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Indirect Tax Seminar – Issues and Prospects June 22, 2013 Anjlika Chopra
Contents • Important obligations under VAT ‒ Registration ‒ Returns and payment of taxes
‒ VAT audit ‒ Obligations under works contract ‒ Deduction of tax at source ‒ Accounts and records • Input tax credit mechanism ‒ Introduction ‒ Availability of input credit ‒ Negative list of input credit ‒ Input credit of capital goods ‒ Carry forward and refund of input credit ‒ Reversal of input credit
• Goods and Services Tax 2
Indirect Taxes – Issues and prospects
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Important obligations under VAT
Important obligations under VAT VAT
Registration
Returns
Obligations under Works Contracts
Accounts and records
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Indirect Taxes – Issues and prospects
Payment of tax
Deduction of tax at source
Self assessment
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Registration Types of Dealers – Typically, the following are deemed to be dealers liable for registration: •
Manufacturer: Person who sells goods produced by manufacturing
•
Trader: Person who sells goods produced by others
•
Works Contractor: Person who transfers property in goods (whether as goods or in some
other form) involved in the execution of a works contract •
Lessee: Person who is engaged in the business of transfer of the right to use any goods for any purpose
•
Agriculturist: Person who is a company and is selling products like arecanut, pepper, cardamom, rubber, timber, wood, raw cashew or coffee grown on cultivated land, directly or otherwise (Karnataka)
•
Casual Dealer: Person who undertakes occasional transactions in the nature of business
involving buying, selling, supply or distribution of goods or conducting any exhibition-cumsale •
Non-resident Dealer: Who effects purchases or sales of any goods in the State, but who has no fixed place of business in the State
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Indirect Taxes – Issues and prospects
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Registration •
Each State has prescribed a threshold limit in terms of taxable turnover for the dealers in that State to obtain registration
•
Certain States require a particular class of dealers to obtain registration irrespective of their taxable turnover Dealer
Andhra Pradesh
Delhi
Maharashtra
Karnataka
Every dealer (other than a casual trader)
Fifty lakhs
Five lakhs
Five lakhs
Five lakhs
A Hotel dealer*
No limit
No specific provision
No specific provision
No specific provision
Dealer under the CST Act
No limit
No limit
No specific provision
No limit
Commission/ mercantile agent
No limit
Five lakhs (No specific provision)
Five lakhs
Five lakhs (No specific provision)
Importer**
No limit
Nil
One lakh
No limit
* Refers to Hotels supplying food and drinks for human consumption ** Refers to dealers importing goods into the relevant State
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Indirect Taxes – Issues and prospects
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Returns and payment of tax •
Each State has prescribed the time limit and the manner in which a VAT dealer is required to file a Return and pay VAT for a tax period
•
Different State VAT Acts may also prescribe different forms and time limits, for different classes of dealers along with penal provisions in case the Return is not filed in time by the dealer
Return
Andhra Pradesh
Delhi
Karnataka
Form*
VAT 200
DVAT 16
Form 100
Tax period
One month
One month
A quarter / a month
Time limit of payment of tax
Within 20 days from the end of the tax period
Within 21 days from end of the tax period
Within 20 days from end of month
Time limit for filing Return and payment of tax **
Within 20 days from the end of the tax period
Within 25 days from the end of the tax period
Within 20 days from end of month / 15 days from end of quarter
* The Return forms for certain classes of dealers (casual trader, exporter etc.) may be different ** VAT Return for a tax period is required to be filed along with the proof of payment of VAT for the tax period
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Indirect Taxes – Issues and prospects
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VAT audit Typically, VAT audit is applicable where the following conditions are satisfied:
•
A person is a ‘dealer’
•
Such dealer is ‘liable to pay tax’
•
Turnover of sales or purchase exceeds the prescribed threshold limit
•
Threshold limit varies from State to State Particulars Turnover limit for Audit Due date for submission of report
Audit report
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Indirect Taxes – Issues and prospects
Andhra Pradesh No VAT Audit provision
Karnataka
Maharashtra
One Hundred Lacs
Sixty Lacs
Within 9 months of the end of the year to which the report relates
Within 9 months and 15 days of the end of the year to which the report relates
Form VAT 240
Form 704
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Obligations under works contract •
Works contract is a contract involving the supply of goods as well as services
•
Typically three schemes are available under VAT laws for payment of VAT on works contract ‒ Actual method: Payment of VAT on value of goods, determined by deducting costs in relation to labour and services from the gross value receivable ‒ Composition scheme: VAT calculated at a prescribed rate on the gross value receivable
‒ Standard deduction method: VAT payable at the normal rate on the gross value receivable post deduction of costs (prescribed percentage) in relation to labour and services •
In most States, the dealer has to notify the State Government in advance of the scheme opted for Particulars
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Andhra Pradesh
Delhi
Maharashtra
Registration for a dealer executing a works contract – threshold limit
Mandatory for every contractor opting for the composition scheme
No specific provision
Return
No separate form specified
No separate Form 233 form specified
Indirect Taxes – Issues and prospects
