What is Direct Tax?

Direct Tax is a tax where the taxpayer pays directly to the authority imposing the tax. Here, the taxpayer
has to bear the tax and will not be able to transfer this liability to another entity. In India, the Central
Board of Direct Taxes (CBDT), is responsible for the collection and administration of direct taxes. CBDT is
governed by the Department of Revenue which provides inputs to the government related to the
implementation of direct taxes.

Types of Direct Taxes in India: -

 Income Tax: The most common example of direct tax is income tax, which one pays directly to
the government. Income tax is imposed on the income that is being earned in a financial year.
The tax is paid on the basis of income tax slabs of the IT department.

 Capital Gains Tax: If anyone is making capital gains; they are required to pay tax on those gains
to the government. Capital gains may arise out of land or from investments such as equities.
Based on the duration for which one held the investments, the capital gains tax is charged as
long-term capital gains (LTCG) or short-term capital gains (STCG).

 Securities Transaction Tax (STT): If one is involved in security trading, then they are required to
pay securities transactions tax, irrespective of any gains made out of it or not.

 Estate and Wealth taxes (Now Abolished): - The Wealth Tax Act in India, which was abolished in
2015-2016, imposed a tax on an individual's net wealth exceeding Rs. 30 lakhs. Net wealth was
calculated by subtracting debts and certain exemptions from the total asset value. Assets like
real estate, jewelry, and cash were included.

Advantages of Direct Tax

 Helps in curbing inflation.

 Considered as equitable for all classes of people.
 Directly increase the revenue of the government.

Disadvantages of Direct Tax

 Documentation process is cumbersome.

 Collection of direct taxes is complex.
 Evasion is quite possible.
 Restricts investments.

1|Page Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

 What is Indirect Tax?

Indirect taxes are charged on goods and services. The taxpayers pay the indirect tax to the government
via intermediary and thus they are indirectly paid to the government. The Central Board of Indirect
Taxes and Customs (CBIC) is responsible for the collection and administration of indirect taxes which is
governed by the Department of Revenue.

Types of Indirect Tax

Prior to the introduction of GST in India, there existed the following types of indirect taxes –

 Sales Tax: The government levied sales tax on the sale of movable goods.

 Service Tax: All service providers are required to pay this tax to the government except those
covered under the negative list of services.

 Value Added Tax: It was a consumption tax placed on a product, which was added at each stage
of its manufacture or distribution.

Advantages of Indirect Tax

 Every individual contributes.

 Payment is very convenient for taxpayers.
 The collection of taxes is quite easy.

Disadvantages of Indirect tax

 Regressive in nature.
 Makes the goods and services expensive.
 Less transparent for end-consumers

2|Page Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

Differences Between Direct and Indirect Taxes

Basis Direct Tax Indirect Tax

Paid directly to
1. Meaning Paid to the government via intermediary
the government

Profits and
2. Levied on Goods and services
income

Individuals,

3. Taxpayer HUFs and End-consumers of products, goods and services.

businesses

Directly

depends on
4. Tax Rate Same for everyone
income and

profits

3|Page Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

 5. Tax Burden Progressive Rate of tax is flat so tax burden is regressive

6. Transfer of
Not transferable Can be transferable
liability

7. Tax
Complex Quite convenient
Collection

Income Tax and

8. Types Goods and Services Tax (GST)
STT

9. Evasion Possible Not possible

Advantages of GST

1. GST eliminates the cascading effect of tax

GST is a comprehensive indirect tax that was designed to bring indirect taxation under one umbrella.
More importantly, it is going to eliminate the cascading effect of tax that was evident earlier.

Cascading tax effect can be best described as ‘Tax on Tax’. Let us take this example to understand what
is Tax on Tax.

2. Higher threshold for registration

4|Page Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

Earlier, in the VAT structure, any business with a turnover of more than Rs.5 lakh (in most states) was
liable to pay VAT. Please note that this limit differed state-wise. Also, service tax was exempted for
service providers with a turnover of less than Rs.10 lakh.

Under GST regime, however, this threshold has been increased to Rs.20 lakh, which exempts many small
traders and service providers.

