Goods and Services Tax (GST) is an indirect tax applicable throughout India which replaced multiple cascading taxes levied by the central and state governments. It was introduced as The Constitution (One Hundred and First Amendment) Act 2017, following the passage of Constitution 122nd Amendment Bill. The GST is governed by a GST Council and its Chairman is the Finance Minister of India.
The introduction of Goods and Services Tax (GST) would be a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax, it would mitigate cascading or double taxation in a major way and pave the way for a common national market. From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated to be around 25%-30%. Introduction of GST would also make Indian products competitive in the domestic and international markets. Studies show that this would have a boosting impact on economic growth. Last but not the least, this tax, because of its transparent and self-policing character, would be easier to administer.
GST is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of goods and/or services. India adopted a dual GST model, meaning that taxation is administered by both the Union and State Governments. Transactions made within a single state will be levied with Central GST (CGST) by the Central Government and State GST (SGST) by the government of that state. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government. GST is a consumption-based tax, therefore, taxes are paid to the state where the goods or services are consumed not the state in which they were produced. IGST complicates tax collection for State Governments by disabling them to collect the tax owed to them directly from the Central Government. Under the previous system, a state would have to only deal with a single government in order to collect tax revenue.
GST registration can be done online, by applying on GSTN website directly. All supporting documents (refer file size of scanned documents) are uploaded on the GSTN directly. As they are verified, registration is granted against the application, usually within 3-5 days. Read on the list of documents required
for online GST Application
Passport Size Photo
Partnership Deed/Registration Proof like COI
Registration certificate in case of company, AOP, society and registration deed in case of partnership/trust
Copy of Bank Statement
Ownership Proof (Electricity Bill etc) - if property is owned.
Rent Agreement (if property is on rent)
1000 Miles, begins with
GST COMPOSITION LEVY
ELIGIBILITY & APPLICATION PROCEDURE
Small businesses are the backbone of the Indian economy and there are an estimated 55 million Micro, Small and Medium Enterprises operating in India. The rollout of GST would have extensive impact on over ten million SME businesses operating in India and would require compliance under the GST regime. However, many small businesses would not have the expertise or the capability to comply with many of the GST regulations, unlike medium and large sized businesses. Hence, to make GST compliance easy for micro, small and medium enterprises operating in India, there exists a GST composition levy scheme. In this article, we look at the GST Composition Levy scheme in detail along with eligibility criteria and application procedure.
CONCEPT OF COMPOSITION LEVY / SECTION 10 OF THE GST ACT
Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed seventy five lakh rupees, may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not exceeding, one percent of the turnover in State or turnover in Union territory in case of a manufacturer two and a half percent of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and half percent of the turnover in State or turnover in Union territory in case of other suppliers.
Hence, any business registered in India with an aggregate sales turnover of less than Rs.75 lakhs in the preceding financial year can pay their GST liability in the form of a composition levy at prescribed rates. The aggregate sales turnover criteria for GST composition scheme was increased from Rs.50 lakhs to Rs.75 lakhs.
In case of manufacturers, the composition levy has been fixed at 1% of the aggregate turnover in the State or Union Territory.
In case of businesses involved in providing of food or drinks or other items for human consumption and not being alcohol, the composition levy has been fixed at 2.5%. Many small restaurants and eateries would qualify under this criteria as Clause (b) of Paragraph 6 of Schedule II states.
Supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.
Finally, any other suppliers who do not fall under any of the category above and is eligible for the composition levy scheme would be taxed at 0.5% of the turnover in State or Union Territory.
ELIGIBILITY FOR GST COMPOSITION SCHEME
Only small businesses that comply with the following conditions would be eligible for payment of GST liability through the GST Composition Scheme. The GST composition scheme has many stringent regulations and its important for all business owners to under the nuances of GST composition scheme, prior to making an application for registration.
The taxpayer cannot be a casual taxable person nor a non-resident taxable person.
