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Important GST Terms, Definitions and Applicability

GST, the new genre taxation module is imbibed with numerous new terms and nomenclatures, which you should be aware about.

The article aims to apprise you of all the GST terms, their broad definitions and their applicability.

Following are the major ones, some of which you may have heard until now or may encounter soon:

GST

Goods and Services Tax, commonly known as GST, is a single, indirect, multi-stage, destination based consumption tax, which will replace almost all the existing Central and State taxes, including but not limited to CENVAT, Octroi, Sales Tax and Excise Duty etc.  GST has replaced all existing direct and indirect, Central and State taxes, from 1st July, 2017.

GSTIN

GSTIN, i.e. Goods and Services Tax Identification Number is a business’s legal and unique identity with the government of India in the GST regime. GSTIN is a 15 alphanumeric character, PAN based distinctive number, allotted state-wise.

CGST, SGST and IGST

GST consists of three major taxes – Central GST, i.e. CGST, State GST i.e. SGST and Integrated GST i.e. IGST.

The different taxes would enable the tax payers to take credit against each other, enhancing ease and transparency in the taxation cycle.

  • CGST:

Central GST [CGST] is the GST, to be levied by the Centre, on inter-state businesses.

  • SGST:

State GST [SGST] is the GST, to be levied by the State, on inter-state businesses.

  • IGST:

Integrated GST [IGST] is the GST, to be levied by the Centre, on intra-state businesses and imports.

Reverse Charge

Reverse Charge is a mechanism and supervisory arrangement to monitor and increase the tax coverage, compliance, synchronization and track-ability amongst unorganized, partly organized and fully organized sectors.

Generally, the supplier of goods or services is liable to pay GST. However, in specified cases like imports and other notified supplies, the liability may switch to the recipient under the reverse charge mechanism. Reverse charge means the liability to pay tax rests on the recipient of supply of goods or services instead of the supplier, however only on special categories of supply.

Mixed Supply

A mixed supply is a combination of two or more individual supplies of goods or services or any other arrangement of goods or services made by a GST payer for a single price. The components of the mixed supply are not organically bundled but it is an intentional fusion from business perspective.

A mixed supply could be a gifting set comprising of a pen, a tie, a wallet and a key ring.

Composite Supply

A composite supply is an organic combination of two or more individual supplies of goods and services or any other natural arrangement of goods or services made by a GST payer for a single price.

A composite supply is further broken into two parts:

  • Principal Supply: The major and the foremost element in the Composite Supply of goods or services.
  • Dependent Supply: This is the depending element and rests on the Principal Supply.

A composite supply could be a breakfast coupled with the stay package in a hotel, which would be seen as a natural blend. In this case, stay package is the Principal Supply and the breakfast is a Composite Supply.

Continuous Supply

A continuous supply is a supply, when the goods and / or services are supplied at a specific interval [fortnight / monthly] and the payments are also received in the same manner.

A composite supply could be the services provided by a telecom operator.

ITC

Input tax credit [ITC] is the credit manufacturers receive for paying input taxes towards inputs used in the manufacture of products. Likewise, a dealer is entitled to input tax credit, if he has purchased goods for resale.

To avoid double taxation on items used as inputs to make other items, credit of taxes paid on the inputs can be taken by the maker of the next item while paying tax on the output. If the tax paid on inputs is higher than the tax on the output, the excess can be claimed as a refund.

Input Tax Credit is not generic for PAN India, differs state-wise and does not apply to the composite tax payers.

GSTR

GSTR, i.e. GST Return is a document capturing the details of the income, which a tax payer is supposed to file with the authorities to calculate his tax liability. There are total eleven types of GST returns, starting from GSTR-1 to GSTR-11, capturing and catering to different forms of tax payers.

A GST primarily includes:

  • Sales data
  • Purchase data
  • Output GST [Derived from Sales]
  • Input Tax Credit [ GST paid on purchases]

GST Compliance Rating

GST Compliance Rating is primarily a numerical value and a score between [0 -10] assigned by the government to all the tax payers, which speaks about being their GST compliance. The rating is assigned to all the GSTIN and GSTUIN holders based on a number of factors including but not limited to your return filing habits on time, accuracy of your fed data etc. among many others.

Though the actual rating format is still to be announced, however it should be similar to having a 0-10 scale, where zero accounts for the lowest score and 10 denotes a cent percent compliance.

To avail the ITC and also keep it flowing seamlessly, the rating would be a critical factor. If the ITC is not available smoothly, the working capital will also be impacted adversely. The rating will also impact the legitimate buyers to avail the input tax credit, if the suppliers is not complying up to the mark.

To read more of such articles and industry updates on GST, please click here.

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