No specific provision
Karnataka No limit
No separate form specified
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Deduction of tax at source •
TDS provisions in the States are typically applicable in respect to payment for works contracts
Tax payment
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Haryana
Delhi
Kerala
Karnataka
Applicability
Applicable if amount paid to a dealer in an year exceeds One lakh
Applicable if value of works contract exceeds Twenty Thousand
Applicable to all Applicable to all
Rate of TDS
4%
4% for registered dealers; 6% for unregistered dealers
Deduction equal to amount of tax liability of contractor
Deduction equal to amount of tax liability of contractor
Certificate of tax deduction
VAT 156
DVAT 43
Form 20C
VAT 156
Indirect Taxes – Issues and prospects
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Accounts and records •
Each State has prescribed the accounts and records required to be maintained by a VAT dealer and the provisions regarding preservation of such accounts and records e.g. dealers registered under Delhi VAT are required to preserve records and accounts for 7 years
•
Some common accounts and records are: Accounts and records required to be maintained •
Tax invoices issued by the dealer
•
Original tax invoices received by the dealer
•
Challan evidencing payment of tax, interest, penalty or any other amount paid under the State VAT Act
•
Details in the prescribed form for all purchases, reflecting the values of goods subject to each rate of tax under the VAT Act
•
Details in the prescribed form for all receipts, sales and other disposals reflecting the values of goods subject to each rate of tax under the VAT Act
•
Details in the prescribed form, for all production/ manufacture and stock, reflecting the value of goods subject to each rate of tax under the VAT Act
•
Details of input tax paid and output tax payable
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Indirect Taxes – Issues and prospects
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Accounts and records •
Typically, a dealer engaged in execution of a works contract has to maintain separate accounts and records for each contract executed
•
In certain States (e.g.. Andhra Pradesh), the VAT laws of the State specify the accounts and records to be maintained by dealer executing a works contract: Accounts and records required to be maintained by a Works Contractor
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Dealer opting for composition scheme or standard deduction scheme
Dealer opting for the actual method
•
Payments received from contractee
•
•
Details of TDS
Details of purchases for execution of a works contract
•
Details of goods to be used in the execution of works contract
•
Details of payment received in respect of each works contract
•
Details of labour charges
•
Details of amount paid to sub-contractor
•
Cost of consumables
•
Architect’s fee
Indirect Taxes – Issues and prospects
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Input tax credit mechanism
Input tax credit mechanism Input Tax Credit (“ITC”) Mechanism
Introduction
Refund of ITC
Availability of ITC
Negative list for ITC
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Indirect Taxes – Issues and prospects
ITC on capital goods
Reversal of ITC
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Input tax credit An introduction •
Input tax credit can be utilized for setting-off against the output VAT liability payable by a dealer on sale of goods (whether inter-State sale or intra-State sale)
•
Input tax credit is available to manufacturers as well as traders
•
The benefit of set-off of input credit is available only to a registered dealer
•
Input tax credit is allowed on the basis of a tax invoice only
•
Each State provides a mechanism by which input tax credit may be availed and utilized by a registered dealer of that State
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Indirect Taxes – Issues and prospects
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Input tax credit An introduction Customer VAT @ applicable rate
VAT @ applicable rate
CST @ 2 percent
Trader CST at applicable rate
Manufacturer CST @ 2 percent CST at applicable rate
Customer
VAT @ applicable rate State A 16
State B
Indirect Taxes – Issues and prospects
Non creditable Creditable
State C ©2013 Deloitte Touche Tohmatsu India Private Limited
Availability of input tax credit Exempt sales •
Dealer effecting sale of exempted goods is not eligible to claim ITC in respect of purchases
Zero rated sales •
Different from exempt sales
•
Dealer effecting zero-rated sales eligible to claim ITC in respect of the purchases made
•
Exports are zero-rated sales under VAT laws
Sale of taxable as well as exempt goods •
ITC allowed on a proportionate basis
•
The manner of calculation of proportionate credit available, typically prescribed under VAT laws
Total amount of ITC paid on purchases
Sales turnover of taxable and zero rated sales
Total sales turnover of taxable goods, exempt goods and zero-rated sales
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Indirect Taxes – Issues and prospects
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Availability of input tax credit Composition scheme under works contract •
Dealer opting to pay VAT under the composition scheme is not eligible to claim ITC on purchases (except in Maharashtra)
Input Tax Credit on vehicles •
Typically, input tax credit on motor vehicles is not available where the same are to be used as capital goods by the assessee
•
In the State of Maharashtra, in case the dealer is engaged in the business of transfer of right to use vehicles, ITC on purchase of such vehicles was available, however, vide a recent notification, this credit was disallowed by amending Rule 54
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Indirect Taxes – Issues and prospects
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Negative list of input credit •
Each State has prescribed certain purchases, the tax paid on which does not qualify as input credit. Some typical examples of such purchases are:
Negative list of ITC Goods purchased from unregistered dealers
Purchases from a dealer exempt from tax
Goods purchased for personal consumption
Goods given away by way of free sample or gift – specific disallowance in Orissa and Assam
Goods purchased from dealers opting for composition scheme
Goods not sold due to theft, loss or destruction
Goods purchased in the course of inter-State sale
Petrol, diesel, aviation turbine fuel, liquefied petroleum gas and condensed natural gas
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Indirect Taxes – Issues and prospects
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Input credit of capital goods •
Input tax credit of inputs is available immediately, in a single installment
•
Each State has its own definition and scope of ‘capital goods’
•
In case of capital goods, ITC may be available either in a single installment or on a deferred basis. Examples are:
State
Andhra Pradesh
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Input Tax Credit availability period
Can be availed in a single installment
Bihar
36 monthly installments
Delhi
3 equal yearly installments
Haryana
Can be availed in a single installment
Maharashtra
Can be availed in a single installment
West Bengal
Purchase Price up to 1 crore - single installment Exceeding 1 crore - four half yearly installments
Uttar Pradesh
Can be availed in a single installment
Indirect Taxes – Issues and prospects
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Carry forward and refund of excess ITC •
In most States, excess ITC is first to be adjusted against any outstanding VAT leviable in that State and thereafter for payment of CST
•
Balance ITC may be carried forward to the subsequent period
•
Excess unadjusted VAT at the end of a specified time period is eligible for refund
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State
Refund
Andhra Pradesh
Available at the end of the second year
Delhi
Can be availed at the end of the tax period at the option of the dealer
Haryana
Refund is available only to exporters. Other dealers eligible only to adjust the excess against future tax liability
Karnataka
Available at the end of the financial year
Maharashtra
Available at the end of the financial year
West Bengal
Available at the end of the second year
Andhra Pradesh
Available at the end of the second year
Indirect Taxes – Issues and prospects
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Reversal of input tax credit Stock transfers •
A specific percentage of input tax credit is required to be reversed Tamil Nadu
Himachal Pradesh
Jharkhand
Bihar
Delhi
3%
4%
4%
100 % / 4% Section 16
Rate of reversal specified according to goods
Sales returns •
In some States (e.g.. Tamil Nadu, Bihar), the selling dealer has to reverse credit where the purchaser returns the goods within a specified time period (e.g. for Tamil Nadu and Bihar, where purchaser returns the goods within 6 months)
•
Selling dealer entitled to take credit where: ‒ Sale was included in the return and tax was paid ‒ Price of the goods (including tax thereon) is returned fully to the purchaser
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Indirect Taxes – Issues and prospects
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Reversal of input tax credit Sale price of the goods lesser than purchase price •
In case a dealer sells goods at a price lesser than the price paid for purchasing the goods, amount of input tax credit over and above the output tax of those goods shall be reversed
Goods unsold at the time of closure of business •
In some States (e.g. Tamil Nadu, Himachal Pradesh), input VAT credit shall be reversed at the time of closure of business where:
‒ Goods remain unsold as on date of closure ‒ Dealer has availed ITC on such goods
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Indirect Taxes – Issues and prospects
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Goods and Services Tax
Goods and Services Tax •
The proposed Goods and Services Tax (“GST”) is based on a dual mode of taxation: ‒ Central GST, levied by the Centre ‒ State GST, levied by each State
Exempted goods and services •
Currently, 96 items are exempt under VAT and 243 items are exempt under Excise
•
It is proposed that the list of exempted goods and services should be common for CGST and SGST
•
Challenges foreseen: ‒ More than 200 items currently exempt from Excise will become liable to CGST ‒ Items currently exempt under VAT but not exempt under Excise (e.g.. Charcoal, handloom fabrics, bottled drinking water) would be exempt from CGST and SGST, resulting in loss of revenue
Threshold limit •
There is proposed to be a common threshold limit for SGST and CGST
•
It is proposed to be increased from INR 10 lakhs to INR 25 lakhs
•
Threshold for inter-State dealers is proposed to be NIL
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Indirect Taxes – Issues and prospects
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Goods and service tax Goods attracting concessional tax •
Currently under State VAT certain goods (capital goods, declared goods, industrial inputs, etc.) attract a lower rate of duty
•
The new GST proposes to have a common list of goods attracting lower duty for CGST and SGST
Challenges due of dual control
•
Under GST, both the Centre and the States would get the power to levy tax on goods and services ‒ CGST to be administered by the Central Government ‒ SGST to be administered by the State Government
•
This would result in dual control on dealers
•
Suggestions made to reduce the adverse impact of dual control: ‒ Single return to be filed through Goods and Service Tax Network (“GSTN”) portal accessible by Central and State authorities ‒ Dealers with turnover up to INR 15 lakhs to be under control of State authorities only
‒ Dealers with turnover exceeding INR 15 lakhs to be under control of both Centre and State ‒ Dealers engaged in inter-State supply of goods to be under control of both Centre and State
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Indirect Taxes – Issues and prospects
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