Reverse Charge Mechanism in GST

The aim of reverse charge is to bring unorganised sector into the tax umbrella. It also removes the burden of tax compliance from individuals with limited resources to large companies with enough resources.

Reverse Charge Meaning- Section 2(98) of CGST Act, 2017

“Reverse Charge” has been defined u/s 2(98) of CGST Act, 2017 which means the liability to pay tax by the recipient of the supply of goods or services or both instead of the supplier of such goods or services or both under sub section (3) or sub section (4) of section 9.

Reverse charge, where the recipient is liable to pay tax, is common to many countries like Canada where it is applicable on imports of services and intangible properties. Normally, the supplier pays the tax on supply. In certain cases, the receiver becomes liable to pay the tax, i.e., the chargeability gets reversed which is why it is called reverse charge. In India, this is a partly new concept introduced under GST. The purpose of this charge is to increase tax compliance and tax revenues. Earlier, the government was unable to collect service tax from various unorganized sectors like goods transport. Compliances and tax collections will therefore be increased through reverse charge mechanism.

Current Scenario:

The concept of reverse charge mechanism is already present in service tax. In GST regime, reverse charge may be applicable for both services as well as goods. Reverse Charge concept for goods would certainly be a new concept (except Purchase Tax in few goods in few states).

At present, similar provisions of Reverse Charge are available in Service Tax for the services like-

·         Insurance agent

·         Services of a director to a company

·         Manpower supply

·         Goods Transport Agencies

·         Non-resident service providers

·         Any service involving aggregators

Under GST:

Under GST regime, 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.

**All provisions of GST will apply on the recipient (i.e., the buyer).

1.    Situations where reverse charge will apply

i. Unregistered dealer selling to a registered dealer

In such a case, the registered dealer has to pay GST on the supply.

ii. Services through an e-commerce operator

If an e-commerce operator supplies services, then reverse charge will apply on the e-commerce operator. He will be liable to pay GST.

For example, UrbanClap provides services of plumbers, electricians, teachers, beauticians etc. UrbanClap is liable to pay GST and collect it from the customers instead of the registered service providers.

If the e-commerce operator does not have does not have a physical presence in the taxable territory, then a person representing such electronic commerce operator for any purpose will be liable to pay tax. If there is no representative, the operator will appoint a representative who will be held liable to pay GST.

iii. CBEC has issued a list of services on which reverse charge is applicable.

2.    Registration

All persons who are required to pay tax under reverse charge have to register for GST irrespective of the threshold [Threshold: Turnover in a financial year exceeds Rs.20 lakhs (Rs.10 lakhs for North eastern and hill states)]

3.    Time of supply for GOODS under reverse charge

In case of reverse charge, the time of supply shall be the earliest of the following dates—
(a) the date of receipt of goods OR

(b) the date of payment OR

(c) the date immediately after THIRTY days from the date of issue of invoice by the supplier (60 days for services)

If it is not possible to determine the time of supply under (a), (b) or (c), the time of supply shall be the date of entry in the books of account of the recipient.

For clause (b)- the date of payment shall be earlier of-

1. The date on which the recipient entered the payment in his books OR

2. The date on which the payment is debited from his bank account

4.    Time of supply for SERVICES under Reverse Charge

In case of reverse charge, the time of supply shall be the earliest of the following dates—
(a) The date of payment OR

(b) The date immediately after SIXTY days from the date of issue of invoice by the supplier (30 days for goods)

If it is not possible to determine the time of supply under (a) or (b), the time of supply shall be the date of entry in the books of account of the receiver of service.

For clause (a)- the date of payment shall be earlier of-

1.    The date on which the recipient entered the payment in his books OR 

2.    The date on which the payment is debited from his bank account

5.    When supplier is located outside India

In case of ‘associated enterprises’, where the supplier of service is located outside India, the time of supply shall be-

the date of entry in the books of account of the receiver OR

the date of payment

-whichever is earlier

6.    Input tax credit on Reverse Charge

Tax paid on reverse charge basis will be available for input tax credit if such goods and/or services are used, or will be used, for business. The service recipient (i.e., who pays reverse tax) can avail input tax credit.

