Hello everyone!! Welcome back to the TAX DESTINATION blog.Thanks for your continuous support & tremendous response to our blogs. Check out the Previous series if you haven’t read the same where we have given questions that can be asked in HR Round & Technical Round for Audit Role, Accounts & Finance Role
In this series, we would like to give questions that can be asked in the Accounts & Finance Role
Questions that can be asked in Indirect TAX Profile
01. Are you aware of the recent notifications and
circulars in GST?
The 46th GST Council meeting was
held on 31st December 2021 in New Delhi. Union FM Nirmala Sitharaman led meeting has decided to defer the GST rate
hike to 12% for textiles.
Following are the changes with effect from 1st January 2022-
(1)ITC claims will be allowed only if it
appears in GSTR-2B as per Section 16(2)(aa).
So, the taxpayers can no longer claim 5% provisional ITC under the CGST
Rule 36(4) and ensure every ITC value claimed was reflected in GSTR-2B.
(2) The officer can issue the notice under
Section 74 to multiple persons for tax short paid or excess ITC claims by fraud. Now, it is
amended that the officer can confiscate and seize goods or vehicles even after
concluding proceedings against all persons liable to pay specific or general
penalties.
(3) The
taxpayers cannot file GSTR-1 if the previous period’s GSTR-3B was not filed.
(4) The GST
officers can initiate recovery proceedings without any show-cause notice
against taxpayers who under-report sales in GSTR-3B compared to GSTR-1, under
Section 75(12).
(5) All the
e-commerce aggregators into food delivery services or cloud kitchens under
Section 9(5) will be liable to pay tax on services provided through them.
However, restaurants with accommodation with a tariff per unit of more than
Rs.7,500 per day are kept out of the scope.
(6)The scope
of passenger transport motor vehicles is expanded to include service rendered
through omnibus and any other motor vehicle, but not just radio taxi or cab
under Section 9(5).
(7)Following
facilities will henceforth require taxpayers’ Aadhaar authentication-
(i)To apply
for a refund under the CGST Rules 89 (Excess tax, interest, penalty, fees paid)
and 96 (IGST paid on goods or services exported out of India) in RFD-01.
(ii)To apply
for revocation of cancelled GST registration under the CGST Rule 23 in REG-21.
02. What is ITC Blocked
Credit?
Blocked credit under GST [Section 17(5)] means, the supply of goods and services on which the availment of credit has been restricted(not completely prohibited as exceptions are there) by the relevant provisions of law.
ITC shall not be available in the following cases:
Motor Vehicles for transportation of person having approved seating capacity of not more than 13 persons(including the driver of the vehicle) & Other Conveyances(Vessel and Aircraft).
Except, if
used for
- Further
Supply - Transport
of passengers and /or goods - Training services for driving, flying, navigating
such vehicles or conveyance.
Foods
& beverages, outdoor catering, beauty treatment, health insurance, cosmetic
& plastic surgery.
Except, if, the category of inward and outward supply is the same or the
component is related to the mixed or composite supply under GST
Membership of a club, health and fitness Centre.
Rent a Cab, Life Insurance, Health Insurance.
Except,
- where it is made obligatory by Government.
- It is used for making outward taxable supply of the same category of services or an element of mixed or composite supply.
Travel Benefits to Employees
Except,
- travel for business purposes
- where it is obligatory for an employer to provide the same to its employees under any law for the time being in force
Works Contract Service when supplied for construction of an immovable property(not plant & machinery)
Except,when used as an input service for
further supply of Works Contracts;
Goods & Services received for construction of an immovable
property (not plant & machinery) on his own account including when such
goods/services are used in Business. (Construction includes re-construction,
renovation, additions or alteration or repairs to the extent of capitalization, to the said immovable property)
Supply under Composition Scheme(Section 10) .
Supplies used for personal consumption
Input Tax Credit cannot be availed on the goods and services received by a non-resident taxable person. It is to be noted that ITC can be availed by him if such goods are imported by him.
Goods lost/stolen/destroyed/written off or disposed off by way of gift/sample.
Any tax paid after issuance of SCN (Show Cause Notice) with respect to such SCN, detention or confiscation.
