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GST, GST, TAXATION

On 21st July 2017 India bought out its most significant reforms in taxation by implementing GST (Goods and Services Tax). A GST Council was formed for framing rules and regulations governing GST compliance in India. This council is headed by Union Finance Minister of India. The Council has been very responsive to the difficulties faced by traders and have been coming up with reforms making it easy for the traders to comply with GST regulations. To understand the changes of the council meetings we need to understand the structuring of GST Registration and filing in the beginning


Old Rules

  • GST Registration Criteria

It was compulsory for any trader with an annual turnover of INR 20 Lac or more to register for GST. If you are providing service to other than your home state it was mandatory to get registration irrespective of your revenue. If you are selling products on e-commerce platform it was compulsory to get GST registration even if your annual revenue has not crossed INR 20 Lac. These rules made it compulsory for almost all traders to get GST Registration and consequently follow the complex filing process.


  • GST Filing

Govt. envisaged 3 parts of filing and had 3 deadlines every month for the traders to follow. The sales and purchase details were to be filed through GSTR-1 before the 10th day of every month. Input credits as entered by vendors (recipients) was to be updated by the department through GSTR-2 which can be edited by the traders between the 11th and 15th day of every month. Then a final form GSTR-3 which was updated by the department was to be approved by traders either with or without editing between the 16th and 20th day of every month.


Due to some technical difficulties, the govt., could not come up with the forms GSTR-1,2 and 3 on time for the first filing of GST returns. Hence Govt. had to come up with an intermediate form called GSTR-3b in which the traders had to declare their sales and purchases for the month and pay the outstanding GST for the month before 20th day of every month. Govt. extended the deadline for other forms to be filed.


This created lots of confusion and the compliance burden on small traders was extremely high which created chaos in small traders community. The collective feeling of the trading community was that of confusion and desperation since compliance for GST rules created a heavy financial burden on them.


Rules proposed in October 2017

GST council on its 22nd meeting on October 6, 2017, implemented few landmark reforms which went a long way in simplifying the compliances for GST.


  • GST Registration Criteria 

For a service sector it was made optional to go for GST Registration until they reach a revenue of Rs.20 Lac irrespective of them having sales in states other than their home state. The council also made it optional for traders having inter state sales through e-commerce platform only. They also increased the maximum limit for composition registration from annual turnover of 75 Lacs to 1 Crore


  • GST Filing

Council proposed a quarterly filing for GST registered firms with annual turnover less than 1.5 crores. These firms constitute around 90% of the GST registered entities and hence provided great relief to small traders. Govt. Proposed a monthly filing of GSTR-3B (which was to be scrapped eventually) and make GST payment to govt. The returns through GSTR-1, 2 and 3 was to be made quarterly for these small firms. However, different last dates for different forms and heavy penalty still continued to create lot of confusion and financial burden on these small traders


New Rules 

The meeting on May 04 2018 has proposed a returns filing methodology which can be considered as future ready. The council has also taken a decision to implement these changes in 2 phases to avoid any confusion and inconvenience to traders


  • GST Filing


Initially for the next 6 months, until the new software gets ready the current system of GSTR-3B (Monthly) and GSTR-1 (Quarterly for small firms). After 6 months, the seller will upload the invoices in GSTN portal which needs to be acknowledged by the buyer. This enables the buyer to get input credit. If there is any gap in the tax paid and credit claimed, the buyer will be notified and the buyer will have to correct the excess claim made, if any.  This phase is proposed to be in place for only 6 months after implementation.


After this by around June 2019, there will  be facility for the sellers to upload the invoice on the portal on real time so that the input credit for the buyer is not stuck. In both the second and third phases, taxpayers will have to file details of total turnover in case of business-to-consumer transactions. For business-to-business transactions, a four-digit Harmonised System of Nomenclature (HSN) code would have to be mentioned besides all invoice and turnover details.


If the seller fails to pay the tax, the tax authorities will recover it from the seller, unlike in the current system where the buyer is asked to reverse the credit availed along with interest. If the seller is untraceable, the tax will be recovered from the buyer following due course of law. In case of missing invoices, the buyer will not be able to avail the credit.

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TAXATION

Tax havens are defined as countries that provide foreign investors with low or zero tax rates and attractive regulatory policies. They are typically small,
and often not the final destination of foreign direct investment. Instead, they tend to serve as conduits for investment in foreign subsidiaries located in other
countries. Tax havens have often been viewed as providing bank secrecy and thereby allowing tax evasion to occur. In this blog, we will look into the Top 9 Tax Havens in the world that opens up an opportunity for Indian entrepreneurs to incorporate business and save on taxes. 

PS: You can’t find UAE and Saudi Arabia on this list as they decided to charge income tax from Jan 1st, 2018.

 

  1. Bahamas

  • There is no income tax, capital gains tax, capital transfer tax or estate tax.
  • Employed people pay national insurance contributions. 3.9% of the salary is paid by the employee and 5.9% paid by the employer. Those who are Self-employed have to pay the whole amount by themselves.
  • A value-added tax (VAT) of 7.5% was introduced on 1 January 2015.  Stamp duty is payable on property and mortgage transactions, and there is a tax on real estate.
  • Duties are high on most imported goods.

 

  1. Bahrain

 

  • The taxes that are paid in Bahrain are minimal and there is no income tax system. However, a small tax has been imposed on workers as a ‘social insurance tax’. This tax is applicable to all workers and amounts to 1% of the total salary earned.
  • An additional 5% contribution has to be paid by workers as a social security contribution.
  • Municipal tax is one that must be paid by all those in rented property and expats will have to pay a 10% fee (based on the value of the property) to the local authorities.
  • There is no equivalent of Value Added Tax except on the sale of fuel, and a charge of 12% is made.

 

  1. Bermuda

 

  • There is no direct income tax or capital gains tax in Bermuda. There is a system of payroll tax where employees pay a minimum of 4.75% of their salary.
  • Employed people have to pay Social security contributions of $30.40 each week. This amount is then matched by the employer.
  • There is no sales tax in Bermuda.
  • There is also no VAT applied to goods and services.

 

  1. Cayman Islands

 

  • There is no direct tax imposed on residents and companies.
  • Duty is levied against most imported goods, which basically falls in the range of 22% to 25%. Some items are taxed at 5% and some are exempted from taxation such as baby formula, books and cameras.
  • The government charges flat licensing fees on financial institutions that operate in the islands and there are work permit fees on foreign labour.
  • There are no taxes on corporate profits, capital gains, or personal income.

 

  1. Kuwait
  • Basically, there are no personal taxes, not even for expats working in Kuwait.
  • Only foreign companies working in Kuwait are liable to pay income tax. The corporate income tax rate for foreign businesses currently is a flat 15%. Kuwaiti-owned businesses are exempted from this tax.
  • As of now there is no value-added tax, either. However, there are discussions going on about introducing it.

