1. What is Goods and Services Tax (GST)?

GST is a single uniform indirect tax which was introduced to replace Central and
State indirect taxes such as VAT, CENVAT, and others. GST applies on all types of
businesses, small or large. This makes it one of the greatest tax reforms in the
country. The entire nation will follow a unified tax structure.
As the name suggests, GST will be applicable on both goods and services and India
will follow a dual system of GST to keep both the Centre and State independent of
each other. The GST council will be headed by the Union Finance Minister and it will
consist of various State Finance Ministers. GST will be devised as a four-tiered tax
structure with tax slabs of 5%, 12%, 18%, and 28% for various different categories of
products and services. 0% rate is kept for most essential goods such as rice, wheat.

2. What are the indirect taxes that GST will

replace?
Designed as a uniformed tax for the entire nation, it will replace the following indirect
taxes earlier levied by the Centre and the State:
(i) Taxes levied and collected by the Centre:

1. Central Excise duty

2. Additional Duties of Customs (commonly known as CVD)
3. Special Additional Duty of Customs (SAD)
4. Service Tax

AND
(ii) Taxes levied and collected by the State:

1. State VAT
2. Central Sales Tax
3. Entertainment and Amusement Tax (except when levied by the local bodies)
4. Taxes on lotteries, betting and gambling

3. What is the framework that the GST will

follow?
Like other countries such as Canada and Brazil, India will follow the dual form of
GST. At the intra-state level, where goods and services are sold within the state,
CGST (Central Goods and Services Tax) and SGST (State Goods and Services
Tax) will be levied.
When selling goods and services into other states (inter-state sales), IGST
(Integrated Goods and Services Tax) will be levied. Importing goods will come under
IGST as it will be considered as inter-state supply. Imported goods will also attract
basic customs duty.
Exports and supplies to SEZ, however, will be zero-rated.

4. Benefits of GST
As mentioned earlier, GST will unify taxation system in the entire nation. This will
help in removal of the cascading tax effect. Cascading effect refers to tax to be paid
on a tax. Under GST, this will no longer happen as the unified tax will bring the entire
indirect tax system under one umbrella.
Another important benefit is that under GST, the input tax credit can be availed on
both goods and services, which eliminates the cascading effect.
GST will also unify the returns and compliances as there will no separate VAT and
service tax.
Read our article to know all the benefits of GST.

5. Who becomes a taxable person under

GST?
Short answer is a person who carries out any business at any place in India and who
is registered or required to be registered under the GST Act. Amongst others, GST
registration is mandatory for:

Any business whose turnover in a financial year exceeds Rs 20 lakhs (Rs 10

lakhs for North Eastern and hill states)
An input service distributor
An E-commerce operator or aggregator
A person who supplies via e-commerce aggregator

Here is a complete list of taxable persons under GST.

6. What is a GSTIN?
GSTIN refers to the unique GST identification number that every business will be
allotted. Every taxpayer will be allotted a state-wise, PAN-based 15-digit Goods and
Services Taxpayer Identification Number (GSTIN). Also, note that having PAN is
mandatory for register under GST.
Registering under GST is quite simple and is explained in simple steps in our article.

7. What is Reverse Charge?

Usually, when the supplier supplies goods, the tax is levied upon the supplier. In
certain cases, the tax is levied upon the buyer of the goods. This is called reverse
charge as the chargeability of tax gets reversed.
This is not new under GST, as under the previous VAT regime, the reverse charge
existed, but only on services. Now, under GST, it will be applicable on goods as
well.

8. What happens to mixed supply and

composite supply under GST?
Under GST, this new concept of mixed supply and composite supply has been
introduced. This will cover all supplies made together, whether the supplies are not
related or not. This concept is some what similar to the bundled services which were
there earlier. Only the concept of mixed supply is entirely new.
Let us look at these in detail.
Composite supply refers to a supply that comprises of 2 or more goods or services
which are bundled and supplied together. Out of these, only one item can be of
principal supply, however, these items cannot be supplied separately. Here is where
the concept of composite supply comes in.
For example, when goods are packed, and transported with insurance, the supply of
goods, packing materials, transport and insurance is a composite supply. Insurance,
transport cannot be done separately if there are no goods to supply. Thus, the
supply of goods is the principal supply.
A mixed supply is when 2 or more individual supplies of goods or services are made
together with each other by a taxable person, for a single price. Each of these items
can be supplied separately and is not dependent on any other.
For example, a supply of a package consisting of canned foods, sweets, chocolates,
cakes, dry fruits, aerated drink and fruit juices, supplied for a single price is a mixed
supply. All can be sold separately. Since aerated drinks have the highest GST rate of
28%, aerated drinks will be treated as principal supply.
Read our article on mixed and composite supply to understand better.