03.What do you understand by RCM? Does it apply only to services?
process of payment of GST by the receiver instead of the supplier. In this
case, the liability of tax payment is transferred to the recipient/receiver
instead of the supplier.RCM applies to goods as well as services.
goods and/or services is Central GST (CGST) and that by the States is State
GST (SGST). On supply of goods and services outside the state, Integrated GST
(IGST) will be collected by the Centre. IGST is applicable on imports as well.
against CGST or IGST. The credit of CGST cannot be used against SGST. A dealer
can use input tax credit of SGST against SGST or IGST. The credit of SGST
cannot be used against CGST. IGST
must be first utilized against Output IGST. However, the balance (if any) can
be adjusted against Output CGST and Output SGST in any order.
06. What is the threshold limit for GST registration?
GST registration is mandatory for every
person who is engaged in the exclusive supply
of goods and his aggregate turnover exceeds Rs
40 lakh in a financial year. (Earlier, the limit was
20 lakhs for a supplier of goods.)
The GST registration
limit for service providers in India is Rs. 20 lakhs. They will have to get registered under GST if
the aggregate value of services in a financial year exceeds 20 lakhs.
The registration limit
will be Rs 10 lakhs if the person is carrying out business in the Special Category States. (As per Article
279A(4)(g) of the Constitution, there are 11 Special Category States, namely,
States of Arunachal Pradesh, Assam, Jammu and Kashmir1, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
However, as
per the explanation (iii) to section 22, for the purposes of registration
under GST, only Mizoram, Tripura,
Manipur and Nagaland are the Special Category States.)
07. COMPULSORY REGISTRATION (IRRESPECTIVE OF TURNOVER)
- Persons making any inter-State taxable supply [Section 24]
- Casual taxable persons making taxable supply [Section 24]
- Persons who are required to pay tax under reverse charge [Section 24]
- Person who are required to pay tax under sub-section (5) of section 9; (inter state supply though e-Commerce supplier)
- Non-resident taxable persons making taxable supply. [Section 24]
- Persons who are required to deduct tax under section 51, whether or not separately registered under this Act. [Section 24]
- Persons who make taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise. [Section 24]
- Input Service Distributor, whether or not separately registered under this Act. [Section 24]
- Persons who supply goods or services or both, other than supplies specified under sub-section (5) of section 9, through such electronic commerce operator who is required to collect tax at source under section 52. [Section 24]
- Every electronic commerce operator. [Section 24]
- Every person supplying online information and data base access or retrieval services from a place outside India to a person in India, other than a registered person. [Section 24]
- Such other person or class of persons as may be notified by the Government on the recommendations of the Council. [Section 24]
- Every person who is registered under an earlier law (i.e., Excise, VAT, Service Tax etc.) needs to register under GST, too [Section 22(2)]
- When a business which is registered has been transferred to someone/demerged, the transferee shall take registration with effect from the date of transfer [Section 22(3)].
08. How will GST affect Income Tax and Corporate Tax?
Since All businesses whether manufacturers, distributors or retailers will have to register on the GST network.Hence All the transactions of a company and thereby the revenues and profits would be captured by the GST system. Once captured in the GST system, tax officials can make an educated guess about income and evasion over the past years.
To conclude , we can say that GST will not only impact the indirect tax collection but also the income tax collections as this is one tool where the tax officials will have a data to calculate incomes of people, against the income taxes paid by them.
There are basically two types of fraud committed by businessmen — first is unilateral, where under invoicing or over invoicing is done only by one of the two people transacting. And then there is bilateral. It is believed that unilateral frauds would drop drastically under GST framework.
09.Can a taxable person avail a composition scheme
available in GST? Explain through the composition scheme available in GST if
everyone can avail the same?
One can opt for the Composition Levy under GST if one is a regular taxpayer with an aggregate annual domestic PAN-based turnover as specified from time to time.
Any manufacturer or trader having a turnover of less than Rs 1.5 crore in a financial year can opt for the composition scheme. This limit will be applicable to restaurants (not serving alcohol). However, the threshold limit is Rs 75 lakh for North-eastern states and Himachal Pradesh
However, one cannot opt for the Composition Levy if engaged in :
- Any supply of goods that are not liable to be taxed under this Act
- Inter-state outward supplies of goods
- Supplies through electronic commerce operators who are required to collect tax under section 52.
- A manufacturer of notified goods
- A casual dealer
- A Non-Resident Foreign Taxpayer
- A person registered as Input Service Distributor (ISD)
- A person registered as TDS Deductor/Tax Collector
10. What are the products on which GST is not
leviable?
1)Alcohol for human consumption:
Alcohol for human consumption has been kept outside the purview of GST
in India at present. However, the taxes imposed to alcohol for human
consumption will continue as per the structure before GST implementation.
