Basics: GST Laws and Rules Part -1

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Basics GST Laws and Rules Part -1

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The Goods and Services Tax (GST) has been
enforced throughout India as of 1 July 2017. Any
taxpayer or business entity registered under the
current tax administration must register under
GST. The GST tax regime has replaced all other
taxes. Since the inception of GST laws and rules,
most indirect taxes, central excise duty,
entertainment tax, service tax, purchase tax,
central sales tax, and lottery tax are
non-operational. As a massive relief to
taxpayers, the GST council has doubled the
threshold limit to 40 lakhs. The government has
also doubled the threshold limit for northeastern
states to 20 lakhs wherein, the limit for hilly
regions in the northeast is 10 lakhs. Indirect
taxes have been merged into tax packages under
the GST system. These relaxations in tax
calculation have removed the tedious return
filing procedures.
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GST has made it easier to manage the financial
operations of a business. The Goods and Services
Tax is no longer an odd concept it has been
successfully functioning in 160 countries across
the globe. According to Indias financial
experts, the GST system is likely to boost the
GDP to around 1-2 and reduce input costs by 10.
Essential customs duties, petroleum, alcohol, and
property tax are still kept away from the purview
of GST. Without registering under GST, one can
neither collect GST from his clients nor claim
ITC for the bills that he/she pays. This article
is part of our basic GST guide Part-1 briefly
explains GST rules basic laws and regulations,
Compensation Scheme, Valuation of Supply,
Transition Rules, and Input Tax Credit.
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Fundamental Factors Influencing the Applicability
of GST

• The Goods and Services Tax in India is applicable
  based on various criteria, that includes
• GST is applicable for individuals or businesses
  involved in the interstate supply of services and
  goods.
• GST rates apply to supplies worth more than or
  equal to rupees 20 lakhs in a FY (Financial
  year).
• Businesses or individuals who operate online or
  deal with e-commerce operations must adhere to
  GST taxation policies.

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• It is also applicable to the services provided
  under a brand.
• Casual and non-taxable individuals are also
  subjected to GST rates.
• GST applies to the deduction and collection of
  taxes (TDS/TCS).
• GST also applies to input service distributors.
• It applies to the supply of online information
  and database access from Indias location to a
  person in India, other than a registered person.
• A person supplying goods on behalf of another
  taxable person is subject to GST.

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GST Laws and Rules Composition Scheme

• The GST systems introduction has gradually
  increased the number of registered businesses and
  taxpayers in the country. The Goods and Services
  Act has also introduced an alternative tax
  registration composition scheme that favors small
  businesses in India. The composition scheme
  entails some significant changes when compared to
  schemes that existed under the previous VAT
  regime. The scheme applies to businesses with an
  aggregated turnover of 1.5 crores or less (a
  lower limit applies to businesses that operate in
  northeastern states).

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GST Composition Scheme Rules

• The provisions of GST law allow small businesses
  in manufacturing sectors, service sectors
  restaurants and merchants, register under the
  composition scheme. However, the scheme does not
  apply to the following taxpayers or businesses.
• A non-resident person subject to tax or a
  potential taxable person.
• Businesses and individuals who supply goods
  through an e-commerce portal operator collect
  taxes from sources (under section 52).
• Businesses and individuals involved in the
  interstate supply of goods.

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• Manufacturers of edible ice cream and ice cream
  with or without cocoa additives.
• Manufacturers of pan masala, tobacco substitutes,
  and tobacco products.
• Businesses and individuals who have purchased
  products from a non-registered supplier
  (permitted if GST is paid for these products on
  a reverse charge basis).
• Suppliers involved in the supply of goods exempt
  under the Goods and Services Tax Law.

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• The list mentioned above is only indicative it
  is subject to change. Note that, according to the
  current GST rules and regulations, the
  composition scheme does not allow businesses and
  individuals to participate in Interstate
  supplies. However, they can obtain goods or
  services from suppliers who are authorized to
  carry out interstate supplies under the GST law.
• Businesses or individuals registered under this
  scheme can purchase goods or services from other
  states, but they are restricted from selling
  their goods or services to other states. No
  business other than restaurants were allowed to
  register under the composition scheme. The
  government changed this rule in January 2019 and
  announced that businesses in the service sector
  could also register under this scheme.