 

 

 

  1. Monaco

 

  • There is no direct taxation as such in Monaco. However, two exceptions are there:
    • Companies earning more than 25% of their turnover outside of the Principality and companies, whose activities consist of earning revenues from patents and literary or artistic property rights, are subject to a tax of 33.33 % on profits.
    • French nationals who cannot prove that they resided in the country for 5 years before October 31, 1962 also need to pay tax.
  • There is no income tax for people residing in Monaco (except French nationals).
  • There is no direct tax on companies apart from the tax on profits mentioned above.

 

  1. Oman

 

  • There is no income tax for salaried or self employed people.
  • There are deductions made from salaries for social security contributions. People working in the private sector have to make contributions of 6.5% of their salary. Employers add 9.5% to these contributions.
  • Stamp duty is charged when purchasing real estate at a standard rate of 3% of the sale price.
  • Oman’s major taxation revenue comes from corporate tax. Companies are subject to all the taxes that do not apply to individuals such as capital gains, income and on dividends.

 

  1. Qatar

 

  • Qatar has no system of personal income tax, value-added tax (VAT) or capital (wealth) tax.
  • The only taxes payable are:
    • Corporation Tax which is applicable mainly to foreign companies.
      Import duties are imposed on essential items mostly at a rate of 4% of the value of the products.
    • There are service tax of 10% and government levy of 5% on restaurant and hotel bills.
  • Corporation tax is payable on a progressive scale for income above QAR 100,001, from 10% up to a maximum rate of 35% for income above QAR 5 million. There are a number of allowable deductions including interest payments, salaries, rentals, depreciation etc.
  • Self-employed foreign persons working in Qatar also need to pay tax on their income.

 

  1. Brunei

 

  • No Personal Income Tax system is present in Brunei.
  • There are no social security taxes. However, all citizens must contribute 5% of their salary to a state-managed provident fund.
  • The tax rate for resident and non-resident companies is 18.5 percent.
  • Tax and investment privileges are provided to SMEs. The following types of business are eligible for the tax exemption:
    • imported raw materials and machinery for SMEs,
    • food industry for the export and domestic market
    • industries that use marine resources

 

           

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TAXATION

Did you know that not until 2009 a defined rules set was established to govern LLP Taxation? It was Budget 2009 that realized the importance of laying down taxation policies for LLP as an entity type. In this blog, we will quickly look into the major takeaways for LLP’s in terms of Tax planning.

 

Income tax policy for a Limited Liability Partnership

 

  1. Income tax rate of 30% is applicable for LLP registered in India on the total income earned during a financial year. If the income is more than Rs 1 Crore in any financial year, the firm would also have to pay 10% surcharge.

 

  1. All LLPs have to pay Education Cess of 2% and Secondary and Higher Education Cess(SHEC) of 1% on the amount of income and applicable surcharge.

Note,

  • If the firm is making a profit by selling an asset, then it will be taxable.

  • In case of sale of shares and mutual funds, if selling within a year of purchase of the securities, a tax rate of 15% would be applicable to the earned profit.

  • In case the securities are being sold after a year of purchase and exceed INR 1 lakh in amount, then a tax rate of 10% would be applied according to Union Budget 2018.

 

  1. LLP is subject to minimum alternate tax which is the minimum tax rate that is applicable to any firm. Hence, the income tax paid by a LLP having profits must be equal to or more than 18.5% of the total income of the LLP.

 

  1. Tax deductions are allowed for the portion of the total income of the firm which is used for donations.

 

  1. LLPs are also liable to advance tax payments if the tax payable exceeds INR 10,000. The due dates for advance tax payment are as follows:

 

 

Due Date  –  Advance Tax Payable

  1. 15th June – 15% of advance tax

  1. 15th September – 45% of advance tax

  1. 15th December – 75% of advance tax

  1. 15th March – 100% of advance tax

 

Deadline for LLP tax filing for 2018

 

  1. In case there is no mandatory audit requirement, the deadline to file an income tax return for an LLP is 31st July of the current year.

 

  1. LLP whose revenue exceeded INR 40L are must get their accounts audited by a practicing Chartered Accountant. The tax filing for LLP, which requires obtaining audit, should be done before September 30th of current year.

 

  1. LLPs that are involved in international transactions with associated enterprises or have undertaken certain Specified Domestic Transactionsare required to file Form 3CEB. The form must be certified by a CA. The deadline for tax filing for LLPs that are required to file Form 3CEB is 30th November.

 

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TAXATION

In the current era of cross-border transactions and constant growth of international trade and commerce, more and more residents of a country are extending their sphere of business operations into other countries. This has led to the need for assessing the tax regimes of various countries and bringing about essential reforms. International double taxation has adverse effects on trade, services, and on the movement of capital and people. Taxation of the same income by two or more countries would constitute a prohibitive burden on the tax-payer.

Therefore, to avoid such hardship to individuals and also with a view to ensuring that national economic growth does not suffer, the Central government under Section 90 of the Income Tax Act has entered into Double Tax Avoidance Agreements with other countries. The double tax treaties (also called Double Taxation Avoidance Agreements or “DTAA”) are negotiated under the public international law and governed by the principles laid down under the Vienna Convention on the Law of Treaties.

Objectives of DTAA:

  • Protection against double taxation
  • Prevention of discrimination in an international context
  • Mutual exchange of information
  • Legal and fiscal certainty

 

What is Double Taxation?

The Fiscal Committee of OECD defines double taxation as ‘the imposition of comparable taxes in two or more states on the same tax payer in respect of the same subject matter and for identical periods’.

 

It is a fundamental rule of law of taxation that unless otherwise expressly provided, income cannot be taxed twice. The possibility of double taxation occurs when the taxpayer is resident in one country but has a source of income situated in another country. Two basic rules come into play in such situations, the source rule, and the residence rule. The source rule holds that income is to be taxed in the country in which it originates irrespective of whether the income accrues to a resident or a non-resident, whereas the residence rule stipulates that the power to tax should rest with the country in which the taxpayer resides. If both rules were to apply simultaneously to a business and it was to suffer tax at both ends, the cost of operating on an international scale would become exorbitant.

 

International double taxation arises when various sovereign countries exercise their sovereign power to subject the same person to taxes of substantially similar character on the same income. There are three distinct classes of cases in which international double taxation may arise:

 

  1. The first and most important class includes those cases where double taxation is ‘due to co-existence of personal and impersonal tax liability’. Personal tax liability is based on the personal status of taxpayer i.e. his nationality, domicile, and residence whereas impersonal tax liability arises when a state claims tax on income earned or received within its territory without having regard to the personal status of the recipient. A person may be subjected to tax on the same income in one country on account of his personal status and in another because the source of his income is situated within the territory. Property may be taxed in the country where it is situated and also by the country where its owner resides.

 

  1. The second class includes cases of simultaneous personal liability of a person in various countries. This may arise when different countries apply different criteria to personal liability to tax or where the conditions of the same criteria are differently defined in different countries. One country may claim personal tax on account of nationality, and the other because of domicile or residence of the person concerned within its borders. A person who has his domicile in one and a residence in another may be liable to tax in the country of his domicile and that of his residence as well. He may reside in various countries and be liable to personal tax in each of them. Also, the same person may be claimed as domiciled or residents by different countries in each of which he fulfills the legal conditions of such personal status.

