Thursday 16 July 2020
Analysis of Provisions related to order of Utilization of Input Tax Credit
Analysis of Provisions related to order of Utilization
of Input Tax Credit
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Overview
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As per sub section (4) of
section 49 of CGST Act,2017 “The
amount available in the electronic credit ledger may be used for making any
payment towards output tax under this Act or under the Integrated Goods and
Services Tax Act in such manner and subject to such conditions and within
such time as prescribed in sub rule (3) of rule 85 of the CGST Rules, 2017
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Sub rule (3) of rule 85 of the CGST Rules, 2017
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Subject to the provisions of section 49, section 49A and
section 49B, payment of every liability by a registered person as
per his return shall be made by debiting the electronic credit ledger
maintained as per rule 86 or the electronic cash ledger maintained as per
rule 87 and the electronic liability register shall be credited accordingly.
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Sub section (5) of section 49
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The amount of input tax credit available in the electronic
credit ledger of the registered person on account of—
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Section 49A
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Notwithstanding anything
contained in section 49, the input tax credit on account of
central tax, State tax or Union territory tax shall be utilized towards
payment of integrated tax, central tax, State tax or Union territory tax, as
the case may be, only after the input tax credit available on account of
integrated tax has first been utilized fully towards such payment.
[ Inserted by the Central Goods and
Services Tax (Amendment) Act, 2018, w.e.f. 1-2-2019]
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Section 49B
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Notwithstanding anything
contained in this Chapter and subject to the
provisions of clause (e) and clause (f)
of sub-section (5) of section 49, the Government may,
on the recommendations of the Council, prescribe the order and manner of
utilization of the input tax credit on account of integrated tax, central
tax, State tax or Union territory tax, as the case may be, towards payment of
any such tax.]
Rule prescribed in this
regard
Rule 88A. Input
tax credit on account of integrated tax shall first be utilized towards
payment of integrated tax, and the amount remaining, if any, may be utilized
towards the payment of central tax and State tax or Union territory tax, as
the case may be, in any order:
Provided that
the input tax credit on account of central tax, State tax or Union territory
tax shall be utilized towards payment of integrated tax, central tax, State
tax or Union territory tax, as the case may be, only after the input tax
credit available on account of integrated tax has first been utilized fully.
[Rule 88A Inserted by Central Goods and Services Tax
(Second Amendment) Rules, 2019, w.e.f. 1-4-2019.]
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Summary of above discussed provisions
Order of
Utilization of ITC
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IGST INPUT
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First it has to be utilized towards IGST
output liability
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Any leftover IGST ITC to be utilized
towards CGST or SGST/UGST output liability as per choice (i.e. either first utilized
towards CGST and then SGST or first utilized towards SGST and then CGST or in
any proportion basis for example 50% towards CGST and 50% towards SGST
etc.)
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CGST INPUT
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IGST ITC has be fully exhaust before
utilizing CGST ITC.
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First it has to be utilized towards CGST
output liability
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Any leftover CGST ITC to be utilized
towards IGST output liability
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CGST ITC can’t be utilized towards
SGST/UGST output liability
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SGST INPUT
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IGST ITC has be fully exhaust before
utilizing SGST ITC.
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First it has to be utilized towards SGST
output liability
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Any leftover SGST ITC to be utilized
towards IGST output liability
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SGST ITC can’t be utilized towards CGST/UGST
output liability
Utilization provision is same for UGST is same as SGST.
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Tuesday 4 February 2020
Amendment to Section 194C by Finance Bill 2020-2021
Amendment
to Section 194C by Finance Bill 2020-2021
Let’s
understand the Reason for Amendment through examples: -
Example 1: Beta Private limited entered into contract
agreement with Alpha Private Limited for supplying a product according to the requirement or specification of Alpha Private Limited by using material purchased from such Alpha Private Limited.
Whether Alpha Private
Limited will be required to deduct TDS under Section 194C?
Answer is Yes, since as per
section 194C, TDS to be deducted for carrying out any “work”
Definition of “Work” as per
Explanation iv of Section 194C,
Work includes
“manufacturing
or supplying a product according to the requirement or specification of a
customer by using material purchased from such customer, but does not
include manufacturing or supplying a product according to the requirement or
specification of a customer by using material purchased from a person, other than such customer”
Example 2: Beta
Private limited entered into contract agreement with Alpha Private Limited for
supplying a product according to the requirement or specification of Alpha
Private Limited by using material purchased from a Director (related parties)
of such Alpha Private Limited.