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GST Laws and Rules Value of Supply

• The value of the supply in general terms, is the
  tax amount paid to the supplier as consideration
  of the supply. The valuation rules define the
  value of goods or services or, at times, both
  that are taxable under the GST law. These rules
  are established under the GST regime to determine
  the fair market value for the registered
  taxpayers goods and services.

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Valuation Rules under GST

• Here is a list of valuation rules that determine
  the value of goods and services supplied under
  section 15(4).
• Rule 27 The value of the supply of goods or
  services when the consideration is not entirely
  monetary.
• Rule 28 Value of the supply of goods or
  services, or both, when consideration is between
  distinct individuals or related entities (apart
  from those linked through agents).
• Rule 29 The value of supply of goods carried out
  through an agent.
• Rule 30 The value of the supply of goods or
  services, or both, on a cost basis.
• Rule 31 The residual method for determining the
  value of the supply of goods or services, or
  both.

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• The value of supply is the amount taxed and
  collected. For proper tax collection, it must be
  determined what is and is not a part of the value
  of supply. The previous tax regime resulted in
  instances in which there were many disputes over
  the value of sales that would be collected.

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GST Laws and Rules Transition to GST

• Transition to GST from the previous tax regime
  might give rise to several questions. According
  to the GST law, a taxpayer can claim ITC for the
  amount of tax paid while purchasing goods. The
  tax credit from the previous tax system can be
  converted as ITC collected in GST during the
  transition to the GST system. Taxpayers can claim
  ITC under GST only if all goods and services are
  mentioned in the returns filed that are eligible
  for credits under the Goods and Services Law.
• To transfer input tax credit to the GST system,
  taxpayers must log in to the GST portal and
  submit an electronic form TRAN-1 or TRAN-2 as
  applicable, stating the amount of tax or duties
  they wish to claim as a credit. The application
  forms submitted must entail the following
  information

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• The suppliers name, serial number, and date
  invoice was issued by the supplier or any
  document based on which the tax credit was
  acceptable under the current law.
• The description, value of goods or services, and
  quality.
• The amount of taxes and duties payable, or, where
  applicable, the value-added tax or entry tax
  imposed by the supplier in connection with the
  goods or services.
• The date the goods or services are received and
  recorded in the recipients books of accounts.
• The tax department will process the application
  submitted. Once approved, the credit amount
  allowed will be added to the applicants e-ledger
  under the GST PMT-2 form on the public portal.
  Transferring the credit to Goods and Services Tax
  (GST) is similar to previously registered
  businesses under excise duty, value-added tax, or
  service tax.

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GST Laws and Rules Input Tax Credit

• Goods and Services Tax in India is one of the
  most extensive reforms in history. However, one
  thing that has become a center of attraction is
  the mechanism of Input Tax credit (ITC).  In
  simpler words, ITC is the means to reduce the tax
  to be paid on sales by availing credits on tax
  that a business or individual has already paid on
  purchases. It implies the reduction of input tax
  paid from taxes to be paid on output tax.
• When any services or goods are provided to a
  taxable person, the tax collected goods and
  services are known as input tax. In India,
  taxpayers are well aware of ITC as it already
  existed under the excise taxation system before
  GST. However, the implementation of GST has
  widened the scope of ITC. Previously, taxpayers
  could not claim ITC on central sales tax, luxury
  tax, entry tax, and other taxes. Moreover,
  service providers and manufacturers were not
  allowed to claim central excise duty either.

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• Before the implementation of the GST regime,
  there was an interdependency of VAT against
  excise/service tax. Under GST, these taxes are
  included in a single tax calculation system
  there are no restrictions that offset claiming
  the input tax credit. Post-implementation of GST,
  claiming ITC is one of the crucial accounting
  activities for all businesses and taxpayers.
• ITC does not apply to all input goods and
  services each state or province might have
  different GST rules and regulations. It is also
  applicable to the merchant who purchased an asset
  for resale. Input Tax Credit is the backbone of
  GST and taxpayers in a significant concern. ITC
  has always been in line with the pre-GST system,
  and thus, these rules are strict in their
  approach.

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Conclusion

• The relaxations on new GST rules provided by the
  government were implemented earlier this year.
  Documents concerning GST rules were shared by the
  GST Council and CBIC authorities. These documents
  address the events that are subjected to tax
  under the new GST laws and regulations. GST rules
  2020 aim to simplify the pre-process of
  transition, ITC claim, the value of supply, GST
  return filing, and more!
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  reconciliations and file GST returns as per the
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