Procedure for Electronic filing of Service Tax

In continuation of its efforts for trade facilitation, CBEC has rolled-out a new centralized, web-based and workflow-based software application called Automation of Central Excise and Service Tax (ACES) in all 104 Commissionerates of Central Excise, service Tax and large Tax Payer Units (LTUs) as on 23rd December, 2009. ACES is a Mission Mode project (MMP) of the Govt. of India under the national e-governance plan and it aims at improving tax-payer services, transparency, accountability and efficiency in the indirect tax administration in India. This application has replaced the current applications of SERMON, SACER, and SAPS used in Central Excise and Service Tax for capturing returns and registration details of the assessees and hence, in supercession of the CBEC Circular No.791/24/2004-CX. dated 1.6.2004 and CBEC Circular No. ST 52/1/2003 dated 11.03.2003, this revised circular is being issued.



II. Modules



The ACES application has interface for:

Ø Central Excise Assessees

Ø Service Tax Assessees

Ø Central Excise Departmental Officers and

Ø Service Tax Departmental Officers.



It has automated the major processes of Central Excise and Service Tax - registration, returns, accounting, refunds, dispute resolution, audit, provisional assessment, exports, claims, intimations and permissions. It is divided into the following modules:



Access Control of Users (ACL)
Registration (REGN): Registration of assessees of Central Excise & Service Tax including on-line amendment.
Returns (RET): Electronic filing of Central Excise & Service Tax Returns
CLI: Electronic filing of claims, intimations and permissions by assessees and their processing by the departmental officers
Refund (REF): Electronic filing of Refund Claims and their processing
Provisional Assessment (PRA): Electronic filing of request for provisional assessment and its processing by the departmental officers.
Assessee Running Account
Dispute Settlement Resolution (DSR): Show Cause Notices, Personal Hearing Memos, Adjudication Orders, Appellate and related processes.
Audit Module
Export Module for processing export related documents


III. Benefits to the Assessees



1. Reduce Physical Interface with the Department

2. Save Time

3. Reduce Paper Work

4. Online Registration and Amendment of Registration Details

5. Electronic filing of all documents such as applications for registration, returns [On-line and off-line downloadable versions of ER 1,2,3,4,5,6, Dealer Return, and ST3], claims, permissions and intimations; provisional assessment request, export-related documents, refund request

6. System-generated E-Acknowledgement



7. Online tracking of the status of selected documents

8. Online view facility to see selected documents

9. Internal messaging system on business-related matters



IV. Registration Process:



To transact business on ACES a user has to first register himself/herself with ACES through a process called ‘Registration with ACES’. This registration is not a statutory registration as envisaged in Acts/Rules governing Central Excise and Service Tax but helps the application in recognizing the bonafide users. Described below are steps for taking registration by a new assessee, existing assessee, non-assessee and a Large Tax Payer Unit (LTU).



(a) New Assessee



1. The user needs to log onto the system, through internet at http://www.aces.gov.in

2. He/she chooses the Central Excise/Service Tax button from the panel appearing on the left of the webpage.

3. Clicks the button “New Users Click here to Register with ACES” in the Log-in screen that appears after clicking Central Excise/Service Tax button.

4. Fills in and submits the form “Registration with ACES”, by furnishing a self-chosen user ID and e-mail ID. User ID, once chosen is final and cannot be changed by the assessee in future.

5. The system will check for availability of the chosen User ID and then generate a password and send it by e-mail, mentioned by him/her in the Form.

6. ACES provides assistance of ‘Know your location code’ for choosing correct jurisdictional office.

7. The user then re-logs-in and proceeds with the statutory registration with Central Excise/Service Tax, by filling-in the appropriate Form namely A-1, A-2 or ST-1 etc. by clicking the “Reg” link in the Menu bar that appears on the top of the screen. For security reasons, the password should be changed immediately.

8. The system instantaneously generates an acknowledgement number after which the registration request goes to the jurisdictional Assistant or Deputy Commissioner (AC/DC). Depending on the instructions in force, assessees may be required to submit certain documents to the department for verification. After due processing, the AC/DC, in case of Central Excise and Superintendent /Commissioner (for centralized registration only), in case of Service Tax, generates Registration Certificate (RC) and a message to this effect is sent to the assessees electronically. The assessee can view this and take a print-out of this.

9. Depending on the option chosen by the assessee, the signed copy of the RC can be sent by post or can be collected by assessee in person.

10. While submitting registration form, if the assessee makes a mistake in choosing a wrong jurisdiction (Commissionerate/Division/ Range), ACES provides a facility to the AC/DC to forward the application to the correct jurisdictional officer to issue registration and a message to this effect is sent to the assesseefor information.

