GOODS AND SERVICE TAX (PART 1)

Features Of Indirect Tax

The main characteristics or features of indirect tax can be highlighted as follows:
 Shifting Of Burden: In indirect tax, burden of tax can be transferred or shifted to other people or
entities. Generally, indirect tax is shifted to the final consumers while purchasing goods or services.
 Wide Base: Indirect tax covers wide area because it is imposed on all types of products or services and
all types of people (poor people, middle class people and rich people).
 No Evasion: It is almost impossible to avoid indirect taxes because these taxes are added with the
purchase price of goods.
 Convenient To Pay: It is very easy or convenient to pay indirect tax because it is imposed on the price
of goods. So, the tax payers do not feel any inconvenient.
 Elastic: Indirect tax is elastic in nature. It can be increased or decreased by the government according to
the tax policy and need of the nation.
 Inflationary: It is inflationary in nature. Price of the products will increase if the tax is increased.
 Uncertain: Indirect tax is uncertain. It means people cannot exactly calculate the amount of tax they
paid and government also cannot determine the exact amount of tax collected from the public.
Direct Taxes Indirect Taxes
Meaning If a tax levied on the income or wealth of a If tax is levied on the goods or services of a
person is paid by that person (or his office) person is collected from the buyers by another
directly to the Government, it is called person (seller) and paid by him to the
direct tax. Government it is called indirect tax.
Incidence Falls on the same person. Imposed on the Falls on different persons. Imposed on the
and Impact income of a person and paid by the same sellers but collected from the consumers and
person. paid by sellers.
Burden More income attracts more income tax. Rate of tax is flat on all individuals. Therefore
Tax burden is progressive on people. more income individuals pay less and lesser
portion of their income as tax. Tax burden is
regressive.
Evasion Tax evasion is possible. Tax evasion is more difficult
Inflation Direct tax helps in reducing the inflation. Indirect tax contributes to inflation.
Shiftability Cannot be shifted to others Can be shifted to others
Examples Income Tax, Wealth Tax, Capital Gains GST. Excise Duty.
Tax,
Taxes which are subsumed in GST
Taxes by Central Government Taxes by State Governments
Central Government – State VAT/sales tax
- Central excise duty - Central sales tax (it was levied by Central
- Duties of excise (medicinal and toilet preparations) Government but collected by States)
- Additional duties of excise (goods of special - Luxury tax
importance) - Octroi and entry tax (all forms)
- Additional duties of excise (textiles and textile - Entertainment and amusement tax (excluding tax
products) levied by the local bodies)
- Additional duties of customs (CVD) - Taxes on advertisements
- Special additional duty of customs (SAD) - Purchase tax
- Service tax - Taxes on lotteries, betting and gambling
- Central surcharges and cesses so far as they relate to - State surcharges/additional taxes and cesses so far
supply of goods and services as they relate to supply of goods and services
Basics Customs Duty
Taxes not subsumed: Excise Duty on Alcohol
 GOODS AND SERVICE TAX (PART 1)
Excise Duty on Petroleum Products
Stamp Duty & Property Tax
Electricity Duty
Defects in structure of Indirect Taxes before gst
 Cascading Effect: Both central and state Government levy tax on the same goods. No credit of service
tax paid on input service used in selling of goods is provided by the state government. So tax is levied
on tax. It boosted inflation.
 Multiplicity of Tax/Cess: Multiple taxes were levied in pre GST regime like Excise duty, VAT, Entry
tax, luxury tax, Entertainment tax, Service tax, Octroi etc.
 Overlapping of Jurisdiction: Over the years, distinction between goods and services has become hazy,
due to which there is overlapping of state VAT and Central Service tax on transactions
 Rivalry amongst states: Pre-GST regime of indirect tax was not destination based tax but origin based
tax. In that regime taxes are collected and utilized by the state administration where goods/services are
transacted/manufactured or supplied. This would encourage state to provide sales tax/VAT relief to
attract industries
 Difficulty in Compliance for Taxpayers: As mentioned already pre GST regime had multiplicity of