3. Composition scheme for small businesses

Under GST, small businesses (with a turnover of Rs.20 to 75 lakh) can benefit as it gives an option to
lower taxes by utilising the Composition scheme. This move has brought down the tax and compliance
burden on many small businesses.

4. Simple and easy online procedure

The entire process of GST (from GST registration to filing returns) is made online, and it is super simple.
This has been beneficial for start-ups especially, as they do not have to run from pillar to post to get
different registrations such as VAT, excise, and service tax.

5. Special treatment for e-Commerce operators

Before GST regime, supplying goods through the e-commerce sector did not have separate rules. It had
variable VAT laws. Let us look at this example:

Online websites (like Flipkart and Amazon) delivering to Uttar Pradesh had to file a VAT declaration and
mention the registration number of the delivery truck. Tax authorities could sometimes seize goods if
the documents were not produced. Again, these e-commerce brands were treated as facilitators or
mediators by states like Kerala, Rajasthan, and West Bengal which did not require them to register for
VAT.

6. Improved efficiency of logistics

Earlier, the logistics industry in India had to maintain multiple warehouses across states to avoid the
Central Sales Tax and state entry taxes on inter-state movement. These warehouses were forced to
operate below their capacity, giving room for increased operating costs.

Under GST, however, these restrictions on inter-state movement of goods have been lessened.

7. Unorganized sector is regulated under GST

In the pre-GST era, it was often seen that certain industries in India like construction and textile were
largely unregulated and unorganized.

5|Page Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

Under GST, however, there are provisions for online compliances and payments, and for availing of
input credit only when the supplier has accepted the amount. This has brought in accountability and
regulation to these industries.

Disadvantages of GST

1. Increased costs due to software purchase

Businesses have to track GST updates regularly. They must ensure that their accounting or ERP software
gets updated in real time for GST legal and portal updates. Else, they can go for a GST compliance
solution to ensure continuous compliance. But both the options involve money to be invested and needs
time commitment for training employees so that there is efficient utilization of the new GST software.

2. Not being GST-compliant can attract penalties

Many small businesses in India are adapting GST changes with every passing month. When the law was
first introduced, they had learn to issue GST-complaint invoices, be compliant with digital record-
keeping, and of course, file timely returns. This means that the GST-complaint invoice issued should
have had mandatory details such as GSTIN, place of supply, HSN codes, and others.

3. GST brought about a rise in operational costs

GST changed the way taxes are paid and returns are filed. Businesses needed to employ tax
professionals who had expertise to stay GST-complaint. This gradually increased costs for small
businesses as they had to bear the additional cost of hiring experts.

Also, businesses needed to train their employees in GST compliance, further increasing their overhead
expenses. A plug-and-play, SaaS-based solution such as ClearGST allowed taxpayers to ensure
compliance at reasonable cost.

4. GST came into effect in the middle of the financial year

Initially, as GST was implemented on the 1st of July 2017, businesses followed the old tax structure for
the first 3 months (April, May, and June), and GST for the rest of the financial year 2017-18.

Businesses found it hard to get adjusted to the GST regime, and some of them ran these tax systems
parallelly, resulting in confusion and compliance issues.

5. Adapting to a complete online taxation system

Unlike earlier, businesses are had to switch from pen and paper invoicing and filing to online return filing
and making payments. This was tough for some smaller businesses to adapt to.

The process for GST return filing on ClearGST is easy to follow. Business owners need to only upload
their invoices through easy-import options, and the software will populate the return forms

6|Page Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

automatically with the information from the invoices for an error-free end-to-end filing. Any errors in
invoices will be clearly identified by the software in real-time, thus increasing efficiency and timeliness.

6. SMEs have a higher tax burden

Smaller businesses, especially in the manufacturing sector have faced difficulties under GST. Earlier, only
businesses whose turnover exceeded Rs.1.5 crore had to pay excise duty. But now any business whose
turnover exceeds Rs.20 lakh have to pay GST.