9. What is continuous supply?

When goods and services are offered or supplied periodically (that is every fortnight
or every month, etc.), and payments are also made periodically, it is called
a continuous supply.
For example, a telecom and internet provider will provide continuous supply as it is
provided for a long time and also the payments are done every month or quarterly.

10. What is a compliance rating?

The GST compliance rating is a performance rating that is given to all registered
taxpayers. This rating tells you how complaint the supplier will be with respect to
GST provisions. This gives an option for the buyer to choose the seller based on the
GST compliance rating.
The rating system can be devised on a scale of 1 to 10, based on the type of
business, with 10 being the highest complaint and 1 being the least complaint.
Please note that the actual compliance rating system is yet to be
introduced.

Payments
1. What are payments to be made under
GST?
Under GST the tax to be paid is mainly divided into 3

IGST To be paid when interstate supply is made (paid to center)

CGST To be paid when making supply within the state (paid to center).
SGST To be paid when making supply within the state (paid to state).

CIRCUMSTANCES CGST SGST IGST

Goods sold from Delhi to Bombay NO NO YES

Goods sold within Bombay YES YES NO

Goods sold from Bombay to Pune YES YES NO

Apart from the above payments a dealer is required to make these payments

Tax Deducted at Source (TDS) TDS is a mechanism by which tax is deducted by

the dealer before making the payment to the supplier

For example
A government agency gives a road laying contract to a builder. The contract value is
Rs 10 lakh.
When the government agency makes payment to the builder TDS @ 1% (which
amounts to Rs 10,000) will be deducted and balance amount will be paid.

Tax Collected at Source (TCS) TCS is mainly for e-commerce aggregators. It

means that any dealer selling through e-commerce will receive payment after
deduction of TCS @ 2%.
This provision is currently relaxed and will not be applicable till notified by the
government.

Reverse Charge The liability of payment of tax shifts from the supplier of goods and
services to the receiver. To know more about reverse charge check out our
article Know all about Reverse Charge under GST

Interest, Penalty, Fees and other payments

2. How to calculate the GST payment to

be made?
Usually, the Input Tax Credit should be reduced from Outward Tax Liability to
calculate the total GST payment to be made.
TDS/TCS will be reduced from the total GST to arrive at the net payable figure.
Interest & late fees (if any) will be added to arrive at the final amount.
Also, ITC cannot be claimed on interest and late fees. Both Interest and late fees are
required to be paid in cash.
The way the calculation is to be done is different for different types of dealers
Regular Dealer
A regular dealer is liable to pay GST on the outward supplies made and can also
claim Input Tax Credit (ITC) on the purchases made by him.
The GST payable by a regular dealer is the difference between the outward tax
liability and the ITC.
Composition Dealer
The GST payment for a composition dealer is comparatively simpler. A dealer who
has opted for composition scheme has to pay a fixed percentage of GST on the total
outward supplies made.
GST is to be paid based on the type of business of a composition dealer.

3. Who should make the payment?

These dealers are required to make GST payment

1. A Registered dealer is required to make GST payment if GST liability exists.

2. Registered dealer required to pay tax under Reverse Charge Mechanism(RCM).
3. E-commerce operator is required to collect and pay TCS
4. Dealers required to deduct TDS

4. When should GST payment be made?

GST payment is to be made when the GSTR 3 is filed i.e by 20th of the next month.
5. What are the electronic ledgers?
These ledgers are maintained on the electronically on GST Portal.

6. How to make GST payment?

GST payment can be made in 2 ways

Payment through Credit Ledger

The credit of ITC can be taken by dealers for GST payment. The credit can be taken
only for payment of Tax. Interest, penalty and late fees cannot be paid by utilising
ITC.

Payment through Cash Ledger

GST payment can be made online or offline. The challan has to be generated on
GST Portal for both online and offline GST payment.
Where tax liability is more than Rs 10,000, it is mandatory to pay taxes Online.

7. What is the penalty for non-payment or

delayed payment?
If GST is short paid, unpaid or paid late interest at a rate of 18% is required to be
paid by the dealer.
Also, a penalty to be paid. The penalty is higher of Rs. 10,000 or 10% of the tax
short paid or unpaid.

