CHARTERED ACCOUNTANTS
What is GST?
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GST, or Goods and Services Tax, is a unified tax system that applies to the sale of almost all goods and services across India. It replaces several other taxes like VAT, service tax, and excise duty, making the tax process simpler and more efficient.
Under GST, taxes are collected at every step of the supply chain, from production to the final sale to consumers, but it is ultimately the consumer who bears the cost. This tax system ensures a consistent tax rate across the country, eliminates the confusion of multiple taxes, and prevents the cascading effect where a tax is levied on top of another tax.
In essence, GST makes it easier for businesses to operate across India and helps create a more straightforward and transparent tax system for everyone.
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Who are Liable to Register Under GST?
Businesses and individuals engaged in the supply of goods or services in India must register for GST if they meet certain criteria. Here are the key points for liability to register for GST:
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Turnover Threshold:
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Businesses with an annual turnover exceeding ₹40 lakhs (₹20 lakhs for special category states) for goods.
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Service providers with an annual turnover exceeding ₹20 lakhs (₹10 lakhs for special category states).
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Interstate Supply:
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Any business involved in the supply of goods or services across state lines, regardless of turnover.
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E-commerce Operators:
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Persons who supply goods or services through e-commerce platforms.
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Casual Taxable Persons:
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Those who occasionally supply goods or services in a taxable territory where they do not have a fixed place of business.
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Non-Resident Taxable Persons:
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Individuals or businesses from outside India supplying goods or services within the country.
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Agents of Suppliers:
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Any person acting as an agent or intermediary for suppliers.
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Input Service Distributors:
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Offices that distribute tax credits to other branches.
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Reverse Charge Mechanism:
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Businesses liable to pay tax under the reverse charge mechanism.
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E-commerce Aggregators:
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Platforms that facilitate the supply of goods or services.
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Voluntary Registration:
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Any business or individual can voluntarily register for GST even if they do not meet the mandatory criteria.
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These criteria ensure that all businesses contributing significantly to the economy or engaged in interstate and e-commerce activities are brought under the GST framework.
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What is ITC (Input Tax Credit)?
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ITC means that a business can deduct the GST paid on the purchase of goods or services (inputs) from the GST payable on the sale of goods or services (outputs). This system helps to avoid the cascading effect of taxes, where tax is paid on tax, ultimately reducing the overall tax burden on the final consumer. ITC allows businesses to reduce their tax liability on output by claiming credit for the tax they have already paid on inputs.
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How does ITC work?
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Purchase of Inputs: When a business buys goods or services, it pays GST on these purchases. This tax paid is referred to as input tax.
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Sale of Outputs: When the business sells goods or services, it charges GST to its customers.
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Claiming ITC: The business can then reduce the GST liability on its sales by the amount of GST paid on its purchases. This means the business only pays the net GST amount, which is the difference between the GST collected on sales and the GST paid on purchases.​
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What are the benefits and condition for taking ITC credit?
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Conditions for Claiming ITC:
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Registered under GST: The business must be registered under GST.
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Taxable Supplies: The inputs must be used to make taxable supplies.
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Documentation: The business must possess a valid tax invoice or debit note.
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Supplier Compliance: The supplier should have deposited the GST to the government and filed the relevant GST returns.
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Benefits of ITC:
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Reduces Effective Tax Rate: By allowing the deduction of input tax, the effective tax burden on the business is reduced.
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Encourages Compliance: Ensures that all parties in the supply chain comply with GST regulations.
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Promotes Transparency: Accurate and transparent record-keeping is necessary for claiming ITC, which enhances the overall transparency of the tax system.
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