GST Returns – FAQs

What should you know about the GST return?

There is confusion among the business community, tax professionals, and tax authorities. Few of them are aware of the process of GST implementation. In this article, we will discuss the FAQ on GST returns.

Q.1) What is the objective of GST returns?

  • Mode for supply of information to tax authorities
  • Ensure proper compliance rating
  • Calculation of tax liability within a given time period
  • Providing necessary details for input tax credit for the purchase
  • Tax management, collection of data for policy decision

Q.2) Who needs to file a return in GST law?

Ans.- Every person registered under GST law will have to file tax returns by or before the due date.  The due date of filing of GST returns depend upon of category of GST registration.

Q.3) What detail has to be provided in GSTR-1 for an outward supply of goods or services?

Ans.- A normally registered taxpayer has to file the outward supply of goods/ or services in GSTR-1. The taxpayer has to differentiate the type of supply into registered and unregistered, separate details for exempted supply, or details of advances received for future supply of goods or services.

Q.4) Is a scan copy of the invoice required to submit with GSTR-1?

Ans.- No. only the basic details of the invoice are required to uploaded GSTIN, ie, number of purchases, invoice amount, tax amount.

Q.5) When do I need to upload an invoice on the GST portal?

 Ans.- In a few cases, a scan of an invoice for a supply of goods or services has to be uploaded, as in a case of B2B supply for providing input tax credit to the purchaser and in the case of IGST supply above Rs. 2.5 Lac. In the case of B2C supply, there is no requirement to upload the invoice on GST portal.

Q.6) Does product description in the invoice have to be uploaded?

Ans.- No, only HSN / SAC has to be uploaded to product or services supplied.

Q.7 What needs to be provide in the case of supply goods without any consideration?

Ans.- If supply goods are without consideration, it is supplied by virtue of schedule 1, then a taxable value of goods has to be calculated and an invoice has to be uploaded on the GST portal.

 Q.8) Can a recipient of goods or services claim an input tax credit in his GSTR-2 even if the supplier has not provided the details of the supply made to a recipient in his GSTR-1?

 Ans.- Yes, a recipient can add his details of goods or services received from a supplier by giving his GSTIN number, invoice number, invoice amount, and tax amount. The GST system of government will grant a provisional credit of input tax subject to a matching of invoice. Both supplier and recipient shall be intimated for rectification of mismatch. If the mismatch is rectified, a provisional credit will be confirmed. If the mismatch is unconfirmed, the amount will be added to the output tax liability of the recipient in subsequent month returns.

Q.9) Does the taxable person have to fill anything in GSTR-2 or is it auto-populated from the supplier GSTR-1?

Ans.- Most of the details in GSTR-2 will be auto-populated from GSTR-1 of the respective supplier while taxpayers will have to provide the details of other inward supply of goods or services, for instance, the detail of import purchase of goods or services, purchases from unregistered taxable person, details of exempted purchase, statement of purchase from a taxable person registered under composition scheme.

Q.10) If an input tax credit is denied by the supplier during the process of matching the invoice or in a response to GST department, then what action should be taken against the supplier?

Ans.- if a supplier of goods or services has not matched the invoice for the input tax claimed by the recipient, then in such circumstances, the recipient can complain to the GST administration about the intent of supplier and intention of tax evasion.

Q.11) What will be the legal position if a supplier later realizes that earlier reversed input tax has not been shown in GSTR-1? No rectification has been done even after intimation from a department.

Ans.- Before 30th September of the following end of the financial year, the supplier can upload the missing invoice and can pay tax with interest. The recipient will be eligible for input tax credit along with interest paid by the recipient at the time of reversal shall be reversed to cash ledger of the recipient.

Q.12) What is the monthly compliance under GST for the input service distributor?

Ans.- Every input service distributor has to submit one combined GSTR- 6 with the details of credit received from a service provider and input distributed to the recipient units. For an input service distributor, there is no requirement to file the statement of inward or outward supply.

Q.13) What is the process for the input tax credit for amount TDS/ TCS deducted by a deductor under GST Act?  Is there any requirement to submit a certificate to claim TDS or TCS under GST Act?

Ans.- As per the GST Act, every tax deductor has to submit details of deductions made by him in GSTR-7 by the 10th of the following month. Such details shall be auto-populated in the GSTR-2 of the deductee.  The certificate can be stored for record keeping and it can be downloaded from the GST portal.

