topic: gst input tax credit(itc) & utilization - proposed … · 2015-06-26 · input tax...
TRANSCRIPT
Topic: GST Input Tax Credit(ITC) &
Utilization - Proposed Guidelines and Recommended Practice
Hiral Raja
Chief Manager – Taxation
Asian Paints Limited
Satish V M
Product Expert, SAP Labs India
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Agenda
Present Input Tax Credit Scheme and its Drawback
Input Tax Credit under GST
Treatment of Additional Tax Proposed on Inter State
Transactions
Open Issues
Maximise Input Tax Credit Availment (under GST)
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Present Input Tax Credit Scheme and its Drawback
Allowed
on input and input services
against manufacture of taxable
goods or provision of taxable
services
on inputs at factory level and in
case of service providers
depending on their registration
status
on input services allowed
subject to a negative list –
gives rise to interpretational
issues
on capital goods allowed 50%
in first year and remaining in
second year
on inputs not used directly in
manufacturing viz. Sales
promotion items,
advertisement materials
with respect to trading of
goods
Disallowed
Distribution of input services
thru ISD model - without
flexibility to distribute the
credits to any units
Does not have mechanism
for refund of accumulated
credits (except in case of
exporters)
Other Challenges
CENVAT CREDIT
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Present Input Tax Credit Scheme and its Drawback
Allowed
Input tax credit allowed
subject to a retention rate
for stock transfers outside
the state (burnout)
Varying rate of retention in
various states
on inputs of exempt sectors
viz. service sector,
agriculture, etc
with respect to trading of
goods
on CST paid on purchases
on Luxury Tax
on Entry Tax
Disallowed
Certain States allow ITC on
all business purchases and
certain states allow ITC
only on purchases in
relation to manufacturing of
goods or reselling of goods
Varying list of negative list
across the states
Other Challenges
VALUE ADDED TAX (VAT), CENTRAL SALES TAX (CST) & OTHERS
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Cascading effect of taxes/increased cost of doing business:
Inability to avail credit of all taxes paid on sourcing/business expenditures
Accumulation of credits leading to blockage of funds
o Comprehensive Credit Mechanism under GST
o Smooth pass-through of all credits to pass incidence of
tax to the consumer without any cascading effect
Present Input Tax Credit Scheme and its Drawback
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Input tax credit under GST
CGST:
Central Excise Duty
• Additional Excise Duties
• Excise Duty levied under the Medicinal
and Toiletries Preparation Act
• Service Tax
• Additional Customs Duty - (CVD)
• Special Additional Duty of Customs - 4%
(SAD)
• Surcharges and Cesses
SGST:
VAT / Sales tax
Entertainment tax (unless it is levied by
the local bodies).
Purchase tax
Luxury tax
Taxes on lottery, betting and gambling
Octroi and Entry Tax
State Cesses and Surcharges in so far as
they relate to supply of goods and
services
Centre would levy IGST which would be CGST plus SGST on all inter-State
transactions of supply of taxable goods and services
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Input tax credit under GST
Transaction Intra State Inter State
Purchase of
Goods CGST+SGST IGST
Receipt of
Services CGST+SGST IGST
Imports IGST
Separate accounts for each state need to be maintained for CGST,
SGST and IGST credits received
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Input tax credit under GST
Credit of Can be utilized against
Liability of
CGST CGST and IGST
SGST SGST and IGST
IGST IGST,CGST and SGST
Cross utilization between SGST of one state and SGST of another state not
allowed
Credit of taxes paid on petroleum products not available (since it is not a part
of GST)
Refund/adjustment in case of exports, purchase of capital goods, inverted duty
structure on output tax to be completed in timely manner
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Input tax credit under GST
Illustrative list of Input tax credits currently not available (that might be
available under GST):
Credit on inter state purchases/supply of goods
Burnouts on stock transfers and negative list of goods under each state
Service tax credit on freight from the place of removal to the customer and
other service tax credits currently not available
Excise credits for all business purchase expenses viz. Sales promotion
items, gifts, etc
Luxury tax paid in Hotels
Service tax credits on trading of goods
CVD and SAD on imported goods procured for trading of goods/sales
promotion
Tax credits on purchase of hardware and software
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Treatment of additional tax proposed on inter-state
transactions
States allowed to collect additional tax (not exceeding 1%) on supply of goods in
course of inter state trade
No clarity on availability of input tax credit as well as mechanism for this
additional tax
Hon’ble Finance Minister in Lok Sabha has assured that 1% additional tax
levied in the course of interstate supply of goods shall have no cascading effect
Additional tax will have to be captured separately at each state level
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Open issues
Will ISD Mechanism Continue?
What is the future of LTU Facility ?
Whether any burnouts/negative list would be there under GST ?
Would Input Tax Credit be available on :
All business purchases – Free Samples, Gifts, Sales promotion,etc
Damages/Shortages, etc
In cases wherein sale price is lower than the purchase price
What are the transitional provisions from pre-GST to GST regime?
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Maximise Input Tax Credit Availment (under GST)
Identify the tax cost (with respect to taxes that are supposed to merged into GST)
in the profit and loss account and start capturing the same so as to enable the
business to understand the impact of GST
Identify the existing contracts/PO’s wherein contracts will have to be renegotiated
on account of availability of the input tax credit to the vendor as well as the
Company and include clauses for facilitation of renegotiating on implementation of
GST
Review the current operations/distribution models and evaluate the need for any
changes in the operation/distribution models on account of :
Availability of full credit under GST system; and
Impact of additional tax payable on the supply of goods in course of inter state trade
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Input Tax Credit Utilization - Solution Approach
• Each GSTN registration to be created as a Business
Place
• Each Tax Component (CGST, SGST etc.) to be
configured as Transaction Key
• GL accounts can configured for each GST Registration &
Tax Component i.e. Business Place & Transaction
Key
Configuration Approach Goals
Tax Credit can be accumulated
at each registration by tax
component
• New Transaction to perform utilization
• Comparison of tax credits available vs. payables by GL
Account aggregation
Utilization Transaction
To enable control &
transparency in utilization
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Thank you
Contact information:
Hiral Raja
Asian Paints Limited
+91 – 22 - 39818336