Direct and Indirect tax:

In India, there are two types of taxes levied by the government: Direct taxes and indirect taxes.
Indirect taxes are levies imposed on goods and services. VAT, CENVAT and GST are indirect
tax. Whereas direct taxes are levied on the income and profits of individuals and organizations.
Direct taxes are directly paid to the government by the tax payer. Corporation Tax, Income tax
are direct tax, paid on personal income by an individual or a company to the government.

Definition of Indirect Tax:

An indirect tax is a tax collected by one entity in the supply chain (usually a producer or retailer)
and paid to the government, but it is passed on to the consumer as part of the purchase price of a
good or service. The consumer is ultimate payee of the tax by paying more price for the product.
VAT, Import duties, fuel, liquor and cigarette taxes are all considered examples of indirect taxes.

Nature of indirect tax:

Indirect taxes are commonly used and imposed by the government in order to generate revenue.
They are the fees that are levied equally upon taxpayers, no matter their income, so rich or poor,
everyone has to pay them. It is the nature of indirect tax that they have a heavy burden on people
with lower incomes who end up paying the same amount of tax as those who make a higher
income. For example, the import duty on a television from Japan will be the same amount, no
matter the income of the consumer purchasing the television. And because this levy has nothing
to do with a person's income, that means someone who earns $25,000 a year will have to pay the
same duty on the same television as someone who earns $150,000 — clearly, a bigger burden on
the former.

Basis for charging indirect tax: Indirect tax is charged on the bill either it on due basis or cash
basis . The indirect tax liability in cash basis arises when one received the cash and same liability
on due basis arises when the bill remain due and one received the payment for the same bill .

GST Introduction:

GST is a single uniform indirect tax which was introduced to replace Central and State indirect taxes such
as VAT, CENVAT, and others. GST applies on all types of businesses, small or large. This makes it one of
the greatest tax reforms in the country. The entire nation will follow a unified tax structure.
As the name suggests, GST will be applicable on both goods and services and India will follow a dual
system of GST to keep both the Centre and State independent of each other. The GST council will be
headed by the Union Finance Minister and it will consist of various State Finance Ministers. GST will be
devised as a four-tiered tax structure with tax slabs of 5%, 12%, 18%, and 28% for various different
categories of products and services. 0% rate is kept for most essential goods such as rice, wheat.

GST Council – Constitution (Article 279A ):

GST Council is the governing body of GST. It is the apex constitutional body as per section
279A(1) of GST Act 2017. It is chaired by the Union Finance Minister. GST Council is an apex
member committee to modify, reconcile or to procure any law or act or regulation based on the
context of goods and services tax in India. The council is headed by the union finance minister
Arun Jaitley assisted with the finance minister of all the states of India. The GST council is
responsible for any revision or enactment of rule or any rate changes of the goods and services in
India.

Chairperson – Union FM
Vice Chairperson - to be chosen amongst the Ministers of State Government
Members - MOS (Finance) and all Ministers of Finance / Taxation ofeach State
Quorum is 50% of total members
Decision by 75% majority

States - 2/3 weightage and Centre - 1/3 weightage

Section 279A(4) gives power to the Council to make recommendations on everything related to
GST including laws, rules and rates, adjudicate dispute between Central and States Governments
and between two or more State Governments.

GST Network

Slab of GST and GST Tax Structure:

The GST tax structure will bring about a drastic change in the current indirect tax system.The GST tax
structure will comprise of the Central Goods and Services Tax (CGST), State Goods and Services Tax
(SGST) and Integrated Goods and Service Tax (IGST). The four slab tiers of the GST tax structure will be 5
per cent, 12 per cent, 18 per cent and 28 per cent. The lowest rates will be applicable for essential items
and the highest for luxury and demerit goods. Moreover, these include SUVs, luxury cars and tobacco
products.
GST has been structured in a way that essential services and food items are placed in the lower
tax brackets, while luxury services and products have been placed in the higher tax bracket.