7.    Tax Invoice

The supplier must mention in his tax invoice whether the tax is payable on reverse charge

8.    GST Compensation Cess

GST Compensation Cess will also be applicable on reverse charge.

GST Compensation Cess will be levied and collected at a rate which will be notified later. This will apply on all supplies of goods and services, including imports and reverse charge supplies. The purpose is to compensate States for loss of revenue on implementation of GST. This will be applicable for 5 years from the date GST gets implemented.

For GST related compliances do contact us, we currently are assisting in 4 areas– 1) Migration, 2) GST Compliance, 3) Training and 4) Transition & Implementation. Click here for assistance.

Council Revises GST Rates on 66 Items

India’s most comprehensive indirect tax reform — the goods and services tax (GST) — is inching towards a July 1 rollout with the GST Council cutting the rate on household goods and other essential items, raising the threshold for the scheme that requires lesser compliance and approving another key set of rules relating to audit and accounts.

At its meeting on Sunday in the Capital, the council revised rates on 66 items such as pickles, sauces, fruit preserves, insulin cashew nuts, insulin, school bags, colouring books, notebooks, printers, cutlery, agarbattis and cinema tickets, following representations from industry.

Restaurants, manufacturers and traders having a turnover of up to Rs 75 lakh can avail of the composition scheme with lower rates of 5%, 2% and 1%, respectively, with lower compliance, against Rs 50 lakh previously. A GST rate of 5% will be applicable on outsourcing of manufacturing or job work in textiles and the gems and jewellery sector. Bleaching and cleaning of human hair, a big industry in Midnapore, will not face any tax.

“After considering recommendations of fitment committee, rates are being reduced in the case of 66 items,” FM Arun Jaitley, who is also the chairman of the GST Council, told reporters.

“There were 133 representations… These were considered at length,” Jaitley said.

“The weighted average of all the rates that we have decided is significantly lower than what we are paying today,” he said, adding that therefore there would be an adverse revenue impact if other things remained equal. “But, we are also hoping on revenue buoyancy and a check on inflation that GST will ensure so as to make up for that loss.”

A number of household items in the packaged food category that had been placed in the 18% bracket such as pickles, mustard sauce, ketchups, f fruit preserves and sandwich toppings will now attract 12% GST.

The rate on agarbattis has been lowered to 5% from 12% proposed earlier. School bags will face a rate of 18% instead of 28%, exercise books will attract 12% instead of 18% and colouring books will be exempt instead of 12% proposed earlier. Steel cutlery will attract 12% instead of 18% and computer printers 18% instead of 28%. Fly ash bricks and blocks will attract 12%

Movie tickets costing below Rs 100 will now attract 18% GST while 28% will continue for those over Rs 100. “Consumers will benefit from the reduction in rates,” Jaitley said, adding that states can refund state GST on regional cinema but there cannot be a centralized exemption.
For further enquires on GST, please contact us at: info@preethamandco.com

Final Rates for GST Declared by GST Council

The Goods and Services Tax (GST) Council, at its fourteenth meeting on 18th May 2017 held in Srinagar, has approved the rate structure on majority of the goods and services. The Government classified 1211 items under 98 categories of goods in various tax slabs i.e. 5%, 12%, 18% and 28% and has kept a large number of items under 18% tax slab.

Please click here at links given below for complete GST rate schedule

·         click here for GST rates schedule on Goods ,

·         click here for GST rates schedule on Services  and

·         click here for GST rates schedule on Services under reverse charge

GST Council also cleared draft Rules on Registration, Invoice, Payment, Refund, Input Tax Credit, Valuation and Composition. Rules for Transition and Returns have been forwarded to the Law Commission for validation.

As GST is set to be launched on 1^st July 2017, it is important to understand who are required to get enrolled / registered before the appointed date i.e. the day when law comes into force.