Q.14) What is the process of revision of returns under GST Act?

Ans.- Once the returns is filled, it cannot be revised; however, if there is any difference in the value of supplier of goods or services can be amended by issuing or accepting a debit note or credit note. Such difference can be accommodated in GSTR 1 or GSTR 2.

Q.15) What steps are needed to take for hassle free compliance under GST?

  • Real-time uploading of invoice for supply of goods or services
  • File GSTR by 10th of following month
  • Adjust debit note / Credit note against invoice only
  • Do not pass credit note or debit on account basis
  • Track your sales return period as the recipient has liability to return the goods within the time period specified in the law.
  • File GSTR 2 & 3 on time
  • Respond to the department notice on time to maintain higher compliance rating
  • Follow-up with the department query during invoice mismatching

Q.16) What is the consequence for not filling GST returns on time?

Ans. If a registered person failed to file the GST returns within the prescribed time period, then he will have to pay the penalty Rs. 100 per day subject to maximum Rs. 5000. In case failure to file annual returns beyond the prescribed time period then further may be a penalty of 0.25% of the quarterly sales in a state.

GST – A Global Analysis on its Transition

GST was introduced by the Indian government to reduce tax evasion and build up a strong tax collection structure. One of the major characteristics of GST is that it supports the domestic traders to face the competition in domestic as well as the international market. Here we will analyze how smoothly the GST transition can take place, and the lessons learned from countries which have already implemented GST. GST was first introduced in France. Some other countries which adopted the GST regime are Singapore, Malaysia, and the UK.

In the given scenario, India can learn a lot from these countries as to how GST can be smoothly launched and other post-implementation points to be taken care of.

Smooth Implementation

The first and foremost point of importance is the implementation of the new tax regime. It is the duty of the government to ensure the smooth implementation and migration procedures. Such procedures are required to be made keeping in mind the objective of a smooth transition. Enough information must be supplied to the taxpayers about the implementation and their role in the process.

If there is a lack of communication on the part of the government, then the implementation can face a backlash from the people, leading to unnecessary chaos and confusion. This happened in the case of Malaysia, where the government provided a long transition period of 1.5 years and still faced a backlash from the people.

Duel-GST

India has adopted the Canadian model of Dual GST, where tax is charged at federal as well as state levels.  In many countries, this segregation is not defined and only one tax applies. This dual tax system might result in further complications as different states are free to draw their interpretations and define their rules regarding such state taxes.

High Tax Rates

In order to expand the tax base, it has been advised to lower the tax rate. A low tax rates encourage the taxpayer to come forward and register. On the other hand, if the tax rates are on the higher end, taxpayers feel discouraged and this will result in tax evasion.

This is the reason many countries like Singapore introduced lower tax rates in the initial stages of implementation of GST and gradually increased them to build up the tax base.

However the Indian government has set the tax rates at 5%, 12%, 18% and 28%, and only staple foods are excluded from the criteria. The government is taking a bold step by not opting for a safe option.

All Taxpayers are the Same

Under the GST, all the taxpayers including small, medium and large enterprises are equated as the same and are taxed at the same rate. Even the exemption threshold is kept very low at 20 lakh, which results in bringing them all at par. It is a good thing as it expands the tax base, but it poses many difficulties for SMEs to comply with all the provisions with their limited resources. This is the reason countries have set the threshold limit at higher levels, for example, in Singapore this limit is at 4.8 crores and in Malaysia, it is at 75 lakhs to give some relief to SMEs.

These SMEs are granted some relief in the form of the Composition Scheme, but it comes with its share of shortcomings, as any taxpayer registered under the same cannot avail input credit, nor can they collect taxes from their customers.

Effective System of Payment

In order to ensure proper working of any tax system, the most crucial part is that it has clearly defined procedures and a fast credit payment system. An effective payment system and a related infrastructure are required for this purpose. In absence of which, proper cash flow will be adversely affected.

In the current GST regime, if there is any delay on the part of the supplier in the filing of the return, then the recipient cannot receive input credit on time. It will, as a result, increase the cost of business for such recipient.

Indian tax regulators should take a lesson from other world economies who have suffered the same issues and introduce a more effective mechanism.