The GST council has fitted over 1300 goods and 500 services under four tax slabs of 5%, 12%,
18% and 28% under GST. This is aside the tax on gold that is kept at 3% and rough precious and
semi-precious stones that are placed at a special rate of 0.25% under GST.

A total of 81% of all the goods and services fall below or in the 18% tax slab. This means 7 % of
the items come under the exempted list, 14% of the items attract a 5% tax, 17% of the items
attract a 12% tax, and 43% of the items attract an 18 % tax slab, while only 19% of the items fall
under the highest slab of 28% in the new regime. Below is a list of some of the products that will
be a part of the respective slabs:

Exempted GST Rate Slab (No Tax)

7% goods and services fall under this category. Some of these that are of regular consumption
include fresh fruits and vegetables, milk, butter milk, curd, natural honey, flour, besan, bread, all
kinds of salt, jaggery, hulled cereal grains, fresh meat, fish, chicken, eggs, along with bindi,
sindoor, kajal, bangles, drawing and coloring books, stamps, judicial papers, printed books,
newspapers, jute and handloom, hotels and lodges with tariff below INR 1000 and so on.

5% GST Rate Slab

14% goods and services fall under this category. Some of these include apparel below INR 1000
and footwear below INR 500, packaged food items, cream, skimmed milk powder, branded
paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, cashew nut, cashew
nut in shell, raisin, ice, fish fillet, kerosene, coal, medicine, agarbatti (incense sticks), postage or
revenue stamps, fertilizers, rail and economy class air tickets, small restaurants, and so on.

12% GST Rate Slab

Edibles like frozen meat products, butter, cheese, ghee, dry fruits in packaged form, animal fat,
sausages, fruit juices, namkeen, ketchup & sauces, ayurvedic medicines, all diagnostic kits and
reagents, cellphones, spoons, forks, tooth powder, umbrella, sewing machine, spectacles, indoor
games like playing cards, chess board, carom board, ludo, apparels above INR 1000, non-AC
restaurants, business class air ticket, state-run lottery, work contracts and so on attract a 12%
GST. 17% of goods and services fall under this category.

18% GST Rate SlaB

43% of goods and services fall under this category. Pasta, biscuits, cornflakes, pastries and
cakes, preserved vegetables, jams, soups, ice cream, mayonnaise, mixed condiments and
seasonings, mineral water, footwear costing more than INR 500, camera, speakers, monitors,
printers, electrical transformer, optical fiber, tissues, sanitary napkins, notebooks, steel products,
headgear and its parts, aluminum foil, bamboo furniture, AC restaurants that serve liquor,
restaurants in five-star and luxury hotels, telecom services, IT services, branded garments and
financial services and so on attract an 18% GST.

28% GST Rate Slab

19% of goods and services fall under this category. The rest of edibles like chewing gum, bidi,
molasses, chocolate not containing cocoa, waffles and wafers coated with chocolate, pan masala,
aerated water, personal care items like deodorants, shaving creams, after shave, hair shampoo,
dye, sunscreen, paint, water heater, dishwasher, weighing machine, washing machine, vacuum
cleaner, automobiles, motorcycles, 5-star hotel stays, race club betting, private lottery and movie
tickets above INR 100 etc. have been clubbed together under the 28% GST slab.

Pre GST Tax Structure:

Designed as a uniformed tax for the entire nation, it will replace the following indirect taxes
earlier levied by the Centre and the State:
(i) Taxes levied and collected by the Centre:
a. Central Excise duty
b. Additional Duties of Customs (commonly known as CVD)
c. Special Additional Duty of Customs (SAD)
d. Service Tax
AND
(ii) Taxes levied and collected by the State:
a. State VAT
b. Central Sales Tax
c. Entertainment and Amusement Tax (except when levied by the local bodies)
d. Taxes on lotteries, betting and gambling.
Like other countries such as Canada and Brazil, India will follow the dual form of GST. At the
intra-state level, where goods and services are sold within the state, CGST (Central Goods and
Services Tax) and SGST (State Goods and Services Tax) will be levied. When selling goods and
services into other states (inter-state sales), IGST (Integrated Goods and Services Tax) will be
levied. Importing goods will come under IGST as it will be considered as inter-state supply.
Imported goods will also attract basic customs duty.
Exports and supplies to SEZ, however, will be zero-rated.