Here are the rates decided by the GST Council on 3^rd June, 2017:

1.    Packaged food items sold under registered trademarks will be taxed at 5 per cent.

2.    Footwear below Rs 500 to be taxed at 5 per cent, over Rs 500 at 18 per cent.

3.    Zero tax for silk, jute

4.    Apparel below Rs 1,000 to be taxed at 5 per cent, over Rs 1,000 to be taxed at 12 per cent

5.    Gold to be taxed at 3 per cent and biscuits at 18 per cent, says PTI quoting sources.

6.    Cotton and natural fiber will be taxed at 5 per cent and man-made at 18 per cent.

7.    Solar panels will be taxed at 5 per cent under GST.

8.    Bidis will be taxed at 28 per cent under GST and will not attract any cess, Tendu leaves at 18 per cent. 

For further enquires on GST, please contact us at: info@preethamandco.com

Choosing the right Form of Business

Choosing the right business entity allows an entrepreneur to reduce liability exposure, minimize taxes, and ensure that the business can be financed and run efficiently. It also provides business owners with a mechanism for ensuring that the business operations will continue, rather than being automatically terminated, upon the death of an owner. Formalizing the business also clarifies the ownership of all participants in the venture.

When choosing a business entity, you should consider:

(1) the degree to which your personal assets are at risk from liabilities arising from your business;

(2) how to best pursue tax advantages and avoid multiple layers of taxation;

(3) the ability to attract potential investors;

(4) the ability to offer ownership interests to key employees; and

(5) the costs of operating and maintaining the business entity.

Comparative Study:

Features	Sole Proprietorship	Partnership	Limited Liability Partnership	Private Limited Company
Starting up	No registration required	Registration is optional	Mandatory registration	Mandatory Registration
Business Name	No approval required. Should not infringe trademark or copyright	No approval required. Should not infringe trademark or copyright	Approval required prior to incorporation	Approval required prior to incorporation
Legal Status	Not a legal entity	Not a separate legal entity	Separate legal entity	Separate legal entity
Foreign Nationals	Not allowed	Not allowed	Allowed. Min 1 resident Designated partner needed	Allowed
Persons	Min: 1, Max: 1	Min: 2, Max: 20	Min: 2, Max: No Limit	Min: 2, Max: 50
Repatriation	Not allowed	Not allowed	Not allowed	Allowed
Charter Document	None	Partnership Deed	LLP Agreement	Memorandum of Association (MoA) and Articles of Association (AoA)
Business Licenses	Applicable as per business requirements	Applicable as per business requirements	Applicable as per business requirements	Applicable as per business requirements
Validity	Till death of Owner	Dissolved on death of a partner. Can be dissolved at the will of all partners or even one partner can give notice for dissolving.	Perpetual succession	Perpetual succession
Registering Authority	None	Registrar of Firms	Registrar of Limited Liability Partnerships, MCA	Registrar of Companies, MCA
Governing Act	None	The Indian Partnership Act, 1932	The LLP Act, 2008	The Companies Act, 2013
Compliance Requirements	Low	Low	Moderate	High
Income Tax Rates	Individual rates	30%	30%	25-30%
Profit Sharing	Taxable	Exempt from tax	Exempt from tax	Taxable
Liability	Unlimited. Personal property is also covered	Unlimited. Personal property is also covered	Limited upto contribution in LLP (except in case of Fraud)	Limited upto extent of shares hold (except in case of Fraud)
Capacity to Sue	Individual level	As a Firm (in case of registered firms). Individually/ Collectively (in case of not registered firms)	As a Firm	As a Company
Market Reputation	Low	Low	Moderate	High
Winding up/ Dissolution	Easy	Easy	Prescribed process to be followed	Prescribed process to be followed

Preetham Shetty and Co. offers a Cost effective & Easy Business Registration Services packages for its Clients with in Bengaluru. For more info contact info@preethamandco.com

Provisions relating to Invoices under GST

The government is set to roll out GST or Goods and Services Tax from July 1. Amid concerns regarding new paperwork once GST kicks in, the Central Board of Excise and Customs has come out with a few clarifications on facts highlighting GST provisions relating to invoice for trade. In its bid to allay concerns of traders on invoice generation post-GST, the CBEC, under the Department of Revenue, said: “There are some apprehensions in the trade circles that GST invoices have to be issued as per prescribed format and that issuing invoice is going to be burdensome process. This is not correct. Some important facts about GST provisions relating to invoice are highlighted for information of all stakeholders.” Touted as the biggest reform since Independence, the incoming indirect tax regime is aimed at creation of a common market, preventing ‘tax-on-tax’ and making goods and services cheaper.