 

  1. The third class of double taxation arises when various countries apply different tests of impersonal liability. Double taxation of this kind may occur, for instance when the assets or activities, that produce a given income are situated elsewhere than in the country where the income is earned or from which it is due. Business transactions may be subjected to tax both in the country of their origin and of their completion. Tax on salaries and other remuneration for professional activities or employment may be demanded by the country where the act is performed, or where it is paid for, or where the employee or professional man resides or belong by nationality.

 

METHODS OF ELIMINATING DOUBLE TAXATION:

  1. Exemption Method: One method of avoiding double taxation is for the residence country to altogether exclude foreign income from its tax base. The country of the source is then given exclusive right to tax such incomes. This is known as complete exemption method and is sometimes followed in respect of profits attributable to foreign permanent establishments or income from immovable property. Indian tax treaties with Denmark, Norway, and Sweden embody with respect to certain incomes.

 

  1. Credit Method: This method reflects the underlying concept that the resident remains liable in the country of residence on its global income, however as far the quantum of tax liabilities is concerned, credit for tax paid in the source country is given by the residence country against its domestic tax as if the foreign tax were paid to the country of residence itself.

 

  1. Tax Sparing: One of the aims of the Indian DTAA is to stimulate foreign investment flows in India from foreign developed countries. One way to achieve this aim is to let the investor avail benefits of tax incentives available in India for such investments. This is done through “Tax Sparing”. Here the tax credit is allowed by the country of its residents, not only in respect of taxes actually paid by it in India but also in respect of those taxes India forgoes due to its fiscal incentive provisions under the Indian Income Tax Act. Thus, tax sparing credit is an extension of the normal and regular tax credit to taxes that are spared by the source country i.e. forgiven or reduced due to rebates with the intention of providing incentives for investments.

 

MODES OF RELIEF:

The solution to the problem of double taxation is to establish a method in which the individual’s whole income is taxed, but is taxed only once, and the liability is divided amongst the taxing territories according to relative interests of the taxpayer in each territory. This is brought about by treaties between the governments of two territories, i.e., bilateral relief. When relief is provided to one’s own national irrespective of reciprocity by the Government of the other authority, it is called unilateral relief.

 

  • Unilateral relief:

Under this system of taxation, relief is given by way of a tax credit for the taxes paid abroad. The countries, which follow this method of the tax credit, are U.S, Greece, India, and Japan to name a few.

For example – A resident in India who has paid income tax in any country, with which India does not have a treaty for the relief or avoidance of double taxation, is entitled to credit against his Indian Income tax for an amount equal to the Indian coverage rate or the foreign rate whichever is lower applied to the double-taxed income. This is done as follows:

  • Where the foreign tax is equal to Indian tax, the full amount of foreign tax will be given credit.
  • Where the foreign tax exceeds the tax payable in India, the liability to Indian tax will be nil. However, no refund in respect of the excess amount is allowed, and
  • Where the foreign tax paid is less than the Indian tax after deducting the foreign tax would be payable by the taxpayer. The principle is that the credit allowable will never exceed the amount of Indian income tax, which becomes due or payable in respect of the doubly taxed income.

 

  • Bilateral relief:

Bilateral relief is provided when the governments of two States enter into tax treaties which may take any one of the following two forms:

  • The treaty may apply the exempting method, wherein the country in question refrains from exercising jurisdiction to tax a particular income.
  • Alternatively, the treaty may provide relief from double taxation by reducing the tax ordinarily due to one or both of the contracting parties on that income which is subject to double taxation.

 

 

India has entered into a wide network of tax treaties with various countries all over the world to facilitate the free flow of capital into and from India. India has comprehensive DTAAs with 88 countries. Under the Income Tax Act 1961 of India, there are two provisions, Section 90 and Section 91, which provide specific relief to taxpayers to save them from double taxation. Section 90 is for taxpayers who have paid the tax to a country with which India has signed DTAA, while Section 91 provides relief to taxpayers who have paid tax to a country with which India has not signed a DTAA. Thus, India gives relief to both kinds of taxpayers. One can find the tax-sparing and credit methods for elimination of double taxation in most Indian treaties. A typical DTAA between India and another country covers only residents of India and the other contracting country who has entered into the agreement with India. A person who is not resident either of India or of the other contracting country cannot claim any benefit under the said DTA Agreement. Such agreement generally provides that the laws of the two contracting states will govern the taxation of income in respective states except when an express provision to the contrary is made in the agreement.

In India, Chapter IX of Income Tax Act, 1961 contains a provision relating to double taxation relief. Section 90 empowers the Central government to enter into an agreement (DTAA) with the Government of another country outside India for the specified objects. When such agreement does not exist relief is provided in Section 91.

 

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ITR Filing for Freelancers, TAXATION

Filing of Income Tax returns is a mandatory duty along with the payment of Income Tax to the Government of India. It is important to understand that Income Tax return is a document which is filed by you stating your Total Income in a Financial Year through various sources of income i.e Salary, business, house property, etc. It contains the details of tax paid and any refunds that have to be given by the government. 


Financial Year is the year of your income, and Assessment Year is the year next to it in which the tax is due. Eg – Financial Year 2017-18, Assessment Year 2018-19. The deadline has been kept to furnish these details after four months from the end of the financial year so that taxpayers have sufficient time to collect the data for the whole year and report in time to the government.


Many people tend to believe that not declaring income or maybe understating income is worth because it is saving you a few bucks. This leads to tax evasion for example not declaring interest received on bank fixed deposits or accepting income in cash and not route it through the official system.


A very blurred perception among several individuals is that filing of returns is not important because eventually, the government’s main objective is to ensure that its tax kitty is getting the revenue due to it. This misconception needs to be cleared. Know that it is our constitutional duty to file tax returns when you are required to do so. Your job is not just ending at paying taxes; filing returns is equally important.


So when does it become essential to file returns?


It is very important to file returns when your income as a freelancer or a blogger is exceeding INR 2,50,000 annually. This would be your Total Taxable income post deductions, the details of which we would be discussing below.


Let’s get started with the step-by-step understanding of how will you be calculating your gross income, deductions, considering the tax slabs, forms, deadlines– keeping in mind your respective profession.


Forms for ITR filings

As a Freelancer/ Blogger, you can go ahead with Form ITR 4S while filing the tax returns. Your account book needs audit according to the ITR laws (Section 44AB) if your income is more than Rs 1 crore. In this case, you must file the ITR before 31st of September.


When your turnover is less than 1 crore no audit is required, and the last date for submission of ITR is July 31st. The best part is Freelancers can also use the Presumptive Taxation method, and escape the tedious task of account book-keeping!


When the earning is less than Rs 50 Lakhs during the given financial year (under the Section 44AD, and the section 44AE of the Income Tax Act) the ITR Form 4S should be used in such a case.


Now, what do you mean by Presumptive Taxation Scheme?


In this case, the income is calculated on the basis of assumption rather than factual basis. As per as the new section 44ADA, the records of the expenses need to be maintained. Any freelancer, filing presumptive income tax return must remain consistent for the next 5 years otherwise; one will not be able to obtain the benefits from the scheme.Bloggers, self-employed professionals and freelancers like you should definitely go for presumptive income tax as it is easy and has numerous benefits.


