1. Goods and Services Tax (GST) 1

2. Content of presentation Background of GST Salient features of GST GST status update Inter-State GST Place of Supply Revenue Neutral Rate (RNR) Issues in GST 2

3. Background of GST 3

4. Introduction of VAT at State Level – For introduction of harmonious VAT at State level a meeting of Chief Ministers was convened by then Finance Minister Dr. Manmohan Singh in 1995. – In Nov 1999, two important decisions were made To end unhealthy tax rate war (by implementing uniform floor rates based on consensus) To form Standing Committee of State finance Ministers called Empowered Committee of State Finance Ministers to build consensus and take decisions – VAT in the State was introduced in April 2005. – By Jan 2008 VAT was implemented in all States and UTs. 4

5. 1.Union Government constituted a Task Force on the Implementation of the Fiscal Responsibility and Budget Management Act, 2003. 2.Task Force pointed out the required Fiscal corrections could be made on the Expenditure side as also the Revenue side. 3.Task Force proposed a strategy for Tax Reforms and recommended, inter-alia, introduction of an integrated Goods and Services Tax. 5 Kelkar Committee Report

6. The Union Finance Minister in his Budget Speech in February 2006 stated by April 2010, a unified Goods and Services Tax would be introduced in India, replacing the Central and State levies on goods and services. 6 Announcement

7. The Empowered Committee of State Finance Ministers has prepared and submitted to the Union Finance Ministry its recommendations regarding the proposed unified Goods and Services Tax. The first Discussion Paper on Goods and Services Tax in India was published by the Empowered Committee of State Finance Ministers on November 10, 2009. 7 Developments

8. Salient Features of GST Model 8

9. Objectives of GST Development of Harmonised National Market Harmonisation in Tax Policy and Administration Harmonisation in legal Provisions, procedures and tax rates 9

10. 10 What is GST ? GST has same nature as VAT but will include all major indirect taxes of Centre & State Tax on continuous chain of transaction from producer and service provider upto retailer, with set- off. Removal of cascading of tax like Central Excise component presently taxed under State VAT. Integration of goods and services for vatability. Change in inter-State transactions from origin based to destination based.

11. 11 Benefits of GST Removal of cascading burden and transparency in tax Simplified tax structure by removing multiplicity of tax Uniformity of tax procedure, rate across India Possibility of better compliance due to linkage of all taxes. Reduced cost of compliance for tax payer.

12. 12 Changes under GST Additional power to levy tax on services for the State. Additional power to levy VAT on goods for the Centre. Set-off relief of VAT on goods to service provider and vice versa. Subsuming of several taxes levied by State and Centre, Introduction of inter-State GST instead of CST

13. 13 Central Taxes to be subsumed under GST Central Excise Duty Additional Excise Duties Excise Duty levied under the Medicinal and Toiletries Preparation Act Service Tax Additional Customs Duty, commonly known as Countervailing Duty (CVD) Special Additional Duty of Customs - 4% (SAD) Surcharges, and Cesses.

14. 14 State Taxes to be subsumed under GST VAT / Sales tax Entertainment tax (unless it is levied by the local bodies). Luxury tax Taxes on lottery, betting and gambling. SCPT – Sugar Cane Purchase Tax Entry tax not in lieu of Octroi. State cesses and Surcharges relating to supply of goods and services Octroi [proposed by Government of India, objected by States]

15. 15 Taxes NOT to be subsumed under GST Central Taxes Customs Duty Excise on tobacco products and petroleum products State Taxes Excise duty on liquor Sales Tax on petroleum products, liquor Stamp duty Taxes and duties on Electricity

16. 16 GST Tax Structure GST with two components Centre GST (CGST) and State GST (SGST). Two taxes levied on every transactions from manufacture to retailer. Inter-State sales tax on ‘destination’ unlike ‘Origin’ based under CST. Implementation through three statutes. Basic features of law to be uniform.

17. 17 GST Tax Structure Zero rating of Exports GST on imports equal to CGST and SGST Inter-State Tax will flow to the consuming State which will give ITC All industrial exemption schemes to be converted into cash subsidy schemes

18. 18 GST Rate Structure Two-rate structure a lower rate for necessary items, goods of basic importance and specified services. a standard rate for goods and services in general. A special rate for precious metals. A list of exempted items – same as existing VAT Act as well as negative list for services.

19. 19 GST Business Process Common system for registration, return, payment Registration number PAN based with state code and check digits Maximum services for dealers to be electronic and on common portal GSTN. All dealers to file electronic returns. Payments through e-payment or OTC payment for small dealers

20. 20 Prime Requirements for roll out of GST Amendment in Constitution, Robust IT infrastructure, Statutes for CGST, SGST & IGST, Business process re-engineering Migration of existing tax payers for allotment of new Registration number. Decision regarding rate of tax.