The Central Board of Excise and Customs gave a list of facts on invoicing relating to GST:

All GST taxpayers are free to design their own invoice format.

GST Law only required that certain fields must mandatorily be in the invoice.

1.    The time period prescribed for issuing invoice is different for goods & services – for goods, it is any time before its delivery and for services, it is within 30 days from the date of supply of services.

2.    Small taxpayers, like small retailers, doing a large number of small transactions for up to a value of Rs. 200 per transaction to unregistered customers need not issue invoice for every such truncation. They can issue one consolidated invoice at the end of each day for all transactions done during the day. However, they should issue the invoice where the customer so demands

3.    In normal circumstances, one copy of invoice is required to be carried by the transporter. However, GSTN (Goods and Services Tax Network) provides a facility to obtain an invoice reference number and if a taxpayer has generated this number, his goods need not be accompanied by paper invoice during transportation. This mechanism helps to address frequently reported problems like paper invoices getting misplaced, mutilated, torn or lost in course of transportation of goods.

4.    In order to keep compliance burden low for small taxpayers, GST law provides that taxpayers with annual turnover of up to Rs. 1.5 crore need to mention the HSN (Harmonized System of Nomenclature) Code of the goods in the invoices.

5.    Keeping in view the large number of transactions in the banking, insurance and passenger transport sector, taxpayers need not mention the address of the customer and the serial number in their invoices.

6.    Where the goods are transported for delivery but quantity to be supplied is not known at the time of removal, the good may be removed on delivery challan and invoice may be issued after delivery.

7.    Where the goods are transported for delivery but quantity to be supplied is not known at the time of removal, the good may be removed on delivery challan and invoice may be issued after delivery.

8.    No need to issue separate Bill of supply if VAT invoice is issued for non-taxable supplies.

No need to issue separate Bill of supply if VAT invoice is issued for non-taxable supplies.

Types of GST Returns

Sequence of Events:

You file GSTR-1 for sales made (due date-10 of the next month).

Your buyer views the sales made by you in GSTR-2A.

Your buyer approves the sales filed by you and files GSTR-2.

If the buyer modifies the sales marked by you, you can see it in GSTR-1A & approve/disapprove.

When buyer and seller approve, GSTR-3 is generated with payment of taxes. (due date-20th)

For further enquires on GST, please contact us at: info@preethamandco.com

Goods and Services Taxpayer Identification Number (GSTN)

All the business entities registering under GST will be provided a unique identification number known as GSTIN or GST Identification Number. Currently any dealer registered under state VAT law has a unique TIN number assigned to him by state tax authorities. Similarly, service tax registration number is assigned to a service provider by Central Board of Excise and Customs (CBEC). Under GST regime, all these parties will come under one single authority and the different identification numbers will be replaced by a single type of registration number for everyone (GSTIN).
To get your GSTIN Click Here

TDS on Rent Payment exceeding 50000 per month

The Central Board of Direct Taxes (CBDT) has notified the amended rules in connection with the new provision mandating payment of TDS on rent above Rs.50,000/- per month. Finance Act, 2017 inserted a new provision, Section 194IB in the Income Tax Act as per which, Individuals and HUFs paying rent of Rs 50,000 or more per month must deduct 5% tax at source. The provision is applicable w.e.f 01.06.2017. As per the new provision, TDS is deductible at the rate of 5% of the rent paid or payable. If the person receiving rent doesn’t furnish his PAN then TDS is deductible at the rate of 20% subject to maximum limit of amount of rent payable for the month of March or last month of tenancy as the case may be. In connection with the above provision, the Board has now, amended the income Tax Rules. Form Nos. 16C and 26QC also has been released in this regard.

No requirement of TAN Number

Individual/HUF (other than those who need to get a tax audit done) need not get a TAN number to deduct TDS. TAN number is basically the Tax deduction and collection account number that is mandatory if one has to deduct TDS under the income tax act. This requirement has been relaxed.

TDS to be deducted once in a Financial Year

To further simplify the process of TDS, it can be deducted only once in the financial year. TDS can either be deducted at the time of credit of the rent to the account of the payee (landlord) for the last month of the financial year OR the last month of the tenancy if the property is vacated during the year OR at the time of payment whichever is earlier.