11. The registration number will be same as the current 15-digit format with minor change such as

For-PAN based Assessees

1-10 digits – PAN of the Assessee

11-12 digits–EM (Excise Manufacturer), ED (Excise Dealer), SD (Service Tax)

13-15–Systems generated alphanumeric serial number



For non-PAN based assessees

1-4 digits TEMP

5-10 Systems generated alpha numeric number

11-12 EM (Excise Manufacturer) or ED (Excise Dealer), SD (Service Tax)

13-15–Systems generated alphanumeric serial number



(b) Existing Assessee



The existing assessees will not have to take fresh registrations. They will have to only register with the ACES application. This can be done in the following manner :


·ACES application will automatically send mails to the e-mail IDs of the assessee, as available in the existing registration data base, indicating a TPIN number, and password. The mail will contain a hyperlink to the website.

· Assessee clicks on the hyperlink and is taken to ACES application

· Assessee submits the form after filling the requisite information including the password provided in the e-mail, a new User ID and new password. User ID, once chosen is final and cannot be changed by the assessee in future.

· On successful registration with ACES, the assessee can transact business through ACES.



Existing assessees should note that they should register with ACES by following the procedure at (1) above and they should not register with ACES through the direct method, meant for new assessees, as discussed under (a) above. They should also not fill-in registration forms again as it will lead to allotment of new registration numbers by the system.
Assessees should ensure that their contact details in the department’s registration data base are updated to include their valid and current e-mail ids, otherwise they will not receive any such mail. Those assessees who have not yet furnished their email IDs to the department or even after furnishing the ID have not received the TPIN mail from ACES are advised to contact the jurisdictional Range Officers or LTU Client Executives and furnish their email IDs in writing. The officer will thereafter incorporate the email ID in the ACES registration database of the assessee and arrange to send the TPIN mail to the assessee’s email ID.


(c) Non-Assessee



This category of registration is given in ACES to any individual, firm or company which requires to transact with the Central Excise or Service Tax Department, though not an assessee such as (a) merchant exporter, (b) co-noticee, (c) refund applicant, (d) persons who have failed to obtain CE/ST registration as required under the law and against whom the Department has initiated proceedings and (e) persons who are required to tender any payment under CE/ST Act /Rules. The Non-assessees are not required to file any tax returns.
Where such persons desire to seek non-assessee registration they follow same steps as in case of new assessee except that while choosing the registration form in step (vii) they have to choose and fill in the Non-assessee form.
In case the assessee is taking such registration for claiming any refund or rebate it is mandatory to furnish his/her valid PAN.
A Non-assessee registration can also be done by the designated officer of the Commissionerate, on behalf of the non-assessee.


(d) Large Tax Payer Unit (LTU) Assessee/Client



The consent form will have to be submitted manually by the New LTU assessees to the jurisdictional LTU office which will be processed off line
The approved consent form will be uploaded by the competent officer of the Group LTU (GLTU) into ACES
Any new unit of an existing LTU, which applies for registration with ACES will be automatically attached with the LTU Commissionerate based upon PAN details in the registration form
As soon as the new or existing unit is attached with the LTU Commissionerate, a suitable intimation will be automatically sent by the ACES to the existing jurisdictional Commissionerate and the pending items of work will be transferred to the LTU Commissionerate
For existing LTU assessees, the process of registration is same as explained in Sub Para (b) above.


IMPORTANT:

i. The user ID once selected will be permanent and cannot be changed. However, it is desirable to frequently change passwords

ii. The User ID should be of 6-12 alphanumeric characters, no special character such as !@#$%*&( )+ or spaces except underscore ‘-‘ shall be allowed.

iii. New assessee seeking registrations in Central Excise and Service Tax will also submit to the jurisdictional Range officer, a printout of the application form submitted online duly signed by the authorized signatory along with required documents.

iv. Assessees should note that the e-mail ID is furnished to the department in writing, and they will be responsible for all communications to and from this email ID. Currently, ACES provides for communication to one email ID only. After registration with the ACES, assessees, on their own, can modify their registration details online, including their e-mail ID.

v. In the interest of security and data protection, assessees are advised to change their passwords regularly and not to share it with unauthorized persons. In case of any dispute, the person whose user ID and Password has been used to access the application will be held liable for the action and any other consequences.





V. E-filing of Returns



The assesses can electronically file statutory returns of Central Excise and Service Tax by choosing one of the two facilities being offered by the department at present: (a) they can file it online, or (b) download the off-line return utilities which can be filled-in off-line and uploaded to the system through the internet.



a. Steps for preparing and filing returns



(i) Returns can be prepared and filed on line by selecting the ‘File Return’ option under RET module after logging into the ACES.

(ii) All validations are thrown up during the preparation of the return in this mode and the status of the return filed using the online mode is instantaneously shown by ACES.