Inflation

The government should take effective steps to ensure that implementation of GST does not result in inflation. The main objective of the introduction of GST is to eliminate the tax on tax effect, thus reducing the costs of goods and services. But many people may take unlawful routes to exploit the final consumers who are not well aware of these provisions.

It is the responsibility of the government to make precautionary anti-profiteering policies to protect such consumers of goods and services. This is very important as many countries faced the same problem as did Singapore when it introduced GST in 1994;  a hike in the inflation rate was noticed.

GST – Impact on Solar and Renewable Energy after its Implementation

Unconventional Ways to Implement GST in Your Solar Business

Effective GST implementation strategy is required to ensure your business is GST compliant

 

GST: A good solar tax or disruption to the solar industry? Impact of the GST on India’s Solar industry.

The current tax regime provides for a complex multi-city tax environment, increased compliance obligations, and a tax cascading effect. To address such big problems for businesses, GST has been introduced as a comprehensive consumption based end point tax levied on the supply of goods or services. GST will replace the majority of indirect taxes and GST aims at providing a seamless credit. Besides simplifying the current system and further lowering the costs of doing business, it will also organize the overall supply chain management system.

Electricity supply comes under no. 53 so it is expected to continue to be an exempted item under model GST laws. recognizing the same for renewable energy projects, whatever GST paid on inputs, capital goods and services would continue to be a cost. Therefore, we believe that in short run there will substantial increase in the cost of procurements for solar business.

The Goods and Service Tax is expected to roll out from 1st July 2017 as per the GST Council meeting on 18th June 2017. The solar industry has been considering GST as the biggest disappointment for the energy sector, the proposed 5% tax GST rate for solar modules as compared to a present effective no tax.

GST has been imposed on most other renewable energy projects and equipment including solar batteries, inverters, cables, windmills, waste to energy plants, biogas plants ,and other renewable energy generating systems. They have been classified under the 5% GST Rate. The new GST regime will, therefore, result in an increase module cost by 5%, Approximate 12% in inverter cost and 3% to 5% in all maintenance costs – increasing overall project cost by about 12%. We do not believe that new GST structure will offer any advantage to the domestic manufacturer as a cost of solar equipment like modules, inverters, batteries, cables, structures are already high as compare to the price available in the international market. The current GST rate is not going to benefit solar integrator or manufacturer or end consumer. As per GST Act, GST is not applicable on consumption or sale of electricity. GST is applicable on purchase of capital goods sources for producing electricity. GST paid on procurement would continue non-ITC (input tax credit) for the energy sector.

Table 1: Current GST Rate on Solar energy-2017 (Source Time of India)

Device Tax before GST GST Percentage Difference after GST Price rise in rupee/Wp
Modules 0% 5% 18% 5.04
Inverter 5% 18% 13% 0.47
Mounting Structure 5% 18% 13% 0.50
Mid clamps & End Clamps 5% 18% 13%
Cables 5% 18% 13% 0.06
Junction Boxes, connectors and other BoS 5% 18% 13% 0.13
Earthing 5% 18% 13% 0.05
Conduits 5% 28% 23% 0.03
Services 15% 5% -10% – 0.7

What is proposed tax structure for solar under GST Vs existing tax structure?

  • Under existing law, there is lower or nil VAT and excise duty on the import of solar equipment. This allows solar businesses to source solar equipment from the cheaper international market and further, respective state governments have also been encouraged to establish a solar plant at a reduced VAT rate.
  • Under the GST Act, import is also considered as inward supply since we believe that IGST shall be also applicable on import of solar equipment, hence the tax rate on the solar inverter will also go up from 5% to 18%. This led to increasing overall project cost by 12%.
  • We believe that solar plants more than 10 GW of ongoing utility scale projects would be hit badly by the new GST rates.
  • In our assumption in long run, the solar industry will not be impacted by GST and the increase in tax rates will be quickly offset by the reduced cost of production. In India, a commercially viable and non-subsidies business has performed well.

Impact of GST on Solar Tariff

In the current excise and customs laws, the import and sale of solar equipment is exempted from state and central taxes. Further, in most of the states, there is either no VAT on sale or concessional VAT on solar equipment like Balance of System (BOS) mounting structure, inverters, transformers. The benefits under existing tax laws for solar or renewable energy are expected to take away and almost every solar equipment is taxable now under the GST regime.