Whether Alpha Private
Limited will be required to deduct TDS under Section 194C?
Answer is No, since as per
section 194C, the above-mentioned contract agreement is out of definition of “work”
Definition of “Work” as per
Explanation iv of Section 194C, Work includes
“manufacturing
or supplying a product according to the requirement or specification of a
customer by using material purchased from such customer, but does not
include manufacturing or supplying a product according to the requirement or
specification of a customer by using material purchased from a person,
other than such customer”
Understanding
the Loophole
some assessees are using the
escape clause of the section by getting the contract manufacturer to procure the raw material supplied through its related
parties. As a result, a substantial amount of income escapes the tax
net.
Amendment
Therefore, to bring clarity in the section and plug the
leakage, it is proposed to amend the definition of “work” under section 194C.
After Amendment the
Definition of “Work” shall include-
(ii) manufacturing or supplying a product according to the requirement or specification of a
customer by using material purchased from such customer, but does not include
manufacturing or supplying a product according to the requirement or specification of a
customer by using material purchased from a person, other than such customer or
associate of such customer
Summary
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Cases
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Situations
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194C?
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1
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supplying
a product according to the requirement or specification of a customer by
using material purchased from such customer
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YES
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2
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supplying
a product according to the requirement or specification of a customer by
using material purchased from related parties [s.40A(2)(b)]
of such customer
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YES
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3
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supplying
a product according to the requirement or specification of a customer by
using material purchased from third parties not
related to customer
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No
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Monday 22 July 2019
Clarification
on Issues related to GST on monthly subscription/contribution charged by a
Residential Welfare Association from its members.
Circular
No.109/28/2019- GST dated 22nd July, 2019
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S.N
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Issue
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Clarification
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1
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Are the maintenance charges paid by
residents to the Resident Welfare Association (RWA) in a housing society
exempt from GST and if yes, is there an upper limit on the amount of such
charges for the exemption to be available?
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Supply of service by RWA (unincorporated
body or a non- profit entity registered under any law) to its own members by
way of reimbursement of charges or share of contribution up to an amount of
Rs. 7500 per month per member for providing services and goods for the common
use of its members in a housing society or a residential complex are exempt
from GST. Prior to 25th January 2018, the exemption was available if the
charges or share of contribution did not exceed Rs 5000/- per month per
member. The limit was increased to Rs. 7500/- per month per member with
effect from 25th January 2018. [Refer clause (c) of Sl. No. 77 to the
notification No. 12/2018- Central Tax (Rate) dated 28.06.2019]
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2
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A RWA has aggregate turnover of Rs.20 lakh
or less in a financial year. Is it required to take registration and pay GST
on maintenance charges if the amount of such charges is more than Rs. 7500/-
per month per member?
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No. If aggregate turnover of an RWA does
not exceed Rs.20 Lakh in a financial year, it shall not be required to take
registration and pay GST even if the amount of maintenance charges exceeds
Rs. 7500/- per month per member. RWA shall be required to pay GST on monthly
subscription/ contribution charged from its members, only if such
subscription is more than Rs. 7500/- per month per member and the annual
aggregate turnover of RWA by way of supplying of services and goods is also
Rs. 20 lakhs or more.
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Annual
turnover of RWA
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Monthly
maintenance charge
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Whether
exempt?
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More than Rs. 20 lakhs
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More
than Rs. 7500/-
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No
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Rs.
7500/- or less
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Yes
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Rs. 20 lakhs or less
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More than Rs. 7500/-
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Yes
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Rs. 7500/- or less
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Yes
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3
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Is the RWA entitled to take input tax
credit of GST paid on input and services used by it for making supplies to
its members and use such ITC for discharge of GST liability on such supplies
where the amount charged for such supplies is more than Rs. 7,500/- per month
per member?
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RWAs are entitled to take ITC of GST paid
by them on capital goods (generators, water pumps, lawn furniture etc.),
goods (taps, pipes, other sanitary/hardware fillings etc.) and input services
such as repair and maintenance services
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4
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Where a person owns two or more flats in
the housing society or residential complex, whether the ceiling of Rs. 7500/-
per month per member on the maintenance for the exemption to be available
shall be applied per residential apartment or per person?
