GST

GST on combined travel packages The new idea of businesses comes with more challenges, more complexity and opportunity. As per Heading 9985 of GST Tariff Act, 2017, the rate of GST would be 5% (2.5% CGST+2.5% SGST) provided following conditions are met, Input tax credit on services availed by the entity will not be available. However, Input Tax Credit on the services taken from other Tour Operator is allowed. The entity shall indicate in its invoice that the amount charged is gross amount and inclusive of charges of accommodation and transportation. Therefore, if an entity offers a package to a customer for let’s say Rs. 1,05,000/- inclusive of everything, then the invoice shall be generated for Rs. 1,05,000/- (Rs. 5,000/- being CGST & SGST) and entity has to specifically mention in invoice that amount includes accommodation and transportation etc. No input tax credit on services like hotels, air tickets etc. will be available to the entity. However, Input Tax Credit may be taken on the tour operator services procured from another tour operator. On the other hand, the entity may charge GST at the rate of 18% (9% CGST+9% SGST) on the total amount. In that case, the entity will be eligible to take all input tax credit like rent, professional fee, lease line, telephone etc. on the services that the entity acquired for providing the underlined services i.e. Tour Operating. However, most of the input tax credit will not be available to the entity due to the nature and place of supply of those services which are taken by the entity. The main expenditure that entity will occur would be of Boarding & Lodging and Hotel booking. In case of Hotel booking, the place of supply would be the location where the hotel is situated and thus the hotel will charge CGST & SGST on the invoice. If the entity is not registered under GST in the state where the hotel is situated, the entity cannot take the input tax credit on that particular invoice. Same goes with flight tickets. The place of supply in case of air fare would be the place from where the flight embarks and in case the entity does not have registration under GST in the state from where such flight take-off, the entity cannot take input tax credit of that invoice too. Let’s understand the situation with an example. Suppose a customer from Delhi approaches Tour Operator which is situated and registered in Bangalore for a complete package of 5D /6N tour to Kerala. The entity quotes Rs. 1,00,000 (Excluding GST) for the tour. The breakup of the charges is as follows, Air fare (Economy class) from Delhi to Kochi and return 47620GST charged by the Airlines@ 5%  2380 50,000 Hotel Charges 26785GST charged by Hotel@ 12%  3215  30,000 Other Charges 8475GST Charged @  18%   1525 10,000 Entity’s Fees 10,000 Total 1,00,000 In this case, entity can opt either to pay 5% GST (IGST) on Rs. 1,00,000/- i.e. Rs. 5,000/- and avail no input tax credit or to pay 18% GST (IGST) and may avail input tax credit. But the entity is not eligible to take input tax credit on Air fare and Hotel charges as the place of supply, in case of Hotel, would be Kerala and in case of Air fare, it would be in Delhi. However, if the entity gets itself registered in Kerala and Delhi, then it is possible for the entity to take input tax credit for these services also but that seems quite unfeasible considering the compliance burden which will be increased for the entity. Further, in this case the entity must raise an invoice indicating specifically that the amount charged is gross amount and inclusive of charges of accommodation and transportation. Though, most of the companies do operate as Tour Operator services, the entity may either provide services as an agent and charge commission on its service and take reimbursement in actual for the expenses that entity incurred for providing such services. Generally, small business entity opts for this model as in this model, the entity must pay tax only on the commission that it charges and not whole amount which is not even its revenue. The entity may also opt to provide the underlined services on commission basis. In that case, the service will be categorized as ‘Intermediary’ and services like Boarding & Lodging etc. will be taken by the entity on behalf of customer. The entity will act as ‘Pure Agent’ and take reimbursement on actual basis from the customer. As per section 2(13) of IGST Act, 2017, “Intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account” And as per the Explanation to Rule 33 of CGST Rules, 2017, “Pure agent” means a person who— enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both; neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply; does not use for his own interest such goods or services so procured; and receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.” In this case, the entity has to enter into an agreement with the customer to act as his pure agent and authorize itself to incur the expenses for services like Hotel, Taxi etc. on behalf of customer. The entity, in this case, will charge its commission (whatever agreed) from the customer and will take reimbursement of the expenses on actual basis which it incurred on behalf of customer. Let’s understand this with