21. 21 GST Status Update A.Constitutional Amendment B.Machinery for GST C.Automation

22. GST Status Update A.Constitutional Amendment: GST envisages additional power to levy tax on trade by Centre and Service by State, which presently not available in the Constitution. Accordingly, Constitutional Amendment (One Hundred and Fifteenth) introduced in Lok Sabha in 2011. Vetted by Standing Committee and gave recommendation in 2013. Based on recommendations of Standing Committee, Amendments to Bill done. EC gave remarks on Bill, under consideration with Government of India. 22

23. GST Status Update Cntd.. B. Machinery for GST: Apart from Constitutional Amendments, EC has crystallized areas which needs detailed deliberations for smooth introduction of GST. EC formulated three Sub-Committees to work on (i) Dual Control (administrative control over dealers), Exemption and Threshold, (ii) Inter-State GST and GST on Imports (iii) Place of Supply and RNR. Reports prepared and accepted by EC Work of Committee on GST Laws is under progress. 23

24. GST Status Update Cntd.. C. Automation: In order to cater automation needs, non Government Company formed. States and Centre to have 49% equity and private participation at 51% equity. Business processes for registrations, return and payment are near to finalization. 24

25. Details of Constitutional Amendments New Articles Article 246A provides for levy of GST by State & Centre Article 269A provides tax on inter-State by Centre. Article 279A creation of GST Council for implementation of GST. 25

26. GST Council Structure Union Finance Minister Chairperson Union Minister of State Member Revenue State Finance Ministers Members One of the State Finance Vice-chairman Ministers 26

27. GST Council Functions Recommendations on- Taxes to be subsumed in GST Exempted goods & services Threshold Floor rate of tax with band Special rate for specific period Dispute settlement between States, between Centre and States Decision Majority of not less than 3/4 th of weighted votes Centre vote to have weightage of 1/3 rd Maharashtra recommendations Centre vote to have weightage of 1/5 th 27

28. Constitutional Amendments Other Amendments Article 286 to do away with concept of ‘declared goods’ Article 366 to include definitions of ‘goods & services tax’ and ‘services’ Clause (29A) of article 366, defining deemed sales like works contract, hire-purchase sale, lease etc. to be omitted 28

29. Constitutional Amendments Amendment in Union List Entry 84 to be modified to retain power to levy excise duty on petroleum products & tobacco products Entry 92 about tax on sale of newspaper and advertisement published therein to be deleted Entry 92C about tax on services to be deleted 29

30. Constitutional Amendments Amendment in State List Entry 52 omitted – Entry Tax (objected by State) Entry 54 provided for tax on Petroleum goods & liquor (State demanded for tobacco & tobacco products also) Entry 55 about tax on advertisement to be deleted Entry 62 entertainment tax can be levied by Local Bodies only. Tax on Luxury, entertainment, Betting & gambling subsumed in GST 30

31. Machinery for GST 31

32. EC Sub-Committees EC constituted committees for providing machinery for GST Committees to deal with various issues. 1.Committee on Problems of Dual Control, Threshold & Exemption 2.Committee on IGST and GST on Import 3.Committee on Revenue Neutral Rate & Place of Supply 32

33. Threshold & Dual Authority Threshold at Rs. 10 lakhs & for NE States at Rs. 5 lakhs Tax payer to get PAN based registration number Tax payer upto 1.5 cr with States for tax administration Dual authority for dealers above turnover of Rs. 1.5 cr. IGST dealers may face dual authority. (issue debated) 33

34. Exemptions VAT list of exemptions on 96 commodities to continue Centre to align its exemption list to VAT list List of goods taxed at merit rate (lower rate) to be decided HSN code to be introduced at the time of GST roll-out Issue of Rate of food grains in GST (as majority of the States do not levy tax) 34

35. 35 Composition Scheme Composition scheme for small dealers with annual TO of Rs. 75L. (Proposed 50 L by EC) Reasonable compounding rate of 0.5% to be prescribed. (proposed 1% by EC) Scheme to be optional Relieves small dealers of maintaining accounting details. Not available for importers and inter-State dealers.

36. 36 Issues: Composition Scheme Compounding rate of 0.5% not revenue neutral Is compounding scheme available to all dealers including Builders & developers? Maharashtra Recommendation −Revenue neutral compounding rate should be 1.5%. (being revenue neutral) −Compounding scheme may not be available to service providers, manufacturers (not accepted by GOI)

37. Inter-State GST [IGST] 37

38. 38 IGST Method: Innovative model for inter-State transactions called IGST model. Centre to levy IGST equal to CGST plus SGST on all inter-State transactions. Inter-State seller to pay IGST. Credit of IGST available inter-State purchaser to be adjusted against CGST, and SGST and vice-versa. IGST is destination based and will accrue to importing State. B2B transactions -- tax will flow to the State where purchaser claims ITC B2C transactions -- tax will flow to the State of Consumer if C is clearly identifiable. Otherwise tax will remain in the State of B

39. 39 IGST Pre-requisite Common e-Return for CGST, SGST and IGST No short payment Inter-State branch / stock / consignment transfer to be treated as sale Reporting of sales and purchase invoice details to be mandatory All taxpayer to file monthly return

40. 40 IGST – Process flow of return filing Submission of e-return. E-payment of tax Preperation of draft return from final statements Finalisation of sales & purchase statements Mutual reconcilation between suppliers & buyers during pre-return period Preparation of auto-drafted purchase statement from sales statement Uploading of provisional sales statement

41. 41 IGST – Cut-off dates 10 th day of succeeding month −Uploading provisional sales statement. −Mandatory for dealers above certain turnover. 17 th day of succeeding month −Uploading final sales statements −Uploading final purchase statement 20 th day of succeeding month −e-payment −Filing of e-return.

