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GST Clarification

Some Important Clarifications Regarding Transportation Charges In The GST Regime

Some Important Clarifications Regarding Transportation Charges In The GST Regime

1-    It is always better in the GST regime to declare the freight charges separately in the invoice as now services received from Goods Transport Agency ( GTA ) are attributable to liability of reverse charge at the rate of 5% . On these services the GTA has no liability of payment of taxes but the recipient of such services has to pay the tax at the rate of 5% on the freight charges claimed by the GTA and the recipient of such services can claim ITC of such tax paid if such person subsequently executes taxable supplies .

2-    It is quite clear that ITC can only be claimed in respect of taxable supplies or zero rated supplies . Zero rated supplies means supplies in the course of export or supplies executed to SEZ units or SEZ developers . No ITC is admissible in respect of exempted or nil rated supplies .

3-    It has already been clarified that the recipient of transportation services from GTA will have to issue a payment voucher at the time of payment of freight charges to the GTA and will have to deposit the tax on such charges when such services are received . The format of payment voucher has been envisaged in Rule 52 of the CGST Rules , 2017 ( Exactly the same rule is envisaged in SGST Rules , 2017 ) .

4-    It is pertinent to note that in the payment voucher described above the recipient has to declare the payable tax and not the paid tax which in itself clarifies that at the time of issue of payment voucher to be issued to GTA , the payment of requisite tax in respect of freight charges claimed by the GTA is not the pre-condition of such issuance of payment voucher . The requisite tax in this respect as declared in the payment voucher is to be paid when the services are received .

5-    The services from the GTA can be taken by the supplier as well as the recipient .

  • In case of the supplier taking the services from GTA for transportation of goods,  the G.R. shall be issued in the name of such supplier as consignor and the recipient shall be consignee and freight charges shall be paid by such supplier to the GTA incurring the liability of reverse charge on such freight charges at the rate of 5% .
      1. Such supplier shall mention the aforesaid freight charges  after the value of taxable goods supplied in the invoice issued and charge the requisite tax on amount which shall include the amount of the value of goods and the amount of the freight charges .

     

      1. Since this supply is the composite supply which includes the supply of taxable goods as well as transportation services ( indicated as freight charges in the invoice issued )  of which the supply of the goods is the principal supply thus the tax shall be charged at the rate which is applicable on the supply of such taxable goods .

     

      1. The supplier shall be entitled to the input tax credit both in respect of the tax paid regarding inputs pertaining to the goods supplied and the tax paid in respect of freight charges as liability under reverse charge .

     

    1. There should not be any confusion regarding the claim of ITC in respect of the tax paid on the basis of reverse charge in respect of services taken from the GTA by the aforesaid supplier because such services have been subsequently supplied to the recipient by such supplier by disclosing the freight charges in the invoice issued by him and subjecting this amount to the requisite tax payable on principal supply of goods in such invoice . Thus these input services have been subsequently supplied in the form of composite supply by such supplier and tax invoice has been issued accordingly .
  • In case the services of transportation is taken by the recipient from the GTA  then the G.R. shall be issued of ” Self ” in respect of the recipient and such recipient shall be liable to pay the tax in respect of such transportation charges or freight charges on the reverse charge basis . In such cases the ITC of tax paid on reverse charge basis shall be claimed by the recipient instead of the supplier of such goods .
  • In the GST regime the GTA need not to get itself registered as the services supplied by it have been put in the ambit of section 9(3) i.e. the liability on such services has been envisaged on the reverse charge basis .
  • The Government by issuing Notification No. 5/2017 Dated 19th June , 2017 has clarified that such  persons shall fall in the category of persons exempted from obtaining registration under the Act ( i.e. CGST/SGST Act, 2017 ) who are only engaged in making supplies of taxable goods or services or both , the total tax on which is liable to be paid on reverse charge basis by the recipient of such goods or services or both under sub-section (3) of section 9 of the  aforesaid Act .

 

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GST Returns

Reverse charge mechanism under GST and implications of exemption upto Rs. 5000 per day

Let’s look at the critical provisions of the GST law which have enabled reverse charge mechanism :-

Compulsory Reverse Charge even if the supplier is registered –

Sec 9(3) 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 above section primarily covers services availed from Goods Transport Agency, Lawyer, government, corporate sponsorships, director etc.

