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GST

The automobile industry in India is one of the largest automotive markets in the world. The industry contributes around 7 % of the country’s Gross Domestic Product (GDP). In past, the Government of India has taken various measures and initiatives to promote and to ensure the growth potential in this sector. It is one of the main drivers of ‘Make in India’ initiative. 

Currently, there are host of indirect taxes applicable on the products and various allied services rendered by this industry. Like, Excise on manufacturing on cars and spare parts, VAT on Sale and service Tax on rendering associated services like servicing and repair work. GST, a comprehensive indirect tax on goods and services, is all set to subsume host of indirect taxes, it becomes extremely important for businesses in this sector to understand the impact of GST on various operations and process. 

The impact of GST on the Indian automobile market is going to be manifold. Let us have close look at impact of GST on Automobile Sector.

Impact of Input Tax credit :

Under Current Indirect tax regime, on sale of vehicles, spares and accessories, the following duties and taxes are applicable: 

• Central Excise Duty and Additional Excise Duty 
• Infrastructure Cess : On sale of Vehicle 
• CVD and Additional Import Duty : Import of spares and accessories
• VAT/CST : VAT on intra State sales and CST on Interstate sales

Today, a dealer is not allowed to claim input tax credit of all the duties and taxes listed above except VAT. Also, for a manufacturer, CST and other State levies like entry tax, paid on procuring the raw materials is not allowed as input tax credit. Thus, the business are forced to add this as a product cost and this in turn leads to cascading effect and increase in the product price. 

GST allows seamless availability of input tax credit across supply chain- Right from Manufacturer till it reaches final consumer and across the State borders. This eliminates the cascading effect of taxes in the supply chain and as a result, the product will be cost effective. This reduction of product cost will lead to reduced price, increased demand and therefore, contribute to the growth of the business in this sector. 

Bottom line Impact :

Under Current regime, taxes paid by an automobile manufacturer or dealer on business overhead like advertising services, business promotion etc. are not allowed as Input tax credit. Under GST, with the introduction of business concept “Used or intended to be used in the course or furtherance of business” the business can claim input tax credit on business overheads. This will help the business in reducing the cost of operation and increasing the profitability. 
Impact of working Capital 

Supply being a taxable event in GST, the vehicle transfers between the branches will be taxable. This implies, on the date of vehicle transfer, GST needs to be paid. Through the business are fully eligible for tax credit, for a period between vehicle transfer and the sale date, the funds will be locked. 

In this sector, it is very common to receive the vehicle booking advance. Today, dealer is not required to pay tax on the date of receipt of advance. However, in GST, on the date of receipt of advance, dealer is required to pay GST. The taxability of advance will have a dent on their cash outflow.

Impact on Valuation :

Today, on sale of vehicle, a dealer charges for various ancillary services which are bundled with the vehicle like additional accessories, registration, extended warranty, insurance etc. Under GST, the concept of bundling of two or more goods or service or a combination is referred as mixed supply and Composite supply. In determining the rate of tax applicable on mixed supply and composite supply, different principles are applied. Therefore, it becomes, very important for dealers offering bundle of services or goods along will vehicle to understand the implications of mixed supply and composite supply. And accordingly take suitable measure such that benefit is passed on the customer. 

Secondly, a manufacture provides discounts to dealer based on the targets, Year-End sale, and special occasion discounts etc. Generally, these are post supply discounts and under GST, these discounts will be allowed as deduction from transaction value only if discounts can be linked to specific invoice(s). Hence, the business need to re-look the discount policy to avoid paying taxes.

GST is expected to be implemented in July, 2017. Businesses needs to understand the implication of GST on various business operations like procurement, pricing, sales strategy etc. and ensure that the suitable measures are in place, which is crucial for smooth transition to GST.

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The Goods and Services Tax (GST) is beyond doubt the most revolutionary tax-related reform to be seen in India in several decades, since it will eliminate the conflicting and cascading taxation structures which have confounded several industries over the past few decades. It will most certainly have a profound effect on India’s economic prospects.  

A single indirect tax which covers all goods and services will, in the long run, increase tax collection by making it easier for retailers and several other businesses to comply and also moderate overall taxation levels.

Impact on Residential Real Estate:

Under-construction real estate is covered under GST through works contract and classified as a service. The GST tax rate for under-construction real estate has been set at 12%. Also, it has been clarified that input tax credit will be available for developers to take advantage of and pass on the benefit to the buyers under the anti-profiteering clause of GST.

