At ProfitBooks, we are committed to make taxation simple for small business owners in India. Since GST is set to replace various indirect taxes, we have started this series on frequently asked questions on GST. This article is second in this series.
Earlier, we had covered overview of GST tax and common questions around it. Business owners are often confused about what is included in GST and what type of goods are exempt from GST. In this article, we have covered common questions regarding levy and exemptions under GST tax in India.
1) What is the taxable event under GST?
Supply of goods and/or services. CGST & SGST will be levied on intra-state supplies while IGST will be levied on inter-state supplies. The charging section is section 7 (1) of CGST/SGST Act and Section 4(1) of the IGST Act.
2) Is the reverse charge mechanism applicable only to services?
No, reverse charge applies to supplies of both goods and services.
3) What will be the implications in case of purchase of goods from unregistered dealers?
The receiver of goods will not be able to get ITC. Further, the recipients who are registered under composition schemes would be liable to pay tax under reverse charge.
4) In respect of exchange of goods, namely gold watch for restaurant services will the transaction be taxable as two different supplies or will it be taxable only in the hands of the main supplier?
No. In the above case the transaction of supply of watch from consumer to the restaurant will not be an independent supply as the same is not in the course of business. It is a consideration for a supply made by the restaurant to him. The same will be a taxable supply by the restaurant.
5) Whether supplies made without consideration will also come within the purview of Supply under GST?
Yes only those cases which are specified under Schedule I to the Model GST Law.
6) Who can notify a transaction to be supply of goods and/or services?
Central Government or State Government on the recommendation of the GST Council can notify a transaction to be the supply of goods and/or services.
7) Will a taxable person be eligible to opt for composition scheme only for one out of 3 business verticals?
No, composition scheme would become applicable for all the business verticals/registrations which are separately held by the person with same PAN.
8) Can composition scheme be availed if the taxable person effects inter-State supplies?
No, composition scheme is applicable subject to the condition that the taxable person does not affect interstate supplies.
9) Can the taxable person under composition scheme claim input tax credit?
No, taxable person under composition scheme is not eligible to claim input tax credit.
10) Can the customer who buys from a taxable person who is under the composition scheme claim composition tax as input tax credit?
No, customer who buys goods from taxable person who is under composition scheme is not eligible for composition input tax credit because a composition scheme supplier cannot issue a tax invoice.
11) Can composition tax be collected from customers?
No, the taxable person under composition scheme is restricted from collecting tax. It means that a composition scheme supplier cannot issue a tax invoice.
12) What is the threshold for opting to pay tax under the composition scheme?
The threshold for composition scheme is Rs. 50 Lakhs of aggregate turnover in financial year.
13) How to compute ‘aggregate turnover’ to determine eligibility for composition scheme?
The methodology to compute aggregate turnover is given in Section 2(6). Accordingly, ‘aggregate turnover’ means ‘Value of all supplies (taxable and non-taxable supplies + Exempt supplies + Exports) and it excludes Taxes levied under CGST Act, SGST Act and IGST Act, Value of inward supplies + Value of supplies taxable under reverse charge of a person having the same PAN.
14) What are the penal consequences if a taxable person violates the condition and is not eligible for payment of tax under the Composition scheme?
Taxable person who was not eligible for the composition scheme would be liable to pay tax, interest and in addition he shall also be liable to a penalty equivalent to the amount of tax payable. (Section 8 (3) of the MGL).
15) What is the minimum rate of tax prescribed for composition scheme?
Minimum rate has been prescribed as 1%.
16) When exemption from whole of tax collected on goods and/or services has been granted unconditionally, can taxable person pay tax?
No, the taxable person providing such goods or services shall not collect the tax on such goods or services.
17) What is remission of tax/duty?
It means relieving the tax payer from the obligation to pay tax on goods when they are lost or destroyed due to any natural causes. Remission is subject to conditions stipulated under the law and rules made thereunder.
18) Whether remission is allowed under GST law?
Yes, proposed section 11 of Model GST law permits remission of tax on supply of goods.
19) Whether remission is allowed for goods lost or destroyed before supply?
Remission of tax will apply only when tax is payable as per law i.e. taxable event should have happened and tax is required to be paid as per law. Under GST Law, levy is applicable upon supply of goods. Where goods are lost or destroyed before supply, taxable event does not occur in order to pay tax. Accordingly, question of remission of tax does not rise.
20) Whether remission is allowed on goods lost or destroyed for all reasons?
No, on plain reading of the language of proposed Section 11, remission is allowed only for those cases where supply of goods is found to be deficient in quantity due to natural causes.
21) Does the model GST Law empower the competent government to exempt supplies from the levy of GST?
Yes. Under Section 10 of the Model GST Law, the Central or the State Government, on the recommendation of the GST council can exempt the supplies from the levy of GST either generally or subject to conditions.
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