Below, we have calculated solar tariffs under the current tax regime and the example has been taken, keeping in mind one Megawatt (MW) solar plant. 85% of total investment in a solar plant comprises capital assets. Since GST is applicable on the solar plant and its equipment, it will impact the project cost.

Benchmark of capital cost provided by CERC for FY 2016-17 Cost Components Cost

Cost components Cost in Lakh % Share
Panel 328.39 61.96%
Land 25 4.72%
Civil & General Works 35 6.6%
Mounting Structure 35 6.6%
Power Conditioning Unit (PCU) 35 6.60%
Evacuation (Cables and Transformer) 44 8.0%
Preliminary & Pre-operative costs 27.63 5.21%
Total 530.02 100%

Source – CEWA

In the recent meeting, the GST Council has published four different GST rates applicable on solar products. There is confusion going on about what GST rate would be applicable on different components of solar plants. These components are currently exempted, whether full GST rate will be applicable on output supply or they will get some amount of input tax credit like another taxable item (as declared 60% input tax credit of GST Rate as on 01-07-2017). Hence, In our opinion unlike other taxable goods solar and associated product will not get any input tax credit on the assumption basis as finalized at 60% for taxable goods purchased during the old laws.

 #5 Points you should know about the solar market trend under model GST Laws

  • Impact on solar project capital cost

As per the data published by CERC, the power generation cost has been decreased from INR 8.5 Cr. per MW in 2012-13 to R.s. 5.3 Cr. million per MW in 2016-17 due to a significant reduction in the cost of modules, mounting structure, civil works, power conditioning unit, evacuation cost. We expect that trend will continue for the next 12-24 months. This will reduce the need for working capital requirement. Further, it is expected that solar companies will need more working capital approx. 45 to 50 Lac per Megawatt to be compliant with GST Laws.

  • Impact on domestic solar module prices

Indian solar developers dependent on import as per data of CERC, around 95% of total modules requirement has been imported. India has installed 1.2GW for solar cells and 5.6 GW for solar modules. However, with the introduction of GST, the domestic player will able to avail benefit from the elimination of the cascading effect of different taxes across the entire value chain of manufacturing, production of solar modules. Also under GST regime, the domestic player will able to input tax claim on the input of each stage value addition due to the input tax credit, available at a stage of supply of goods under GST regime. Hence this will enable domestic manufacturers to compete with imported modules.

  • Reduced cost of BOS equipment

With the implementation of GST, we believe that the domestic manufacturer will be able to offer a benefit generated by eliminating cascading taxes under the current regime. This will reduce the cost of BOS equipment used in solar power like inverters, transformer, cables. BOS Equipment constitutes 22% of total project cost.

  • Increased Accelerated Depreciation benefits under GST

As per finance bill 2016, existing depreciation on the solar plan has been dropped to 40% from existing 80% in effect on 01/04/2017. The accelerated depreciation benefit expected to be increased under GST regime to INR 0.59 per KWH from existing from INR 0.54 per KWH in the current tax regime.

  • Job creation potential

Under the current tax laws, both service tax and vat are applicable, hence under GST for on work contract, only one tax is applicable. This creates more job opportunities in India.

Key Recommendation to GST Council

The central and state government has been promoting the renewable energy sector. We can review the existing government policies and initiatives. Current tax incentive play a vital role to ensure renewal energy completive and are cost effective.

Under the model GST laws, this will not only increase the cost of production for setting up a solar or renewal energy plan, but it will also increase the need for working capital.

The renewal energy sector has been contributing to the socio-economic development and creating employment in the rural area.

We believe that government should continue with existing benefits at least for SME. The following recommendations may be taken into account:

  1. The current exemption under VAT/ Excise law should be continued for renewable energy sector under the GST regime.
  2. If a company or person provides services to a project owner in setting up energy plan, the operation should be exempt from GST.
  3. The government may continue exemptions for all categories of goods or services supplied/provided to a renewable energy project for setting up a new unit or operation and maintenance.
  4. HSN Code wise exemption should provide HSN to eliminate ambiguity among the community.
  5. Supply of goods and services to renewable energy company should tax at 0%, so that supplier providing services to solar company avail input tax credit on their purchase.
  6. It is recommended SGST should be uniform across all states.
  7. We believe that the supply of ancillary products such as a battery or transformers to a company engaged in the generation of renewable energy should be taxed at a normal rate.
  8. The solar developer should be eligible to claim a refund of GST paid (CGST & SGCST) on goods and services.