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As per general business sense, a person who
owns two or more residential apartments in a housing society or a residential
complex shall normally be a member of the RWA for each residential apartment
owned by him separately. The ceiling of Rs. 7500/- per month per member shall
be applied separately for each residential apartment owned by him. For
example, if a person owns two residential apartments in a residential complex
and pays Rs. 15000/- per month as maintenance charges towards maintenance of
each apartment to the RWA (Rs. 7500/- per month in respect of each
residential apartment), the exemption from GST shall be available to each
apartment.
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5
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How should the RWA calculate GST payable
where the maintenance charges exceed Rs. 7500/- per month per member? Is the
GST payable only on the amount exceeding Rs. 7500/- or on the entire amount
of maintenance charges?
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The exemption from GST on maintenance
charges charged by a RWA from residents is available only if such charges do
not exceed Rs. 7500/- per month per member. In case the charges exceed Rs.
7500/- per month per member, the entire amount is taxable. For example, if
the maintenance charges are Rs. 9000/- per month per member, GST @18% shall
be payable on the entire amount of Rs. 9000/- and not on [Rs. 9000 - Rs. 7500]
= Rs. 1500/-.
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Saturday 20 July 2019
Circular No. 107/26/2019-GST
Circular No. 107/26/2019-GST
Clarification on doubts related to supply of Information Technology enabled
Services (ITeS services) - reg.
1.Various representations have been received seeking clarification on issues related to
supply of Information Technology enabled Services (hereinafter referred to as “ITeS
services”) such as call center, business process outsourcing services, etc. and
“Intermediaries” to overseas entities under GST law and whether they qualify to be “export
of services” or otherwise.
2. The matter has been examined. In view of the difficulties being faced by the trade and
industry and to ensure uniformity in the implementation of the provisions of the law across
field formations, the Board, in exercise of its powers conferred by section 168 (1) of the
Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”), hereby
clarifies the issues in succeeding paragraphs.
3. The intermediary has been defined in the sub-section (13) of section 2 of the Integrated
Goods and Service Tax Act, 2017 (hereinafter referred to as “IGST” Act) as under -
"Intermediary means a broker, an agent or any other person, by whatever name
called, who arranges or facilitates the supply of goods or services or both, or
securities, between two or more persons, but does not include a person who supplies
such goods or services or both or securities on his own account."
3.1 The definition of intermediary inter alia provides specific exclusion of a person i.e.
that of a person who supplies such goods or services or both or securities on his own
account. Therefore, the supplier of services would not be treated as „intermediary‟ even
where the supplier of services qualifies to be „an agent/ broker or any other person‟ if he is
involved in the supply of services on his own account.
4. Information Technology enabled Services (ITeS services), though not defined under
the GST law, have been defined under the sub-rule (e) of rule 10 TA of the Income-tax
Rules, 1962 which pertains to Safe Harbour Rules for international transactions. It defines
ITeS services as-
"information technology enabled services" means the following business process
outsourcing services provided mainly with the assistance or use of information
technology, namely:—
(i) back office operations;
(ii) call centres or contact centre services;
(iii) data processing and data mining;
(iv) insurance claim processing;
(v) legal databases;
(vi) creation and maintenance of medical transcription excluding medical
advice;
(vii) translation services;
(viii) payroll;
(ix) remote maintenance;
(x) revenue accounting;
(xi) support centres;
(xii) website services;
(xiii) data search integration and analysis;
(xiv) remote education excluding education content development; or
(xv) clinical database management services excluding clinical trials,
but does not include any research and development services whether or not in the
nature of contract research and development services.
5. There may be various possible scenarios when a supplier of ITeS services located in
India supplies services for and on behalf of a client located abroad. These scenarios have
been examined and are being discussed in detail hereunder:
5.1 Scenario -I:
The supplier of ITeS services supplies back end services as listed in para 4 above. In
such a scenario, the supplier will not fall under the ambit of intermediary under sub-section
(13) of section 2 of the IGST Act where these services are provided on his own account by
such supplier. Even where a supplier supplies ITeS services to customers of his clients on
clients behalf, but actually supplies these services on his own account, the supplier will not
be categorized as intermediary. In other words, a supplier “A” supplying services, listed in
para 4 above, on his own account to his client “B” or to the customer “C” of his client would
not be intermediary in terms of sub-section (13) of section 2 of the IGST Act.
