GST VIA GST VIA CA ANIL KAGATHARA CA ANIL KAGATHARA F.C.A., - - PowerPoint PPT Presentation

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 Pricing Element Normal Method Composition 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 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

• n 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 Type of GST Liability Credit available Set off of Liability Balance to be paid in Cash Balance credit available IGST 1000 2000 1000-from IGST CGST 1000 600 1000-from IGST 600 SGST/UTG ST 1000 600 600-from SGST 400

Case 2: set-off of unutilized IGST credit partly towards CGST and SGST Type of GST Liability Credit available Set off of Liability Balance to be paid in Cash Balance credit available IGST 1000 2000 1000-from IGST CGST 1000 600 500-from IGST, 500-from CGST 100 SGST/UT GST 1000 600 500-from IGST, 500-from SGST 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.

Receipt of Services/ goods by HO Allocation of Cost to Units & Raise Invoices Unit -1 Unit -2 Unit -3

UTILISATI ON OF INPUT CREDIT RECIVED

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, Chemicals (Sales Rs. 20000*18%=3600) Purchase of traded goods (Purchase Rs 17000*18%=3060) Manufacturing of Prawns (Zinga) (Sales Rs. 80000- Exempt in GST) Purchase of raw material – Rs 50,000 Exempt in GST Total Sales= 1,00,000 Expense of services 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, Chemicals (Sales Rs. 20000*18%=3600) Purchase of traded goods (Purchase Rs 17000*18%=3060) Manufacturing of Prawns (Zinga) (Sales Rs. 80000- Exempt in GST) Purchase of raw material – Rs 50,000 Exempt in GST Total Sales= 1,00,000 Expense of services 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
• f 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 registration Interest on GST liability 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

Product 1 Product 2 Input GST@5% Input GST@12% Input GST@5% Input GST@12% Output @5% Output @18% Make one entity for both product and save GST Payment. Save compliance cost Place 1 Place 2 Manufacturing Same product

• r different

Product Manufacturing Same Product

• r different

Product Add Place 2 as additional place

• f

business in GST certificate and save GST Payment. Save compliance cost

GST TDS

Following persons are liable to deduct TDS:

• A department or an establishment of the central government or state

government

• Local authority
• Governmental agencies
• Public sector undertakings
• Such persons or category of persons as may be notified.
• TDS is to be deducted at the rate of 2% on payments made to the

supplier of taxable goods and/or services, where the total value of such supply, under an individual contract, exceeds rs. 2.50 lacs.

TRANSFORMATION OF ECONOMY BY GST

Reduced Cost with GST.

Before GST, there are multiple taxes and cascading effect No tax differentiation between states

Explore new geographical market

Removing check post and toll plazas

Reduction in

• verhead cost

like transportation, warehousing

Difficult to cater international market in earlier taxation system General Rate of 12% or 18% for Manufacturing and Traders could reduce product cost. Reduce product price to remain in competition Indian Orgs. Established in international Market Higher compliance cost Reduced cost in registration, return filing, C transactions, liasioning cost

Growth in GDP after GST implementation

SOURCE: IMF PUBLISHED IN ECONOMIC TIMES.

GST Implementation year Country Annual Increase in GDP(%) 1986 New Zealand 2.44 1991 Canada 0.88 1994 Singapore 7.02 2000 Australia 2.58

BUSINESS RESTRUCTURING

• Online platforms deal in large volumes so fixed/variable cost
• reduced. To compete with concentrate on fixed/variable cost

reduction.

• Do networking internally between SMEs to reduce cost and use

synergies amongst themselves.

• Job work contract between SMEs or from MNCs. Like entity should

take contract from MNCs to reach upto break even point

• Quality improvement with USP (unique selling proposition) e.g.

Change traditional practice of doing business.

• Use of technology like cloud based technology for billing system,

receivables management, payable management, IRIS peridot application for GST

• Budget management system for raw material cost, marketing cost,

contract labour cost

• Financial cost management e.g. Interest charged by bankers,

processing charges.

• Inventory management to cope up over stocking or shortages.

• Make process driven culture rather than person driven culture like

monthly GST checklist, salary payment by one cheque, star rated vendor payment

• Delegation of authority & power- think whether can you delegate this

work ? then why are you doing ?

• Build your business by building your people e.g. Building performing

team

• Setting up of KPI

• Analysis of cost parameters like raw material, labour cost, fuel cost,

freight cost, marketing cost etc. It should be analyzed at least on quarterly basis.

• Take decisions for growth rather than only stability.

DISCLAIMER Views expressed in the presentation are personal in nature. The taxpayer needs to understand risk associated with tax planning on case to case basis and he is required to take professional advice considering its situation.

AKMK & ASSOCIATES AKMK & ASSOCIATES PARTNER - CA ANIL KAGATARA PARTNER - CA ANIL KAGATARA 94088 52588; ca.anilkagathara@gmail.Com

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