Tax and consequently tax laws. Moreover each tax had a different taxable event like manufacture for
Excise, VAT for sales etc. Also there were multiple of Tax authorities. Compliance required voluminous
efforts on the part taxpayers.
 Difficulty in Cross Verification of Credit availed by Assessee: Earlier it was difficult for the tax
department to get the verification report from supplier of goods to know whether the supplier has issued
particular invoice on the basis of which input tax credit has been taken by the purchaser.
 Tax Evasion: Burden of compliance, multiplicity of tax laws increased the propensity to evade taxes.
Fudging of records, concealment of transaction, bribing the tax officials were the tools adopted to
remain out of tax net.
 Huge Amount of litigation: With multiple tax laws each having different taxable events result was lot
of disputes regarding availment of credit, determining manufacture of goods, value of goods,
classification of goods etc. Dispute settlement mechanism is almost choked with such disputes resulting
in pendency of tax demands.
Features of Goods and Services Tax (GST)
The salient features of goods and services tax (GST) are discussed hereunder:
 Comprehensive Tax: GST is comprehensive in nature because it has substituted various indirect taxes
in India, for example, Sales tax, Service Tax, Excise Duty, Entertainment tax, VAT, luxury tax, entry
tax, etc.
 Multistage Tax: GST is imposed on each stage of the production process on the value addition made by
each party. However, the input tax credit is available to all the parties, except the final consumer of the
goods and services,
 Destination based tax: As GST is collected from the point of consumption, i.e. the final consumer, it is
a destination-based tax.
 Tax Credit: GST offers an inclusive and continuous chain of the tax credit from the point of view of the
producer or service provider. In this way, tax is levied only on the value addition at each stage.
 Tax burden falls on the final consumer: The supplier of goods or service provider can avail input tax
credit at each stage, on the GST paid on inputs and set off the credit against the GST payable on the
supply. In this way, it is the final consumer who bears the tax burden, on the GST charged by the last
supplier in the supply chain.
 Elimination of Cascading Effect: In the previous tax regime, cascading effect, i.e. double taxation was
the biggest issue due to which goods are taxed multiple times. But with the emergence of GST, as only
the value-added at each stage is taxed, the cascading effect is eliminated completely.
Benefits of GST
 GOODS AND SERVICE TAX (PART 1)
 Integrated National Market: GST aims to make India a common market with common tax rates and
procedures and remove the economic barriers thus paving the way for an integrated economy at the
national level.
 Elimination of Cascading Effect: GST will overcome the problem of tax cascading through Input Tax
Credit Mechanisms and ultimate burden of taxes to be paid would be on the consumer of Goods and
Services.
 Removal of Multiplicity of Taxes: GST will remove all the multiple taxes which are levied in the
present regime. It will bring transparency and ease of doing business in India.
 Increase in GDP: GST will certainly bring ease of doing business in India There shall be boom in the
manufacturing as well as service sector leading to GDP Growth.
 Efficient Administration by Government: GST is a fully automated tax regime. From filing of returns
to refunds to assessment proceedings everything shall be online. Online System is set to bring
transparency, lower corruption and better administration by the Government.
Features of the GSTN
The GSTN, or Goods and Services Tax Network, offers several key features to facilitate efficient tax
administration under the GST regime. These include:
 Registration: Enables taxpayers to register under GST and obtain a unique GSTIN (Goods and
Services Tax Identification Number).
 Return filing: Provides a platform for taxpayers to file their GST returns online, including
GSTR-1, GSTR-3B, and others.
 Tax payment: Facilitates online payment of GST dues through various modes such as net
banking, credit/debit cards, and NEFT/RTGS.
 Refund processing: Manages the processing of GST refunds, ensuring timely disbursement to
eligible taxpayers.
 Invoice matching: Supports the reconciliation of sales and purchase invoices uploaded by
