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India’s biggest tax reform, the goods and services tax (GST), was implemented on July 1, 2017. GST is a single value-added tax levied on the manufacture, sale, and consumption of goods and services at the national level. The single tax system subsumed all the previously existing federal and state levies with an aim to create a single, uniform market across India.Different categories of goods and services are taxed differently under GST. The GST Council has provided a four-tier tax structure tied at 5 percent, 12 percent, 18 percent, and 28 percent, with lower rates for essential items and the highest for luxury and de-merits goods.

There are three components to GST in India:

  • CGST: Central goods and services tax, levied on an intra-state sale and collected by the central
  • SGST/UGST: State/union territory goods and services tax, levied on an intra-state sale and collected by the state or union territory
  • IGST: Integrated goods and services tax, levied on interstate sales and collected by the central government. The IGST is the aggregate of the CGST and SGST; the SGST is appropriated from the state where the supplies are consumed. 

What is GST?

The Goods and Services Tax (GST) is a single, value-added tax levied on the manufacture, sale, and consumption of both goods and services at the national level. The GST subsumes most indirect taxes previously levied at the federal and state level.

It is a consolidated tax based on a uniform tax rate fixed for both goods and services across India, and is payable at the final point of consumption. At each stage of sale or purchase in the supply chain, the tax is collected on value-added goods and services, through a tax credit mechanism.

Indirect Tax Structure under GST

Indirect taxes subsumed under GST Indirect taxes subsumed under GST

Indirect taxes not subsumed under GST

Federal level

State level

 

  • Central Excise Duty
  • Additional Excise Duties (Goods of Special Importance)
  •  Service Tax
  • Additional Customs Duty / Countervailing Duty
  • Special Additional Duty of Customs
  • Excise duty levied under Medicinal & Toiletries Preparation Act
  • Additional duties of excise levied under textiles and textile products
  • Central surcharges and cesses
  • Additional duties of excise levied under textiles and textile products
  • Central surcharges and cesses
  • State Value Added Tax/Sales Tax
  • Entertainment Tax (other than levied by the local bodies)
  • Central Sales Tax (levied by the Central government and collected by the States)
  • Octroi and Entry Tax
  • Purchase Tax
  • Luxury Tax
  • Taxes on lottery, betting, and gambling
  • State surcharges and cesses
  • Taxes on advertisements

What are the Key Features of GST in India?

Dual tax

The GST is a dual levy, which means that both the federal and State government levy tax on supply of goods and services based on the nature of transaction (Inter-State or Intra-State). Accordingly, GST has two concurrent components:

  • State/Union Territory GST (SGST/UTGST): It is levied and collected by the state or union territory (UT).
  • Central GST (CGST): It is levied and collected by the federal government.

Integrated Goods and Services Tax (IGST)

Under GST, inter–State supplies between any two States and imports to the country are subject to the IGST, which is levied and collected by the federal government. The IGST is the aggregate of the CGST and SGST; it is appropriated from the State where the supplies are consumed.

Tax on supply

The GST is applicable on the “supply” of all goods and service. Under GST, the liability to pay CGST or SGST arises at the time of supply. Depending on whether the transaction is ‘inter-state’ or ‘intra-state’ separate GST provisions are applicable to help a business determine the place of supply for goods and services. GST is a destination-based tax, levied only at the final destination of consumption.

Input tax credit (ITC) mechanism

The ITC forms the backbone of the GST regime in India. The ITC mechanism helps in the seamless flow of tax-credits throughout the value-chain, and across boundaries of States.

The GST is essentially a tax on value addition at each stage of the supply chain; every supplier, who is the person supplying the goods and/ or services or an agent acting as such on behalf of such a supplier, can claim credits (over input taxes paid at each stage of supply chain) in the subsequent stage of value addition. Thus, a continuous chain of set off is established from the original producer’s or service provider’s level up to the retailer’s level, thus, eliminating the burden of double taxation.

Suppliers at each stage are permitted to set off the GST paid on the purchase of input goods and services against GST to be paid on the supply of goods and services.

It is important for dealers to note that no cross utilization of the ITC is permitted between the state and federal levy. This means that the credit of CGST paid on inputs may be used only for paying CGST on the output, while the credit of SGST on inputs may be used only for paying SGST, except in the case of inter-State supply of goods.

Utilization of Input Tax Credit

Input Tax Credit

Set off Against

CGST

CGST AND IGST (in that order)

SGST     

SGST and IGST (in that order)

IGST

IGST, CGST, SGST (in that order)

To avail input tax credit, following conditions must be met:

  • The dealer holds a tax Invoice, a debit note issued by the registered supplier or any such tax paying documents as may be prescribed.
  • The details of such tax invoice or debit note must have been furnished by the supplier in GSTR-1.
  • The said goods or services have been received.
  • Returns (Form GSTR-3B) have been filed.
  • The supplier has paid the due tax to the government, either in cash or via claiming ITC.