2) Petroleum products:
Petroleum Products such as petroleum crude, motor
spirit (petrol), high speed diesel, natural gas and aviation turbine fuel etc.
are also kept outside the purview of GST in India. However, the taxes for these
products will be charged as per the structure before the introduction of GST.
3) Electricity:
The electricity has been kept outside the
purview of GST at present. However, the taxes applicable at present for
electricity will continue as before.
11. Give reasons as to why Time and Place of Supply
are important in the context of GST?
- Time of supply is a relevant measure under
the GST law for every transaction entered into by the supplier of goods and
services. It means the point in time when goods have been deemed to be supplied
or services have been deemed to be provided for determining when the taxpayer
is liable to pay taxes. - In other words, Time of supply means the
point in time when goods/services are considered supplied’. When the seller
knows the ‘time’, it helps him identify due date for payment of taxes. - Place
of supply is required for determining the right tax to be charged on the
invoice, whether IGST or CGST/SGST will apply. - The term ‘Place of Supply’ plays an indispensable
role in the GST Law. To know the nature of Supply i.e whether the supply is
inter-state supply or intra-state supply, one should know the place of supply . - If the supply is intra-state supply, tax shall be paid as CGST+SGST and if the
Supply is inter-state supply, tax shall be paid as IGST. If the tax is paid
under wrong head, means tax was to be paid as IGST but due to wrong
determination the same (tax) had been paid in account of CGST and SGST, then
there is no such provision in the GST to adjust such mistake with one another
suo moto. The only remedy available with the person is to pay the tax in
correct account and get a refund the tax which had been paid in wrong account.
Therefore it is utmost necessary for the person to determine the correct nature
of supply and pay the tax accordingly in correct head.
Place of Supply is determined on the basis of:
1. Location of the Supplier
2. Location of the Place of Supply
12. How do frauds make use of GST? Is there any
mechanism employed by the government to conceal the same?
Major Areas Where GST Frauds take place
- Input
tax credit and Invoices - Refunds
Input
tax credit and Invoices:
A large number of GST fraud cases have taken place using
fake invoices . These invoices are used for wrongly availing Input Tax Credit
(ITC).This ITC is further used to pay GST on outward supplies, and/or for
claiming refunds. Sometimes this works as a tool for inflating the turnover of the
supplier.
Invoice
system misused under the GST Regime:
a) Issuing invoices without actually supplying the
goods/services. Here, the payment of tax is made with Input Tax Credit which is
not available to the issuer of invoice. The issuer of the invoice would merely
issue a fake invoice and show the payment of tax with the non-existent input
tax credit
b)Creating shell companies is another form of fraud under
GST. The fraudster would route multiple invoices through dummy entities and
transfer the input tax credit from one company to another in a circular fashion
to increase the turnover.
c) Taking credits of inward supplies on which credit is not
allowed is often seen.
d) Under-billing for outward supplies is also one of the widely
used fraud techniques under GST.
Refunds
In GST, the unutilised amount
available in the electronic credit ledger and cash ledger (on the GST portal)
after payment of taxes and other payments can be claimed as a refund in
accordance with the provision of section 54 of the CGST Act, 2017. The
techniques used to deceive here are:
- Issuing
fake invoices for zero-rated supply of services (export of services): With these fake invoices,
the taxpayers claim a refund of the unutilised GST on the export of
services, without actually making such supplies. Under other laws, this
becomes an act of money laundering, - Accepting/taking
fake/fictitious inward supply bills to inflate the claim of ITC refunds.
13. Department Initiatives To Control Frauds
Under GST
The
Government has issued Standard Operating Procedures and
mandated the
implementation of E-invoicing for
the identification and mitigation of fake
invoice frauds under GST. The GST
department has initiated the levy of
penalties. In the Standard Operating
Procedure, the GST department has given
the following 3 methods:
01. Identification: Here,
the department attempts to trace.
- Taxpayers
using sensitive commodities. Shared email address, common mobile numbers,
common business/postal address, commonly authorised signatories, common
promoters for multiple GSTIN, etc.
- The mismatch between the premises declared and the volume of goods transacted.
- Sudden
increase/decrease in the outward/inward supplies.
- Mismatch
in the information declared in the GST and Income Tax Returns.
02) Investigation:
Once the officer has a reason to believe that there is a
potential risk of tax evasion, he has the power to:
- Survey
the premises of such person, - Issue
notice to call for the records and information, - Conduct
search at any or all his premises, - Interrogate
him to seek further clarification and information.