However, SMEs with a turnover upto Rs.75 lakh can opt for the composition scheme and pay only 1% tax
on turnover in lieu of GST and enjoy lesser compliances. The catch though is these businesses will then
not be able to claim any input tax credit. The decision to choose between higher taxes or the
composition scheme (and thereby no ITC) continues to be a tough one for many SMEs.

Amendment of Indian Constitution for GST

The Constitution contains the Union List and the State List within which the power to levy separate taxes
is given to the Centre and States respectively. GST was to be levied in such a way that both the Centre
and the States received the power to levy and collect it. Further, the legislation had to remain consistent
across the Centre and the various State/Union Territory Legislatures. To provide for this, an amendment
in the Constitution was necessary.

Constitution (101st Amendment) Act, 2016

In order to suitably implement the GST legislation, this Act resulted in the insertion, deletion and
amendment of certain Articles of the Constitution. The following matters were dealt with as a result of
these changes:

 The delineation of powers to levy and make laws with respect to GST
 The applicability and scope of the GST law
 The manner of apportionment of revenue from GST among Centre and States
 The constitution, powers and duties of the GST Council
 The discontinuation of existing taxes to give way for GST
 The manner of providing compensation to States for loss of revenue on account of the
introduction of GST

Article 246A: Special Provision for GST

This Article was newly inserted to give power to the Parliament and the respective State/Union
Legislatures to make laws on GST respectively imposed by each of them. However, the Parliament of
India is given the exclusive power to make laws with respect to inter-state supplies. The IGST Act deals
with inter-state supplies. Thus, the power to make laws under the IGST Act will rest exclusively with the
Parliament. Further, the article excludes the following products from the scope of GST until a date
recommended by the GST Council:

7|Page Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

  Petroleum Crude
 High-Speed Diesel
 Motor Spirit
 Natural Gas
 Aviation Turbine Fuel

Article 269A: Levy and Collection of GST for Inter-State Supply

While Article 246A gives the Parliament the exclusive power to make laws with respect to inter-state
supplies, the manner of distribution of revenue from such supplies between the Centre and the State is
covered in Article 269A. It allows the GST Council to frame rules in this regard. Import of goods or
services will also be called as inter-state supplies. This gives the Central Government the power to levy
IGST on import transactions. Import of goods was subject to Countervailing Duty (CVD) in the earlier
scheme of taxation. IGST levy helps a taxpayer to avail the credit of IGST paid on import along the supply
chain, which was not possible before.

Article 279A: GST Council

This Article gives power to the President to constitute a joint forum of the Centre and States called the
GST Council. The GST Council is an apex member committee to modify, reconcile or to procure any law
or regulation based on the context of Goods and Services Tax in India.

Article 286: Restrictions on Tax Imposition

This was an existing article which restricted states from passing any law that allowed them to collect tax
on sale or purchase of goods either outside the state or in the case of import transactions. It was further
amended to restrict the passing of any laws in case of services too. Further, the term ‘supply’ replaces
‘sale or purchase’.

Article 366: Addition of Important definitions

Article 366 was an existing article amended to include the following definitions:

 Goods and Services Tax means the tax on supply of goods, services or both. It is important to
note that the supply of alcoholic liquor for human consumption is excluded from the purview of
GST.
 Services refer to anything other than goods.
 State includes Union Territory with legislature.
 Compensation to States Under GST

This Act also contains a provision to provide for relief to states on account of the revenue loss to the
states arising due to the implementation of GST. It has a validity period of five years. The Goods and
Services Tax (Compensation to States) Act, 2017 was born as a result.

8|Page Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

What does the Seventh Schedule State?

The Seventh Schedule to Article 246 contains three lists, which contain the matters under which the
Union and the State Governments have the authority to make laws.

 List – I: Union List

It contains the matters with respect to which the Parliament (Central Government) have the
exclusive right to make laws.
 List – II: State List
It contains the matters in respect of which the state government has the exclusive right to make
laws.
 List – III: Concurrent List
It contains the mattes in respect of which both the Central and State Governments have the
power to make laws. The relevant entries in this list were adjusted in such a way as to provide
for the following:

To continue the levy of excise duty by the Centre on manufacture/production of five petroleum
products namely: petroleum crude, high-speed diesel, motor spirit, natural gas, and aviation turbine
fuel. In addition to the above, excise duty is also levied on tobacco and tobacco products. As a result,
tobacco and tobacco products are subject to both excise duty and GST.