5.2 Scenario -II:
The supplier of backend services located in India arranges or facilitates the supply of
goods or services or both by the client located abroad to the customers of client. Such
backend services may include support services, during pre-delivery, delivery and postdelivery of supply (such as order placement and delivery and logistical support, obtaining
relevant Government clearances, transportation of goods, post-sales support and other
services, etc.). The supplier of such services will fall under the ambit of intermediary under
sub-section (13) of section 2 of the IGST Act as these services are merely for arranging or
facilitating the supply of goods or services or both between two or more persons. In other
words, a supplier “A” supplying backend services as mentioned in this scenario to the
customer “C” of his client “B” would be intermediary in terms of sub-section (13) of section
2 of the IGST Act.
5.3 Scenario –III:
The supplier of ITeS services supplies back end services, as listed in para 4 above, on
his own account along with arranging or facilitating the supply of various support services
during pre-delivery, delivery and post-delivery of supply for and on behalf of the client
located abroad. In this case, the supplier is supplying two set of services, namely ITeS
services and various support services to his client or to the customer of the client. Whether
the supplier of such services would fall under the ambit of intermediary under sub-section (13) of section 2 of the IGST Act will depend on the facts and circumstances of each case. In
other words, whether a supplier “A” supplying services listed in para 4 above as well as
support services listed in Scenario -II above to his client “B” and / or to the customer “C” of
his client is intermediary or not in terms of sub-section (13) of section 2 of the IGST Act
would have to be determined in facts and circumstances of each case and would be
determined keeping in view which set of services is the principal / main supply.
6. It is also clarified that supplier of ITeS services, who is not an intermediary in terms
of sub-section (13) of section 2 of the IGST Act, can avail benefits of export of services if he
satisfies the criteria mentioned in sub-section (6) of section 2 of the IGST Act, which reads as
under –
"export of services‖ means the supply of any service when,––
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in
convertible foreign exchange; and
(v) the supplier of service and the recipient of service are not merely establishments of
a distinct person in accordance with Explanation 1 in section 8"
To download the Circular https://cbic-gst.gov.in/pdf/circular-cgst-107.pdf
Gift made to a Non-Resident
will be taxable in India w.e.f 5th July 2019
What is the amendment
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Gift
received by a Non- Resident (Individual/HUF/Co./LLP etc.) from a Resident (Individual/HUF/Co./LLP
etc.) will be treated as Income deemed to accrue or arise in India, hence
Taxable in the Hands of Non- Resident.
[Source: newly proposed Section 9(1)(viii)]
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What is Reason for
amendment
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Under the existing provisions of the Act, a
gift of money or property is taxed in the hands of donee, except for certain
exemptions provided in clause (x) of sub-section (2) of section 56. It has
been reported that gifts are made by persons being residents in India to
persons outside India and are claimed to be non-taxable in India as the
income does not accrue or arise in India.
[ Source Memorandum to
Finance Bill (2) 2019]
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Effective date of Amendment
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With effect
from 5th July, 2019 [ i.e. on or after 5th July, 2019]
[ Source Memorandum
to Finance Bill (2) 2019]
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What constitutes Gift?
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any sum of money, without consideration > 50K or
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any immovable property without consideration and Stamp Value of which >50K or
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any immovable property for a consideration and stamp Value of such immovable property
is higher by either >50K or 5% of consideration than the actual
consideration paid. or
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any property, other than
immovable property without consideration whose
aggregate fair market value > 50K or
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any property, other than
immovable property for a consideration less than
the aggregate fair market value of the property by an amount >50K
[Section 56(2)(x)]
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Exception
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Gift from Relative of Individual/ HUF
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Gift on the occasion of the
marriage of the individual etc.
Will not be taxable
in the hands of Non- Resident.
[Source Proviso
to s. 56(2)(x) read with proviso to s.56(2)(vii)]
[ Source Memorandum
to Finance Bill (2) 2019]
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Will DTAA be applicable?
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Yes, in a treaty situation, the relevant
article of applicable DTAA shall continue to apply for such gifts as well.
[ Source Memorandum to
Finance Bill (2) 2019]
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