taxpayers to prevent tax evasion and ensure accuracy in tax payments.
 Taxpayer services: Offers various taxpayer services, including helpdesk support, taxpayer
education, and assistance with compliance-related queries.
 Data security: Implements robust security measures to safeguard taxpayer data and ensure
confidentiality and integrity.
 Integration: Integrates with other government systems and databases to streamline processes
and facilitate information exchange.
Overall, the GSTN plays a pivotal role in the implementation and administration of GST in India, providing a
unified digital platform for taxpayers and tax authorities to interact and comply with GST regulations
seamlessly.
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.
The Council is a joint forum of the centre and the states and consists of the following members:
1. The Union Finance Minister as the Chairperson
2. The Union Minister of State in-charge of Revenue or Finance
3. The Minister in-charge of Finance or Taxation or any other Minister nominated by each state
government
The Council is required to make recommendations to the centre and the states on the following matters:
1. The taxes, cesses and surcharges levied by the centre, the states and the local bodies that would be
merged in GST.
2. The goods and services that may be subjected to GST or exempted from GST.
3. 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.
4. The threshold limit of turnover below which goods and services may be exempted from GST.
 GOODS AND SERVICE TAX (PART 1)
5. The rates include floor rates with bands of GST.
6. Any special rate or rates for a specified period to raise additional resources during any natural calamity
or disaster.
7. Special provision with respect to the states of Arunachal Pradesh, Assam, Jammu and Kashmir,
Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
8. 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.
Compulsory registration
 Casual Taxable Person - As the name suggests casual means entity or person engaged in taxable
activities not on regular basis but infrequently or sporadically. Any business entity who occasionally
engaged in taxable supply of goods and services need to take compulsory GST Registration.
 Non-resident taxable person - Any Non-Resident who is engaged in selling goods and services as
agent or principal. They do not live in India and have no fixed place of business in India. If Non-
Resident is making any kind of taxable supply in the taxable territory they are required to get GST
Registration regardless of the amount of transaction or frequency.
 E-Commerce Operator - Any person who manages or owns a digital platform i.e sell and buy goods
and services over a digital network. E-Commerce businesses need to take compulsory GST registration
regardless of the turnover.
 Aggregate Turnover - Any firm which has annual turnover of more than 40 lakhs in supply of the
goods and 20 lakhs in supply of the services need to get compulsory GST registration. This limit is 10
lakhs in northern eastern states and hill areas.
 Inter State - Person is said to be engaged in inter state supply when location of supplier and place
of supply are different. When sales of commodities is outside the state of registration then it is
compulsory to get yourself registered under GST. Before initiation of Inter- State supplies getting GST
Number is necessary.
 Taxpayer of Reverse Charge Mechanism - Person who is liable under reverse charge mechanism
needs to get compulsory GST Registration. There is an exemption only if aggregate turnover is less than
the exemption limit. Under this goods and services recipient is liable to pay all provision and tax.
 OIDAR - Compulsory Registration is needed if services are provided over the internet. No seller and
buyer has a physical interface. It is Online Information Database Access and Retrieval Services
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.
Parameters of supply:
Supply of Goods or Services. [Supply of anything other than G/S → No GST]
▪ Supply should be made in course/furtherance of business [Exceptions in Sec. 7(1)(b)]
▪ Supply should be made for a consideration. [Exceptions in Sec. 7(1)(c)]
▪ Supplier should be taxable person. [registered or liable to be registered u/s 22 or 24]
▪ Supply should be a taxable supply [i.e Supply on which GST is levied]
▪ Supply should be made within taxable territory.
PC Note: Supply b/w two Non-taxable persons → Not a taxable supply.