Reverse charge concept:

  • Unregistered dealer selling to a registered dealer: In such a case, the registered dealer has to pay GST on the supply.
  • Services through an e-commerce operator: If an e-commerce operator supplies services, then reverse charge will apply on the e-commerce operator. He will be liable to pay GST.
  • Supply of certain goods and services specified by CBEC: CBEC has specified a list of certain goods and services on which reverse charge is applicable.
  • Input tax credit on reverse charge: Tax paid on reverse charge basis will be available for ITC if such goods and/or services are used, or will be used, for business. The service recipient (i.e., who pays reverse tax) can avail ITC. 

Invoice matching system

The GST allows for a seamless flow of ITC across the supply chain. One of the essential features of the GST is to check ITC claims by the tax payer to prevent any leakages. For this purpose, an invoice matching system has been developed under GSTN to match the purchase and sale invoices of taxpayers. Accordingly, every registered taxable person under GST is required to issue a tax invoice, which will be uploaded on the invoice matching system. After the sale and purchase invoices of a tax payer have been matched, the ITC will be conferred.

Goods and Services Tax Network (GSTN)

GSTN is a not-for-profit company, which has the federal government, State and union territory governments, leading Indian financial institutions like ICICI Bank, HDFC Bank, HDFC Ltd, LIC Housing Finance, the National Stock Exchange Strategic Investment Corporation Ltd, and taxpayers as its shareholders. GSTN’s role is to provide information technology support to ensure a smooth transition from the previous indirect tax regime to procedures under GST.

GST compliance rating system

It is a unique form to rate whether a taxable person in India has been compliant. In this system, every taxable person has a rating based on his/her record of tax compliance. The score is updated at periodic intervals and placed in the public domain to ensure transparency.

Is My Company Required to Register for GST in India?

Every business and professional entity based in India, with an annual turnover exceeding US$55,096 (INR 4 million) for goods and US$27,548 (INR 2 million) for services, is required to obtain GST registration. For special category states in India, which include the north-eastern states as well as hilly states, the threshold varies.

GST Registration Threshold in Indian Jurisdictions

Normal category states/UT that opted for a new limit of INR 4 million

Normal category states that chose status quo – INR 2 million limit

Special category states/UT that opted for new limit of INR 4 million

Special category states/UT that opted for new limit of INR 2 million

Kerala, Chhattisgarh, Jharkhand, Delhi, Bihar, Maharashtra, Andhra Pradesh, Gujarat, Haryana, Goa, Punjab, Uttar Pradesh, Himachal Pradesh, Karnataka, Madhya Pradesh, Odisha, Rajasthan, Tamil Nadu, West Bengal, Lakshadweep, Dadra and Nagar Haveli, Daman and Diu, Andaman and Nicobar Islands, and Chandigarh

Telangana

Jammu and Kashmir, Ladakh and Assam

Puducherry, Meghalaya, Mizoram, Tripura, Manipur, Sikkim, Nagaland, Arunachal Pradesh, and Uttarakhand

Do foreign companies require GST registration in India?

Yes, any foreign company that supplies goods and/or services to recipients in India, but operates without a fixed place of business or residence in India should mandatorily obtain GST registration.

Compulsory registration

The following categories of suppliers are mandatorily required to be registered irrespective of turnover:

  • Taxable person carrying on interstate supply;
  • Casual taxpayer / Non-resident taxable person;
  • Businesses liable to pay tax under reverse charge;
  • Agents supplying on behalf of taxable person;
  • Input service distributor;
  • Sellers on e-commerce platforms;
  • E-commerce operators and aggregators liable to collect tax at source;
  • Authorities responsible to withhold tax or deduct tax deducted at source (TDS); and
  • Person supplying online information and database access or retrieval (OIDAR) services from a place outside India to a person in India, other than a registered taxable person.

Exemption from registration

The following shall not be required to obtain registration and will be allotted a UIN (Unique Identification Number) instead. They can receive refund of taxes on notified supplies of goods/services received by them:

  • Any specialized agency of UNO (United Nations Organization) or any multilateral financial institution and organization notified under the United Nations Act, 1947;
  • Consulate or embassy of foreign countries;
  • Any other person notified by the Board/Commissioner; and
  • The central government or state government may, on the recommendation of the GST council, notify exemption from registration to specific persons.

Voluntary registration

A person may opt for voluntary registration under GST even if he is not liable to be registered. All the provisions of GST applicable to a registered taxable person will similarly apply to such a voluntarily registered person also, that is, he will be treated as a normal taxable person.

What is the process of registration for new businesses under GST?