How are you saving time by ITR 4S Filing?

The introduction of section 44AD of the income tax act has come as a breath of relief for the taxpayers. It gives professionals like you the liberty from complex ITR form 4 and escapes long trails of scrutiny. It is saving your time in manifold ways:


  • No need of getting your account books audited
  • No need of filling in a longer form
  • No need to maintain account books
  • Just fall into the tax bracket and give the tax on the lump sum basis. The income tax department is not going to check the margin and expenses. It trusts you!

Not just these but another benefit of filing tax through Presumptive Tax Scheme is that there is a minimum rate of estimation of income. Hence the actual rate of profit needs not be calculated and the minimum of 8% can be used as profit rate. Thus total revenue will help to calculate presumptive profit. However, if you think that you earn much more than the 8% of total revenue, then you can easily increase the rate for yourself.

Will you be requiring any professional to go about this?

Online tax-return filing has drastically reduced the time taken for a refund of excess taxes. In the earlier days, one had to wait for years to receive tax refunds. Now, the good news is – the Income Tax Department now processes and send refunds in a short time of 7-10 days as its latest technology upgrade of electronic and Aadhaar-based ITR verification has begun on a successful note.


To claim a refund faster, you must ensure that you file your taxes before the deadline of 31st July. If you file taxes after the deadline, the refund can be extended by many months. In order to avoid such delays, hassle and confusion you can count on e-filing your ITR with the help of handpicked professionals from Wazzeer. We would not just be helping you out with quicker return-filing but also keep a track of all the glitches that might come with processing your timely refund.


Since figuring out plenty number of forms for ITR filing becomes a daunting task, let Wazzeer aid professionals like you, to go about this smoothly. Let’s Connect!

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TAXATION

Individuals or Businesses making a donation to an NGO are eligible to deduce the donation amount from the total income; thereby this amount will be exempted under section 80G of Income Tax Act.  This article is intended to explain you the scenarios under which the donation is considered as an exemption.


  1. The amount donated should not exceed 10% of gross total income after subtracting allowable deductions (other than the deduction under section 80G) for the purpose of a tax rebate.
  2. Donations made to various funds set up by the federal or the state government e.g. the National Defense Fund is eligible for 100% tax rebate
  3. Donors contributing towards the repair or renovation of the place of worship would be entitled to a 50% tax rebate when computing their income for tax purposes.
  4. Donations made to a project or scheme notified as an eligible project or scheme for the purpose of section 35AC of the Income Tax Act is eligible for a 100% Tax Rebate.
  5. Any donation done for contribution(s) made to organizations — such as a scientific research institute or a university, college or other institution — approved under section 35(1)(ii) is eligible for 100% rebate



Remember, Receipts of donation collected at NGOs should bear the number and date of the 80G certificate and indicate the period for which the certificate is valid.


We at Wazzeer are fully equipped with CAs who are very well experienced in these matters, we would be happy to help you -> Let’s talk!

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Direct Taxes, TAXATION

In this article, we shall look into the Top 14 Direct Tax scenarios that a typical a statup in its journey would be eventually encountering with. Let’s jump into the brief details on these – Direct Taxes in India that startups should know.


1. Corporate income tax – Indian company, A resident company is taxed on its global income.

  • Tax at the rate of 30 percent is levied on income earned during a tax year.
  • A Surcharge and Education Cess is also levied. Alternatively, a company is required to pay MAT at 18.5 percent on the adjusted book profits in the case that the book profits are less than the taxable income of the Company.
  • A Surcharge and Education Cess is also levied DDT at 16.995 percent (including a surcharge of 10 percent and education cess) is liable to be paid on the dividend, declared, distributed or paid by a domestic company.
  • Dividend income received by an Indian company from foreign companies would be taxed at 15 percent (plus applicable Surcharge and Education Cess as given above) provided it holds at least 26 percent in the nominal value of equity share capital of the foreign company.
  • 66 percent (inclusive of applicable surcharge and education cess) shall be levied on the specified distributed income of unlisted domestic companies that buy back shares from its shareholders.

 

 

2.  Tonnage Tax Scheme for Indian shipping companies:

Tax is levied on the national income of the Indian shipping company arising from the operation of ships at normal corporate tax rates. The national income is determined in a prescribed manner on the basis of the tonnage of the ship. Shipping companies can opt for the scheme or taxation under normal provisions. Once the scheme has been opted for, it would apply for a mandatory period of ten years and other tax provisions would not apply.

 

 

3.  Securities Transaction Tax:

STT is levied on the value of taxable securities transactions at specified rates. The taxable securities transactions are:

  • Purchase/sale of equity shares in a company or a derivative or a unit of an equity-oriented fund entered into in a recognized stock exchange; and
  • Sale of a unit of an equity-oriented fund to the mutual fund.

 

 

4.  Commodity Transaction Tax:

CTT is levied on the sale of a commodity derivative (other than agricultural commodities) entered in a recognized association from a date to be notified.

 

5.  Wealth Tax:

Wealth tax is levied on specified assets at one percent on the value of the net assets as held by a taxpayer (net of debts incurred in respect of such assets) in excess of the basic exemption of $ 55,147.

 

6. Head Office Expenditure and Taxes:

Foreign companies operating in India through a branch are allowed to deduct executive and general administrative expenditure incurred by the head office outside India. However, such expenditure is restricted to the lower of:

  • Five percent of adjusted total income (as defined); or
  • Expenditure attributable to the Indian business. In cases where the adjusted total income for a year is a loss, the expenditure is restricted to 5 percent of the average adjusted total income (as defined).


7.  Taxation on the transfer of shares of a closely held company without or for inadequate consideration:

 

With effect from 1 June 2010, the transfer of shares of a closely held company without or for inadequate consideration to a firm or to a closely held company is taxable in the hands of the recipient of shares. The taxable income for the recipient will be the fair market value of the shares if the transfer is without consideration. If the transfer is for inadequate consideration then the taxable income will be the difference between the fair market value and consideration that exceeds the threshold of $ 919. The computation of the fair market value of the shares has been prescribed.

 

8. Share premium in excess of the fair market value deemed as income:

 

With effect from 1 April 2012, where a closely held company receives from any person, being a resident, any consideration for issue of shares that exceeds the face value of shares, the aggregate consideration received for such shares as exceeds the fair market value of shares is taxable in the hands of the recipient. However, this does not apply in a case where the consideration for issue of shares is received by (a) a VCU from a venture capital company or a venture capital fund; or (b) a company from a class or classes of persons as may be notified.

 

9. Withholding of taxes:

 

Generally, incomes payable to residents or non-residents are liable to withholding tax by the payer. However, in most cases, individuals are not obliged to withhold tax on payments made by them.

 

10. Carry forward of losses and unabsorbed depreciation :

 

Subject to the fulfillment of prescribed conditions Business loss (including that of speculation business), unabsorbed depreciation, and capital loss (long-term as well as short-term) can be carried forward and set off as per the prescribed provisions of the law. Business losses can currently be carried forward for a period of eight years whereas unabsorbed depreciation can be carried forward infinitely.