Conclusion:

As we know that GST is expected to be implemented from 1st July 2017, at the same time there has been no information from MNRE about who will bear the increased cost of production due to GST in the case of a government project. For the time being, it has forced small solar developers not to participating in ongoing bidding process and tenders due to the huge uncertainty with the law. There are growing uncertainties around the GST implementation timeframe. A lack of clarification has forced small solar developers to opt out of participating in ongoing bidding processes and tenders. The Ministry of New and Renewable Energy (MNRE), SECI and other renewable development organizations of the government may increase the output price.  Also, the government has not made clear whether the existing project should remain in negative list or if we have to wait, as nothing has been declared by the government.

We should know that the tax on electricity is levied under Entry 53 and under this entry of the Constitution of India has been exempted/ excluded from levy under Entry 54. It may be assumed that for clarifying the impact of GST on solar, it has assumed that the same dispensation would continue under GST model law.

GST – Difference between Composite Supply and Mixed Supply

In this blog we will discuss two different concepts: first is composite supply and second is mixed supply. Many people confuse the two with each other; however, they are very distinct in nature.

What is Composite Supply vs. Mixed Supply?

First let’s try to decode their meaning through the definitions given under section 2 of CGST Act, 2017.The Act provided the following definitions:

“Composite Supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.’

As we can interpret from the definition here, the following conditions are to be satisfied in order to determine if any supply is a composite supply:

  • Supply must be affected by a registered taxpayer,
  • Supply should consist of two or more goods or services or more,
  • Such goods or services must be taxable in nature,
  • This combined package is a natural bundle, i.e. they are supplied together in the natural course of business.
  • One of such goods or services is principal in nature i.e. it’s the main product, and the other accompanying ones are ancillary in nature.

One typical example of composite supply is when any supplier sells his goods, and sends it to the supplier, then such goods are packed and transported with insurance. Here the goods, packing material, transport, and insurance together form a composite supply. And the goods are the principal supply here.

Now let’s discuss what mixed supply actually is.

‘“Mixed Supply” means two or more individual supplies of goods or services, the person for, or any combination thereof, made in conjunction with each other by a person for a single price where such supply does not constitute a composite supply.’

After analyzing the definition of mixed supply, we can interpret that following conditions are required to be satisfied in order to determine if any supply is a mixed supply:

  • Supply must be affected by a registered taxpayer.
  • Supply should consist of two or more goods or services or more.
  • Such goods or services forming part of the combination are individual in nature, which basically means that they are not dependent on each other and can be supplied individually.
  • A single price is charged for all these individual supplies.
  • These supplies do not constitute a composite supply.

Let us try and understand the concept of mixed supply with the help of an example;

If a package is supplied containing dry fruits, chocolates, and flavored artificial mineral water, a single price is charged for this whole package, then such a package will form a mixed supply as each item on the list can be supplied separately, and are not dependent on each other.

Tax Rate Determination

As we understood the meaning of composite supply and mixed supply, the next important topic to be covered is how the tax rates will be determined in such cases. Section 8 of CGST Act, 2017 explains how to determine the tax liability on composite and mixed supplies.

In the case of composite supply

As we have already discussed, such supply comprises two or more supplies, one of which is the principal supply and the others are ancillary. Here, the tax rate applicable on such principal supply will be the applicable rate and the tax will be charged on the value of whole composite bundle.

In the previously discussed example, goods were accompanied with packing materials, transportation, and insurance. But the tax rate of such goods, which is the principal supply, will be considered.

In case of mixed supply

When two or more individual supplies are sold together as a package, then such a supply is called mixed supply. These goods or services are dependent in nature and can be sold individually. Here the tax rate of that particular supply which attracts the highest rate of tax will be considered.

Let’s try to understand it with the previously given example. There was a package supplied containing dry fruits, chocolates, and flavored artificial mineral water. All these elements attract different rate of taxes.

Dry fruits are zero rated.

Chocolates are taxed a@ 28%, and,

Flavored artificial mineral water is taxed a@ 18%, as chocolates attract the highest rates, this rate will be applicable on the whole package.