Entities supplying taxable products and services to different states in India need to be registered in all the states from which the supplies are made. An entity already registered in a state under any existing law must migrate to the GST regime within the stipulated period.

Once registered, businesses will receive a 15-digit GST identification number (GSTIN) based on a state-wise code and their Permanent Account Number (PAN).

Is My Company Required to File GST Returns?

GST return filing is a mandatory compliance even if there are no sales and purchases carried out by a business during the return period. Such taxpayers must file a ‘nil’ return. Failure to file returns in time may attract penalty, and in case of non-compliance, a notice from the tax authorities.

The period for filing GST returns and types of returns vary among different categories of taxpayers. Below is a brief description of the types of returns to be filed under the GST.

What is the Procedure for Filing GST Returns?

The existing system of filing GST returns was amended in the 31st GST Council meeting and is supposed to be replaced by a New Return System under GST. Under this New Return System, there will be one main return GST RET-1 and two annexures, GST ANX-1 and GST ANX-2. This return will need to be filed on a monthly basis, except for small taxpayers (turnover up to US$0.69 million (INR 50 million) in the preceding financial year, who can opt to file the same quarterly. This new system was slated for implementation from October 2020. However, while it has not yet been updated on the official GST portal, it is expected to be rolled out shortly.

Under the existing GST system, businesses must levy GST on their sales and deposit the same with the tax authority every month. Subsequently, a monthly summary of all sales transactions must be submitted online to the tax department. This process is known as return filing and the form in which the return is to be filed is called a GST return.

Differences Between Old and New Return System

Old return-filing system 

New simplified return system

Taxpayers with a turnover not exceeding INR 15 million (US$0.20 million) in the preceding financial year are considered small taxpayers.

Taxpayers with turnover up to INR 50 million (US$0.69 million) in the preceding financial year are considered small taxpayers.

Multiple return forms to be filed depending on the category of taxpayers, such as – GSTR-1, GSTR 2B, GSTR 3B etc.

A single simplified main return form, GST RET-1, which contains 2 annexures – GST ANX-1 and GST ANX-2 that are to be filed by all categories of taxpayers.

Revenue invoices can be uploaded only at the time of filing returns of outward supplies.

A mechanism for the continuous upload of revenue invoices in a real-time.

Input tax credit could be claimed on a self-declaration basis.

Input tax credit can be claimed based on invoices uploaded by the supplier.

Missing invoices and amendments, if any, could only be made in the return of the following tax period.

Missing invoices and amendments, if any, can be made by filing an Amendment Return.

Taxpayers must file GST returns until their registration has been cancelled, even if an application for cancellation of registration has been submitted.

Registration will now be suspended in cases where a taxpayer has applied for cancellation of registration, and returns will not need to be filed for this period.

What is the GST Return Filing Schedule at Present?

Types of GST Returns

Return form

Description

Frequency

Due date

 

 

GSTR-1

 

Details of outward supplies of taxable goods and/

or services affected

Monthly

 

Quarterly (if opted)

 

11th* of the next month with effect from October 2018 until September 2020

 

Previously* the due date was 10th of the next month

GSTR-2

 

(Suspended from September 2017 onwards)

 

Details of inward supplies of taxable goods and/or services effected claiming the input tax credit

 

 

 

Monthly

 

 

 

15th of the next month

GSTR-3

 

(Suspended from September 2017 onwards)

 

Monthly return on the basis of finalization of details

of outward supplies and inward supplies along with the payment of tax

 

 

 

Monthly

 

 

 

20th of the next month

 

 

 

 

 

 

 

 

 

 

GSTR-3B

 

 

 

 

 

 

 

Simple return in which summary of outward supplies along with input tax credit is declared and payment of tax is affected by the taxpayer

 

 

 

 

 

 

 

 

 

 

Monthly

Staggered** from the month of January 2020 onwards

 

•      Previously* 20th of the next month for all taxpayers

•      20th** of net month for taxpayers with an aggregate turnover in the previous financial more than INR 5 billion (US$6.77 million)

 

For the taxpayers with aggregate turnover equal to INR 5 billion (US$6.77 million), 22nd of the month for taxpayers in category X states and 24th of next month for taxpayers in category Y states

 

•      Category X: Chhattisgarh, Madhya Pradesh, Gujarat, Maharashtra, Karnataka, Goa, Kerala, Tamil Nadu, Telangana or Andhra Pradesh or the Union territories of Daman and Diu and Dadra and Nagar Haveli, Puducherry, Andaman and Nicobar Islands, and Lakshadweep

•      Category Y: Himachal Pradesh, Punjab, Uttarakhand, Haryana, Rajasthan, Uttar Pradesh, Bihar, Sikkim, Arunachal Pradesh, Nagaland, Manipur, Mizoram, Tripura, Meghalaya, Assam, West Bengal, Jharkhand or Odisha or the Union Territories of Jammu and Kashmir, Ladakh, Chandigarh, and New Delhi