COMPOSITE SUPPLY Composite supply means a supply made by a taxable person to a recipient Ads by
Ads by consisting of two or more taxable supplies of goods or services or both, or any combination thereof,
which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one
of which is a principal supply. For e.g. Machinery (supply of goods) provided along with warranty and
 GOODS AND SERVICE TAX (PART 1)
maintenance contract (supply of service). Here, there are two or more supplies, naturally bundled and supply of
machine is the principal supply.
MIXED SUPPLY Mixed supply means two or more individual supplies of goods or services, or any
combination thereof, made in conjunction with each other by a taxable person for a single price where such
supply does not constitute a composite supply. For example, supply of stationery pack containing crayons,
paints, brushes, drawing book etc. supplied at a single price by the seller together as a package is a mixed
supply Primary requisite is to rule out that the supply is a composite supply.
Aspect Mixed Supply Composite Supply
Definition Consolidating at least two things or A supply of items or administrations that is
administrations into one arrangement bundled and sold as a solitary unit at a
where no less than one of them is solitary cost.
burdened, and at least one of them isn’t.
Tax Treatment Depending on its individual tax rate or Considered as a single taxable supply, and
exemption status, each component is the entire bundle is taxed at a single rate.
taxed separately.
Invoicing Typically, separate invoices are generated A single invoice is generated with a single
for each component, and taxes are tax charge for the complete composite
computed separately for each component. supply.
Input Tax Taxes paid on each element of the mixed The composite supply is typically not
Credit (ITC) supply can be claimed as ITC. eligible for ITC because it is considered to
be a single supplier.
Compliance Taxes for each component of the mixed Simpler taxes because just one supply is
Complexity supply are more difficult to determine and considered, and only one tax rate is
compute. applied.
Examples A restaurant that serves both food and A wedding package that includes
drink. photography, decorating, and catering.
Activities to be treated as Supply even if made without consideration
1) Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.
2) Supply of goods or services or both between related persons or between distinct persons as specified
in section 25, when made in the course or furtherance of business:
Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an
employee shall not be treated as supply of goods or services or both.
3) Supply of goods—
(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or
(b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.
4) Import of services by a person from a related person or from any of his other establishments outside India, in
the course or furtherance of business.
Parameters for Exempt Supply Zero-rated Supply Nil-rated Non-GST Supply Sched
comparison Supply
Meaning Supplies taxable The supplies defined The tax rate These supplies are not These
under the GST Act in the IGST Act under under the GST finding mention in the had be
but are specifically this definition are Act is notified GST law as these are Sched
exempted from zero-rated if sales as as ‘0’ for these constitutionally kept out have b
GST by well as the inputs or supplies. of GST. Hence, are out of as sup
notification. input services, scope. be sub
used in such sales, can GST
be free of GST.
Does it fall in Yes Yes Yes No No
the scope of
 GOODS AND SERVICE TAX (PART 1)
supply under
GST?
ITC Not available Available Available Not available Not av
availability
Examples Fresh fruits, Fresh Exports and Supplies Grains, salt, Alcohol used for human Servic
milk, Curd, Bread, made to SEZ or SEZ Jaggery, etc. consumption, Natural gas, and bu
etc. Developers, of both Petrol and its products, action
goods and services. electricity, etc.
Activities or Transactions which shall be treated neither as a Supply of Goods nor a Supply of Services
1) Services by an employee to the employer in the course of or in relation to his employment.
2) Services by any court or Tribunal established under any law for the time being in force.
3)
(a) the functions performed by the Members of Parliament, Members of State Legislature, Members of
Panchayats, Members of Municipalities and Members of other local authorities;
(b) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in
that capacity; or
(c) the 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 and who is not deemed as an employee before the
commencement of this clause.
4) Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
5) Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
6) Actionable claims, other than lottery, betting and gambling.
EXEMPTED GOODS IN GST EXEMPTION LIST
Here is a list of some commonly exempted goods under GST:
Food Fruits and vegetables, cereals, meat and fish, potatoes and other edible tubers and
roots, tender coconut, tea leaves, jaggery, coffee beans, ginger, turmeric, milk, curd,
etc.
Raw materials Silk waste, raw silk, raw jute fibre, unprocessed wool, handloom fabrics, cotton for
khadi yarn, khadi, charcoal, and firewood.
Tools/Instruments Shovels, spades, agricultural tools, handmade musical instruments, hearing aids, and
tools used by physically challenged individuals.
Miscellaneous Contraceptives, semen, human blood, vaccines, organic manure, earthen pots,
beehives, live animals (except horses), maps, books, journals, newspapers, non-
judicial stamps, kites, and pooja props.
Grains Wheat, rice, oats, barley, etc.
Fish Fresh or frozen
Cosmetic products & Bindi, kajal,etc./ Plastic or glass bangles
Ornaments
EXEMPTED SERVICES IN GST EXEMPTION LIST
• All agriculture-related services, including harvesting, cultivation, supply, packaging, warehouse, renting or
leasing machinery, etc., are exempted from GST. However, this does not include the rearing of horses
• Transportation of individuals via public transport, metered cabs, auto-rickshaws, metro, etc.
• Transport of agriculture produce and transportation of goods outside of India
• Transportation of goods where the total amount of charges is less than Rs 1500
• Government and foreign diplomatic services
• Services provided by RBI or any foreign diplomatic mission in India are also exempt from GST
• Services provided to diplomats including the United Nations
• Certain healthcare and educational services are also exempt from GST such as mid-day meal catering services,
 GOODS AND SERVICE TAX (PART 1)
services provided by a Vet, clinic, or paramedics. Services by ambulances and charities are also included in the
list
Composition scheme :
RP whose ATO in Last FY ≤ Rs. 1.5 crore. ▪
Eligibility Limit for Special Category States is as follows:
Limit Name of Special category states
Rs. 75 Lacs Manipur, Meghalaya, Mizoram (MMM);
Tripura, Arunachal Pradesh, Sikkim (TAPS)
Uttarakhand & Nagaland (UK & Nagaland)
Rs. 1.5 Cr Assam, Himachal Pradesh & J&K
Rs. 1.5 Cr Other States & UTs.