42. 42 IGST – Post return processes Locating mismatched invoice immediately after last date of filing of returns. Auto SMS or e-mails to respective dealers in case of mismatch of invoices Reconciliation and corrections in sales & purchase statements based on mis-match within prescribed time limit (say 15 days)

43. 43 IGST – Post return processes ITC of claimant dealer to be reversed by mis-match amount by the system after above reconciliation period. Liability of the dealer to be increased by the extent of ‘non-paid mis- match amount’ in the next return by the system Bar on the dealer to file return unless payment of such reversed credit along with interest has been made.

44. IGST - Validations 44 I: Return − Aggregate of sale statement with turnover of sales − Aggregate of purchase statement with turnover of purchases − e-payment with tax liability in the return. II: Sales / Purchase Statements and their matching − GSTIN of pairing dealers − GSTIN of blacklisted dealers − separate invoice for each tax rate III. Matching of invoice − GSTIN of pairing dealers, − Invoice no and date − Tax amount − Tax rate

45. 45 Other features of IGST Model Purchaser to claim ITC of IGST ITC of IGST can be adjusted against liability under IGST, CGST, SGST. Purchaser has to bear the burden until settlement of mis- match. Seller can not reduce his liability merely on the ground that ITC on such sales is not claimed Seller can revise return in case of incorrect or missing entry in sales statement Revision by seller is allowed only if the ITC is reduced by the purchaser,.

46. 46 Other features of IGST Model Contd… Revision of returns to be restricted to 6 months Separate annexures may be provided for debit / credit notes Debit and credit notes to be tagged to original sales and purchase invoices Debit and credit notes to carry aggregate details of value and tax rates

47. 47 IGST - Transfer of credit GOI will transfer IGST credit utilized by the importing dealer (to pay his SGST liability) to his State Government. State Government of the exporting dealer will transfer SGST credit utilized by him (to pay his IGST tax liability) to GOI. Settlement between Govt. of India and importing / exporting State Govt. will be independent of each other AG in States and CGA in Govt. of India may be authorised to carry inter-government settlement. Inter-government settlement through consolidated fund within month without approval of legislature.

48. Place of Supply 48

49. 49 Place of Supply Rules Important for deciding ‘appropriate State’ to receive tax and place where tax to be paid. Place of Supply of Services General rule Supply to a registered person or public authority shall be the State of service recipient Supply to Non-registered person shall be the State of service provider, With exceptions to certain services as notified.

50. 50 Notified Services for Place of Supply Type of servicePlace of Supply Services having nexus to immovable property including general insurance State in which such property is located. Performance based services State where the services are actually performed Services relating to events State where the event is actually held Goods transportation services to registered persons Location of service receiver Goods transportation services to unregistered person State in which goods are handed over for their transportation. Passenger transportation service State where passenger starts journey. Services provided on board a conveyance State of the first scheduled point of departure

51. 51 Notified Services for Place of Supply Type of servicePlace of Supply Telecom services − Fixed line State where fixed line is provided −Post – paid mobile & internet State of address of service recipient −Pre – paid mobile & internet State of sale of pre-paid vouchers or where pre- payment is received Broad cast services to registered persons in identifiable State Each state in proportion to amount attributable to service provided Broad cast services to registered persons in un- identifiable State Location of registered service receiver

52. 52 Notified Services for Place of Supply Type of servicePlace of Supply Broadcast services to non- registered persons Location of service provider Advertisement services to Central Govt., State Govt. or local authority Each state in proportion to amount attributable to service provided Legal services involving representations Location of forum at which the litigation is going on. Legal services not involving representations to unregistered persons Location of service provider

53. 53 Notified Services for Place of Supply Type of servicePlace of Supply Account based banking & other financial services Location of service receiver on record of service provider Non-account based banking & other financial services Location of service provider Insurance services to registered persons Location of service receiver Insurance services to un- registered persons Location of service receiver on record of service provider

54. 54 Place of Supply of Goods With movements of goods State where goods are delivered to the receiver. Without any moverment of goods State where goods are located at the time when deliverly takes place Goods installed State in which installation has actually taken place Goods on board a conveyance State where goods are taken on board. Place of supply of electricity or gas State where gas or electricity is used and consumed.

55. Revenue Neutral Rate (RNR) 55

56. 56 Revenue Neutral Rate RNR calculation worked assigned to NIPFP NIPFP reported standard rate at 13.91% for State and 12.77% for Centre. Assumption of lower rate at 6%, sugar and textiles are taxed, services taxed at standard rate Issue of high tax rate on services.

57. 57 Issues in GST Important Issues Abolition of Entry 52 in State list GST compensation mechanism and period. Revenue Neutral Rate on services Methodology of administration on tax payers with dual control Calculation of service tax base

58. 58