 

Reverse Charge if the supplier is unregistered –

Sec 9(4) 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.

Central Government had come up with an exemption to the small miscellaneous transactions from unregistered persons.

Notification No. 8/2017- Central Tax (Rate) dt 28.06.2017 issued by Central Government has exempted intra-State supplies of goods or services or both received by a registered person from any supplier, who is not registered, from the whole of the central tax leviable thereon under sub-section (4) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017)

The said exemption shall not be applicable where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the suppliers, who is or are not registered, exceeds five thousand rupees in a day.

To sum up, the supply should be intra state supply (within the state) and can be for goods as well as services or both. Moreover the supply should be received by the registered person from an unregistered dealer only and upto a daily limit of Rs. 5000/-

Example:-

Mr. X  purchased following items from unregistered dealer, all are dated 01.07.2017 as under:

1st bill – From Ram: Stationery = 2000/-
2nd bill – From Shyam: Lunch = 1000/-
3rd bill – From Madhu : Books = 3000/-

In this case, The bills of Mr. X will not get covered under this notification as aggregate value of all supplies exceeds 5000/- on a single date (01.07.2017)

Exemption would have been available if,:

1) Bill dates are different (So that it will come under 5000/- day limit, say bill date of Ram is 02.07.2017)
2) Any of the bills are 1000/- less than the mentioned value(Say Bill of Madhu is Rs 2000/-
3) If the one of the bills in the same of other person (say, one of the bill is in the name of Mr. Y)

FAQ’s

Whether these 5000 limit be availed for those cases where compulsory tax is payable in RCM basis as per section 9(3) of CGST act?

Where Compulsory tax is to be paid under the Reverse Charge Mechanism under 9(3) of CGST Act, and as per Notification N0o. 13/2017- Central Tax (Rate) dt 28.06.2017 the benefit of this limit cannot be availed. Reason being these notification cover only cases of 9(4) and not 9(3).

Mr. X purchased following items from unregistered dealer, all are dated 01.07.2017 as under:

1st bill – From Ram: Stationery = 2000/-
2nd bill – From Shyam: Lunch = 1000/-
3rd bill – From Madhu: Goods Transport Agency = 3000/-

In this case, The bills from Mr Ram and Mr Shyam will get covered under this notification as aggregate value of all supplies does not exceed 5000/- on a single date (01.07.2017). For the Third bill from Madhu Reverse charge is payable u/s 9(3) without any exemption threshold.

Whether this daily limit benefits would be available if the goods/services received from persons covered under 9(4) are blocked credits?

The benefit of daily limit would be available. Output Tax under reverse charge would be payable if it crosses the daily limit even though they are covered under blocked credits.

What if the limit crosses 5000 in a day, is GST payable over and above the value or from rupee 1?

If the value of taxable supplies exceeds Rs5000 per day for all suppliers, then GST would be payable on the Total value of the supplies received from unregistered persons.

 

Is this limit applicable to all supplies?

The limit is applicable to only taxable supply of goods or services or both. Exempt supplies are out of the preview of this notification.

Mr. X purchased following items from unregistered dealer, all are dated 01.07.2017 as under:

1st bill – From Ram: Stationery = 2000/-
2nd bill – From Shyam: Hotel Room = 1000/-
3rd bill – From Madhu: Books = 3000/-

In this case, the bills of Mr. X will not get covered under this notification as aggregate value of all supplies does not exceed 5000/- on a single date (01.07.2017) as the supplies from Shyam for Hotel room booking are exempt under Entry 14 of the exemption notification (12/2017).
What if the supplies are procured from Interstate supply from unregistered?

Benefit of this notification is available only for Intra State Purchase. If any transactions are done on an interstate basis the same are covered under the forward charge and in any case the reverse charge provisions are not applicable.

Goods and services both inclusive 5000 or separate?

Yes, the benefit is inclusive for all goods or services or both.

What rate GST should be payable then?

GST should be payable as per the schedules rate of the product/service.

What if procured from Composition persons?

Since Composition persons are registered person, reverse charge is not applicable on such supplies.

Can credit be availed for these taxes paid and on what basis, any invoice issue requirement?

Credits can be availed on payment of GST in cash. A consolidated monthly tax invoice can be raised if supplies are received from a single vendor. The Invoice shall be raised on the date of receipt of goods or services or both. Also a payment voucher needs to be issued on the date of making any advance payment as the time of supply is invoice of payment whichever is earlier.