Features of composition scheme:

 They cannot issue tax invoice; Even they cannot avail ITC.
 They need to issue Bill of Supply in which no tax can be charged.
 Yearly filing of Return (GSTR 4) & Quarterly Payment of Tax.
 Composition scheme to be adopted uniformly by all RPs having same PAN.
 Mention words ‘composition taxable person, not eligible to collect tax on supplies’ at the top of bill
of supply issued by him & on every notice or signboard displayed at prominent place at his PPoB & at
every APoB.

The following persons are not eligible to opt into the composition scheme:
 Manufacturers of ice cream, pan masala, or tobacco
 A person making inter-state supplies
 A casual taxable person
 A non-resident taxable person
 A person engaged in the supply of non-taxable goods under the GST law
 A supplier who has exceeded the turnover threshold limit specified for opting into the composition
scheme, and
 Businesses which supply goods through an e-commerce operator.
Supply of Goods Under RCM
S.No Description of Supplier of Goods Recipient of
Supply of goods Goods
1. Cashew nuts, Agriculturist Any registered
not shelled or person
peeled
2. Silk yarn Any person who Any registered
manufactures silk yarn person
from raw silk or silk
worm cocoons for
supply of silk yarn
3. Raw cotton Agriculturist Any registered
person
 GOODS AND SERVICE TAX (PART 1)
4. Used vehicles, Central Government, Any registered
seized and State Government, person
confiscated Union territory or a
goods, old and local authority
used goods,
waste and scrap
Supply of Services Under RCM
S. Description of Supply Supplier of Goods Recipient of
No of Service Service
2. GTA Services Goods Transport Agency (GTA) Any factory, society, cooperative
who society,
has not paid integrated tax at the registered person, body corporate,
rate of 12% partnership firm, casual taxable
person; located in the taxable territory
3. Legal Services by An individual advocate Any business entity located in the
advocate including a senior advocate or taxable territory
firm of advocates
4. Services supplied by an An arbitral tribunal Any business entity located in the
arbitral tribunal to a taxable territory
business entity
5. Services provided by Any person Any body corporate or partnership
way of sponsorship to firm located in the taxable territory
any body corporate or
partnership firm
7. Services supplied by a A director of a company or a The company or a body corporate
director of a company body located in the taxable territory
or a body corporate to corporate
the said company or the
body corporate
8. Services supplied by An insurance agent Any person carrying on insurance
an insurance agent to business, located in the taxable territory
any person carrying on
insurance business
9. Services supplied by A recovery agent A banking company or a financial
a recovery agent to a institution or a nonbanking financial
banking company or a company, located in the taxable
financial institution or territory
a non-banking financial
company
12. Supply of services by Members of Reserve Bank of
the Overseeing India.
members of Overseeing Committee
Committee to Reserve constituted
Bank of India by the
Reserve
Bank of
India
Aggregate turnover:
Meaning of Aggregate Turnover
 GOODS AND SERVICE TAX (PART 1)
▪ All Taxable Supplies (Excluding Inward supplies on which tax is payable on RCM basis)
▪ Exempt supplies [Nil Rated + Wholly Exempt + Non-taxable Supply] &
▪ Exports of G/&S [Zero-rated Supply] &
▪ Inter-State supplies of Persons having Same PAN [Stock transfer or branch transfers]
▪ but Excludes CGST, SGST, UTGST, IGST & GST Cess. computed on ALL INDIA basis. [Note: Do not
consider Interest Income]
Parameters Interstate Supplies Intrastate Supplies

Applicable Supply of goods and services between Supply of goods and services within the same
on different states and Union Territories. state or union territory.

Levied by Central Government CGST by the Central Government and

SGST/UTGST by the state/Union Territory
government
Tax rate IGST rate is applicable at the rates in CGST and SGST rates are applied equally and
force based on the good or service separately at the applicable rate in force based on
the good or service
Destination Receives a share of the IGST collected Receives the full amount of SGST collected
state

Place of Different state than the location of the Same state as the location of the supplier
supply supplier

Input Tax The input tax credit of IGST can be used Once IGST credit has been exhausted fully,
Credit to set off IGST liability and, thereafter, CGST credit and SGST credit can be utilised to
CGST/SGST liabilities in any order set off CGST liabilities and SGST liabilities,
respectively, and for setting off IGST liabilities.
Inter-utilisation between CGST and SGST is not
allowed.