Impact on developers:

Tax is now 12% with full input tax credit available to developers on construction materials. The final bill is likely to be the same or marginally higher, varying across states as clarity on abatement rules has still not been provided. Some change in terms of changing market dynamics has already brought about a change in developers’ workings. 

Impact on Rental Housing:

Other doubts pertain to the rental housing market, which would naturally be impacted if the Government were to tax residential leases under GST. The common apprehension is that if this were to happen, the rental housing segment may see a huge slump over the medium-term, since residential leases are currently not taxed at all.

Rental yields in major cities are already at around 2-4% on average. Being already low, we would expect rents to hold or maybe decline due to an increase in housing stock. Most investors in the residential sector do not invest for rental yields but rather for the capital value appreciation, so even a drop in yields would not independently impact sentiment. ST is not applicable on rental housing.

Impact on Commercial Real Estate:

Under-construction real estate for sale purposes will attract GST at 12%. This likely to be tax-neutral to slightly negative depending upon states’ prevalent service tax and VAT rules.  For commercial leases, the GST does not talk expressly about this service and hence it is covered under 18% tax rate with full input tax credit and this should turn out to be neutral for this sector. 

Impact on Affordable Housing:

Affordable housing is currently exempt from service tax. It is likely that the government may come out with a clarification regarding the applicability or continuing exemption under the GST.

Impact on Affordable Housing:

Affordable housing is currently exempt from service tax. It is likely that the government may come out with a clarification regarding the applicability or continuing exemption under the GST.

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The Rate of Good and Service Tax (GST) on Gold is 18%. Schedule of GST on Gold in India have been provided as category list. The Rates of GST on Gold (Ornaments and Jewellery) in India was approved by the GST Council last week. You should understand that, these rates on GST on Gold will be changed every year based on the feedback from the suppliers and the representatives of the State Governments of India. Gold is one of the most awaited good on the GST list that many traders across the country are waiting for since long time. Any change in GST Gold Rates will have direct impact on the trading markets.

GST on Gold (Rates and Other Details):

  1. The Rate of GST on Gold has not yet been finalized
  2. The expected rate is 12%
  3. GST on Gold Jewellery will have two side effect
  4. Current Excise Duty on Gold is 1%
  5. Current VAT on Gold is 1.25%

GST on Gold:

Uder GST, Gold ornaments would be subject to 18% tax, which the jeweller can adjust with input credit. This 18% tax has to be borne by the end customers. Therefore, the final prize of the Jewellery increases.

If the customer returns the jewellery to the seller, the 18% tax paid at the time of purchase can not be regained. In other words, the value of the jewellery will reduce by 18% GST paid at the time of purchase.

The tax structure under GST on Gold has not been decided yet. The government is working out the structure to relieve the pressure on the Gold bullion industry due to increased tax burden post GST implementation.

While the tax rates applicable to gold and other precious metals will go up under the new GST regime, experts believe that the bill’s actual impact on these sectors would be minimal. That’s because the bill is expected to usher in a new tax era where a lot of hidden taxes will be removed.

“Currently, there are separate laws governing separate tax levies such as central excise, service tax, VAT, CST. The GST proposes to end this. It will introduce a single law and subsume the other taxes a lot of which are hidden.”

Gold Jewellery industry has been suffering from constant changes and uncertainty in tax policy. It is a wide-spread feeling among the jewellery fraternity that the Indian Government needs to work towards a more uniform and consistent taxation policy under the Goods & Service Tax (GST) regime for the Industry.

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Goods & Services Tax (GST) will replace over 10 central and state taxes, so obviously it comes with new concepts that will need understanding: Central Goods & Services Tax (CGST), State Goods & Services Tax (SGST) and Integrated Goods & Services Tax (IGST) are three of them. Let’s find out what they are:

Central GST:

Central GST is the component of GST that will be levied by the central government on all items, both goods and services. It only applies to intra-state trade. A dealer can use input tax credit of CGST against CGST or IGST.

State GST:

State GST is the component of GST that will be levied by the state government on all items, both goods and services. It only applies to intra-state trade. A dealer can use input tax credit of SGST against SGST or IGST.

Integrated GST:

Integrated GST is the component of GST that will be levied by the central government in case of inter-state trade. It is applicable on all items, both goods and services. A dealer can use input tax credit of IGST against SGST, CGST or IGST.