 

We have compiled the daily expenses which would be liable to GST if procured from unregistered supplier as below:-

Nature of Expenses GST Rate GST IMPACT/ OTHER REMARKS /Supplies from UR (RCM Applicable)

No GST / NIL GST or EXEMPTED :-

1 Electricity Charges 0% Out of GST

2 Water Charges 0% Out of GST

3 Bank Interest 0% Out of GST

4 Professional Tax 0% Tax levied by local body / other association out of GST

5 License renewal like Pollution, Factories & Boilers & Local Bodies 0% Tax levied by local body / other association out of GST

6 Building or Property Tax 0% Tax levied by local body / other association out of GST

7 Rent Deposits 0% If adjusted with rent or forfeited – GST applicable

8 Other Deposits 0% If adjusted with other expenses or forfeited – GST applicable

9 Petrol Expense 0% Petrol & Diesel out of GST

10 Salary 0% Out of GST

11 Staff Amenities 0% Out of GST if in lieu of salary.

12 Gifts to Staff 0% Gifts by employer of value above Rs. 50000/- shall be liable to GST as outward supply.

13 Staff Mediclaim Contribution 0% Out of GST if in lieu of salary

14 Allowance & incentive to employees 0% Out of GST if in lieu of salary

15 Stamp & Registration Fees 0% If only a pure agent service – ensure GL balance Nil

16 Provision for Doubtful Debts 0% No credit / deduction shall be allowed

17 Bad Debts Written Off 0% No credit / deduction shall be allowed

18 Warranty Labour Charges 0% If there is no supply element & no consideration

19 Donation 0% If there is no supply element & no consideration

20 Labour Welfare Fund Contribution 0% Out of GST

21 Staff Medical Expenses 0% Employee service without any margin

22 Fine & Penalties by Government 0% Out of GST

23 Discounts – shown in bill 0% GST applicable is after all discount
– if shown in the bill

24 Free Gifts, Gold Coin to Customers 0%

25 Interest on Service Tax/ TDS 0%

26 Interest on Vehicle Loan 0%

27 Interest Others 0%

28 Local Conveyance 0%

29 Transportation Charges – Non GTA / Trucks 0%

GST Applicable & No ITC :-

28 Food Expense 12% / No ITC

29 Travel claims – Radio Taxi (Rent-a-cab) 5% No ITC

30 Transportation Charges – GTA 5% No ITC

31 Club & Membership fees 18% No ITC

32 Life Insurance Exps for Employees 18% No ITC

33 Work Contract Services – Construction of Building 18% No ITC if not supplied for outward works contract services

GST Applicable / RCM supply of URD :-

34 Advertisement Charges 18%

35 Advertisement in Magazine, 18%

36 Advertisement in Media 18%

37 Discounts – after issue of invoice (Post supply discount) GST Impact Credit note has to be issued, liability will be reduced to extent of GST on discount.