All Transport services by road are exempt from GST except services from Goods Transport Agency (GTA) and Courier agency. Anyone who provides consignment note for goods delivery will be treated as GTA. Mere Bill is not a consignment note. 5% GST rate is applicable for transportation service by GTA on RCM basis means GST is payable by recipient. (NO ITC to transporter) 12% GST rate on forward charge basis (ITC is available to transporter) Services provided by GTA to unregistered person is exempt except if he adopts to pay GST on forward charge basis Services provided by GTA for agriculture product is exempt If consideration charged for single consignment is less than Rs. 1500 then service from GTA is exempt If multiple consignment carried by transporter and consideration for single consignee not exceeds 750 RS. than service from GTA is exempt Applicability Of GST Services by way of transportation of goods by road except the services of (i) a goods transportation agency (ii) a courier agency are exempt from GST – Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017,effective from 1-7-2017. Thus, all transport of goods by road is exempt except in case of GTA and courier services. Meaning of “Goods Transport Agency” “Goods transport agency” means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called. – para 2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017. Courier Agency “Courier agency” means any person engaged in the door-to door transportation of time-sensitive documents, goods or articles utilising the services of a person, either directly or indirectly, to carry or accompany such documents, goods or articles. – para 2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017. Rate Of GST The GST rate in case of service supplied by GTA on transportation of goods (including used household goods for personal use) is 5% (CGST 2.5% and SGST 2.5%) or IGST 5%. ITC of input services or goods is not available to GTA – Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017. Note that the condition of non-availment of ITC is applicable where GTA himself is liable to pay tax and not where the recipient is liable to pay GST under reverse charge. Thus, once the recipient pays GST @ 5% (2.5% plus 2.5%) on reverse charge basis, he can avail its input tax credit. Option to pay GST @ 12% underforward charge: The GTA has option to pay GST @ 12% [6% plus 6%] under forward charge. In that case, the GTA can avail Input Tax Credit. Since the GTA himself will be paying tax, the recipient is not liable to pay GST under reverse charge [amendment w.e.f. 22-8-2017]. GTA who are having their own vehicles and having huge Input Tax Credit on capital goods may find the option useful. This option may also be suitable for freight forwarders who are providing composite services of packing, clearing and transportation from source to destination basis. Reverse charge in respect of GTA services In case of services of Goods Transport Agency (GTA), the service recipient is liable in most of the cases, as per Notification No. 13/2017-CT (Rates) and 10/2017-IT (Rates) both dated 28-6-2017, effective from 1-7-2017, except where the GTA opts to pay tax under forward charge @ 12%. Person paying freight to GTA is liable to pay tax under reverse charge The person who pays or is liable to pay freight for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the person who receives the service for the purpose of this notification. Exemption to service provided by GTA to unregistered person (other than where reverse charge applies): In case of services supplied to unregistered person by GTA (other than where reverse charge applies), the service is exempt w.e.f. 13-10-2017. In case where service is provided by GTA to factory, society, company, partnership firm or registered person, the recipient is liable to pay tax. Where GTA provides services to unregistered person, service is exempt. Thus, after 13-10-2017, the GTA itself is never liable to pay tax, except where the GTA opts to pay tax under forward charge @ 12% [6% plus 6%]. Till 13-10-2017, GTA was liable to pay GST in following cases – (a) When recipient of service is unregistered individual person (b) Transportation of household goods when the freight is paid by unregistered individual person (c) Services supplied to person located outside taxable territory (like transport to Bhutan, Nepal, Bangladesh) where the recipient is paying freight. Mere bill is not consignment note – In Nandganj Sihori Sugar Co. v. CCE (2014) 46 GST 570 , it was held that consignment note issued by GTA represents its liability to – (a) transport consignment handed over to it to destination (b) undertake delivery of same to consignee and (c) temporarily store till delivery. Mere bill issued for transportation of goods cannot be treated as a Consignment Note. Service provided by person who does not issue consignment note is not taxable If driver of goods carriage is self-employed either by taking vehicle on rent from other or as owner of one or two vehicles, he does not issue any consignment note. He has direct contract with consignor/consignee. He himself receives freight from consignor/consignee. He would not be liable to GST. Only GTA which issues a consignment note is liable to GST tax. Exemptions in respect of goods transport of specified goods Services provided by a goods transport agency, by way of transport in a goods carriage of following are exempt from GST – (a) Agricultural produce (b) Goods, where consideration charged for the transportation of goods on a consignment transported in a single carriage does not exceed Rs. 1,500 (c) Goods, where consideration charged for transportation of all such goods for a single consignee does not exceed rupees seven hundred and fifty (d) Milk, salt and food grain including flour, pulses and rice (e) Organic manure