 

11.  Corporate Re-organisations:

 

 Corporate reorganizations, such as mergers, demergers, and slump sales, are either tax neutral or taxed at concessional rates subject to the fulfillment of the prescribed conditions.

 

12.  Limited Liability Partnerships:

 

The LLP Act was introduced in 2008 in India. LLPs are subject to AMT at the rate of 18.5 percent of the adjusted total income in the case where the income tax payable is less than 18.5 percent of the adjusted total income. The provisions dealing with DDT do not apply to an LLP. The conversion of a private company or unlisted public company into an LLP is exempt from tax subject to prescribed conditions.

 

13.  Foreign Institutional Investors:



 To promote the development of Indian capital markets, Business investing in listed Indian shares and units are subject to tax as per the beneficial regime. A Surcharge and Education Cess will also be levied. The rate of tax on other short-term capital gains is 30 percent plus surcharge (if applicable) and education cess.

 

14.  Domestic Transfer Pricing:

 

 The transfer pricing regulations also apply to certain domestic transactions defined as SDT covering the following:

  • Payments (i.e. only expenditure) to specific parties;
  • Transactions between tax holiday eligible units and other business of the same taxpayer;
  • Computation of ordinary profits of a tax holiday unit of the taxpayer where there are transactions with entities with close connection;




Start-up process entails complex procedures and many bureaucratic hurdles, entrepreneurs are better off using professional services. Hiring a virtual lawyer and virtual accountant can save time and help ensure that the process goes smoothly. For any Legal and Accounting support, Happy to help you, let us talk! 🙂



Reference: https://mea.gov.in/images/pdf/22899_India_in_Business.pdf

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GST

SMEs are stuck in the GST  spider web, why? The regime is simply undergoing changes every now and then, the lack of not having a accounting and secretarial advisory is putting pressure on these businesses. This blog intends to make life easier for these guys, New Rules in the GST Game that Businesses should know.

As per 22nd GST Council meeting of 6th October 2017:

Lesser burden of compliance for small businesses

  • The government has recognised hardship faced by small businesses with turnover of within Rs 1.5cr, by delaying their return filing compliance to once a quarter from once a month. Taxes will be paid quarterly.
  • Small businesses will also have to file monthly returns for three months – July, August, and September – and the switchover to quarterly filing will happen from the cycle starting October 1.

 

Relief for Service Providers

  • Exemption from Registration for a service provider if the aggregate turnover is less than Rs. 20Lacs (10 Lacs in special category state except for J&K) even if they are making inter-state supplies of services.
  • Services provided by a GTA to an Unregistered person shall be exempted from GST.
  • TDS/TCS provisions shall be postponed till 31.03.2018.
  • Small businesses will also have to file monthly returns for three months – July, August, and September – and the switchover to quarterly filing will happen from the cycle starting October 1.

 

Relief for Exporters

  • Refund cheques for July exports will be processed by Oct 10 and refund cheques for August exports will be processed by Oct 18.
  • Every exporter will now get an e-wallet. In the e-wallet, there would be a notional amount for credit. The refund they will eventually get will be offset from that amount. The e-wallet will be introduced from April next year.
  • Merchant exporters will pay a nominal 0.1% GST applicable on exports to enable their suppliers to claim ITC.

 

 

Composition Scheme changes

  • Person otherwise eligible for availing the composition scheme and are providing any exempt services shall now be eligible for the composition scheme.
  • Eligibility of composition scheme raised to INR 1 crore.
  • Traders will pay 1%, manufacturers 2% and restaurants 5% under the composition scheme.
  • Due date of FORM GSTR-4 for the quarter July-September, 2017 is extended to 15th November 2017

 

Under consideration 

  • Finance Minister Arun Jaitley announced that a group of ministers will relook tax on AC restaurants. GST for AC restaurants may become cheaper from 18% to 12%. A group of ministers has been formed to devise the mechanism. The GoM will submit its report in 14 days.
  • GoM will also make the composition scheme more attractive

Next meeting of the council will take place in Guwahati on 9-10 November.

 

RCM postponed

RCM applicable for the purchases from the unregistered dealer shall be suspended till 31.03.2018.

 

No GST on advance receipts for businesses with turnover under INR 1.5cr

Taxpayers having annual turnover upto 1.5 Crore shall not be required to pay GST at the time of receipt of advances on account of supply of goods.

 

Significant rate changes

  • GST on unbranded Ayurvedic medicines has been reduced from 12% to 5%.
  • Tax rate for man-made yarn has been reduced to 12% from 18%. The decision will have an effect on textiles.
  • GST rate on many job work items reduced from 12% to 5%. GST rate on some stationery items, diesel engine parts also reduced to 18% from the earlier 28%.
  • GST on khakra and unbranded namkeen has been reduced from 12% to 5%. Tax on zari work has been reduced from  12% to 5%.
  • 35% abatement on old leasing contract of vehicle
  • Printing Job work rate revised from 12% to 5%

 

Others

  • E-way bill has been deferred to 1stApril 2018
  • Relief for jewellers as no need to furnish PAN card on jewellery purchase of more than Rs 50,000. The amount of jewellery purchase for which KYC will be required will be determined later.
  • 35% abatement on old leasing contract of vehicle
  • Due date of GSTR-6 (filed by an input service distributor) for the months of July, August and September 2017 has been extended to 15.11.2017

 

Central Tax Rate Notification (28.06.2017)

  • Most of the goods are kept at the same rates as announced by the GST councilearlier but rough or non industrial unworked diamond or precious stones will be charged CGST at the rate of 0.125%.
  • List of goods exempt from CGST. No change in the list.
  • Oil, gas, coal and petroleum licenses and sub-contract licenses and leases will be charged GST at the rate of 2.5%.
  • The person liable to deduct TDS as per the GST law supplying intrastate goods or services to an unregistered person would be exempt from CGST.
  • Cashew nuts, not shelled or peeled, Bidi wrapper leaves (tendu), Tobacco leaves, silk yarn, Supply of lottery would have reverse charge applicable under GST.
  • Refund of the unutilized ITC would not be provided in the case of the tax on output being lower than the tax on inputs for certain goods mainly related to the textile and railways.
  • The supply of goods by CSD to unit run canteens and authorized customers and supply of goods by the unit run canteens to the authorized customers.
  • 50% of the tax paid on inward supplies of goods by the CSD for further supply to unit run canteens or authorized customers can be claimed as refund under GST.
  • Person liable to deduct TDS as per the GST law supplying intra goods or services to an unregistered person would be exempt from CGST.
  1. Intrastate supply of second hand goods by a registered person who deals in selling second hand goods to an unregistered person would be exempt from CGST.

 

News on GST Act

The entire framework of GST is based on GST Act. It was devised by the GST Council, which is a committee consisting of the Union Finance Minister (Chairperson), the Union Minister of State, the minister in-charge of finance or taxation or any other minister nominated by each State Government.