B. Refunds
1. What is GST refund?
Usually when the GST paid is more than the GST liability a situation of claiming GST
refund arises. Under GST the process of claiming a refund is standardized to avoid
confusion. The process is online and time limits have also been set for the same.

2. When can refund be claimed?

There are many cases where refund can be claimed. Here are some of them
Excess payment of tax is made due to mistake or omission.

Dealer Exports (including deemed export) goods/services under claim of rebate or

Refund
ITC accumulation due to output being tax exempt or nil-rated.
Refund of tax paid on purchases made by Embassies or UN bodies.
Tax Refund for International Tourists.
Finalization of provisional assessment.

3. How to calculate GST refund?

Lets take a simple case of excess tax payment made.
Mr. Bs GST liability for the month of September is Rs 50000
But due to mistake, Mr. B made a GST payment of Rs 5 lakh.
Now Mr. B has made an excess GST payment of Rs 4.5 lakh which can be claimed
as a refund by him.
The time limit for claiming the refund is 2 years from the date of payment.

4. What is the time limit for claiming

refund?
The time limit for claiming a refund is 2 years from relevant date.
The relevant date is different in every case.
Here are the relevant dates for some cases

Reason for claiming GST Refund Relevant Date

Excess payment of GST Date of payment

Export or deemed export of goods or services Date of despatch/loading/passing the frontier

ITC accumulates as output is tax exempt or nil-rated Last date of financial year to which the credit belongs

Finalisation of provisional assessment Date on which tax is adjusted

Also if refund is paid with delay an interest of 24% p.a. is payable by the
government.

5. How to claim GST refund?

The refund application has to be made in Form RFD 01 within 2 years from relevant
date.
The form should also be certified by a Chartered Accountant.

What is input tax credit?

Input credit means at the time of paying tax on output, you can reduce the tax you have already paid
on inputs and pay the balance amount.

Heres how-

When you buy a product/service from a registered dealer you pay taxes on the purchase. On selling,
you collect the tax. You adjust the taxes paid at the time of purchase with the amount of output tax
(tax on sales) and balance liability of tax (tax on sales minus tax on purchase) has to be paid to the
government. This mechanism is called utilization of input tax credit.

For example- you are a manufacturer:

Tax payable on output (FINAL PRODUCT) is Rs 450

Tax paid on input (PURCHASES) is Rs 300

You can claim INPUT CREDIT of Rs 300 and you only need to deposit Rs 150 in taxes.

input tax credit

Who can claim ITC?

ITC can be claimed by a person registered under GST only if he fulfills ALL the conditions as
prescribed.

The dealer should be in possession of tax invoice

The said goods/services have been received

Returns have been filed.

The tax charged has been paid to the government by the supplier.

When goods are received in installments ITC can be claimed only when the last lot is received.

No ITC will be allowed if depreciation has been claimed on tax component of a capital good

A person registered under composition scheme in GST cannot claim ITC.

What can be claimed as ITC?

ITC can be claimed only for business purposes.

ITC will not be available on goods or services exclusively used for:

Personal use

Exempt supplies

Supplies for which ITC is specifically not available

Reversal of Input Tax Credit

ITC can be availed only on goods and services for business purposes. If they are used for non-
business (personal) purposes, or for making exempt supplies ITC cannot be claimed. Apart from
these, there are certain other situations where ITC will be reversed.
ITC will be reversed in the following cases-

1) Non-payment of invoices in 180 days ITC will be reversed for invoices which were not paid within
180 days of issue.

2) Credit note issued to ISD by seller This is for ISD. If a credit note was issued by the seller to the
HO then the ITC subsequently reduced will be reversed.

3) Inputs partly for business purpose and partly for exempted supplies or for personal use This is
for businesses which use inputs for both business and non-business (personal) purpose. ITC used in
the portion of input goods/services used for the personal purpose must be reversed proportionately.

4) Capital goods partly for business and partly for exempted supplies or for personal use This is
similar to above except that it concerns capital goods.

5) ITC reversed is less than required- This is calculated after the annual return is furnished. If total
ITC on inputs of exempted/non-business purpose is more than the ITC actually reversed during the
year then the difference amount will be added to output liability. Interest will be applicable.

The details of reversal of ITC will be furnished in GSTR-2. To find out more about the segregation of
ITC into business and personal use and subsequent calculations, please visit our article.

