A document of law which is presented in the Parliament is called a Bill. The bill is brought in the Parliament so that a discussion can take place over it and a unanimous decision can be taken to turn it into an Act. Once a bill is discussed and successfully passes the Parliament, it is termed as an Act.
Since the introduction of GST in 2006, the act has seen multiple changes and amendments which the Government of India implements to bring the best benefits to its citizens, taxpayers, businesses across various sectors. It is, therefore, essential that we learn and keep the updates handy as the amendments can decide the future course of many businesses.
This post throws light on the proposed changes to the GST Bill. Let’s look at the points the article covers:
- What are the changes to the GST Act?
- Applicability of GST in Jammu and Kashmir
- Gifts from Employer: No Longer Taxed under GST
- GST not applicable on Sale of Building or Land
- Upper Limits of GST Rates
- Provision Change in Time of Supply of Services
- Unregistered Seller and Registered Supplier: GST applicable with Reverse Charge
- Change in Conditions: Disallowing ITC
- Petroleum Products to Come Under GST
- Permission Not Required for Composition Scheme
- Composition Rates Reduction
- GST non-applicable on Actionable Claims
- Health Insurance and Life Insurance allowed if used under Sale of the Same category
Changes to the GST Act?
The journey of GST began in 2016 when the GST had gone live and when the Model GST Law was passed in both the houses of the Parliament, with the Honorable President giving his assent. Since then till date, the bill has undergone multiple changes based on the requirements and suggestions for the betterment of the overall tax systems for the goods and services.
In all, 4 bills have been passed in the Lok Sabha with modifications in each of them. Let’s dive deeper into the major amendments in the bill.
Applicability of GST in Jammu and Kashmir
Haseeb Drabu, the J&K Finance Minister, confirmed the GST will be applied in J&K. Because of the separate constitution and special legislation of J&K, the CGST and IGST will be passed separately. As with the other states, SGST will be passed separately.
Gifts from Employer: No Longer Taxed under GST
Going by the definition of ‘related persons’, an employer and employee were also considered under this and therefore, any free goods or services exchanged between them were brought under the provisions of GST. Even if these goods or services were exchanged free of charge between them, they were considered under the taxation scope. Example: Gifts from the employer.
However, with the proposed change, the Act will not be applying on gifts up to Rs. 50,000 by the employer to his employee; while the gifts beyond the amount of Rs. 50,000 will be considered under GST and will be taxed.
GST not applicable on Sale of Building or Land
Goods, as defined earlier under GST were any moveable property, although money was not included in it. Services were defined as anything other than goods. Because of these definitions, there was uncertainty over the GST applicable on land or building (stamp duty is different from GST).
However, with the new Schedule III, it is clear that the sale of land or building is neither covered under the supply of goods nor supply of services and therefore, GST will not apply to these areas.
- GST will not be applicable to the sale of land or the sale of a building. (Stamp duty, however, continues to be applicable.)
- GST will be applicable on renting or leasing land or building.
- GST will be applicable on the sale of an under-construction building.
- GST will apply on contract works of a building.
Having learned about this, we must note that the talks have been going on to cover the sale of land and building under GST within one year of the implementation of GST.
Upper Limits of GST Rates
As compared to the earlier upper cap of 14% and 25% for CGST and IGST respectively, now the upper cap has been fixed at 20% for CGST and 40% for IGST. This decision has been taken to adapt to the increase in the rate in the future.
The GST slabs, however, are the same: 5%, 12%, 18%, and 28%.
Provision Change in Time of Supply of Services
The Model GST law ruled that the time of supply would be before:
- Date when the invoice was issued OR
- Date when supplier received the payment OR
- Last Date when the invoice should have been issued
However, there has been a change to this scenario of the provisions for deciding the time of supply for services. Now, the time of supply of services should be before the dates mentioned:
If the invoice issuing happens within the prescribed time:
- Invoice issue date, OR
- Date of receipt of payment, whichever is earlier.
If the above two clauses cannot be applied then the date shown by the recipient for the receipt of services in his account books shall be considered.
Unregistered Seller and Registered Supplier: GST applicable with Reverse Charge
A reverse charge is applied to the scenario when the supplier is unregistered and the recipient or the buyer is a registered person under GST. In such a case, the Reverse Charge Mechanism (RCM) is applied where the registered recipient pays the value of the goods/services excluding the GST to the supplier; then he pays the GST to the government on behalf of the supplier.
Earlier, in the Model GST, this scenario was not identified. It did not mention the tax treatment when the supplier was unregistered. In the GST Act now, this is identified and treated under RCM.