 

E-Way Billing

The GST provision, requiring any good more than Rs 50,000 in value to be pre-registered online before it can be moved, is likely to kick in from October after a centralised software platform is ready, a top official said. 

The provision, called the e-way bill, would be implemented after infrastructure for smooth generation of registration and its verification through hand-held devices with tax officials is ready. 

 

The GST is a constitutional amendment, and any change in the law will also affect the rules therein. Rules for invoicing, rules for penalty, rules defining the point of taxation – these are just some of the examples of any rule change in the model law. We at Wazzeer will be happy to help you out, experience Wazzeer virtual advisory system, let’s connect!

 

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GST

The main reason to implement GST was to abolish the cascading effect on tax, with GST there is only  simplified and cost saving system as procedural cost reduces due to uniform accounting for all types of taxes. Only three type of account; CGST, SGST & IGST have to be maintained. GST implications are observed on almost all sectors, through this blog we would be looking into the Impact of GST on Trading Sector. 

  1. For Wholesalers:

The wholesale market is fundamental to extending the reach of goods and services to the interiors of the country, especially the rural markets. Most wholesalers operate in cash transactions because of which there is a good chance that some transactions are not accounted for, which was previously a concern but ceases to be one under GST.

Given below are the main advantages that GST brings to wholesalers.

  • Transparent tax management: The introduction of technology into the taxation system can be a blessing in disguise, an opportunity to bring about transparency in tax management. Rather than relying on cash transactions, wholesalers will now get an opportunity to go digital. They will also be able to avail the facility of input tax credit. Input tax credit is where the businessman will be able to claim tax on all input goods and/or services.
  • Financial streamlining: Because the entire supply value chain including tax flows will be on GST records, wholesalers will be better connected to retailers and suppliers. This will make it easier to process payments and get tax returns in a timely manner, thereby improving the cash flows of traders. A reliable positive cash flow will help build confidence in the new regime, by making working capital available and aiding opportunities to grow the business.
  • Reorganization of supply chain: GST will enable high visibility and streamlining of the supply chain, providing wholesalers with a transparent view of supply movements. This will aid business efficiency in the long run.
  • Ease of borrowing through digital lending: Because financial and tax transactions will now be recorded in the GST system, even small traders will have digital records of their company finances and credit status. These digital records will act as a ready reckoner of information when a trader opts for a loan. Financial institutions and online lenders like Capital Float can now easily assess the loan eligibility of small traders such as Kirana owners by accessing this data, and provide them quick and easy loans. Borrowing funds online and doing business will now be easier.
  1. For Retailers:

Almost 92% of the retail sector in India is unorganized, operating in cash payments. They are, essentially, the tangible representation of FMCG multinationals to end-consumers; yet they are challenged by chronic issues such as the lack of technology enablement and low operating margins. A majority of the retail market consists of “kirana stores”, which are often the smallest link of the trade chain.

Here are the benefits of the new taxation system for retailers.

  • Input tax credit facility: As mentioned for wholesalers, retailers too would be able to claim taxes paid for input products and services availed. This will present a cost advantage to retailers.
  • Ease of entry into the market: The market is expected to become more business-friendly due to the clarity of processes related to procurement of raw materials and better supply logistics. This is a good opportunity for new suppliers, distributors and vendors to enter the market. The registration process has also become very clear under the GST, aiding entry into the market.
  • Retailer empowerment through information availability: Small retailers often do not have complete visibility into their stock receipts, payments, etc. and are forced to blindly rely on the word of the supplier. GST will streamline these supply and cost challenges and empower the retailer with readily available information through digital systems.
  • Better borrowing opportunity: The retailer scope for business growth can be increased by increasing the retailers’ access to finance.

However, like any new reform, there are certain challenges that need to be addressed. We see that both retailers and wholesalers must manage the following eventualities of GST implementation.

–  Higher costs of input services: Input services such as manpower, legal, professional services, auditor services, travel expenses, etc. will now be taxed at 18% as against the earlier bracket of 15%, leading to higher costs to the wholesaler.

– Additional costs to upgrade technology: Many wholesalers, especially rural ones, are not technology-savvy and will need to rely on help from their supplier companies to undergo a technological transformation. This means that supplier companies may need to increase commissions for wholesalers, an added cost to the company, or wholesalers and retailers themselves will need to invest in new systems, incurring additional expenses.

  1. For Importers and Exporters
  • Imports Taxation: Every import will be treated as an interstate supply, and will be subject to Integrated Goods and Services Tax (IGST) along with Basic Customs Duty (ranging between 5% and 40% depending on the good imported). This implies that IGST will be levied on any imported item, based on the value of the imported goods and any customs duty chargeable on the goods (say 10%). IGST is a combination of SGST (say 9%) and CGST (say 9%).

             Thus, imports taxation is an added tax liability for retailers who import goods or services.

  • Exports Taxation: Exports will be treated as zero-rated supply, i.e., no GST will be charged on exports. This is in line with the “Make in India” campaign that aims to make India a global manufacturing hub, for which exports are important.
  • Import of Services: The new clause of import of services places the onus of tax payments on the service receiver when the services are provided by a person residing outside India. This mechanism is called reverse charge and will apply in certain scenarios. For example, if the assesse has no physical presence in the taxable area, then the representative of the assesse will be required to pay tax. In the absence of representation, the assesse has to appoint a representative who will be liable to pay GST. Another example is when a registered dealer is buying goods or services from an unregistered dealer. In this case, the registered dealer will have to pay the tax on supply.
  • Need for restructuring working capital: A major shift is that GST is based on “transaction value” rather than MRP. In the old system, CVD was charged as a percentage of the MRP. Under GST, IGST will be charged as a percentage of the transaction value. This will affect the cash reserves of retailers and wholesalers, and they will need to reassess their working capital needs.

On the whole, GST is expected to bring domestic players at par with large multinational corporations due to the renewed import and export norms and the rules for FMCG suppliers. This is a good sign for Indian trade and exports in general, and thus the implementation of GST shows promise to propel India onto the international trade arena.

  1. Impact on Traders

Positive Impact on Traders

  1. No dispute good Versus Service:

In present regime of tax structure, the big issue is whether the transaction amount to sale of good or service. Though this dispute still may arise from view of time/place of supply from good or time/place of supply of services as both are separately given. However, net impact is neutral, on either of them needs to pay GST.

  1. Composition levy Increased

In current regime of taxation the limit under Composition Scheme is 40 lakhs whereas under GST it is increased up to 50 Lakhs. It is beneficial as 10 lakhs in turnover is a big thing from trader point of view.

  1. Credit of Excise Duty and Service tax:

In current regime of taxation then a trader is not eligible to take credit of input service as well as the Excise duty. However, in GST regime he will be eligible to take all credits and it will make positive impact on trader.

  1. No Margin to Disclose

Currently a trader who wants to pass on the CENVAT Credit of excise duty needs to obtain dealer registration and have to disclose the margin. But now this is no more relevant as trader is eligible to take credit as well as no requirement of separate dealer registration.