Reconciliation of ITC

ITC claimed by the person has to match with the details specified by his supplier in his GST return. In
case of any mismatch, the supplier and recipient would be communicated regarding discrepancies
after the filling of GSTR 3. Please read our article on the detailed explanation of the reasons for
mismatch of ITC and procedure to be followed to apply for re-claim of ITC.

Documents Required for Claiming ITC

The following documents are required for claiming ITC:

Invoice issued by the supplier of goods/services

The debit note issued by the supplier to the recipient (if any)

Bill of entry

An invoice issued under certain circumstances like the bill of supply issued instead of tax invoice if
the amount is less than Rs 200 or in situations where the reverse charge is applicable as per GST law.

An invoice or credit note issued by the Input Service Distributor(ISD) as per the invoice rules under
GST.

A bill of supply issued by the supplier of goods and services or both.

All these documents are to furnished at the time of filing form GSTR-2.

Special cases of ITC

ITC for Capital Goods

ITC is available for capital goods under GST.

However, ITC is not available for-

i. Capital Goods used exclusively for making exempted goods

ii. Capital Goods used exclusively for non-business (personal) purposes

Note: No ITC will be allowed if depreciation has been claimed on tax component of capital goods.

ITC on Job Work

A principal manufacturer may send goods for further processing to a job worker. For example, a
shoe manufacturing company sends half-made shoes (upper part) to job workers who will fit the
soles. In such a situation the principal manufacturer will be allowed to take credit of tax paid on the
purchase of such goods sent on job work.

ITC will be allowed when goods are sent to job worker in both the cases:

From principals place of business

Directly from the place of supply of the supplier of such goods

However, to enjoy ITC, the goods sent must be received back by the principal within 1 year (3 years
for capital goods).

ITC Provided by Input Service Distributor (ISD)

An input service distributor (ISD) can be the head office (mostly) or a branch office or registered
office of the registered person under GST. ISD collects the input tax credit on all the purchases made
and distribute it to all the recipients (branches) under different heads like CGST,SGST/UTGST, IGST or
cess.

ITC on Transfer of Business

This applies in cases of amalgamations/mergers/transfer of business. The transferor will have

available ITC which will be passed to the transferee at the time of transfer of business.

Why was Composition Scheme

introduced?
The GST regime has brought in many changes along with the following:

Increase in the number of GST returns

Payment of tax on a monthly basis

Small and new taxpayers will find it difficult to comply with so many rules.
Hence, the government has introduced the concept of Composition Scheme.
Now there is an option for small and new taxpayer to opt for Composition scheme
and have lesser compliance.
Also, a taxpayer opting for composition scheme has to pay tax at a nominal rate.
2. Who can opt for Composition Scheme
A taxpayer whose turnover is below Rs 1 crore* can opt in for Composition
Scheme. In case of North-Eastern states and Himachal Pradesh, the limit is now Rs
75* lakh.

*Latest update as per 22nd GST Council Meeting

held on 6th Oct 2017
Threshold for composition scheme has been increased to 1 crore (from earlier
75 lakhs)

3. Who cannot opt for Composition

Scheme
The following people cannot opt for the scheme:

Supplier of services other than restaurant related services

Manufacturer of ice cream, pan masala, or tobacco
Casual taxable person or a non-resident taxable person
Businesses which supply goods through an e-commerce operator

4. What are the conditions for availing

Composition Scheme?
The following conditions must be satisfied in order to opt for composition scheme:

No Input Tax Credit can be claimed by a dealer opting for composition scheme
The taxpayer can only make intra-state supply (sell in the same state) i.e. no inter-
state supply of goods.
The dealer cannot supply GST exempted goods
Taxpayer has to pay tax at normal rates for transactions under Reverse Charge
Mechanism
If a taxable person has different segments of businesses (such as textile, electronic
accessories, groceries, etc.) under the same PAN, they must register all such
businesses under the scheme collectively or opt out of the scheme.
The taxpayer has to mention the words composition taxable person on every notice
or signboard displayed prominently at their place of business.
The taxpayer has to mention the words composition taxable person on every bill of
supply issued by him.

5. How can a taxpayer opt for

composition scheme?
To opt in for composition scheme a taxpayer has to file Form GST CMP-01 or GST
CMP-02 with the government. This can be done online after logging into the GST
Portal.
This intimation should be given at the beginning of every Financial Year by a dealer
wanting to opt for Composition Scheme.
Here is a PDF format prescribed by the government of India for registering as a
composition dealer Intimation to pay tax under Section 10

6. What documents should a composition

dealer issue while making supply?
A composition dealer cannot issue tax invoice. This is because a composition dealer
cannot charge tax from their customers. They need to pay tax out of their own
pocket.
Hence, the dealer has to issue a Bill of Supply.
The dealer should also mention composition taxable person, not eligible to collect
tax on supplies at the top of the Bill of Supply.