The power to levy taxes on the five petroleum products was given to the states too.

Entertainment tax was abolished except where it is levied by local bodies.

Goods and Services Tax Council

Goods & Services Tax Council (GST Council) is a constitutional body for making recommendations to the
Union and State Government on issues related to Goods and Service Tax.

Background of the Goods and Services Tax Council

The 101st Amendment Act of 2016 paved the way for the introduction of a new tax regime (i.e. goods
and services tax – GST) in the country. The smooth and efficient administration of this tax requires
cooperation and coordination between the centre and the states.

In order to facilitate this consultation process, the amendment provided for the establishment of a GST
Council.

The amendment inserted a new Article 279-A in the Constitution of India. This article empowered the
President to constitute a GST Council by an order.

Accordingly, the President issued the order in 2016 and constituted the Council. The Secretariat of the
Council is located in New Delhi. The Union Revenue Secretary acts as the ex-officio Secretary to the
Council.

9|Page Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

Vision and Mission of the GST Council

While discharging its functions, the Council is to be guided by the need for a harmonized structure of
GST and the development of a harmonized national market for goods and services.

The vision and mission of the Council are as follows:

Vision:

To establish the highest standards of the cooperative federation in the functioning of the Council, which
is the first constitutional federal body vested with powers to take all major decisions relating to GST.

Mission:

Evolving by a process of wider consultation, a GST structure, which is information technology driven and
user friendly.

Composition of the Goods and Services Tax Council

 The Council is a joint forum of the centre and the states and consists of the following members:
 The Union Finance Minister as the Chairperson
 The Union Minister of State in-charge of Revenue or Finance
 The Minister in-charge of Finance or Taxation or any other Minister nominated by each state
government

The members of the Council from the states have to choose one amongst themselves to be the Vice-
Chairperson of the Council. They can also decide his term.

The Union Cabinet also decided to include the Chairperson of the Central Board of Excise and Customs
(CBEC) as a permanent invitee (non-voting) to all proceedings of the Council.

Working of the GST Council

The decisions of the Council are taken at its meetings. One-half of the total numbers of members of the
Council is the quorum for conducting a meeting. Every decision of the Council is to be taken by a
majority of not less than three-fourths of the weighted votes of the members present and voting at the
meeting.

The decision is taken in accordance with the following principles:

(i) The vote of the central government shall have a weightage of one-third of the total votes cast in the
meeting.

(ii) The votes of all the state governments combined shall have a weightage of two-thirds of the total
votes cast in that meeting.

Any act or proceeding of the Council will not become invalid on the following grounds.

(i) Any vacancy or deficit in the constitution of the Council

10 | P a g e Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

(ii) Any defect in the appointment of a person as a member of the Council

(iii) Any procedural irregularity of the Council not affecting the merits of the case.

Functions of the Goods and Services Tax Council

The Council is required to make recommendations to the centre and the states on the following
matters:

 The taxes, cesses and surcharges levied by the centre, the states and the local bodies that would
be merged in GST.
 The goods and services that may be subjected to GST or exempted from GST.
 Model GST Laws, principles of levy, apportionment of GST levied on supplies in the course of
inter-state trade or commerce and the principles that govern the place of supply.
 The threshold limit of turnover below which goods and services may be exempted from GST.
 The rates include floor rates with bands of GST.
 Any special rate or rates for a specified period to raise additional resources during any natural
calamity or disaster.
 Special provision with respect to the states of Arunachal Pradesh, Assam, Jammu and Kashmir,
Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
 Any other matter relating to GST, as the Council may decide.

In addition, the council shall also recommend the date on which the GST may be levied on petroleum
crude, high-speed diesel, petrol, natural gas and aviation turbine fuel.

The Council also has to recommend the compensation to the states for the loss of revenue arising on
account of the introduction of GST for a period of five years. Based on the recommendation, the
Parliament determines the compensation.