 

 

 

 

CMP-08

Statement-cum-challan to make a tax payment by a taxpayer registered under the composition scheme under section 10 of the CGST Act (supplier of goods) and CGST (rate) notification number 02/2019 dated March 7,

2020 (supplier of services)

 

 

 

 

Quarterly

 

 

 

 

18th of the month succeeding the quarter

 

 

 

GSTR-4

Return for a taxpayer registered under the composition scheme under section 10 of the CGST

Act (supplier of goods) and CGST (rate) notification no. 02/2019 dated March 7, 2020 (supplier of services)

 

 

 

Annually

 

 

 

30th of the month succeeding a financial year

 

GSTR-5

 

Return for a non-resident foreign taxable person

 

Monthly

 

20th of the next month

 

 

GSTR-6

Return for an input service distributor to distribute the eligible input tax credit to its branches

 

 

Monthly

 

 

13th of the next month

 

GSTR-7

 

Return for government authorities deducting tax at source (TDS)

 

Monthly

 

10th of the next month

 

 

GSTR-8

Details of supplies effected through e-commerce operators and the

amount of tax collected

at source by them

 

 

Annually

 

 

10th of the next month

 

GSTR-9

Annual return for a normal taxpayer

 

Annually

 

31st December of next financial year

 

 

GSTR-9A

Annual return to be filed by a taxpayer registered

under the composition levy anytime during the year

 

 

Annually

 

 

31st December of next financial year

 

GSTR-9C

 

Certified reconciliation statement

 

Annually

 

31st December of the next financial year

 

GSTR-10

Final return to be filed by a taxpayer whose GST registration is cancelled

 

Monthly

 

Within 3 months of the date of cancellation or date of cancellation order, whichever is later

 

 

GSTR-11

 

Details of inward supplies to be furnished by a person having unique identification number (UIN) and claiming a refund

 

 

Monthly

 

 

28th of the month following the month for which statement is filed

*Subject to changes as per new orders/notifications

**Statement of self-assesses tax by composition dealers, same as the erstwhile form GSTR-4 which is now made an annual return w.e.f FY 2019-20 onwards

What are the Tax Slabs under GST?

Different categories of goods and services are taxed differently under GST. The GST council has provided a four-tier tax structure tied at Zero Rate (0 percent), Lower Rate (5 percent), Standard Rate (12 percent, 18 percent), and High rate (28 percent) with lower rates for essential items and the highest for luxury and sin goods.

How are Imports Taxed under GST?

The imports under GST are treated as inter-state supply; which means that IGST that is imposed on the inter-state supply of good and services is also imposed on the imports of goods and services. Since GST is a destination-based tax, IGST is levied in the State where the imported goods are consumed and import services are received.

Under GST, the IGST replaces previous indirect taxes imposed on the import of goods and services. However, customs duty and other protective taxes such as anti-dumping duty, safe-guard duty continue to be levied on imports, in line with the previous tax regime.

GST on Imports

Import

Taxes

Import of Goods

IGST + Basic Customs Duty + other protective duties (if applicable)

Import of Services

IGST

How are Exports Taxed under GST?

Under GST, exports of goods and services are treated as zero rated supplies and are exempted from taxation.

What is the Mode of Payment of Tax?

The payment of tax is in an electronic mode with a common ‘challan’ for all the taxes under three different modes of payment:

  • Internet banking;
  • Payments through RTGS/NEFT; and
  • Over the counter payments (for payments up to INR 10,000 (US$135.60) per tax period) in cash, cheque or demand draft.

Are There Any GST Schemes to Help Businesses?

The GST composition scheme is available for goods and service providers that have an aggregate annual turnover up to INR 5 million (US$67,667), and will need to pay tax at a nominal rate subject to conditions.

Taxable persons eligible for the composition scheme under GST are those whose turnover is less than INR 7.5 million (US$101,501) if based in special category states (northeastern states and Himachal Pradesh) and less than INR 15 million (US$203,003) for the rest of India. Businesses with the same PAN can be either registered as regular dealers or composition dealers but not as a combination of both.

Rules of the composition scheme:

  • Input tax credit cannot be claimed
  • Inter-state supply of goods cannot be done
  • Goods exempted from GST cannot be supplied
  • For transactions under reverse charge mechanism, tax does not need to be paid at normal GST rates
  • Taxable person with multiple businesses under the same PAN must all collectively opt for or opt out of the composition scheme
  • On every notice or signboard at the place of business, the words ‘composition taxable person’ must be prominently displayed
  • On every bill of supply, the words ‘composition taxable person’ must be prominently displayed
  • The same taxable person supplying goods and services can supply services worth up to INR 500,000 (US$6,766) under the scheme
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