What is the Exemption Limit?

GST is applicable to all dealers with a turnover of over Rs. 20 lakh (Rs. 10 lakh in North Eastern states) in case they are involved exclusively in intra-state trade (i.e. their supplies and sales are within a single state). In case of any inter-state activity, GST is applicable regardless of turnover.

Composition Scheme:

The GST Composition Scheme is applicable only on traders operating in a single state with a supply turnover of less than Rs. 50 lakh. Supply turnover includes any freebies, discounts and even goods and services not liable to be taxed.

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The government is preparing for a July-1 launch for GST, which will change the concept of levy of indirect taxes. With a little more than two months to go, it is important businesses understand this levy and start identifying whether and how it applies to them.

If you are a business, it is nearly certain you deposit some tax other than income tax. It could be in the form of service tax, excise duty, VAT or some version of custom duty. These taxes are called indirect taxes. Nearly all of these taxes will now be replaced with GST.

Does GST apply to you?

GST, being an indirect tax, is applicable to businesses, professionals, freelancers and service providers. It does not apply to salaried individuals.

Do you have to register?

You MUST register if any one of the following applies to you:

  1. If your annual turnover (sales) exceeds ₹20 lakh (₹10 lakh if you are in the Northeastern states).
  2. You make inter-state sales i.e. you are based in one state and sell goods to a receiver in another state. For example, you are based in Mumbai and you sell to Delhi then it is considered an interstate sale.
  3. You sell online. You can sell through your website or through an operator like Flipkart or Amazon.
  4. You sell goods on behalf of another taxable person (i.e. you are an agent).
  5. You deal in goods/services on which reverse charge applies—where the buyer has to deposit tax instead of the seller.

For points 2-5, your annual sales are irrelevant. GST will apply to you even if your sales are less than ₹20 lakh (₹10 lakh for NE states) per year.

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A uniform nationwide goods and services tax (GST), India’s most ambitious reform initiative that aims to stitch together a common market by dismantling fiscal barriers between states, is staring at fresh hurdles with no signs of an early end to the logjam in Parliament.

The government had targeted to rollout the new tax structure from April 1, 2016, an unlikely possibility given the current impasse in Parliament. The system can be rolled out only when Parliament passes the Constitution Amendment Bill, which can be passed only if at least two-thirds of the members vote in its favour. In addition, at least half of the state Assemblies will also have to pass the Bill.

The delay in the passage of the Constitution Amendment Bill implies that India’s indirect tax system will continue to remain mired in multi-layered taxes levied by the Centre and state governments at different stages of the supply chain such as excise duty, octroi, central sales tax (CST), value-added tax (VAT) and octroi tax, among others.

Under GST, the Centre and states will tax goods and services at identical rates. For instance, if 20% is the agreed rate on a certain good, the Centre and states will collect 10% each, called the CGST and SGST rates. The delay will likely cause other consequences as well, since states would not be able to decide on the tax rates until the Bill is passed.

The government has commissioned Delhi-based think-tank National Institute of Public Finance and Policy to work out the GST rates that will not bring down either the states’ or Centre’s existing revenue levels. Separately, a panel headed by the chief economic adviser Arvind Subramanian is also looking into what could be the possible revenue neutral rates.

Revenue-neutral rates, as these are called in technical parlance, have been a bone of contention between states and the Centre, with the state governments pressing for higher rates as a hedge against lower tax earnings after migrating to GST. The Bill has not specified the rate, which will be decided by a GST Council headed by the central finance minister with state finance minister as members.

Pending the passage of the Bill, the Council cannot be formed and rates cannot be decided. In addition, it is also imperative to have a robust country-wide information technology (IT) network and infrastructure to make the implementation seamless across state boundaries.

The IT network is still work in progress, which was to be tested in the run-up to April 1, 2016, before its final roll out. This exercise cannot take place and glitches ironed ahead of implementation unless the Bill is passed and GST rates on specific goods and services are decided.

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With the recent approval of central Goods and Services Tax (GST) laws and rules by the lower house and the GST Council respectively, implementation of GST in India from 1 July 2017 appears apparent.

After knowing the broad structure of GST proposed for India, it is time for the industry to focus on the transition tasks to be undertaken to prepare for any unwarranted disruption in carrying out business.

