1) What are the components of GST?
GST is a combination central and state taxes put together. Hence there will be three types of taxes – Central GST and State GST for intrastate transactions and IGST (Integrated GST) for interstate transactions.
Since all the center and state taxes are merged and brought as one tax under GST, state governments and central government will need to have their share of GST. Hence, there will be three types of taxes under GST. Since GST is a consumption-based tax, the tax revenue will be charged and collected by the consuming state. This helps the consuming state to protect their tax base.
If the goods are transferred within state i.e., the consumption state is same as origin state, there will be CGST (Central Government Tax) and SGST (State Government Levy)
If the goods are transferred from one state to the other, IGST will be levied and the central government will settle the tax to the consuming state.
2) Will GST bring down my tax burden?
GST aims to eliminate cascading effect of tax. All inputs credits can be utilized and it will bring down the tax burden on account of usage of credit. The credit can be claimed only after it matches the invoice of the respective suppliers.
In the current tax regime, tax credit claims under various tax laws are not allowed. For eg: tax credit on account of taxes paid under excise duty cannot be claimed against service tax dues and vice versa.
3) Will GST increase my compliance?
GST aims to reduce the compliance burden of the customers. There is only one compliance that is required and only a single compliance has to be done. Under the current regime, service tax, VAT and other returns are to be filed separately whereas the input tax mechanism under each tax is different.
In GST the returns are prepared by the GSTN once the assessee inputs all his purchase and sale details. Matching of invoices for availing input credits are done automatically and returns are prepared.
Once the returns are processed and approved, there are no further returns to be filed on a monthly basis.In the current tax regime, customers have to file and manage all taxes separately excise, VAT, service tax etc.
4) What are the various GST rates?
GST has proposed a total of 4 tax slabs:
- Exempted categories – 0
- Commonly used Goods and Services – 5%
- Standard Goods and Services fall under 1st slab – 12%
- Standard Goods and Services fall under 2nd Slab – 18%
- Special category of Goods and Services including luxury – 28%
The rates are subject to change*
5) How can I pay my GST liability?
Once we complete filing the returns, the tax is calculated based on the liability arising out of sales invoices filed after adjusting valid tax credit and the same has to be paid. Credits would be availed in the following manner.
Order of utilization of credits:
- CGST – CGST and then IGST
- SGST – SGST and IGST
- IGST – IGST, CGST and SGST
6) Will my working capital have any impact?
One of the greatest benefits of GST is avoidance of cascading effects of tax and seamless flow of tax credits. However, the working capital requirement increases if your customer/supplier is non-compliant in terms of filing their returns
Hence, it becomes clear that your vendors and partners must be compliant in order to manage your working capital
Assessing the credibility of your vendors becomes critical and it can have a negative impact on the business if they are non-compliant. On the long run, GST will slowly make all these non-compliant businesses vanish.
7) How to prepare my GST return?
GST returns are to be prepared based on your invoices for the period of filing of return.The assessee has to upload all his relevant purchase and sales register and other information required like advances with which the returns are automatically generated.
There is a window for the reconciliation of invoices filed and the assessee can work with their vendors for unmatched items post which the final return will be prepared and tax liability has to be discharged.
8) How should I prepare my business for GST compliance?
You should prepare your business by ensuring 100% transactions are recorded in the system and by ensuring you can report 100% of the transactions recorded in the system.
Since GST is a technology enabled solution and all returns, matching etc, happens within the IT infrastructure businesses will be left with no other option to adopt to technology solutions which will empower them will compliance. Without an efficient product solution, businesses will not be able to capture, analyze and use 100% of their transactions that are required to be a compliant GST assessee.
Non-compliance because of not adapting to technology solutions could have a negative impact on the business including extended working capital, the agony of the vendors and customers etc.
Written in collaboration with Krishna Prasath.