source business standard
CS A Rengarajan
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Five ways how doing business will be different under GST |
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New Delhi, 17 April The goods and services tax (GST) regime is less than 75 days away —assuming July 1 as the rollout date. Here isalook at how doing business will be different in the GSTera. What should businesses keep in mind while generating invoice? Generating an invoice is perhaps the most critical part of the new indirect tax regime, based on which the input tax credit will be decided. According to the draft rules, invoices have to be filled up in a fairly detailed format. The absence or wrong filing of required information could trigger denial or delay in claiming input tax credit. Largely, there are around 16 particulars that are required to be filled up. These include various details of the supplier and the buyer, such as the HSN (Harmonised System of Nomenclature) code, the 15digit goods and services taxpayer identification number (GSTIN) of the recipient and the state code in which the delivery has been made. “Service providers are required to give statespecific registration number while filing the invoice,” said Pritam Mahure,aPunebased chartered accountant and GST trainer. For generating the invoice, the IT configuration inabusiness has to captureavariety of transactions, such as services on intercompany basis, stock transfer and receipt of advances and centralised procurements for redistribution, noted Amit Sarkar, partner &head, indirect tax, BDO India. Whatarethekeydo´sanddon´tswhile claimingtheinputtaxcredit? For claiming any input tax credit, all vendors in the supply chain have to be tax compliant. There is also a plan to rate all taxpayers on their GST score card —putting additional pressure on vendors to be GSTready. Under the current system,a supplier can claim tax credit from the government irrespective of whether the vendor has met his tax obligations. That is set to change in the GST regime. “Vendor should pay tax before the same is claimed as input tax credit. The recipient must receive the tax invoice and supplies before claiming credit,” said Rakesh Nangia, managing partner, Nangia &Co. Given the credits can be availed of only within the specified time limit, the date of issuance of invoice becomes important. “Monitor the payment of value for the goods or services within the period of 180 days, while keepingatrack of the debit or credit notes,” advised Sarkar. According to the draft rules, vendors should be paid within 180 days of claiming credit. “Credit should be claimed only for procurements related to taxable business supplies only,” added Nangia. Howwillthestocktransferofgoodsor servicesbedifferentundertheGSTregime? The model GST law puts the onus of determining whetheratransaction is an “intrastate” or “interstate” on the assesse. “So one needs to decide whether the payment is against the central GST (CGST) plus state GST (SGST) or integrated GST (IGST), based on the type of transaction,” said Mahure. Services being intangible in nature, there are proxy rules or provisions in the GST framework to help the assesse determine the place of consumption. To determine the place of supply in GST regime, it becomes important to have permanent address of the service recipient. However, this can poseachallenge for sectors like telecom where customers keep moving from one state to another. “Telecom companies have to update their customer database on realtime basis, complicating their operations,” said Mahure. Tax experts note that under GST, all interstate stock transfers, including selfsupplies, are chargeable to tax. Similarly, intrastate stock transfers between the different registered business verticals would attract GST. “This also offers an opportunity for optimising the supply chain fromabusiness perspective,” said Sarkar. According to the GST legislation, if an assessee wrongly pays, say CGST and SGST —on the belief that the transaction is intrastate —instead of IGST, they will have to pay the correct tax (that is, IGST) again and claim refund of the wrongfully paid taxes. Several experts feel instead of putting the onus on the taxpayer to determine whether the transaction is intrastate or interstate, the GST law should provideasimpler redressal mechanism. Why one should provision forahigher cash flow requirement in the new system? Levy of GST on interstate stock transfers would be one of the many reasons which would push up the requirement of cash flows, said Nangia. For instance,acompany transferring goods from one warehouse to another across different states will come under the ambit of IGST. This means taxes have to be paid upfront, increasing the cash requirement for the business. Another reason for higher cash flow requirement for businesses would be the higher average rate of service tax under the GST regime. Businesses currently pay around 15 per cent (including the various cesses) on services. This is likely to jump to 18 per cent in the GST regime. Experts note exporters too would need to bear the brunt of the tax, before claiming rebate. Whatarethelikelychallengesin determiningtheplaceofsupplyfor services? Service providers such as banks and insurance companies have to register separately in all the states in which they are providing services. This statewise registration will substantially increase compliance costs of businesses. Nangia notes the place of supply rules under the current regime of service tax are applicable only to cross border transactions. “Going forward, similar rules would be applicable to every transaction whether domestic or international,” he said. Most experts feel the rules for the place of supply of services have the potential to trigger legal dispute for taxpayers. COUNTDOWN ILLUSTRATION: AJAY MOHANTY |
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