Even though multiple interpretations on a practice to be followed is unquestionable, at this stage, it is expected, from evidence from other countries who introduced GST, that certain positions would emerge from the interpretations to be adopted by tax authorities and the rules and guides introduced by the government during the transition.

GST claims to change the way of conducting business, which is expected to be easier and simpler to administer. Keeping this in mind, we have listed below key tasks every business must undertake during this transition period to derive maximum benefit of this major change.

1) Review of business processes and supply chains to identify the incidence of GST and requirement for additional working capital for transactions not being taxed at present:

GST is expected to have an impact on prices, business processes, investments and profitability in all segments of the economy. Under the proposed GST structure, tax is expected to be applicable at each stage of the supply chain and credit to be available to the respective buyers.

Tax incidence is expected to be once on the end customer and all taxes at different legs of the supply chain are expected to be creditable. From the consumer point of view, the biggest advantage is expected to be the reduction in the overall tax burden and embedded tax costs on goods, which is currently estimated at 25%-30%.

2) Discussions with suppliers and customers and necessary amendments to contracts and business terms:

Businesses should initiate discussions with their suppliers and customers to make them aware of the upcoming change and intimating timelines for receipt or issue of payments, invoices etc. in order to overcome any transitional challenges. In case, the suppliers are expected to benefit from GST on account of additional input credit, businesses should renegotiate their prices.

Supplier and customer contracts and business terms to be reviewed for necessary amendments to enable charging of GST once implemented. This will help manage the transition to GST and ensure recovering of any additional tax impact.

3) Accounting and reporting requirements:

It would be of utmost importance to identify the accounting and reporting requirements under GST in order to assess if the current system needs to be entirely revamped or can be managed with modification.

4) Technology changes to support GST compliance once implemented:

Considering that the GST structure proposed for India has been envisaged to be administered through a robust information technology platform on account of rigorous compliance requirements, businesses must assess of technology changes required to facilitate GST compliances.

All existing indirect tax functions being supported by technology such as tax structure, tax computation, tax payment, tax incidence, availing credit and utilization etc. of existing businesses may require modification to align with GST structure.

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The Goods and Services Tax (GST) has been one of the key things that has caught the attention of the market given its implications on earnings of companies. The government has kept a large number of items under 18% tax slab. The government categorised 1211 items under various tax slabs. Here is a low-down on the tax slab these items would attract:

 ➡ No tax
Goods

No tax will be imposed on items like fresh meat, fish chicken, eggs, milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, prasad, salt, bindi. Sindoor, stamps, judicial papers, printed books, newspapers, bangles, handloom, etc.

Services
Hotels and lodges with tariff below Rs 1,000, Grandfathering service has been exempted under GST.

 ➡ 5%
Goods

Items such as fish fillet, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, kerosene, coal, medicines, stent, lifeboats will attract tax of 5 %.
Services
Transport services (Railways, air transport), small restraurants will be under the 5% category because their main input is petroleum, which is outside GST ambit.

 ➡ 12%
Goods

Frozen meat products , butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, fruit juices, Bhutia, namkeen, Ayurvedic medicines, tooth powder, agarbatti, colouring books, picture books, umbrella, sewing machine, cellphones will be under 12 % tax slab.

Services
Non-AC hotels, business class air ticket, fertilisers, Work Contracts will fall under 12 per cent GST tax slab.

 ➡ 18%
Goods

Most items are under this tax slab which include flavoured refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, mineral water, tissues, envelopes, tampons, note books, steel products, printed circuits, camera, speakers and monitors.

Services
AC hotels that serve liquor, telecom services, IT services, branded garments and financial services will attract 18 per cent tax under GST.

 ➡ 28%
Goods
Chewing gum, molasses, chocolate not containing cocoa, waffles and wafers coated with choclate, pan masala, aerated water, paint, deodorants, shaving creams, after shave, hair shampoo, dye, sunscreen, wallpaper, ceramic tiles, water heater, dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum cleaner, shavers, hair clippers, automobiles, motorcycles, aircraft for personal use, will attract 28 % tax – the highest under GST system.

Services
5-star hotels, race club betting, cinema will attract tax 28 per cent tax slab under GST.

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The new Goods and Services Tax (GST) regime will bring several benefits for the economy, and could particularly vitalise the Fast-Moving Consumer Goods (FMCG) industry.