Taxable persons under GST

Short answer is a person who carries out any business at any place in India and who is registered
or required to be registered under the GST Act. Amongst others, GST registration is mandatory
for:
  Any business whose turnover in a financial year exceeds Rs 20 lakhs (Rs 10 lakhs
for North Eastern and hill states).

[Note: If your turnover is supply of only exempted goods/services which are exempt under GST,
this clause does not apply.]

 Every person who is registered under an earlier law (i.e., Excise, VAT, Service Tax etc.)
needs to register under GST, too.
 When a business which is registered has been transferred to someone/demerged, the
transferee shall take registration with effect from the date of transfer.
 Anyone who drives inter-state supply of goods
 Casual taxable person (see below)
 Non-Resident taxable person (see below)
 Agents of a supplier
 Those paying tax under the reverse charge mechanism
 Input service distributor (see below)
 E-commerce operator or aggregator
 Person who supplies via e-commerce aggregator
 Person supplying online information and database access or retrieval services from a
place outside India to a person in India, other than a registered taxable person

GSTIN
GSTIN refers to the unique GST identification number that every business will be allotted. Every
taxpayer will be allotted a state-wise, PAN-based 15-digit Goods and Services Taxpayer
Identification Number (GSTIN). Also, note that having PAN is mandatory for register under
GST.
Law regulating GST:
The Goods and Services Tax is based on two Parliamentary Acts – the IGST (Integrated Goods
and Services Tax) Act and the CGST (Central Goods and Services Tax) Act which were passed
in April 2017. These documents contain the very law that has made GST a reality in India. It is
necessary for all businesses to be aware of the GST law and it’s implications.
Unlike earlier when there were multiple taxes such as Central Excise, Service Tax and State
VAT etc., under GST, there is just one tax. GST is categorized into CGST, SGST or IGST
depending on whether the transaction is Intra-State or Inter-State.
Taxable Event:
Taxable event is very important matter in every tax law. Its determination is most crucial for the proper
implementation of any tax law. Taxable event is that on the happening of which the charge is fixed. It is
that event which on its occurrence creates or attracts the liability to tax.

The taxable event in the GST would be supply of goods and/or services. As per Article 366(1A)
of Constitution of India Goods and Services Tax means a tax on supply of goods or services or
both except taxes on supply of alcoholic liquor for human consumption. It is worth noting here
that the word used is supply and not sales, hence consideration is not required for supply.
A taxable event is any event or occurrence that results in a tax liability. All investors or parties
that pay taxes experience taxable events. Two examples of taxable events are if an investor
receives dividends or realizes capital gains.
In other words, taxable event means the point in time when goods have been deemed to be
supplied or services have been deemed to be provided. The determination of taxable event
enables us to determine the rate of tax, value, and due dates for payment of taxes.
Supply of goods and services Definition of 'supply' Under section 2(92) read with section 3
'supply' includes all forms of supply of goods and/or services such as sale, transfer, barter,
exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a
person in the course or furtherance of business.
Place of Supply for Services
It is very important to understand the term ‘place of supply’ for determining the right tax to be
charged on the invoice.

Here is an example:

