GST Concepts

GST India Concepts & FACT Software Implementation

GST Background in India

What exactly is Goods and Services Tax or GST?

The Report of the Task Force on “Goods and Services Tax Thirteenth Finance Commission” referred to the report of the Task Force on "Implementation of the Fiscal Responsibility and Budget Management Act, 2003" as follows:

"Accordingly, the Task Force recommended that a well-designed destination-based value added tax on all goods and services is the most elegant method of eliminating distortions and taxing consumption. Under this structure, all different stages of production and distribution can be interpreted as a mere tax pass-through, and the tax essentially 'sticks' on final consumption within the taxing jurisdiction. Therefore, the Task Force recommended the introduction of a destination based VAT type dual Goods and Services Tax (hereafter referred to as 'GST')."

FACT Commentary on India GST - Challenges & Solutions

The object behind the GST is to have a seamless transfer of goods and services across the country. India will roll out GST on 01 July 2017. The new levy will replace central taxes including Central Excise Duty, Service Tax, Countervailing Duty and state taxes such as Value Added Tax (VAT), Purchase Tax and Entertainment Tax.

GST Rates will be computed on the HSN Code for the stock products and on the SAC Code for the service products. Currently, the following rates will apply: 0%, 0.25%, 3.%, 5%, 12%, 18% and 28%. In addition, a cess will be charge under some conditions on the 28% rate.

IGST (Inter-State GST) will be charged if the supplier is supplying the goods/services outside the state. SGST (State GST) will be charged if the supplier is supplying the goods/services within the state. UTGST (Union Territory GST) will be charged if the supplier is supplying the goods/services within the Union Territory and is applied to Union Territories: Chandigarh, Lakshadweep, Daman and Diu, Dadra and Nagar Haveli, Andaman and Nicobar Islands. The rates of IGST, SGST and UTGST differ in many cases.

IGST and SGST is further split up into CGST (Central Govt’s share) and SGST (State Govt's share) and this breakup has to reported in the GSTR1 Return.

Further, the GST Tax Point is the raising of the Sales Invoice or receipt of advance from customer, whichever comes first. If an advance is received before the Sales Invoice is raised, GST must be computed and paid. When this advance is adjusted against a Sales Invoice raised later, the GST amount is reversed.

In case a purchase is made from an Unregistered Dealer, a concept called Reverse Charge kicks in and the relevant GST must be computed and paid by the customer. The Reverse Charge amount can be claimed back in the next month.

In addition, GST must also be computed and paid on each Stock Transfer.

GST will be administered completely online via a process of Invoice Matching. All businesses will upload the GSTR1 Return online by the 10th of every month to the GSTN Portal. This return must contain each Sales Invoice with: Customer's GSTIN (GST Identification Number), State Code of the place of supply, summary of the HSN/SAC Codes, Rate of GST and various other details. Online filing of this return is mandatory and compliance will be strictly enforced by the GST authorities.

The customers will be able to download the GSTR2A file from the GSTN Portal from the 11th of every month. This will contain all the invoices their suppliers have filed in the GSTR1 return. It will be the customers' responsibility to match the GSTR1 and GSTR2A and liaise with their suppliers if there is a mismatch. Unless their suppliers upload the Sales Invoices properly, the customers will not be able to claim the Input Tax Credit (ITC).

This matching is also expected to be a very cumbersome process.

It is evident that there are many complications in the GST regime and the onus has been placed on the business to compute the GST correctly and report it accurately as well. This makes it imperative for the businesses to be properly geared up and implement GST very tightly in their ERP Software.

  • "From the task force phase through to the complex software updation, we identified the significant time and cost issues to manage the rigour of monthly GST compliance for India businesses, in addition to mandatory accounting requirements.

  • Furthering our philosophy of "One Entry, Only One Time", we believe that we have automated every task possible to mitigate cost increases while ensuring timely and accurate compliance for India GST for our customers.

  • What helped us immensely was our significant experience we acquired while implementing GST in FACT, right from 1994 in Singapore. Since then, we have implemented GST/VAT for UK, Switzerland, Malaysia, Thailand, Nepal, Indonesia and the Philippines.

  • I salute our brilliant team in FACT India for helping India businesses get ready to compete with the world as equals."

- Mr Arvind Agarwalla, Founder & CEO of FACT Group of Companies