Apart from driving supply chain efficiencies, bringing untaxed players into the tax net—a large section of the industry still operates in the unorganised segment— will level the playing field for the larger, established players in the industry.
However, the GST rate structure shows that not all FMCG companies stand to benefit from the new regime.

GST beneficiaries:

The rates for various FMCG segments have mostly been along expected lines. Items of mass consumption—toothpaste, soaps, hair oil—have been put under the 18% tax slab, significantly lower than the 22-24% tax rate they have been paying. This is in accordance with the government’s stance of keeping tax rates low for mass consumption products. In fact, the GST rate schedule indicates that nearly 81% of all items are in the 18% tax bracket or below. The remaining 19% fall in the 28% tax slab.

Products to be taxed at lower rate:

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The FMCG companies, whose tax incidence has come down under the GST regime, are likely to pass it on to the consumers in the form of lower prices. “With the anti-profiteering clause in place, companies would be required to pass on the benefit of tax rates to the consumer in the form of lower prices,” says Sanjay Manyal, Analyst, ICICI Securities.

Lower prices could potentially support volume growth for certain products, particularly in the rural segment. “We believe it could result in a faster consumption shift from unbranded to branded products, spurring volume growth for FMCG companies. Simultaneously, it will also bring operational efficiency with rationalisation of supply chain by removing bottlenecks,” .

Adversely impacted firms :

Surprisingly, some of the widely consumed products have been placed under the highest tax slab of 28%—slightly higher than the rate levied earlier. “Higher tax rate in paints and possibly baby food will marginally impact Asian Paints and Nestle,” says the Axis Capital report. Higher tax rate for detergents and shampoo is a real dampener since these are daily-use, mass consumption items. Manufacturers will have to pass on the higher tax incidence to consumers in the form of higher prices of these goods.

However, it will not have much impact on the sale volumes, say analysts. Most of the items belonging to the premium category have been put under the highest tax slab of 28%. These include health supplements, skin care, aerated drinks, liquid soap, among other goods. But this is not going to have a particularly negative impact on manufacturers as they had been paying similar taxes earlier. The increase, in some cases, is only marginal.

For most other FMCG majors, the GST rate structure is likely to be neutral or marginally positive, as their broad portfolios would see a mixed impact. In case of HUL, for instance, tax incidence has reduced for soap, toothpaste and tea, but increased for detergent, shampoo and skin care. For Godrej Consumer Products, lower tax incidence on soaps and insecticides is a positive, but higher tax rate for hair dye is a negative.

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What is GST ?

Goods and Services tax (GST) is a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India to replace taxes levied by the central and state governments.

This method allows GST-registered businesses to claim tax credit to the value of GST they paid on purchase of goods or services as part of their normal commercial activity. Administrative responsibility would generally rest with a single authority to levy tax on goods and services.

Impacts of GST on Indian Economy:

The introduction of Goods and Services tax (GST) would be a very noteworthy step in the field of indirect tax reforms in India, by amalgamations a large number of central and state taxes into a single tax.

Introduction of GST would also make Indian products competitive in the domestic and international markets. Once GST implemented in the system holds great promise in term of sustaining growth for the Indian economy.

As per GST act which is passed in Lok Sabha and Rajya Sabha four tier GST tax structure at 5%,12%,18, and 28% rate decided., with lower rate for essential items and the highest for luxury and de-merits goods, including luxury cars, SUVs and tobacco products, that would also attract an additional cess.

IMPACT OF GST ON INDIAN ECONOMY:

  • Removal of tax barriers with seamless credit will make India a common market leading to economies of scale in production and efficiency in supply chain.
  • Removal of cascading effect of taxes embedded in cost of production of goods and services, significantly reducing cost of indigenous goods and indirectly promoting ‘Make in India.
  • Stable, transparent and predictable tax regime to encourage local and foreign investment in India creating significant job opportunities.
  • Reduce tax burden on producers and foster growth through more production. This double taxation prevents manufacturers from producing to their optimum capacity and retards growth. GST would take care of this problem by providing tax credit to the manufacturer.
  • A single taxation on producers would also translate into a lower final selling price for the consumer.
  • GST would add to government revenues by widening the tax base.
  • GST provides credits for the taxes paid by producers earlier in the goods/services chain. This would encourage these producers to buy raw material from different registered dealers and would bring in more and more vendors and suppliers under the purview of taxation.

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