GST – VIA GST – VIA CA ANIL KAGATHARA CA ANIL KAGATHARA F.C.A., LLB, B.COM. F.C.A., LLB, B.COM. PARTNER - AKMK & ASSOCIATES PARTNER - AKMK & ASSOCIATES BUSINESS GROWTH, PLANNING & BUSINESS GROWTH, PLANNING & RESTRUCTURING UNDER GST RESTRUCTURING UNDER GST
COMPOSITION SCHEME
• Turnover should be less than 1.5 crores. For special category states, limit is 75 lakh. • Interstate outward supply prohibited. Inter-state purchase is allowed. Benefits: ü 1%/5%/6% ü Lesser compliance like quarterly return filing, not required to file GSTR 1 on monthly basis. ü It is advisable for dealer who is selling goods to retail customers like provision store, cloth show-room etc.
NORMAL METHOD AND COMPOSITION METHOD 10% addition on Purchase Composition Pricing Element Normal Method Method Purchase 1000 1000 GST @18% (A) 180 180 Total (B) 1180 1180 Net sell price 1100 GST @18% (C) 198 Sell price (D) 1298 1298 GST Payment in Cash (E)=(C)- (A) 18 12.98 Net Profit =(D)-(B)-(E) 100 105.02
NORMAL METHOD AND COMPOSITION METHOD 7% addition on Purchase Pricing Element Normal Method Composition Method Purchase 1000 1000 GST @18% (A) 180 180 Total (B) 1180 1180 Net sell price 1070 GST @18% (C) 193 0 Sell price (D) 1263 1263 GST Payment in Cash (E)=(C)-(A) 13 13 Net Profit =(D)-(B)-(E) 70 70
NORMAL METHOD AND COMPOSITION METHOD 5% addition on Purchase Pricing Element Normal Method Composition Method Purchase 1000 1000 GST @18% (A) 180 180 Total (B) 1180 1180 Net sell price 1050 GST @18% (C) 189 Sell price (D) 1239 1239 GST Payment in Cash (E)=(C)-(A) 9 12 Net Profit =(D)-(B)-(E) 50 47
DRAWBACKS • Input tax credit is not available on the purchases from composition dealer. • Taxes are inclusive in the prices. • Landed cost of material is higher than procurement from the registered dealer. • Procurement planning should be in such a way that there should be minimal purchases composition dealer.
VALUE ADDITION FROM INPUT CREDIT INPUT GST CREDIT GENERALLY MISSED BY INDUSTRIES.
1. Bank charges and loan processing charges 2. Lc commission/discounting charges. 3. Export charges & its documentation charges 4. Insurance premium on stock, machinery 5. Company incorporation charges. GST number should be taken on very initial stage.
6. GST paid under reverse charge 7. Membership fees of various institutes like association, export council, union, chamber of commerce etc. 8. Internet services expenses 9. Missing bill of entries for imports 10. Vehicle used for transportation of goods and it`s vehicle expenses
11. Software expenses like anti virus software, renewal expenses 12. Stores & consumables used. 13. Exhibition expenses 14. Clearing & forwarding agent expenses 15. Travelling expenses
16. Repairs & maintenance expenses like computer, electrical repairing etc. 17. GST effect of sales returns 18. Invoices which are not passed/approved/booked through finance department. 19. GST credits shown in GSTR 2A but not booked in accounts
GST PAYMENT OPTIMIZATION THROUGH SET OFF
• Inter-state purchases attracts IGST while intra-state attracts SGST & CGST • IGST credit can be utilized to set off tax liabilities from IGST, CGST and SGST • Cost - benefit analysis is to be required for decision making about inter-state v/s intrastate procurement.