03) Action after detection:
- Proceedings
under section 74 of the CGST Act, 2017 will be initiated against such
registered persons. - He
would be subject to the penalty provisions (under the GST act). - An
offence database module is created on the GSTN. The GSTIN of the entity will be
flagged for ‘fake invoice’ or any other fraud. This will enable automatic
identification of taxpayers who have defrauded with fake invoices. - Furthermore, the GSTN
is working on providing automatic alerts on the GST Application/Portal for
further verification by the respective officers.
14. What are the various invoices under GST?
Tax Invoice
Under GST, any registered person supplying goods or services is
required to issue Tax invoices to its buyer. This document or invoice that is
issued by the supplier to the buyer is known as “Invoice” or “Tax Invoice”.
For small dealers, if the amount of invoice is less than
Rs 200, then no invoice is to be issued.
Bill
of Supply
A person who has opted
for a composition scheme or who is supplying exempted goods or services or both
is required to issue bill of supply. The recipient cannot claim the input tax
credit on the basis of Bill of Supply.
If a registered person is supplying goods or services of less than
Rs.200, it is optional to issue bill of supply.
Receipt Voucher
When registered person receives any advance from the buyer, he
needs to issue receipt voucher evidencing receipt of such payment.
Refund
Voucher
If the receipt voucher has been issued to the buyer but no
supply has been made against it, then the registered person is required to
issue the Refund Voucher.
Payment voucher
When a person who is registered under GST, receives any supplies of goods or
services from the unregistered person, he needs to issue payment voucher to the
supplier at the time of making the payment under reverse charge.
Also a payment voucher is been issued on those transactions on which reverse
charge is applicable.
Credit Note
Credit note should be issued by a seller to the buyer in case of goods returned
or reduction in value of goods/supplies or both or in case of discount claims.
The details of credit note should be declared in the tax return to reduce tax
liability. The time limit to issue credit note is by September following
the end of the financial year or the date of filing annual return whichever is
earlier.
Debit Note
If seller finds that he charged less than the actual value
of goods or services or both in the invoice, he can issue debit note to the
buyer. Seller is required to declare the value of debit note in the GST return
of the month during such debit note has been issued.
15. Advantages of GST?
- One tax; One nation: GST
was launched as a unified tax system removing a bundle of indirect taxes like
VAT, CST, Service tax, CAD, SAD, Excise etc. - Removes cascading
effect: GST or Goods & Services tax
removes cascading effect of taxes i.e. removes tax on tax Let’s understand the
cascading tax effect, i.e., the “tax on tax” effect in the pre and post GST era
with an example. - Pre-GST era:
Suppose a hotel owner charges a sum of Rs. 60,000 for a 5-day stay at his
hotel. He will have to pay a service tax at a rate of 15%, which will be 9,000
(60,000 x 15%). At the same time, he sold some toiletries for Rs. 25,000. He
will have to pay a VAT of Rs. 1250 (25,000 x 5%). The total sum paid by him
will be Rs. 9000 and Rs. 1250 i.e. Rs. 10,250 in the Pre-GST era. - Post-GST era:
Since the GST levied on services at the rate of 18%, the new tax amount will be
Rs. 10800 (60000×18). The tax levied on the toiletries will be deducted, i.e.,
(10800 – 1250). So the net taxed amount will be Rs. 8,550.
- Simplified Process: The
entire process of GST (from registration to filing returns) is made online, and
it is super simple. This has been beneficial for start-ups especially, as they
do not have to run from pillar to post to get different registrations such as
VAT, excise, and service tax. - Composition
scheme for small businesses: Under
GST, small businesses (with a turnover of Rs 20 to 75 lakh) can benefit as it
gives an option to lower taxes by utilizing
the Composition scheme. This move has brought down the tax and compliance
burden on many small businesses.
Disadvantages of GST?
- Enhance burden of compliance and increased the cost of
operation. - GST has given rise to complexity for many business owners
across the nation . - GST has received crirticism for being called a Disability
Tax as it now taxes articles such as braille paper, wheelchairs, hearing aids
etc. - The GST transaction fees within the financial sector have
become more expensive from 15% to 18% - GST is being referred to as a single taxation system but in reality it is a
dual tax because both the state and centre both will collect separate tax on a
single transaction of sale and service.
Content Writer
CA. Swathi Agarwal
TAX DESTINATION