“Casual taxable person” means a person who occasionally undertakes transactions involving supply of goods or services or both in the course or furtherance of business, whether as principal, agent or in any other capacity, in a State or a Union territory where he has no fixed place of business.
“Non-resident taxable person” means any person who occasionally undertakes transactions involving supply of goods or services or both, whether as principal or agent or in any other capacity, but who has no fixed place of business or residence in India
The goods held in stock by the taxpayer on the date GST came into force should not have been purchased in the course of inter-state trade or commerce or imported from a place outside India or received from a branch of the business situated outside the State or from the taxpayer’s agent or principal outside the State.
Thus only businesses that have stock that have been purchased within the State would be eligible for the composition scheme. The goods held in stock by the taxpayer has should not have been purchased from an unregistered supplier and if purchased from an unregistered supplier, the taxpayer must then have paid GST on the purchase on reverse charge basis.
Sub-section (4) of Section 9 states - “The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, 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.”
On the inward supply of goods or services or both, taxpayer should have paid tax under reverse charge basis.
Sub-section (3) of Section 9 states “The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both 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.
The taxpayer should not have been engaged in the manufacture of goods as notified under clause (e) of subsection (2) of section 10, during the preceding financial year.
Clause (e) of subsection (2) of Section 10 states “he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council”.
The taxpayer must mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him.
The taxpayer should mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.
APPLYING FOR GST COMPOSITION LEVY
The procedure for applying for GST composition levy differs from persons migrated to GST having provisional GST registration and those obtaining fresh GST registration.
FOR TAXPAYERS WHO MIGRATED TO GST
Any person who has been granted a provisional GST registration can apply for the GST Composition Levy scheme by filing Form GST CMP-01. Form GST CMP-01 can be filed on the GST Common Portal or a GST Facilitation Centre with the authorised signatory’s sign. Form GST CMP-01 is to be used by persons having provisional GST registration, who migrated from an service tax or VAT or central excise or other such registration subsumed under GST.
Will help to create a unified common national market for India, giving a boost to Foreign investment and “Make in India” campaign
Will prevent cascading of taxes as Input Tax Credit will be available across goods and services at every stage of supply
Harmonization of laws, procedures and rates of tax
It will boost export and manufacturing activity, generate more employment and thus increase GDP with gainful employment leading to substantive economic growth
Ultimately it will help in poverty eradication by generating more employment and more financial resources
More efficient neutralization of taxes especially for exports thereby making our products more competitive in the international market and give boost to Indian Exports
Improve the overall investment climate in the country which will naturally benefit the development in the states
Uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate arbitrage between neighboring States and that between intra and inter-state sales
Average tax burden on companies is likely to come down which is expected to reduce prices and lower prices mean more consumption, which in turn means more production thereby helping in the growth of the industries. This will create India as a ”Manufacturing hub”
Reductions in the multiplicity of taxes that are at present governing our indirect tax system leading to simplification and uniformity
Reduction in compliance costs - No multiple record keeping for a variety of taxes - so lesser investment of resources and manpower in maintaining records
Simplified and automated procedures for various processes such as registration, returns, refunds, tax payments, etc.
All interaction to be through the common GSTN portal- so less public interface between the taxpayer and the tax administration
Will improve environment of compliance as all returns to be filed online, input credits to be verified online, encouraging more paper trail of transactions
Common procedures for registration of taxpayers, refund of taxes, uniform formats of tax return, common tax base, common system of classification of goods and services will lend greater certainty to taxation system
Timelines to be provided for important activities like obtaining registration, refunds, etc.
Electronic matching of input tax credits all-across India thus making the process more transparent and accountable
Final price of goods is expected to be lower due to seamless flow of input tax credit between the manufacturer, retailer and service supplier
It is expected that a relatively large segment of small retailers will be either exempted from tax or will suffer very low tax rates under a compounding scheme- purchases from such entities will cost less for the consumers
Average tax burden on companies is likely to come down which is expected to reduce prices and lower prices mean more consumption
Definitions of Goods & Services under GST
How to Register for GST in India
Compulsory & Mandatory Registration under GST