Definition of Supply under GST:

Under GST, Supply is considered a taxable event for charging tax. The liability to pay tax arises at
the ‘time of supply of goods or services’. Thus, determining whether or not a transaction falls under
the meaning of supply, is important to decide GST’s applicability.
Concept Before GST
Under the erstwhile indirect tax regime, there was no concept of Supply. The stage at which indirect
taxes were levied varied under different tax laws. The ‘excise duty’ was charged on goods
manufactured when they were taken out of the factory. ‘Service Tax’ was levied based on certain
rules known as the ‘point of taxation’ rules, for services rendered. A VAT would arise on the value
of the sale of goods or provision of services. The present system has merged all taxes to maintain a
single taxable event.

11 | P a g e Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

Important updates from Budget 2023*
1. Section 16 is amended to state that buyers who fail to pay their supplier the invoice value,
including the GST amount, within 180 days from the date of issue of the invoice, must pay an
amount equal to the ITC claimed along with interest under Section 50.
2. Sections 37, 39, 44, and 52 are amended to restrict taxpayers from filing their GSTR-1,
GSTR-3B, GSTR-9 and GSTR-8 for a tax period after the expiry of three years from the due
date.
3. Section 17(5) is revised to include another item under ineligible ITC being expenditure on
CSR initiatives for corporates.
4. High sea sales and similar transactions that are neither supply of goods or services are
considered exempt and hence ITC proportional to such sales cannot be claimed as per revised
Section 17(3).
5. Schedule III has been amended to provide for paras (7) and (8) and explanation (2) to take
retrospective effect from 1st July 2017.
6. Section 10 of the CGST Act has been amended to allow businesses that supply goods through
an e-commerce operator to opt into the composition scheme.
*These amendments will come into force once notified by the CBIC.

What is supply under GST?

Supply includes sale, transfer, exchange, barter, license, rental, lease and disposal. If a person
undertakes either of these transactions during the course or furtherance of business for consideration,
it will be covered under the meaning of Supply under GST.
Elements of Supply
Supply has two important elements:
 Supply is done for a consideration
 Supply is done in course of furtherance of business
If the aforementioned elements are not met with, it is not considered as a sale.

Examples:
Mr. A buys a table for Rs.10,000 for his personal use and sells it off after 10 months of use to a
dealer. This is not considered as supply under CGST as this is not done by Mr A for the furtherance
of business

12 | P a g e Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

Mrs. B provides free coaching to neighbouring students as a hobby. This is not considered as supply
as this act is not performed for a consideration.
However, as specified in Schedule I of GST Act, certain activities are considered as supply even if it
is made without consideration.

Classification of supply and types

Composite supply and Mixed Supply:
There are a few supplies which are made together with two or more items. Such supplies are further
classified into Composite Supply and Mixed Supply.
A supply comprising of two or more goods/services, which are necessarily supplied in conjunction
with each other as per frequent business practices followed in that area. In other words, these items
cannot be supplied individually. There is a principal supply and a secondary supply in the whole
transaction. In such cases, the tax rate on principal supply will apply to the entire supply. E.g. Buying
a Dry Fruit Gift Box for Diwali. It includes dry fruits, a box, and a wrapper. Box and wrapper cannot
be sold individually without the main content which is dry fruit. This is a composite supply.
A supply comprising of two or more goods/services, wherein the supplies are independent of each
other and are not necessarily required to be sold together is called a mixed supply. The first condition
to be met for mixed supply is that ‘it should not be a composite supply’. In such cases, the tax rate
that is higher of the two supplies will be applicable to the entire supply. E.g. Buying a Christmas
package consisting of cakes, aerated drinks, chocolates, Santa caps, and other gift items. Each of
these items can be sold separately and are not dependent on each other. This is a mixed supply.

