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About Goods and Service Tax (GST)

Starting July 1, 2017, Goods & Services Tax (GST) will apply to all Indian service providers (including freelancers), traders and manufacturers, once their supply turnover crosses Rs. 20 lakh. The GST is an all-in-one tax that subsumes a variety of state (VAT, Entertainment Tax, Luxury Tax, Octroi) and central taxes (CST, Service Tax, Excise Duty). GST is to be charged at every step of the supply chain, with complete set-off benefits available. The procedure for GST is completely online and requires no manual intervention. There will also be a composition scheme under GST for businesses with a supply turnover of less than Rs. 50 lakh.

India is notorious for its complex tax system. For new businesses and startups, it becomes impossible to navigate through various direct and indirect taxes. Constant changes to taxes like Service Tax are making things even worst. But now, the things are set to change with new Goods and service tax – commonly known as GST.

Lets understand what is GST, how it is different from other taxes, GST applicability, GST rates, its impact on your business and latest updates about GST bill. To make things easy to understand, I will start with an example..

Mr. Sharma is a businessman who wants to start a business. For this he needs various raw materials which have to be imported from China and will need to be brought to Gurgaon – where he has his factory – by road through various states. Once he gets down on the process of estimating his costs he is a little troubled.

First, he needs to pay a customs duty for importing the materials on top of the shipping charges. This is fine but there are a lot of other taxes which he seems to be unable to comprehend. Also he finds out that when he has his final product ready he will have paid the Central and State Governments at least 10 different taxes not all of which are exclusive of each other. On diving deeper he finds many cases where a tax is also taxed by the government.

Petrol prices are the perfect example. The price charged to dealers by the Oil Marketing Companies is Rs. 25.46 currently for a litre of petrol. Now Excise Duty is collected at Rs. 21.48 per litre by the Central Government and adding the dealer commission the price now is Rs. 49.22. This is not the end and Value Added Tax is now charged at 27% which takes the final price to Rs. 62.51 in Delhi. At first it may seem fair that both the Governments tax the product but it is not that innocuous. There is a tax on a tax here! The State Government charges 27% of the final amount in which Central Excise Duty has already been borne by the businessman.

The Goods and Services Tax promises to alleviate this problem among many others. It is being hailed as the game changer for India’s economy and is being labelled as the biggest change in the Constitution since India’s independence. The Goods and Services tax or commonly referred to as the GST will replace the indirect taxes levied by the Central and State Governments and provide for a single and streamlined process. It presents India as a unified market to business owners and also aims at bringing a lot of black money back into the mainstream economy. The tax will be implemented at every step of value creation.

How will IT be used for the implementation of GST?

For the implementation of GST in the country, the Central and State Governments have jointly registered Goods and Services Tax Network (GSTN) as a not-for-profit, non-Government Company to provide shared IT infrastructure and services to Central and State Governments, tax payers and other stakeholders. The key objectives of GSTN are to provide a standard and uniform interface to the taxpayers, and shared infrastructure and services to Central and State/UT governments.

GSTN is working on developing a state-of-the-art comprehensive IT infrastructure including the common GST portal providing frontend services of registration, returns and payments to all taxpayers, as well as the backend IT modules for certain States that include processing of returns, registrations, audits, assessments, appeals, etc. All States, accounting authorities, RBI and banks, are also preparing their IT infrastructure for the administration of GST.

There would no manual filing of returns. All taxes can also be paid online. All mis-matched returns would be auto-generated, and there would be no need for manual interventions. Most returns would be self-assessed.

Who all need to get GST registration?

Any person (individual or entity) that fulfils any of the following conditions needs to get GST Registration compulsorily:

  1.  Having an annual aggregate turnover from operations in a state which is above the threshold limit of Rs. 20 Lakhs (Rs. 10 Lakhs for North Eastern States).
  2. Currently registered under any of the existing indirect tax regimes (VAT, Excise Laws, Service Tax Laws) irrespective of the threshold limit.
  3. Having operations in multiple states (see below).
  4. Having multiple business verticals in one state (see below).
  5. Making any Inter-State supply of goods and/or services.
  6. Casual taxable persons & Non-resident taxable persons (occasionally make taxable supply of goods/services as a principal or agent or any other capacity, in a taxable territory, where GST applies but where you don’t have a fixed place of business).
  7. Required to pay tax under reverse charge mechanism.
  8. Required to deduct tax at source.
  9. Working as an E-Commerce Operator/ Aggregator.
  10. Person supplying through e-commerce Operator/ Aggregator.
  11. Engaged in supply as an agent on behalf of other registered taxable persons.
  12. Working as an Input service distributor.
  13. Supplying online information and database access or retrieval services from a place outside India to a person in India, other than a registered taxable person.

What are the major features of the proposed registration procedures under GST?

The major features of the proposed registration procedures under GST are as follows:

  1. Existing dealers: Existing VAT/Central excise/Service Tax payers will not have to apply afresh for registration under GST.
  2. New dealers: Single application to be filed online for registration under GST.
  3. The registration number will be PAN based and will serve the purpose for Centre and State.
  4. Unified application to both tax authorities.
  5. Each dealer to be given unique ID GSTIN.
  6. Deemed approval within three days.
  7. Post registration verification in risk based cases only.

The major features of the proposed returns filing procedures under GST are as follows:

  1. Common return would serve the purpose of both Centre and State Government.
  2. There are eight forms provided for in the GST business processes for filing for returns. Most of the average tax payers would be using only four forms for filing their returns. These are return for supplies, return for purchases, monthly returns and annual return.
  3. Small taxpayers: Small taxpayers who have opted composition scheme shall have to file return on quarterly basis.
  4. Filing of returns shall be completely online. All taxes can also be paid online.

What are the major features of the proposed payment procedures under GST?

The major features of the proposed payments procedures under GST are as follows:

  1. Electronic payment process- no generation of paper at any stage
  2. Single point interface for challan generation- GSTN
  3. Ease of payment – payment can be made through online banking, Credit Card/Debit Card, NEFT/RTGS and through cheque/cash at the bank
  4. Common challan form with auto-population features
  5. Use of single challan and single payment instrument
  6. Common set of authorized banks
  7. Common Accounting Codes

Documents Required for GST Migration and Registration

You must submit the following documents for GST migration

  • Proof of constitution of business
    • In case of partnership deed – partnership deed
    • In case of LLP – Certificate of Incorporation and Partnership Deed
    • In case of Company – Certificate of Incorporation
  • Passport photo of the Promoters or Partners
  • Proof of appointment of authorized signatory
  • Photograph of authorized signatory
  • Opening page of passbook or statement with the following information:
    • Bank account number
    • Branch Address
    • Address of account holder
    • Few transaction details