38 Annual Maintenance Charges 18%

39 Bank Charges – Service charges recovered 18%

40 Broker Fee & Charges 18%

41 Call Centre Expense 18%

42 Customer Schemes by MSIL 18%

43 Construction Work 18% GST amount – no ITC – for immovable property (Building)

44 Consumables Paint material & Other Consumables 28%

45 Customer Welfare expense 18% Food charges – No ITC

46 Contract Labour Expense 18%

47 Extended Warranty Cancellation Charges 18%

48 Free Service Camp Expense 18% If any third party bill comes

49 House Keeping Charges 18%

50 Insurance Charges 18%

51 Legal charges to advocate 18% Advocate raise bill without GST component – RCM to us

52 Loading & unloading Charges 18%

53 Local Conveyance 5% / 12%

54 Mediclaim Policy Premium Contribution A/ c 18%

55 Mobile Allowance 18% Pure Agent Service / If margin then GST applicable

56 Other Training Expense 18%

57 Postage and Courier Charges 18% Subject to certain exemptions

58 Printing & Stationery(Flex Printing, Broad Printing, Notice Printing) 18%

59 Rates and Taxes Actuals Depends on case to case basis

60 Recruitment Expenses 18%

61 Rent Paid 18%

62 Rent Paid for Mess (Employees) 18%

63 Repair and Maintenance – Building / Electrical / P& M / Others 18%

64 RTO Expenses 18% or 28%

65 Sales Promotion – Others / SSI / Display 18%

66 Sponsorship services 18% Reverse Charge to Service Receiver – ITC can be availed

67 Security Charges 18%

68 Staff Recruitment 18%

69 Staff Training Expenses 18%

70 Staff Uniform Expenses 18% If a third party bill comes

71 Stationery Expenses 18%

72 Subscription & periodicals 18%

73 Telephone Charges 18%

74 Transportation Charges – GTA 5%

75 Travelling Expenses Interstate 5%/18% Services from Tour operators / Agencies

76 Travelling Expenses International 28%

Note: The above expense heads are for illustrative purpose only. The applicability of GST on a particular expense has to be checked on case to case basis.

 

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Points to remember for filing GST Returns

The first return of GST is here and is due for filing is 20th of August, 2017.

Points to remember for filing the first GST Return GSTR-3B.

  1.  It is Mandatory to file GSTR-3B and there is no exemption from filing GSTR-3B even if no business is carried in the month of July’2017. NIL GSTR-3B is also to be filed mandatorily.
  2.  GSTR-3B is the provisional return for the month of July’2017. Therefore all dealers who are required to file monthly returns under the GST Regime are required to file GSTR-3B. Composition dealers are required to file quarterly returns therefore dealers who have opted for composition scheme are not required to file GSTR-3B.
  3.  GSTR-3B is not the final return for the month of July’2017 this is only a provisional return. GSTR-1, GSTR-2, GSTR-3 for July’2017 are still required to be filed.
  4.  GSTR-3B cannot be revised. Any revision in the figures for July’2017 has to be done through GSTR-1, 2 and 3 to be filed later on.
  5.  Any taxes due for July’2017 have to be paid before filing GSTR-3B.
  6.  If there is any change in the figures at the time of filing forms GSTR-1,2 & 3 and if there is excess tax payable then the same will have to be paid with interest before filing GSTR-3 due in September.
  7.  If your input credits are more than your output in GSTR-3B then you need not pay any taxes before filing this return. However, it is to be noted that no refund can be claimed in form GSTR-3B and excess credit will be credited to the ITC Ledger.
  8.  The transitional credits available from the previous VAT/Service Tax/Excise regimes will not be available for credit and use in GSTR-3B. Any such credits have to be shown by filing form TRAN-1 and will be available for use only after filing TRAN-1.
  9.  GSTR-3B is a simplified return where only total figures of purchases, sales input tax credits and payments are to be entered. Individual entries for each sale invoice are not to be entered in this return.
  10.  GSTR-3B is to be filed from the period from which the registration is taken by the supplier. Therefore, if you have taken registration in the month of August’2017 the option for filing GSTR-3B for July’2017 will not be available and the no GSTR-3B is to be filed for July’2017.
  11.  GSTR-3B is to be filed through online mode on the GST Portal gst.gov.in
  12.  Following details are to be shown in the return GSTR-3B.
    1. GSTIN number of Registered Person
    2. Legal name of Registered Person
    3. Summary of Outward Supply & Inward Supply under Reverse Charge
    4. Bifurcation of Inter-state outward supplies as follows:
      • a) To unregistered Person
      • b) To Composite taxable Person
      • c) To UIN Holders
    5. Summary of eligible ITC available and the ITC to be reversed and ITC which is ineligible bifurcated into IGST, CGST & SGST/UTSGT and Cess
    6. Summary of Exempted, Nil rated and Non GST inward supplies
      • Interest and late fees payable
    7. Details of payment of tax, which includes Category wise tax payable, ITC availed , TDS credit and Tax paid in cash along with interest and late fees (Though it is not applicable for initial 2 return)
    8. Summary of tax category wise TDS/TCS credit
  13.  Remember the order for set-off eligible ITC. ITC of IGST, CGST and SGST must be set-off from themselves (intra-head) first before being set-off inter-head. Remember that GST and SGST cannot be set-off against each other.
  14.  Any amounts to be paid on reverse charges have also be shown and paid in GSTR-3B also. Please remember that amount payable under reverse charges will not be available to be paid by utilising input credit. Amount payable on reverse charges will have to paid by cash.
  15. GSTR-3B can be submitted through digital signatures or Electronic verification code except for Companies where it has to be filed by digital signatures.

 

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