13 | P a g e Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

Import of services:
Import of goods/services with consideration is considered as supply whether for personal or business
use.
Activities considered as a supply of goods as per Schedule II of the GST Act
Transfer of business assets:
1. Business assets transferred/disposed of with or without consideration

2. If the owner ceases to be a taxable person then his business assets will be assumed to be supplied
to him in course of his business –

This is not applicable in the following cases:

a. Business is transferred to another person
b. Business is carried by a taxable representative
Supply of goods by an unincorporated AOP/BOI for a consideration
Activities considered as a supply of services as per Schedule II of GST Act
a) Land and building
1. Lease, rent, tenancy, easement, license to occupy land
2. Lease or letting out of the building (Building includes commercial/ industrial/residential complex
for business use either wholly or partly)
b) Transfer of business assets: The owner uses or allows to use business assets for personal use.
c) Construction of a building/complex intended for sale to a buyer wholly or partly
d) Temporary transfer or permitting the use of intellectual property right
e) Renting of immovable property (Rented residence is exempted from GST)
f) Development of information technology software
g) Agreeing to refrain from an act – Non-competition agreements
h) Transfer of right to use any goods for a consideration
i) Any treatment or process which is applied to another person’s goods is a supply of services.
Activities or transactions treated neither as the sale of goods nor sale of services as per
Schedule III of GST Act
Following are the transactions covered under negative list:
i. Services provided by an employee to the employer

14 | P a g e Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

 ii. Services of the funeral, burial, crematorium or mortuary including transportation of the
deceased
iii. Services by any court or Tribunal
iv. Duties performed by the MP/MLA/MLC/ Members of Local Bodies
v. Duties performed by any person as a Chairperson or a Member or a Director in a body
established by the Central Government or a state government or local authority
vi. Duties performed by any person who holds any post in pursuance of the provisions of the
Constitution in that capacity
vii. Sale of Land
viii. Sale of Building (However, If construction of a complex /building intended for sale to a
buyer and part of the consideration is received before completion, then it will be treated as
Supply of Services)
ix. Actionable claims, other than lottery, betting and gambling
x. Supply of goods from a place in the non-taxable territory to another place in the non-taxable
territory without such goods entering into India*
xi. Supply of warehoused goods to any person before clearance for home consumption*
xii. Supply of goods by the consignee to any other person, by endorsement of documents of title
to the goods, after the goods have been dispatched from the port of origin located outside
India but before clearance for home consumption*
*These transactions were inserted into the Act with effect from 1st February 2019. However, in
Budget 2023, it was proposed that these entries will take retrospective effect from 1st July 2017.
However, no refund will be made of all the tax that has been collected between 1st July 2017 and
31st January 2019. The new amendment will apply once notified by the CBIC.

Thus, GST law has simplified tax treatment by clearly classifying activities considered as
goods/services or transactions considered as neither sale of goods or services.

Aggregate Turnover for GST Registration

A business whose aggregate turnover in a financial year exceeds Rs.40 lakhs (or Rs.20 lakh for
special category states, Puducherry, and Telangana) has to mandatorily register under Goods and
Services Tax. For service providers, this limit is set at Rs.20 lakhs for normal category states and
Rs.10 lakh for special category states.
From 1st January 2022, CBIC made the Aadhaar authentication mandatory to apply for
revocation of cancelled GST registration under the CGST Rule 23 in REG-21.