Introduction of GST in India On July 1, 2017 President Late Pranab Mukherjee and current Prime Minister Narendra Modi rolled out the GST in a special midnight session which both houses of parliament attended. This reform is expected to unify the $2 trillion economy under one tax umbrella. The objective of incorporating the GST is to remove the current imperfections prevalent in indirect taxes and improve tax compliance; this will mitigate the effects of costly taxes cascading onto the end consumers. Its implementation is also expected to trigger growth in business and economy in India. While the GST is anticipated by many as to be the driving force in catapulting India’s economy through “one nation one tax”, it has encountered many roadblocks as well.  One of the opposition largest concerns is the potential negative impact the GST will have on the lower- and middle-class populations due to lack of knowledge and understanding. What is GST and how it works? GST is a comprehensive, multi-stage, destination-based tax that will be levied on every value addition. These elements can be broken down into their separate components to simplify what this tax reform accomplishes. Multi-Stage The “multi-stage” element of the GST refers to the stages in the supply chain. This is the process of when raw materials are transformed into manufactured product, warehoused, moved to the retailer, and subsequently sold to customers.  Value Addition “Value addition” refers to the increased value that a product gains at each stage of the product life cycle. For example, if a manufacturer intends to produce a pair of cotton pants, first they need to buy the raw material. When the raw material is processed into a pair of pants, it receives a higher value. When the pants are sent to the warehouse, a label is attached to it thereby increasing its value further. Subsequently, the value further increases when the pants are finally sent to the retailer and money is spent on marketing the pants. Destination-Based A “destination-based” tax moves away from the old tax practice in India where an excise duty would be levied on manufacturing and a subsequent VAT (Value-Added Tax) to be levied on the other stages of the product lifecycle. The reform imposes the GST at each point of sale. For example, let’s say a product is manufactured in State A, but the final sales takes place in State B. State A would receive the revenue for manufacturing and once the product is sold, State B receives the tax revenue for the sale. One of the GST’s key impacts is its capacity to eliminate the effect of cascading taxes on consumers. The cascading tax is applied to a product at each stage of the product lifecycle. In turn, each seller in the supply chain will attempt to recover their losses due to the tax levied on them by the previous seller, building up at each successive stage until the final cost burden is shouldered upon the consumer. The GST resolves this by allowing the individual parties of the supply chain claim credit for the taxes they are paying, effectively lowering the end cost for consumers. The GST is composed of three different goods and services taxes. CGST: Revenue is collected by the central government SGST: Revenue is collected by state governments concerning intra-state sales IGST: Revenue is collected by the central government concerning inter-state sales A couple of notable items with special exemptions and/or delays under the GST are petroleum products and alcohol. Petroleum products – such as crude, diesel, motor spirit, and natural gas – are still not subject to taxation under the GST as government approval is pending. Alcohol is also currently not taxed under the GST. GST Rates While initially GST was planned to be implemented as a single rate tax, eventually the government introduced four tax slabs so that daily necessities and luxury items could be levied at different rates. Current GST rates applicable to commodities and services are- 5%, 12%, 18%, and 28%. Impact of GST on Small and Medium Businesses No. POSITIVE IMPACT NEGATIVE IMPACT & CHALLENGES 1. Ease of starting businessWith a centralized registration, GST has eased the process of starting a business and consequent expansion. With GST easing the process of starting a business, we can see a spike in SME loans in India from an alternate class of lenders such as NBFCs. Technological DifficultiesNot all SMEs are technologically skilful to handle the online GST mechanism. They are not aware of the practical details of GST filing online. 2. Low Tax Burden and Ease in Filing ProcessPrior GST, SMEs had to deal with multiple taxation systems prevailing in the country. With GST wiping out all the cascading taxes, it has reduced the tax burden on over 60% of small dealers and traders.The GST Council hiked the threshold turnover for the composition scheme from Rs. 75 lakh to Rs. 1 crore. The scheme allows SMEs to pay 1-5% tax without going through the tedious formalities. Blockage of Working CapitalWhile in the previous indirect tax regime, exporters enjoyed upfront exemption of tax on exported goods, this is not available in the current regime. Tax refund delay has blocked funds affecting competitiveness. Blockage of working capital can create liquidity crunch for SMEs. To overcome this, they need to apply for business loans to ensure their running costs aren’t impacted. 3. Improved LogisticsUnder GST, there will be no entry tax on goods sold in any part of India. This will expedite movement of goods across the nation, thereby improving logistics. According to CRISIL, this will reduce logistics costs by approximately 20%. Multiple registrations for PAN-India businessesUnder the new regime, a business will have to register online for GST in every state involved in its sales process. If your business delivers goods across 5 states, then you’ll have to register for GST in those 5 states to carry out your business activities. Since the entire registration process takes place online, small business owners who are not used to working online might not find the transition easy.