  1. No Reversal of Credit on goods sent for stock transfer

Currently as stock transfer is not liable to Vat as well as CST hence, credit pertains to goods sent to stock transfer needs to be reversed. However, in GST Regime stock transfer got made taxable, hence No reversal of credit is required.

  1. Credit of CST

In current regime of tax, on inter- state purchases CST paid became the cost to the trader as the Credit was not available whereas under GST regime it will be available as IGST Credit.

Negative Impact on Traders

  1. Stock transfer made taxable

In current regime of tax, stock transfer are not taxable on being made available “Form F” where as in current regime stock transfer made taxable. Due to this Warehouse decision to be taken more appropriately.

  1. No Form “C”

In current regime of tax, on being made available the Form C, CST rates charged at the rate of 2% instead of 14.5% which is local tax rate, however in GST regime interstate will be taxed at standard rate i.e IGST.

  1. Goods sent to job work are taxable

In current regime of tax, the goods sent for job work are not liable to CST on being made available of Form “H” whereas in Current GST regime it became taxable.

  1. Increased burden of Compliances

Instead of 4/12 Returns (state wise vary), now a trader needs to file 37 returns in year and much more compliances.

5. Impact on Manufacturers

Positive Impact on Manufacturers

  1. One Tax

In present structure of tax, there is various kind of taxes such as excise duty, Service tax, VAT, Entry tax, Central Sales Tax etc. But in GST regime there is only one tax i.e GST however, there will be three parts such CGST, SGST, IGST. This is measure relief for the manufacturer.

  1. Rate of tax

In current tax regime the consumer pays approximately 25-26% more than the cost of production due to excise duty (at 12.5%) and value added tax (almost 14.5%).In GST, goods may become cheaper marginally which a good sign for manufacture to compete with international market. The Impact of rate of tax depends on industry wise, but mostly it is beneficial.

  1. No Concept of Manufacture

In Non-GST regime the biggest litigation and issues are whether the transaction amount to manufacture or not. The interpretation related to term “Manufacture” will no more be relevant. It may result in ease of doing business without having litigation about the process.

  1. Reduction In Cost

In GST regime there will be reduction in cost of production as credit will be eligible of tax on purchases made from interstate purchases and no cascading effect. Hence, a manufacturer need not take the decision regarding purchase from point of view of tax implication as credit is eligible on all purchases.    

  1. Minimization of Classification issues

In current regime of tax there are numerous issues on classification of goods due to separate rates on different goods and exemptions on certain goods. But in regime of GST there shall be minimization of classification issues due to uniform rate and less expected exemptions.

  1. Speedy Movement of Goods

In GST Regime of tax structure there will be minimization of trade barriers, such as filing of way bills/entry permits. Compliance under entry tax will be abolished. There is much compliance in current regime on interstate movements or locally such as way bills, statutory forms etc which lead to slow movements of goods whereas this concept is going to be abolished though check points will still be eligible.

  1. CENVAT Credit

In regime of present tax, the manufacturer is unable to utilize the credit of Central Sales tax and VAT provided output is charged under Composition Scheme, which becomes the cost for him. But in Regime of GST, a manufacturer will be eligible to take Credit of SGST (VAT) as well as IGST (CST) on the purchases. There will be seamless flow of Credit in GST.  

  1. Valuation of Samples

In current law goods removed on sample basis, tax needs to pay by adopting the nearest aggregate value. However, in GST regime, time up to six months is granted to decide whether the good sold on sample basis has been approved or not which beneficial thing for manufacturer. However, after 6 months tax needs to be paid if the same is still in process of approval.

  1. State Wise Registration

Generally it has been observed that many manufacturers have two premises of factory within same locality or in same state and they are liable to take separate registration for each factory. But in GST Regime, registration has to be taken state wise and not factory wise. This will abolish the difficulties which have been faced due to separate registration.

  1. No assessment by multiple tax authorities

Generally, manufacturers are facing many difficulties in handling the assessments done by the Separate authorities for VAT, Service Tax, Central Excise, CST, etc. In GST regime it is expected that assessment will be done by State authorities for SGST, Central Authorities for CGST, and Interstate authorities for IGST.

  1. Electronic Mode for Forms

In current regime of tax there is very much manual filing of documents such as initial declaration, Numbering of Invoices etc. But in GST regime there will be less manual filing of documents and more through electronic mode. Further, the communication with department also could be through electronic mode.

Negative Impact on Manufacturers

  1. Time of Supply

In current regime of tax the time of duty on manufacture attracts at the time of removal where as in GST regime it will earliest of the four such as (Date of Issue of Invoice, Date of Payment, Date of Removal, Debit in the books of Receiver).

  1. Increase in Working Capital

In GST regime of tax, stock transfer has been made taxable, which requires the huge working capital because the realization of tax going to be on final supply tills that It may block the capital.

  1. No Credit of Petroleum Product

Petroleum Product has been kept out of GST hence; the tax paid on Petroleum Product is not eligible as credit and same became the cost. Each industry requires the Petroleum Product such as Fertilizer Industry, Power Sector, and Logistic Sector etc.

  1. Introduction of Reverse Charge on Goods

 In current regime of tax structure there was reverse charge on specified services but in case of GST even the reverse charge will be applicable on goods.

  1. Post supply Discount

If the discount has to be given post supply than it must be known to both the parties at the time of supply or pre-supply and the proof of being known is the clause of discount must be there either in contract or agreement or offer etc.

  1. Matching Concept of Returns

In current regime, if the tax has been made the purchaser to supplier then he is eligible to take the Credit it is immaterial whether the same has been credited to Central Government by the supplier or not. But in GST Regime, the matching concept if tax credit will be there, if credits pertaining to supplier does not match with purchaser than it will not be accepted in return unless it is rectified by both the parties.

  1. Denial of CENVAT Credit on purchases made from unorganized/unregistered Person

In GST regime if the goods have been purchased from the register person then only credit will be given otherwise the credit will not be allowed.

  1. No Compliance of “C” and “F” Forms

As stock transfer has been made taxable in GST Regime hence Concept of “F” Forms is no more relevant and IGST has been levied on all inter-state purchases or sale and credit will be allowed, hence No Concept of form “F” is relevant.

  1. Increase in Compliance-burden

There is going to be huge compliance burden in GST Regime such as 37 returns for one office in a year.

 

à Point of Caution

In the GST regime, compliance in general and Input Tax Credit in particular will be dependent on invoice level information – as invoice matching will be the key to avail the correct Input Tax Credit. One of the genuine concerns hitting the trader under GST, will be the scenario of non-payment of tax by his supplier. As per the GST law, a recipient will get his due ITC, only if his supplier has uploaded all the correct sales invoices, which is matched and acknowledged by the recipient; and, any missing purchase invoices uploaded by the recipient are also similarly matched and acknowledged by the supplier. In short, if a supplier chooses to default, this will lead to loss of Input Tax Credit for the trader. Ideally, this will lead to ‘compliant’ traders not dealing with ‘non-complaint’ ones – but at the cost of a one-time loss of tax credit. However, traders can potentially avoid such scenarios, by effective vendor management in advance – identifying vendors who will be compliant, and keeping a watch out for credit rating before doing business with any entity.