15 | P a g e Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

What is Annual Aggregate Turnover?
As per GST law, “aggregate turnover” refers to the aggregate value of all taxable supplies
(excluding the value of inward supplies on which tax is payable by a person on reverse charge
basis), exempt supplies, exports of goods or services or both and inter-state supplies of persons
having the same Permanent Account Number, to be computed on an all-India basis but excludes
Central tax, State tax, Union territory tax, Integrated tax and cess.
The aggregate turnover computed for the entire financial year between April of a year up to
March of next year is called annual aggregate turnover. In other words, it is the total turnover
calculated at a PAN level (all GSTINs put together) being sum of the following:
 Taxable sales value
 Exempt sales value
 Export of goods and services
 Interstate supplies by the business to its sister concern under the same PAN or interstate
stock transfer or supplies between distinct persons under the same PAN.
However, the above sum excludes the tax components such as the Central tax, State tax, Union
territory tax, Integrated tax and Cess. Further, the taxable value excludes those purchases where
the person is required to pay tax under reverse charge. Note that the sales that are subject to
reverse charge must continue to form part of the taxable supplies in aggregate turnover.
Meaning of Turnover in State
Turnover in State is different from the aggregate turnover definition. It refers to the turnover of
an entity effected within a particular state. The aggregate turnover at PAN level is required to
calculate the threshold limit for GST registration as well as eligibility for the composition
scheme. However, the composition levy would be calculated on the basis of turnover in state.
It includes the aggregate value of all taxable supplies (excluding inward supplies on which tax is
payable under reverse charge mechanism), exempt supplies made within the state/Union
Territory, exports of goods or services, and inter-state supplies of goods or services made from
the state or Union Territory by the said taxable person. However, it excludes stock transfers and
taxes such as CGST, SGST, UTGST, IGST, and cess.
Example for Normal Category States under GST
Here’s an example to help you understand the concept of aggregate turnover.
So Mr. A owns a tea estate with an annual turnover of Rs.1.60 crore by selling tea leaves. This
activity is exempt from GST. However, Mr. A also supplies plastic bags along with his crop and
charges separately for this. His turnover from the sale of plastic bags is Rs.5 lakhs and we know
that this transaction (sale of plastic bags) is chargeable to GST. In simple words, his taxable
turnover is only Rs.5 lakhs.

16 | P a g e Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

Going by the definition of aggregate turnover, Mr. A is required to register under GST because
his aggregate turnover exceeds the threshold limit of Rs. 40 lakh. Further, Mr. A does not have
the option to register as a composition dealer because this aggregate turnover exceeds the
threshold limit of Rs.1.5 crore (Rs 75 lakhs for special category states).
Example for Special Category States Under GST
Below is the list of states/Union Territories which are assigned special status under Goods and
Services Tax Law:
Arunachal Pradesh
Assam*
Jammu & Kashmir*
Ladakh*
Manipur
Meghalaya
Mizoram
Nagaland
Sikkim
Tripura
Himachal Pradesh
Uttarakhand
*Important note: Of the above special category states, the territories of Jammu &
Kashmir, Ladakh, and Assam, follow the Rs.40 lakh threshold limit for GST registration
(and not Rs.20 lakh).

The threshold limit of aggregate turnover for the rest of the special category states mentioned
above is Rs.20 lakh. Further, the Union Territory of Puducherry also follows the threshold limit
of Rs.20 lakh.

Let’s assume that the turnover of the farmer Mr. B living in Nagaland is Rs.25 lakh from
agriculture. His taxable turnover from the sale of plastic bags is only Rs.50,000. Mr. B will still
have to register under GST as his aggregate turnover exceeds the threshold limit of Rs.20 lakh
for special category states.
17 | P a g e Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi
The Government may, at the request of a special category State and on the Council’s
recommendations, increase the aggregate turnover referred to in the law from twenty lakh rupees
to such level, not exceeding forty lakh rupees, and subject to such conditions and limitations, as
may be prescribed in the CGST (Amendment) Act, 2018.
As a result, the threshold limit for the states of Jammu and Kashmir, Ladakh and Assam, was
raised to Rs.40 lakhs as of 1st April 2019, while the states of Arunachal Pradesh, Manipur,
Mizoram, Nagaland, Himachal Pradesh, Meghalaya, Sikkim, Uttarakhand and Tripura stand at
Rs.20 lakh.

Reference of Aggregate Turnover across GST law

Compliance Threshold Limit referred

Normal GST
Aggregate turnover in a financial year
Registration

GST Registration as
Aggregate turnover in the previous
a composition taxable
financial year
person

Applicability of e- Aggregate turnover in any preceding

Invoicing financial years from FY 2017-18

GST audit by CA/CMA Aggregate turnover during a financial year

18 | P a g e Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

 Eligibility to the
Aggregate turnover in the previous
quarterly return filing
financial year
under the QRMP scheme

Mandatory HSN
Aggregate turnover in the previous
code reporting in
financial year
Invoices

Levy of tax in case of

Turnover in the State
composition scheme

19 | P a g e Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi