GST · a) Reversal of ITC on CG lying in the stock will be equal to the ITC related to the residual...

CPresentation by

CA Rajat B TalatiTalati & Co.,

Chartered Accountants, Mumbai [email protected]

On 13.5.2017 Organised by The Sales Tax Practitioners Association of Maharashtra

GST

Matters to be discussed:

1. What is Input Tax Credit(ITC)?

2. Mechanism of ITC

3. Conditions for availing ITC

4. Apportionment of credit in certain cases

5. Blockage of ITC (Sec 17(5)):

6. Availability of credit in special circumstances

7. ITC in case of Inputs and Capital good sent for

Job work.

8. Distribution of credit by Input Service Distributor

CA Rajat B. Talati, Mumbai 2

1. What is Input Tax Credit(ITC)?

Input Tax Credit means credit of:

CGST, SGST, IGST & UTGST paid on the purchases(IS) of goods or services or both

(including IGST paid on import);

1.Tax paid under Reverse Charge Mechanism(RCM);

1.Tax paid on purchase from Unregistered Dealer(URD);

1.Excluding tax paid on purchases from compounding dealer.

I T C


2. Mechanism of ITC:

Deposit made by a

person by internet

banking or by using

credit or debit cards

or NEFT or RTGS.

Credited toElectronic

Cash ledgerAmt may be used for

payment towards tax,

interest, penalty, fees, or any

other amount payable under

the provisions of this Act

Input tax charged on

any supply of goods or

services or both which

are used or intended to

be used in the course

or furtherance of his

business.

Payment of output tax

in following order:

Credit of IGST CGST SGST UTGST

Order for

utilisation of

ITC

1. IGST 1. CGST 1. SGST 1. UTGST

2. CGST 2. IGST 2. IGST 2. IGST

3. SGST

4. UTGST

Credited to

Electronic

Credit

ledger

Amt may be used for


Order for the payment of tax and other dues as per following order:

Other amount payable under this Act or Rules

CurrentMonth/Quarter

PreviousMonth/Quarter


2. Mechanism of ITC: Contd...

For ITC

What qualifies

Inward supply of

Goods

>Inputs,

>Raw materials, >Packing material

1.>Processing material >consumables

2.>Capital goods

>etc

Services

>Input services

>Expenses by way

of services

Conditions

to be used orintended to be used

In the course of business

Or

furtherance of business

(A very wide term)



In the course of business Or furtherance of business:

A very wide term

Expenses like staff welfare

Advertising and sales promotion

Repairs and maintenance

Intangibles like Software , Copyrights ,Franchisee fees ?

Goods do not include ‘intangibles but services does

Part of negative list?

Immovables goods?

Goods does not include immovables but do services include?

Debatable



3. Conditions for taking ITC:a) Possession of Tax invoice or debit note or Bill of Entry issued by a registered supplier;

b) Receipt of the goods or services or both

Exception:

a) sales-in-transit &

b) Input and Capital Goods directly sent to job worker;

d) Payment of tax by supplier;

e) furnished the return;

f) A person is not eligible to take ITC on any invoice or debit note after the:

• Due date of furnishing of the return for the month of September of the next year

(i.e.20th October of next year)

or• furnishing of the relevant annual return (Due date of filing Annual return is 31st December of next

year)

(whichever is earlier) CA Rajat B. Talati, Mumbai 8

g) Payment to supplier within 180days (Value +Tax)

• if not paid, pay the amount equal to ITC availed + Interest.

• subsequently, if paid to supplier, ITC can be claimed.

Do you Know?

1. If purchased in lots or instalments

> entitled to take credit upon receipt of the last lot or instalment;

2. If depreciation is claimed on tax paid on the purchase of CG

> the ITC on the such tax component will not be allowed;

3. ITC is allowed provisionally for two months

>than the supply details are matched by the system and discrepancies are communicated to concerned supplier and recipient.

>In case mismatch continues, the ITC taken would be reversed automatically.


3. Conditions for taking ITC: Contd..

4. Apportionment of credit in certain cases:s Cases Eligible ITC Rules for ITC

1) If the goods or

services or both are

used partly for

business purposes

and partly for non-

business purposes,

Only on the Inputs, Input service

& Capital Goods used for the

purposes of his business.

ITC on input, input service & CG related to

exempt supply shall be reduced from the

common ITC & reduction shall be calculated as

follow:

= Exempt supply X Common

Total supply ITC

ITC on input & input service related to non-

business purposes shall be reduced by 5% of

common ITC.

ITC on CG, which were earlier used for non-

business or providing exempt supplies & now put

to use for Common purposes, shall be reduced by

5% per quarter of CG used, taking the residual

life as 5 years.

2) If the goods or

services or both are

used partly for

effecting taxable

supplies (including

zero-rated* supplies)

and partly for

effecting exempt

supplies**,

Only on the Inputs, Input service

& Capital Goods used for the

purposes of providing taxable

supplies including zero-rated

supplies.

(A banking company have an

option to follow below

mentioned special provision

instead of this provision)


• * The value of Zero rated supplies shall include:• Export of goods or services or both;

• Supply of goods or services or both to a SEZ developer or SEZ unit.

• **The value of Exempt Supplies shall include:• supplies which attracts nil rate of tax;

• non-taxable supplies;

• supplies on which the recipient is liable to pay tax under RCM;

• transactions in securities;

• sale of land;

• sale of building (where entire consideration has been received after issuance of

completion certificate).


4. Apportionment of credit in certain cases: Contd..

Special provision for A banking company:

Supplier: A banking company or a financial institution including a NBFC.

Nature of services: Accepting deposits, extending loans or advances.

Required to follow: Optionally

Admissible ITC: 50% of eligible ITC* on Input, Capital goods & Input services.

Exception: Restriction on ITC shall not be applicable where the supplier &

recipient have the same PAN.

Condition: Option once exercised shall not be withdrawn during the

remaining part of the financial year

*Eligible ITC means credits on inputs and input services used for Business purposes

other than specified and referred to as ‘blocked ITC’


4. Apportionment of credit in certain cases: Contd..

5. Blockage of ITC (Sec 17(5)):

1. Motor vehicles and other conveyances except when they are used for followings:

a. making further taxable supply of such motor vehicles or conveyances (Trading);

b. taxable supply towards transportation of passengers;

a. taxable supply towards imparting training on driving, flying, navigating such

vehicles or conveyances;

a. for transportation of goods.

CA Rajat B. Talati, Mumbai13

2. the following supply of goods or services or both:

a) food and beverages;

b) outdoor catering;

c) beauty treatment;

d) health services;

e) cosmetic and plastic surgery;

f) rent-a-cab;

g) life insurance and health insurance;

h) membership of a club, health and fitness centre;

i) travel benefits extended to employees on vacation such as leave or home travel

concession.

Except where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply.


5. Blockage of ITC (Sec 17(5)): Contd..

3. works contract services when supplied for

construction of an immovable property (other than

plant and machinery) except where it is an input

service for further supply of works contract service;

4. goods or services or both received by a taxable person

for construction of an immovable property (other than

plant or machinery) on his own account including

when such goods or services or both are used in the

course or furtherance of business;



5. goods or services or both on which tax has been paid under Composition

scheme (section 10);

6. goods or services or both received by a non-resident taxable person except on

goods imported by him;

7. goods or services or both used for personal consumption;

8. goods lost, stolen, destroyed, written off or disposed of by way of gift or free

samples.

Here, Plant and Machinery does not include:

• land, building or any other civil structures;

• telecommunication towers; and

• pipelines laid outside the factory premises.



6. Availability of credit in special circumstances:

• ITC is available for Tax paid on:

• inputs held in stock and

• inputs contained in semi-finished or finished goods held in stock

• on the day immediately preceding the date from which he becomes liable to pay tax

1.

In case of Compulsoryregistration

• ITC is available for Tax paid on:

• inputs held in stock and

• inputs contained in semi-finished or finished goods held in stock

• on the day immediately preceding the date of grant of registration

2.

In case of Voluntaryregistration


• Tax paid on:

• inputs held in stock,

• inputs contained in semi-finished or finished goods held in stock and

• capital goods

• on the day immediately preceding the date from which he becomes liable to pay tax under sec 9.

3.

In case of opt out for

Composition scheme

• Tax paid on:

• inputs held in stock,

• inputs contained in semi-finished or finished goods held in stock relatable to such exempt supply and

• on capital goods exclusively used for such exempt supply

• on the day immediately preceding the date from which such supply becomes taxable.

4.

In case of exempt supply become taxable

supply


6. Availability of credit in special circumstances: Contd..

1. For compulsory registration, application for registration shall be made within 30days from the date of become liable for registration and if not applied within 30 days, credit will lapse.

2. ITC not allowed after the expiry of 1 year from the date of invoice.

3. Credit on CG shall be reduced by 5% per quarter of a year or part thereof from the date of invoice.

4. Electronic declaration, regarding stock held, is required to make in FORM GST ITC-01 to avail the ITC.

5. The details furnished in declaration shall be duly certified by Practicing CA or CWA if the aggregate claim of ITC exceed Rs.2,00,000/-

6. Cross verification of ITC shall be done from GSTR-1 or GSTR-4 of the supplier on common portal.

Common Rules for eligibility of ITC:



5. Reversal of ITC on In case of >opting for Composition scheme or

>taxable supply become exempt supply.

Provision Rules for ITC

Reversal of ITC on:a) inputs held in stock,

b) inputs contained in semi-finished or

finished goods held in stock and

c) on capital goods,

on the day immediately preceding the date

of exercising of such option or, as the case

may be, the date of such exemption

a) Reversal of ITC on inputs will be calculated

proportionately on the basis of the invoices on which

credit is availed.

a) Reversal of ITC on CG lying in the stock will be

equal to the ITC related to the residual life (in the

month), taking the residual life as 5 years.

a) Balance ITC in Electronic Credit Ledger shall lapse.



6. In case of change constitution of a registered person:

In case of change in the constitution of the transferor on account of sale, merger, demerger,

amalgamation, lease or transfer of the business (with the specific provisions for transfer of liabilities) the

said registered person shall be allowed to transfer the ITC which remains unutilised in his electronic

credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business.

7. In case of supply of capital goods or plant and machinery:In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the

registered person shall pay an amount equal to:

a) the ITC taken on the such capital goods or plant and machinery reduced by such percentage

points as may be prescribed or

b) the tax on the transaction value of such capital goods or plant and machinery determined under

section 15.

(whichever is higher)

Provided that where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the

taxable person may pay tax on the transaction value of such goods determined under sec: 15.CA Rajat B. Talati, Mumbai 21


7. ITC in case of Inputs and Capital good sent for Job work.

As per Section 2(68), “job work” means any treatment or process undertaken by a person on goods

belonging to another registered person and the expression “job worker” shall be construed accordingly.

1. Time limit for received back the Inputs and Capital goods from the job worker.

• For Inputs : Within 1 Year from the date of supply from principal to job worker.

• For Capital goods : Within 3 Year from the date of supply from principal to job worker.

(here, capital goods exclude moulds and dies, jigs and fixtures, or tools)

Where the inputs and capital goods sent for job work are not received back by the principal within

the above time limit, it shall be deemed that such inputs and capital goods had been supplied by the

principal to the job worker on the day when the said inputs and capital goods were sent out.

Provided that where the inputs are sent directly to a job worker, the period of one year shall be

counted from the date of receipt of inputs by the job worker.


2. Allowance of ITC:

• ITC is allowed to the principle on inputs and capital goods sent to a job worker for job work.

• ITC is allowed even if the inputs and capital goods are directly sent to a job worker for job-work

without being first brought to his place of business.

2. Conditions for taking ITC:

• The inputs or capital goods shall be sent to the job worker under the cover of a challan I issued by

the principal, including where the inputs or capital goods are sent directly to job-worker.

• Such challan shall be included in GSTR-1.

• If the inputs and capital goods are not returned to the principal within the prescribed time limit,

such challan shall be deemed to be an invoice for the purposes of this act.


7. ITC in case of Inputs and Capital good sent for Job work. Contd..

8. Distribution of credit by Input Service Distributor.

As per Section 2 (61), “Input Service Distributor” means an office of

the supplier of goods or services or both which receives tax invoices

issued under section 31 towards the receipt of input services and issues

a prescribed document for the purposes of distributing the credit of

central tax, State tax, integrated tax or Union territory tax paid on the

said services to a supplier of taxable goods or services or both having

the same Permanent Account Number as that of the said office.

Definition:


I. Conditions for distribute the ITC for ISD.

a. The ISD shall issue an ISD invoice, as prescribed in sub-rule (1) of rule invoice-7, clearly indicating in

such invoice that it is issued only for distribution of input tax credit;

b. the amount of the credit distributed shall not exceed the amount of credit available for distribution;

c. the credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;

d. If ITC on input services attributable to more than one recipient, credit shall be distributed amongst such recipients and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period and which are operational in the current year, during the said relevant period;

e. the ITC available for distribution in a month shall be distributed in the same month and the details thereof shall be furnished in FORM GSTR-6 in accordance with the provisions of Chapter ---- (Return Rules);

f. the ISD shall separately distribute the amount in-eligible as ITC under the provisions of sub-section (5) of section 17 and the amount eligible as ITC;

g. the ITC on account of central tax, State tax, Union territory tax and integrated tax shall be distributed separately;

h. the ITC on account of integrated tax shall be distributed as ITC of integrated tax to every recipient.CA Rajat B. Talati, Mumbai 25

8. Distribution of credit by Input Service Distributor.

II. Calculation for distribution, if ITC is attributable to more than one recipient

(Including recipient who is unregistered or engaged in making exempt supply):

where,

“C1” is the ITC attributable to recipient,

“C” is the amount of credit to be distributed,

“t1” is the turnover, of person recipient during the relevant period, and

“T” is the aggregate of the turnover of all recipients during the relevant period;

C1 = (t1÷T) × C


8. Distribution of credit by Input Service Distributor. Cont….

Issues /observationsUsed or intend to use

May not be immediately used – future use or intention is to use it

Event of disallowance is at a later date – can claim today

In the course of or in furtherance of business

Goods or services received by him

Services received by 3rd person

Can it be treated as received by him through that 3rd person – Is it required to provide in rules?

ITC credited as provisionally (sec-41) subject to the tax underlying is paid in

cash or utilization of tax admissible in respect of said supply.

What if it is found – later by Proper Officer that such credit is not admissible?

How & when credit will get disallowed?


Issues /observationsFor non-payment of amount of invoice amount within 180 days, ITC to be reversed & paid

with interest. To be claimed on making payment to vendor.

What about interest? Even in a case where vendor has deposited tax or tax + interest in Govt Treasury?

Exempt supplies includes – supplies on which the recipient is liable to pay RCM, sale of land, securities, post OC flats / building

RCM – why? If such supplies are used for providing taxable supplies? How to calculate ratio?

ITC – disallowed – rent – a – cab why?

Business – transaction in connection or ancillary to any trade, commerce, manufacturing, profession, vacation


Issues /observations ….contd

Amount paid by the vendor

Returns filed without payment is not a valid return

ITC – mis-match – auto reverse

If paid later- to be allowed

Wrong claim of ITC – reversed in the hands of vendor – how would system work?

Zero rated supply

Section 16 of IGST Act

Export of goods & /or services

Supply of goods & /or services to SEZ Developer or an SEZ unit

Goods vehicles – ITC available

What are goods vehicles?

Vehicles which are registered under MV Act as other than passenger vehicle?

CA Rajat B. Talati, Mumbai

29

Life insurance / health insurance for employees

Unless an obligation under any law – say factories Act

Daily commute to office / factory provided by the employer – eligible

How about a car given to management for office compute & also for official duty + self-use?

W/C inward supply for construction of immovable property other than plant & machinery

Plant & machinery – foundation, bolting

Construction includes

Repair expenses debited to P & L A/c

Goods lost, Gift promotional scheme, free sample….

Goods lost stolen, destroyed, …

What about normal processing loss like evaporation, handling loss?

Promotional scheme

50 free for every 1000 qty purchases?

Is it given free?



Invoice older than 1 year

Only in case of ITC to be availed in cases of stock held in case of new RC, ceases to avail

composition or event of making exempt supplies to taxable supply

Not in other cases

Itc can be claimed till filing of September return (20th oct) of next FY or filing of annual

return whichever is earlier.



CSR & Activities

Obligation under the Cos’Act

Is it related to business of the company?

Can ITC be claimed on purchases / inward services?

Two issues

• Used in business or furtherance of business

• Is it covered levy ‘non-taxable’ supplies? & hence no ITC?

Deficiency in services



Accounting

Reversal of ITC – if vendor not paid in 180 days – system should track such cases. Possibly aging of

creditors – report can be used.

ISD – distribution – atleast / system support for distribution –sec Rules

(Taxable + Zero rated) vs non taxable

Business vs non-business

Information to be given at invoice level in GSTR 2 – How to do it in system?

• One invoice has all T1, T2, T3 & T4 to be reported at invoice level

How to automat ITC – Rule 7 & Rule 8?

Challan for goods sent to job workers

• Even in a case where goods / CG directly sent to job worker

• Report it in GSTR-1



Accounting records [Sec 35(1)]Accounts / Records Information required By whom?

Register of Goods

Produced

Account should contain detail of goods manufactured in a factory or

production house

Every assesse carrying out

manufacturing activity

Purchase/Inward

Register

All the purchases made within a tax period for manufacturing of goods

or provision of services All Assesse

Sales/Outward Register

Account of all the sales made/service provided within a tax period

must be maintained All Assesse

Stock Register

This register should contain a correct stock of inventory available at

any given point of time. All Assesse

Input Tax Credit Availed

This register should maintain the details of Input Tax Credit availed

for a given tac period All Assesse

Output Tax Liability

This register should maintain the details of GST liability outstanding

to be adjusted against input credit or paid directly All Assesse

Output Tax Paid This register should maintain the details GST paid for a tax period All Assesse

Other Records specified

Government can further specify by way of a notification, additional

records and accounts to be maintained

Specific Business as notified by the

governmentCA Rajat B. Talati, Mumbai 34

Chart of Accounts –State-wiseInput CGST a/c

Output CGST a/c

Input SGST a/c

Output SGST a/c

Input UTGST a/c

Output UTGST a/c

Input IGST a/c

Output IGST a/c

Electronic Cash Ledger (to be maintained on Government GST portal to pay GST)

Electronic Credit Ledger (to be maintained on Government GST portal to pay GST)


GST · a) Reversal of ITC on CG lying in the stock will be equal to the ITC related to the residual...

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