Location of Service Receiver Place of supply Nature of Supply GST Applicable

Maharashtra Maharashtra Intra-state CGST + SGST
Maharashtra Kerala Inter-state IGST
A. Place of Supply of Goods
Usually, in case of goods, the place of supply is where the goods are delivered.
So, the place of supply of goods is the place where the ownership of goods changes.
What if there is no movement of goods. In this case, the place of supply is the location of goods
at the time of delivery to the recipient.
For example: In case of sales in a supermarket, the place of supply is the supermarket itself.
Place of supply in cases where goods that are assembled and installed will be the location where
the installation is done.
For example, A supplier located in Kolkata supplies machinery to the recipient in Delhi. The
machinery is installed in the factory of the recipient in Kanpur. In this case, the place of supply
of machinery will be Kanpur.
B. Place of supply of services
Generally, the place of supply of services is the location of the service recipient.
In cases where the services are provided to an unregistered dealer and their location is not
available the location of service provider will be the place of provision of service.
Special provisions have been made to determine the place of supply for the following services:
Services related to immovable property
Restaurant services
Admission to events
Transportation of goods and passengers
Telecom services
Banking, Financial and Insurance services.
In case of services related to immovable property, the location of the property is the place of
provision of services.
Example 1:
Mr. Anil from Delhi provides interior designing services to Mr. Ajay(Mumbai). The property is
located in Ooty(Tamil Nadu).
In this case, place of supply will be the location of the immovable property i.e. Ooty, Tamil
Nadu.
Example 2:
A registered taxpayer offers passenger transport services from Bangalore to Hampi. The
passengers do not have GST registration. What will be the place of supply in this case?

The place of supply is the place from where the departure takes place i.e. Bangalore in this case.
Time of supply
Time of supply means the point in time when goods/services are considered supplied’. the
liability to pay CGST / SGST, will arise at the time of supply as determined for goods and
services. There are separate provisions for time of supply for goods and time of supply for
services.
The time of supply of goods shall be the earlier of the following dates –
(a) The date of issuing of invoice (or the last day by which invoice should have been issued)
OR
(b) The date of receipt of payment
-whichever is earlier
If the supplier receives an amount up to Rs. 1000 in excess of the invoice amount, the time of
supply for the extra amount shall be the date of issue of invoice (at the option of the supplier).

For (a) and (b)- The supply shall be assumed to have been made to the extent it is covered by the
invoice or the payment (as the case may be).
For (b)- the date of receipt of payment shall be earlier of-
1. The date on which he entered the payment in his books
OR
2. The date on which the payment is credited to his bank account
Example:
(a) Date of invoice 15th May 2018
(b) Date of receipt of payment 10th July 2018
(c) Date when supplier recorded receipt in books 11th July 2018
Time of supply will be 15th May 2018.
Time of supply under reverse charge
Reverse charge means the liability to pay tax is by the recipient of goods/services instead of the
supplier. In case of reverse charge, the time of supply shall be the earliest of the following
dates—
(a) the date of receipt of goods OR
(b) the date of payment OR
(c) the date immediately after THIRTY days from the date of issue of invoice by the supplier (60
days for services)

If it is not possible to determine the time of supply under (a), (b) or (c), the time of supply shall
be the date of entry in the books of account of the recipient.

For clause (b)- the date of payment shall be earlier of-

(a) The date on which the recipient entered the payment in his books
OR
(b) The date on which the payment is debited from his bank account

Example:
(a) Date of receipt of goods 15th May 2018
(b) Date of payment 15th July 2018
(c) Date of invoice 1st June 2018
(d) Date of entry in books of receiver 18th May 2018
Time of supply of goods 15th May 2018
If for some reason time of supply could not be determined supply under (a), (b) or (c) then it
would be 18th May 2018 i.e., date of entry.
Valuation of supply under GST
Currently, GST will be charged on the ‘transaction value’. Transaction value is the price actually
paid (or payable) for the supply of goods/services between un-related parties (i.e., price is the
sole consideration)

The value of supply under GST shall include:

Any taxes, duties, cess, fees, and charges levied under any act, except GST. GST Compensation
Cess will be excluded if charged separately by the supplier.
Any amount that the supplier is liable to pay which has been incurred by the recipient and is not
included in the price.
The value will include all incidental expenses in relation to sale such as packing, commission
etc.
Subsidies linked to supply, except Government subsidies will be included.
Interest/late fee/penalty for delayed payment of consideration will be included.
Example
Let us consider an example of ABC, a manufacturer, selling tools and valuation of supply under
gsthardware like drills, polishers, spades etc. It sells a power drill to XYZ a wholesaler. The
MRP is Rs. 5,500 but ABC sells it for Rs. 3,000.