7. What are the GST rates for a

composition dealer?
8. How should GST payment be made by
a composition dealer?
GST Payment has to be made out of pocket. It means that a dealer opting for
Composition Scheme cannot charge GST in their Invoice. The consumer/ the
receiver of supplies will not be liable to pay GST to the supplier who has opted for
Composition Scheme.

9. What are the returns to be filed by a

composition dealer?
A dealer is required to file a quarterly return GSTR-4 by 18th of the month after the
end of the quarter. Also, an annual return GSTR-9A has to be filed by 31st
December of next financial year.
Also, note that a dealer registered under composition scheme is not required to
maintain detailed records.

*Latest update:
As per 22nd GST Council Meeting held on 6th Oct 2017
Due date of FORM GSTR-4 for the quarter July-September, 2017 is extended to
15.11.2017

10. What are the advantages of

Composition Scheme?
The following are the advantages of registering under composition scheme:

Lesser compliance (returns, maintaining books of record, issuance of invoices)

Limited tax liability
High liquidity as taxes are at a lower rate

11. What are the disadvantages of

Composition Scheme?
Let us now see the disadvantages of registering under GST composition scheme:

A limited territory of business. The dealer is barred from carrying out inter-state
transactions
No Input Tax Credit available to composition dealers
The taxpayer will not be eligible to supply goods through an e-commerce portal
Audits

Audit under GST is the examination of records maintained by a registered dealer. The aim is to verify
the correctness of information declared, taxes paid and to assess the compliance with GST.

audit-under-GST-1-768x624

1. A. Audit by Registered Dealer

Every registered dealer whose turnover during a financial year exceeds the Rs 1 crore has to get his
accounts audited by a CA or a CMA.

1. B. Audit by GST Tax Authorities

General Audit: The commissioner or on his orders an officer may conduct any audit of any registered
dealer.

Special Audit: The department may conduct a special audit due to the complexity of case and
considering interest of revenue. The CA or a CMA will be appointed to conduct the audit.

2. Assessment

Assessment under GST means determination of tax liability under GST. Assessment under GST has
been divided into 5 types:

2.A. Self Assessment

Under GST, every registered taxable person shall assess the taxes payable by them on their own, and
furnish a return for each tax period. This is called self-assessment.

2.B. Provisional Assessment

A registered dealer can request the officer for provisional assessment if he is unable to determine
value of goods or rate of tax. The proper officer can allow the assessee to pay tax on a provisional
basis at a rate or a value specified by him.

2.C. Scrutiny Assessment

A GST officer can scrutinize the return to verify its correctness. The officer will ask for explanations
on any discrepancies noticed in the returns.

2.D. Summary Assessment

Summary Assessment is done when the assessing officer comes across sufficient grounds to believe
any delay in showing a tax liability can harm the interest of the revenue. To protect the interest of
the revenue, he can pass the summary assessment with the prior permission of the additional/joint
commissioner.

2.E. Best Judgement Assessment

E.1. Assessment of non-filers of returns

If a registered taxable person does not file his return even after getting a notice, the proper officer
will assess the tax liability to the best of his judgement using the available relevant material.

E.2. Assessment of unregistered persons

This assessment is done when a taxable person fails to obtain registration even though he is liable to
do so.

The officer will assess the tax liability of such persons to the best of his judgement. The taxable
person will receive a show cause notice and an opportunity of being heard.

3. Demand and Recovery

Demand and recovery provisions are applicable when a registered dealer has paid tax incorrectly or
not paid tax at all. It is also applicable when incorrect refund or ITC is claimed by the dealer.

The proper officer will issue a show cause notice along with a demand for payment of tax and
penalty in case of fraud.

Demands can arise in the following cases:

1. Unpaid or short paid tax or wrong refund

2. Tax collected but not deposited with the Central or a State Government

3. CGST/SGST paid when IGST was payable and vice versa.

If demand is not paid, the IT department starts recovery proceedings

4. Advance Ruling

Advance Ruling under GST means seeking clarifications from GST authority on certain tax matters
before starting the proposed activity. This helps to reduce costly litigation.

A advance ruling is a written decision given by the tax authority to an applicant on queries related to
the supply of goods/services.