Case 1: set-off of unutilized IGST credit completely towards CGST Balance to Balance Type of Credit Set off of be paid in credit GST Liability available Liability Cash available 1000-from IGST 1000 2000 IGST 0 0 1000-from CGST 1000 600 IGST 0 600 SGST/UTG 600-from ST 1000 600 SGST 400 0
Case 2: set-off of unutilized IGST credit partly towards CGST and SGST Balance to Balance Type of Credit Set off of be paid in credit GST Liability available Liability Cash available 1000-from IGST 1000 2000 IGST 0 0 500-from IGST, CGST 1000 600 500-from CGST 0 100 SGST/UT 500-from IGST, GST 1000 600 500-from SGST 0 100
CROSS CHARGE – TAX PLANNING
• Organization structure – HO located in one state and other units located in different states. Activities carried out by HO – financial, marketing, human • resources, it department etc. • HO is incurring expenses on receipt of goods & services like renting expense, travelling expense, IT related expenses, professional services, equipment related expenses. Input credit will be accumulated. •
Unit -1 Receipt of Allocation of UTILISATI Services/ Cost to Units ON OF Unit -2 INPUT goods by & Raise CREDIT HO Invoices RECIVED Unit -3
GST ON EXEMPT GOODS & SERVICES
Client is dealing in Aqua products. (Not maintaining separate records for use in exempt product and taxable product) Outward Supply Inward Supply Trading of Medicines, Feeds, Purchase of traded goods Chemicals (Purchase Rs 17000*18%=3060) (Sales Rs. 20000*18%=3600) Manufacturing of Prawns (Zinga) Purchase of raw material – Rs 50,000 Exempt in GST (Sales Rs. 80000- Exempt in GST) Expense of services Total Sales= 1,00,000 10000*18%=1800 Credit reversal =80000*4860/100000 =3888
Client is dealing in aqua products. (Maintaining separate records for use in exempt product and taxable product) Outward Supply Inward Supply Trading of Medicines, Feeds, Purchase of traded goods Chemicals (Purchase Rs 17000*18%=3060) (Sales Rs. 20000*18%=3600) Manufacturing of Prawns (Zinga) Purchase of raw material – Rs 50,000 Exempt in GST (Sales Rs. 80000- Exempt in GST) Expense of services Total Sales= 1,00,000 10000*18%=1800 Credit reversal =80000*1800/100000 =1440
• GST credit analysis is required for optimization on liability • Maintain separate record for exempt and taxable goods • Two entities could be created for dealing in exempt and taxable goods respectively. • Other cost is to be considered like compliance cost of two entities etc.
OPTIMIZE- INPUT SERVICE DISTRIBUTOR CONCEPT
• ISD can distribute GST credit of input services only, not of goods • Generally, the head office/corporate office could be ISD. However, there is no implication by law that an ISD must be the head office. • Recipients of credit being persons having the same PAN as that of the ISD • Credit of IGST should be distributed as IGST irrespective of the location of the ISD. • If ISD and recipient located in different states, aggregate of CGST, SGST & UTGST to be distributed as IGST.
• If ISD and recipient located in same states, CGST & SGST to be distributed as CGST & SGST respectively. • GST credit to be distributed on pro-rata basis (based on turnover) • ISD can only receive input tax credits on invoices related to input services attributable to other locations. • Care should be taken to ensure that an inter-branch supply of services should not be misinterpreted as a distribution by ISD.
Example -1 • A company has branch which is a registered in Gujarat conducts conference in a hotel in Maharashtra where CGST- SGST is charged by the hotel. Input tax credit would not be available to branch-a as tax paid • in Maharashtra is not a creditable tax in Gujarat Company may decide to obtain ISD registration in the state of • Maharashtra and transfer the same amounts as IGST from Maharashtra to Gujarat
Example -2 • A company has corporate office in Mumbai. Software license and maintenance services are used at three locations say Chennai, Kolkata, Ahmedabad. • Invoice having CGST & SGST has been received at corporate office. Since the software has been used by all, credit can be distributed to all 3 locations by Mumbai as an ISD.
ANALYSIS OF FINANCIAL STATEMENTS
Generally, entity is creating various accounts head in balance sheet and profit and loss a/c. 1. Loading expenses booked under transportation/freight a/c 2. “Hamali (labour)” booked under transportation/freight a/c 3. Payment to C. A. Taken under legal charges. 4. Payment of GST late fee under legal charges. 5. Purchase of stamp paper booked under legal charges.
6. Housekeeping expenses accounted under security ledger A/c 7. Salary to watchmen booked under security ledger a/c 8. Salary to director booked under director fees. All the above instances may lead to disputes under re…….. Cha……….. Company accountants should take care in booking of expenses.
We may found following income in computation of income or profit & loss statement like 1. Rent income 2. Agriculture income 3. Job work income 4. Commission income 5. Tuition income 6. Sale of assets
7. Amount received in bank but which is not known to owner (suspense). Later on this is credited in capital account. 8. Other income without any specifications. Consequences Consequences Liability arise to take GST Interest on GST liability registration GST Payment on this incomes Penalty by Department Planning to take income in non GST entity
• Showing of income in 26AS but not in books of accounts. Department will connect during GST scrutiny. • Maintenance of proper stock in books of accounts. • Stability of gross profit ratio • Non payment of GST in cash on long term basis except in case of purchase of machinery. Department may put GST liability on aforesaid income
PRODUCT RATE MIXING
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