Currently, the invoice will look like-

Power Drill 3,000

Add: Excise @ 12.5% 375
Subtotal 3,375
Add: VAT @14.5% (on subtotal) 490
Total 3,865
Value of supply under GST
The value of goods &/or services supplied is the transaction value, i.e. the price paid/payable,
which is Rs 3,000 in the example. Assuming CGST=9% and SGST= 9%

Power Drill 3,000

Add: CGST @9% 270
Add: SGST @9% 270
Total 3,540
Discounts
Discounts will be treated differently under GST.Discounts given before or at the time of supply
will be allowed as a deduction from transaction value. Discounts given after supply will be
allowed only if certain conditions are satisfied.

Please read part II of this article which deals with discounts and impact of GST along with
examples.

Valuation of supply when a transaction is not in INR.

When exports are made the invoice may be raised by the taxpayer in Foreign Currency. The
IGST (if any) charged in the invoice will be converted using RBI Exchange Rate. The exchange
rates are available on the RBI Website.

RBI exchange rates are to be used in case of imports too. When reverse charge is applicable on
imported supplies the invoice amount has to be converted using the RBI Exchange Rate.
Import and export under GST
Import of goods and services will be treated as inter-state supplies. IGST will be levied on the
import of goods and services into the country. Basic Customs Duty (BCD) will be levied on the
import of goods in addition to IGST.
With regard to import of services, the service receiver will be liable to pay tax on the service if
such services are provided by a person residing outside India. This practice is similar to the
current provision of reverse charge, wherein service receiver is required to pay tax and file
return.
GST will follow the Transaction Value based Valuation Principal from the current customs law.
IGST will be computed on the transaction value of the goods.
Tax paid during import will be available as a credit under “Import and Sale” model. Also refund
of Special Additional Duty (SAD) which is available now, after doing specific compliance, no
such restrictions will be part of GST.
The tax revenue in case of SGST will accrue to the State where the imported goods and services
are consumed, as GST is a destination-based tax.
The current customs import tariff that are loaded with multiple exemption notifications, will be
reviewed and possibly withdrawn, or converted into a refund mechanism. This exercise could
change the structure of export-linked duty exemption schemes under the FTP where the duty
exemptions may be relieved from payment of BCD. However, IGST may not be exempted.

CGST, SGST or
To determine whether Central Goods & Services Tax (CGST), State Goods & Services Tax
(SGST) or Integrated Goods & Services Tax (IGST) will be applicable in a taxable transaction, it
is important to first know if the transaction is an Intra State or an Inter-State supply.

 Intra-State supply of goods or services is when the location of the supplier and the
place of supply i.e., location of the buyer are in the same state. In Intra-State transactions,
a seller has to collect both CGST and SGST from the buyer. The CGST gets deposited
with Central Government and SGST gets deposited with State Government.

 Inter-State supply of goods or services is when the location of the supplier and the
place of supply are in different states. Also, in cases of export or import of goods or
services or when the supply of goods or services is made to or by a SEZ unit, the
transaction is assumed to be Inter-State. In an Inter-State transaction, a seller has to
collect IGST from the buyer.

Example: Let’s suppose Rajesh is a dealer in Maharashtra who sold goods to Anand in
Maharashtra worth Rs. 10,000. The GST rate is 18% comprising of CGST rate of 9% and SGST
rate of 9%. In such case, the dealer collects Rs. 1800 of which Rs. 900 will go to the Central
Government and Rs. 900 will go to the Maharashtra Government.

IGST: Under GST, IGST is a tax levied on all Inter-State supplies of goods and/or services and
will be governed by the IGST Act. IGST will be applicable on any supply of goods and/or
services in both cases of import into India and export from India.
Example: Consider that a businessman Rajesh from Maharashtra had sold goods to Anand from
Gujarat worth Rs. 1,00,000. The GST rate is 18% comprised of 18% IGST. In such case, the
dealer has to charge Rs. 18,000 as IGST. This IGST will go to the Centre.

Consideration includes any payment made or to be made, whether in money or any other form,
or any act or forbearance, whether or not voluntary, for the supply of goods or services, by the
person or by any other person.