilized ITC of Rs. 3,00,000 to B Ltd.

What if goods or services are used partly for business and partly for other purposes?

In case, goods or services are used partly for business and partly for other than business purposes, ITC can be availed only on the portion used for the purpose of business.

Let us understand this with the help of an example:

Suppose you are a consumer durable goods dealer and you purchased laptops for Rs. 4,00,000 from a manufacturer, on which GST of Rs. 72,000 (@18%) has been paid. Out of the laptops purchased, those worth Rs. 1,00,000 were taken by you for your personal use. The remaining laptops were sold to customers. In this case, ITC can be availed only on the portion used for business, i.e. Rs. 3,00,000. Hence, eligible ITC here is Rs. 54,000 (3,00,000*18%).

When goods are used partly for taxable supplies and partly for exempt supplies

When goods or services are used partly for taxable supplies and partly for exempt supplies, ITC can be availed only on the portion used for making taxable supplies and zero rated supplies. ITC is not allowed on the portion used for making exempt supplies, and supplies where the receiver pays tax by reverse charge mechanism.

Let us understand this with the help of an example:

You are a manufacturer. You purchased raw materials for Rs. 2,00,000, on which GST paid is Rs. 36,000 (@18%). These raw materials have been used partly for manufacturing Item A which is taxable and Item B, which is exempt. The details are shown below-

You can avail ITC of Rs. 21,600 on the portion of raw materials used to manufacture Item A, which is taxable. The ITC of Rs. 14,400 on the portion used to manufacture Item B cannot be availed, as Item B is exempt.

Some other Situations

We at Starters’ CFO can assist you in getting any further knowledge about Input Tax Credit as under GST.

EFFECT OF GST ON E-COMMERCE SECTOR IN INDIA

E- Commerce Business in India has been taking little steps to evolve in the highly competitive markets. A few years back, no one could expect such online platforms offering excellent services to a huge lot of people. The e-commerce sector has managed to capture the mind-space and eye-balls of the consumers in a jiffy, and with an unprecedented growth trajectory expected to continue, is predicted to be the next BIG Industry of India. The new Goods and Services Tax or simply GST has certain features for the e-commerce industry that bring more regulation to this sector which can be seen as step towards a technologically equipped future for the country.

Those who have been in E-Commerce since long, have a clear idea about the less supportive indirect tax laws in respect of online businesses. These tax laws have not been able to recognize and accommodate the evolving business models and hence have become an obstacle in the operation of the newer market place or services model. Also the e-commerce sector faces problems in categorizing their offerings into ‘goods’ or ‘services’ for charging either value added tax (VAT) / Central Sales Tax (CST) or service tax. There are many other hindrances that the present tax structure imposes which can now be solved with GST.

Definition of E-Commerce as per GST

As per GST Law, ‘electronic commerce’ shall mean the supply or receipt of goods and / or services, or transmitting of funds or data, over an electronic network, primarily the internet, by using any of the applications that rely on the internet, like but not limited to e-mail, instant messaging, shopping carts, Web services, Universal Description, Discovery and Integration (UDDI), File Transfer Protocol (FTP), and Electronic Data Interchange (EDI), whether or not the payment is conducted online and whether or not the ultimate delivery of the goods and/or services is done by the operator.

Some of the highlights of GST in respect to E-Commerce Business are given below:

We at Starters’ CFO can assist you in getting registered for GST along with providing services in regard to maintaining your business in the future.

No Threshold Limit for Registration

 There is a minimum limit or threshold limit implied on a majority of other businesses for getting registered under GST. These businesses need to register themselves once such limit is breached. However such limit is not applicable in case of E Commerce sellers. All the businesses carrying out e-commerce activity are required to get registered under GST irrespective of their turnover. Additional efforts shall be required to reconcile the returns of e-commerce operators and vendors and justify before authorities, as it may become a regular phenomenon due to timing differences, etc.

Get Registration for each individual state

 E- Commerce players and aggregators need to be registered in all states of operations and undertake compliance accordingly. Going by the GST provisions, each business that comes under the definition of E-Commerce needs to register on GST India portal for all the states where the person is supplying goods. The reason that came forward to put light on this step was that e-commerce business model is as such that the seller expects order from all the states, so they are liable to obtain registration in all the states.

Trans-shipment of goods is another such phenomenon that needed to be addressed. For e-commerce transactions, trans-shipment of goods among states for aggregation, quality check, returns, etc are a common series of events. There is no clarity on the aspect of taxability of such trans-shipments in law. Ideally, trans-shipment of goods should be kept outside the purview of GST as no sale is involved, in order to reduce unnecessary tax and compliance burden.

Removal of Successive Rates

 As the name suggests “Goods and Services Tax” it is just one tax liability for both service and good. Hence unlike the indirect tax system, GST will not be imposed twice (once on goods then on services). Instead there is only one tax that covers the all.
The e-commerce industry can benefit significantly from the removal of barriers in cross utilization of credits. At present, the traders are denied credit of service tax paid on input services such as logistics, warehousing, commission of marketplace. Service providers are not allowed to claim credit of VAT paid on goods that are used for providing output services.

These results in a significant blocked input tax cost for this sector since VAT is applicable on the output side and most input costs are services. The GST model will result in facilitation of continuous credit supply across supply chains along with tax set-offs available across the production value chain, both for goods and services. This will eventually result in the reduction of successive effect of taxes bringing down cost of supplies. This cost benefit, hopefully, be passed on to the customers.

TCS to be collected by Marketplace Operator

 The market place operator is responsible for collecting TCS. Under the new tax regime, marketplace operators are mandatorily required to deduct a percentage amount as the GST liability of seller and deposit it with government. This mechanism is being termed as “Tax Collection at Source (TCS)” under the GST law. Eventually the marketplace seller will have to file monthly return under GST to claim the credit of TCS collected by the marketplace operator. This will also impact the liquidity and cash flow of these sellers.

No Benefit under Composition Scheme

 Under GST, a composition scheme has been introduced which will make compliance with tax laws hassle free for eligible businesses opting for the scheme. This is particularly for small businesses operating in the country. Rate of tax as prescribed will be less than regular GST but not less than 1% of the turnover during the Financial Year. Tax rates under the scheme are expected to be between 1% and 3%. This scheme is primarily aimed to reduce the burden of compliance for small and medium businesses. Also businesses registered for composition scheme need to file returns quarterly (not monthly).

But not to be forgotten, E-Commerce Businesses have not been included under this scheme.

Hence there are a number of provisions included under GST that guide the e-commerce businesses from unregulated to a regulated way. Hence, in case you are planning to start your own e-commerce business, do consult Starters’ CFO to get in-depth knowledge regarding GST and its impact on E-Commerce sector in India.