India is all set to implement the Goods and Services Tax, or the GST, from July 1, 2017. The intent is to standardise the indirect taxation system in the country, related to the supplies and consumption of goods and services. The new regime is one of the biggest indirect tax reforms pan-India, and one that will directly affect both business owners and consumers to a marked degree. It is thus important to know the whats and hows of the GST rollout.
What is GST?
GST is a new system for indirect taxation. Under this, a new four-tier tax structure has been finalised. Goods and services will be taxed under the slabs of 5%, 12%, 18% or 28%. The highest slab is for luxury items and items such as tobacco. The Union Cabinet has passed four bills for four different categories of tax regimes under the GST, as follows:
Central GST Bill: Applies to the supply of goods and services by the Central government within the boundaries of a state.
Integrated GST Bill: Applies to the supply of goods and services between different states, carried out by the Central Government.
Union Territory GST Bill: Applies to the supply of goods and services in the Union Territories.
The Compensation Bill: An allied bill that will govern the provision of compensation for revenue losses brought on by GST implementation, over a period of five years from implementation.
These four bills together are set to change the tax norms in the country.
Advantages of GST
The GST will prove advantageous at both seller and consumer levels. According to our Finance Minister Arun Jaitley, GST has the potential to boost economic growth by as much as two percentage points. From a business perspective, a number of pros are evident.
Greater compliance: The GST implementation will be reinforced by a backbone of robust IT systems and processes. All taxpayer services will be available online, making tax compliance and operations simple and transparent.
Uniform tax rates: This will ensure that tax structures and rates are common across the country, and will consequently make cross-locational business easier and quicker.
Reduce overlap: Often, a single product, for example, a shirt, being sold is taxed at various stages. With VAT, excise duty and other taxes payable at different stages, payments often roll up to large numbers, posing a cost to the company. The GST will facilitate the removal of different layers of tax levies and will replace them with a single, clear interface.
Cost advantage: Under the GST practice, many local Central and State taxes will be subsumed. At the Central level, the Central Excise Duty, Additional Excise Duty, Service Tax, Countervailing Duty and Special Additional Customs Duty will be subsumed. At the State level, we will see the following getting subsumed: State Value Added Tax or Sales Tax, Entertainment Tax, Octroi, Purchase Tax, and Luxury Tax, to name a few. These measures will reduce the cost of manufactured goods or services, thereby increasing the competitiveness of Indian goods in an increasingly global market.
The end consumer also stands to benefit from the following:
Better tax clarity and planning: Often, consumers are not aware of the taxes that they pay on the purchased goods or services, either due to the confusion caused by multiple indirect taxes or because the tax component is not revealed in the selling price. Such taxes may mask the real cost. GST will help streamline this by having only one tax applied from manufacturer to consumer, enabling tax transparency.
Lesser tax burdens: A single rollout across the nation is bound to bring in efficiency gains. At the same time, a transparent tax process with fewer hidden taxes will help reduce taxes for most commodities, leading to better affordability for the consumer.
The next steps for businesses: Applying for GST
Every business that is currently registered under any existing tax regime has to compulsorily migrate to GST. If your business is not registered under any tax regime, then you have to register for GST only if your aggregate turnover in a financial year exceeds a threshold limit of 20 lakhs liability for payment of tax (10 lakhs for North Eastern states).
If your business is happening inter-state or through e-commerce as an intermediary supplier, then registration is mandatory, even if this threshold limit is not reached. However, note that any casual taxable person or non-resident person is liable to register for GST even if they are not crossing the threshold limit.
Registration/ enrollment for GST is to be completed online under the GST Common Portal https://www.gst.gov.in/ for both taxpayers and businesses. This will be the platform for future filing of returns and tax payments. The government has also appointed GST Suvidha Providers to help with the process. There is no offline process for GST enrolment.
The enrolment is free. In order to log in for the first time into the portal, you must have your username and password that you would have received from the State VAT or Centre Tax Department (these are linked to your PAN). For further logins, create your username and password and begin the enrollment process.
These are the steps to follow for registration:
- Fill in Form GST REG-01-Part A, and key in the PAN number, mobile number and email address. The PAN will be verified online while the mobile number and email ID will be verified through the one-time password (OTP).
- The applicant will then receive an application reference number along with an acknowledgement of application through FORM GST REG-02.
- The applicant must fill the Form GST REG-01-Part B with the applicant’s reference number. The applicant must attach required documents: PAN card, documentation of company such as partnership deed, memorandum of association or incorporation certificate, proof of business such as rent agreement or electricity bill, cancelled cheque of company bank account in the account holder’s name, and proof of key authorised signatories such as list of directors or list of partners with their ID and address proof.
- If any additional information is required, the applicant will receive Form GST REG-03 as notification and must fill in and submit Form GST REG-04 within seven days.
- On submitting all details correctly, the application will be approved and the applicant will receive their registration certificate, called Form GST REG-06. However, if the application is rejected, Form GST REG-05 is sent to the applicant and they will be required to resubmit an application through Form GST REG-07, only if they need to deduct TDS or collect TCS.
This completes the registration process. It is followed by the issuance of a Provisional Registration Certificate (if approved), and thereafter, a final Registration Certificate that is expected to be issued within six months of the documents being verified by the GST authorities. Remember that different business verticals/locations need to be registered separately, as the registration certificate is generated separately for each.
Currently, the portal states that more than 60 lakh taxpayers have enrolled on the GST Portal between November 08, 2016 and April 30, 2017. Please note that the enrolment process has closed from May 1, 2017, and will reopen at a later date. Visit our GST blog to know more about GST and keep track of latest