Change in Conditions: Disallowing ITC
The earlier GST Law ruled that if the purchaser or the recipient did not pay for the service within 3 months, then the ITC - input tax credit availed by him will be disallowed. The purchaser will have to pay the ITC claimed plus the interest. But, if the purchases paid for the services after 3 months, there were no provisions to recognize that. This was applicable only to the services.
The current amendment in the act mentions that this would be applicable to the goods also. Also, the amended act confirms that the time has been extended from 3 months to 180 days before the ITC would be disallowed. Moreover, if the purchaser makes the payment after 180 days, the ITC will be re-allowed.
Petroleum Products to Come Under GST
Natural gas, crude oil, aviation turbine fuel, all the petroleum products have been covered under GST with the amendments in the GST act now. With this, the businesses in India are set to avail input tax credit on petroleum products; taking input credit on petrol purchases will be incredibly advantageous for businesses.
There are many other sectors that utilize a host of petroleum products in their manufacturing process; this includes plastic and chemical industries. So, to sum up, bringing petroleum products under GST will help to bring down the prices of the goods.
Permission Not Required for Composition Scheme
As against previous conditions, now a taxpayer who reports a turnover of less than Rs. 50 Lakhs in a given financial year, can choose to pay under the composition scheme without the permission of the proper officer. Direct registration for the composition scheme by such a taxpayer is now possible.
Composition Rates Reduction
Composition rates have been reduced, which is bound to attract more taxpayers to register. This would be particularly beneficial for the MSME sector. Non-availability of ITC and non-eligibility for interstate transactions are some of the disadvantages of the composition scheme. The following table depicts the reduction rates due to new amendments:
GST Not Applicable on Actionable Claims
Earlier, the GST law covered the Actionable claims under the definition of Goods. This implied that the GST was applicable to actionable claims. The amendments in Schedule III maintain that the actionable claims will no longer be covered as the supply of goods nor supply of services and therefore, will be free from GST.
However, lottery, betting, gambling will be subject to GST but not the other actionable claims.
Health Insurance and Life Insurance allowed if used under Sale of the Same category
Earlier, the services which were to be provided by an employer to his employee would enjoy the ITC. This mandate disallowed services like renting a cab, health insurance, and life insurances from taking the input tax credit.
If the earlier provision had been in place, it would have had a host of implications. Life insurance companies were not eligible to claim a GST credit for reinsurance of life insurance. For tax relief, input tax credits are available for the above services under the following conditions: Input tax credits can only be used for outward supply (sales) of the same item. Alternatively, it can be an element of composite or mixed supplies.
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The software package makes preparing cash flow statements, profit and loss statements, income statements, and balance sheets very easy.
Here's a short video that explains how it works:
Deskera makes it easy to set up and manage GST in India. Learn how:
In India, the GST system requires you to create and manage invoices regularly. The software allows you to generate GST-compliant invoices with Deskera Books. You can take advantage of this innovative software to update yourself with a variety of information related to invoices, creating invoices and sending invoices, and so much more.
Furthermore, you should become familiar with some of the fundamental GST forms: GSTR 1, GSTR 2B, GSTR 3B. Learn about the GST forms. Also, determine what due dates and updates are applicable to your business.
Let’s summarize the important changes to the GST Bill made by the government:
- The GST Act, which was enacted in 2006, has been amended several times by the Government of India to create the greatest benefits for citizens, taxpayers, and business enterprises across the country.
- 4 bills have been passed in the Lok Sabha with modifications in each of them.
- GST will now be applicable in Jammu and Kashmir.
- Gifts from the employers will no longer be taxed under GST, up to Rs. 50,000.
- GST will not be applicable to the sale of land or the sale of a building. Stamp duty, however, continues to be applicable.
- The upper cap has been fixed at 20% for CGST and 40% for IGST now after the amendments.
- The Reverse Charge Mechanism (RCM) is applied where the registered recipient pays the value of the goods/services excluding the GST to the supplier; then he pays the GST to the government on behalf of the supplier.
- The amended act confirms that the time has been extended from 3 months to 180 days before the ITC would be disallowed. Moreover, if the purchaser makes the payment after 180 days, the ITC will be re-allowed.
- Petroleum Products to Come Under GST.
- Permission is no longer required for availing the Composition Scheme by a taxpayer.
- Composition rates have been reduced, which is bound to attract more taxpayers to register.
- The amendments in Schedule III maintain that the actionable claims will no longer be covered as the supply of goods nor supply of services and therefore, will be free from GST.
- Health Insurance and Life Insurance are allowed if used under the sale of the Same category.