In the current regime, stock transfers are not taxable – provided Form F is furnished, VAT is not charged. However, input VAT credit is reversed at a certain percentage (4% in most states), and the rest is available as credit to the trader. In the GST regimestock transfer will become a taxable event. While the tax paid will be available fully as credit and also, there will be no need for credit reversals – this will have an impact on the working capital. This is because, for the tax paid on the date of the stock transfer, the ITC is available only when the stock is liquidated by the receiving branch. Thus, in case the logistics planning is poor, leading to overstocking at branches, working capital will be blocked for a long time – a direct challenge for SMEs who operate with thin working capital. With the seamless availability of credit on inter-state purchase and effective removal of state business boundaries going forward, there could be a potential reduction in the number of branches / warehouses – as they would exist solely for operational reasons rather than for compliance. This could lead to reduction in stock transfers, which will of course nullify the impact of stock transfer on the working capital of a trader.

Compliance activity for a trader will seemingly go up under GST – 4 VAT returns per year (quarterly) in some states to 12 VAT returns per year (monthly) in some, will be replaced effectively by 37 returns per year (3 monthly and 1 annual) in the GST regime. However, if we analyze the current compliance activity – it is usually submission of monthly returns via forms, followed by submission of annexures with details of sales / purchase transactions to calculate the correct Input Tax Credit. Thus, the activity per say remains the same, even when GST comes in. However, the depth at which the activity will be done will be more under GST, as all transactions will need to be matched and filed accurately for the right compliance to happen, and the right Input Tax Credit to be availed. The complexity only increases if one has operations across states, since each state will require a separate registration. Service providers are bound to bear the brunt of this change as they shift from a centralized service tax regime to a decentralized supply of services under GST. Traders, will thus need to invest in the right GST software and technology to ensure that the work gets done accurately, yet timely – which of course, will entail additional costs.

àPoint of Contention

For traders on e-commerce platforms, GST certainly brings cost reductions in the form of availability of input credit and the levy of a single tax on supplies across the nation. It is expected that it will be easier to do business in the GST regime with greater clarity on the treatment of e-commerce transactions and uniformity in the taxes levied. However, traders must also be prepared for the impact on their cash flows – due to tax collection at source (TCS) by e-commerce operators, non-compliance by their vendors and payment of taxes on a monthly basis. Most importantly, compliance activities will also increase for e-commerce traders in the GST regime due to mandatory registration; in short, they cannot opt for composition levy even if their aggregate turnover is less than INR 75 Lakhs. Awareness of the compliance requirements under GST, proper training of resources to handle these requirements and use of technology to make all this easier will ensure that e-commerce traders can capitalize on the new era of e-commerce in India.

Under VAT, on purchases made from unregistered dealers, the recipient (registered dealer) of goods has to pay a tax called Purchase Tax. Under GST, the same concept has been retained by the Government under the name of Reverse Charge – primarily to ensure, that the tax is collected on the sale of goods or supply of services from various unorganized sectors. Under this, the liability to pay tax rests with the recipient. This is applicable on specific supply of goods and services, specified by the Government. However, a person liable to pay taxes under reverse charge mechanism will require mandatory registration.

In the GST regime – while, there will be a minimization of trade barriers as the corresponding taxes would have been subsumed under GST, the implementation of the same will be easier said than done. Under GST, a registered person who intends to initiate a movement of goods of value exceeding INR 50,000 will need to generate an e-Way bill. While the intent is to unify the Indian market and assist smooth flow of goods, the entire process is cumbersome. It requires participation by the supplier, the transporter and even the recipient – who has to communicate his acceptance or rejection of the consignment covered by the e-way bill within a short span. Thus, there is a fair chance that whatever savings are generated by virtue of reduced inventory costs, may get evaporated while covering compliance and associated technology implementation costs. However, once the initial barriers have been crossed and with greater adoption of technology, the current logistical complications are expected to reduce over a period of time. As such, the government has decided to stall the implementation of e-way bill, till the systems are ready, as per the recent notifications.

Conclusion

The introduction of the Goods and Services Tax will be a very noteworthy step in the field of indirect tax reforms in India. By merging a large number of Central and State taxes into a single tax, GST is expected to significantly ease double taxation and make taxation overall easy for the industries. For the end customer, the most beneficial will be in terms of reduction in the overall tax burden on goods and services. Introduction of GST will also make Indian products competitive in the domestic and international markets. . However, technology will surely be a game-changer in this regard, as this will be the only way the compliance burden of GST can be effectively absorbed, translating into more business benefits for the Indian trader. Last but not least, the GST, because of its transparent character, will be easier to administer. Once implemented, the proposed taxation system holds great promise in terms of sustaining growth for the Indian economy.

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GST, GST, TAXATION

The fact is, yes, when dealing with a vendor who is not GST registered, you need to pay GST for unregistered dealer on supply under Reverse Charge Mechanism. Reverse charge means the liability to pay tax is by the recipient of goods/ services instead of the supplier. Reverse charge may be applicable for both services as well as goods. if Unregistered dealer selling goods/services to a Registered dealer then reverse charge will apply and registered dealer will be liable to pay GST on supply. Good part is the registered dealer is eligible to claim credits later.

As a rule, any supplier is liable to pay GST under the GST Act. However, there are certain instances where a recipient of goods or services is liable to pay GST on reverse charge basis. There are two scenarios under which GST is payable on reverse charge basis:

1.     Reverse charge mechanism applicable to supply of certain specified goods or services

2.     Reverse charge mechanism applicable in case of purchases made from unregistered supplier


Section 9 (4) of the CGST/SGST(UTGST) Act and section 5 (4) of the IGST Act cover the cases of reverse charge in case of taxable supplies by any unregistered person to a registered person. These sections provide that the tax in respect of the supply of taxable goods and/or services by an unregistered supplier to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

Accordingly, whenever a registered person procures supplies from an unregistered supplier, he needs to pay GST on reverse charge basis. However, supplies where the aggregate value of such supplies of goods or services or both received by a registered person from any or all the unregistered suppliers is less than five thousand rupees in a day are exempted.

Any amount payable under reverse charge shall be paid by debiting the electronic cash ledger. In other words, reverse charge liability cannot be discharged by using input tax credit. However, after discharging reverse charge liability, credit of the same can be taken by the recipient, if he is otherwise eligible.

Non-GST registered vendor in normal circumstances, the supplier for goods is required to pay the GST. However, to prevent the tax evasion by the vendor who are unregistered, the government has burdened the Recipient (GST Registered) of goods to add GST in their purchase from Non- GST registered vendor. Exemption-  The government has provided an exemption of Rs. 5000. It means if the value of supply from unregistered user does not exceed Rs. 5000/-, it is not required to pay GST for such unregistered vendor. Reverse Charge- The GST paid by the Recipient on its purchase from non-registered can be claimed under reverse charge mechanism as input credit if such good/services are being used by them for business purpose. If you are claiming credit under reverse charge, you are required to register under GST, irrespective of the fact, whether you reach the threshold limit for GST registration (which is Rs. 20 Lakhs).

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