(iii) Returns can also be prepared and filed off-line. Assessee downloads the Offline return preparation utility available at http://www.aces.gov.in (Under Download)

(iv) Prepares the return offline using this utility. The return preparation utility contains preliminary validations which are thrown up by the utility from time to time.

(v) Assessee logs in using the User ID and password.

(vi) Selects RET from the main menu and uploads the return. Instructions for using the offline utilities are given in detail in the Help section, under ‘Download’ link and assessees are advised to follow them.

(vii) Returns uploaded through this procedure are validated by the ACES before acceptance into the system which may take up to one business day. Assesseecan track the status of the return by selecting the appropriate option in the RET sub menu. The status will appear as “uploaded” meaning under process by ACES, “Filed” meaning successfully accepted by the system or “Rejected” meaning the ACES has rejected the return due to validation error. The rejected returns can be resubmitted after corrections.

(viii) Once the Central Excise returns are filed online in ACES or uploaded to the system using the off-line utility, the same can not be modified or cancelled by the assessee. The Service Tax returns, however, can be modified once as per rules up to 90 days from the date of filing the initial return.

(ix) Self-assessed CE returns, after scrutiny by the competent officer, may result into modification. Both the ‘Original’ and the ‘Reviewed’ return can be viewed by the assessee online.





b. Using XML Schema for filing Dealers Return



Currently, the ACES Application allows on-line filing of Quarterly Returns by the Registered Dealers accessing the site www.aces.gov.in by using the excel utility. Some assesses who use their own software application in their offices find the process of manual entry of data in the excel format of Returns as a time consuming and avoidable exercise. A new feature of XML schema has now been introduced. Now using the schema, assessees, after making necessary modifications in their own software application, can generate their return from their application. Below mentioned steps elaborate the process to prepare, validate and upload the Dealer’s Return.



Steps to prepare the XML



Step 1: ACES application accepts the return in XML format. Prepare the Dealer return XML and validate it against the schema ACES_DLR.xsd provided.

Step 2: Login to the ACES application and upload the XML for processing. XML will be again validated against same XSD again before processing.



XML File only will be considered valid if it satisfies the requirements of the schema (predefined XSD) with which it has been associated. These requirements typically include such constraints as:

Elements and attributes that must/may be included, and their permitted structure

The structure as specified by regular expression syntax

Instructions for using the schema are given in detail in the Help section, under ‘Download’ link. Assessees are advised to follow them.



c. Filing of Returns and other documents through the ACES Certified Facilitation Centres (CFCs)



Very soon, CBEC will be setting up ACES Certified Facilitation Centres (CFCs) with the help of professional bodies like Institute of Chartered Accountants of India (ICAI), Institute of Cost and Works Accountants of India (ICWAI) etc. These CFCc will provide a host of services to the assessees such as digitization of paper documents like returns etc. and uploading the same to ACES. Assessees requiring the services of the CFCs may be required to pay service fees to the CFCs. CBEC will approve the maximum rates at which CFCs can charge their customers for the services rendered by them. For this purpose, assessees are required to write to the department authorizing one of the CFCs, from the approved list, to work in ACES on their behalf. They have to furnish the name and other details of the CFCs, including the registration No issued by the ICAI/ICWAI etc. At any given time, one assessee can authorize one CFC, while one CFC can provide services to more than one assessee throughout India. In case the assessee wants to withdraw the authorization, it can do so by intimating the department. However, an assessee will be held liable for all actions of omission or commission of the CFC, during the period they are authorized by him/her to work in ACES.



d. Validation of the entries made while filling return



At the time of making entry in the electronic format of the relevant return, the software does some preliminary validation for ensuring correctness of data, either concurrently or at the time of saving / submitting the return. This validation process is automated. The user is prompted by the application software to correct the particulars entered wherever required. In respect of certain entries, although the application alerts the assessee about any entry found erroneous or inconsistent, as per the automated validation process, the assessee is still allowed to proceed further to complete data entry of the return and finally submit it electronically. But in some cases the assessees are not allowed to proceed further unless the error indicated is corrected.


A return filed electronically is subject to automatic verification process by the application and defective returns are marked to the departmental officer for review and correction. While reviewing the return the officer may seek some clarification from the assessee, call for some information, records or documents which should be furnished by the assessee. In case of review and correction of returns by the departmental officers, assesses will receive a message from the application and they can log in to the application to view the reviewed returns online.


Returns, captured off-line using the Downloadable utility and uploaded later on, are further subjected to certain validation checks. Processing of uploaded returns, using the off-line versions, is done at the end of one business day and the status can be viewed by the assessees under the ‘VIEW STATUS’ link under ‘RET’ module. Status is described as ‘UPLOADED’, ‘FILED’ or ‘REJECTED’ and they denote as follows:


Ø UPLOADED denotes that return is uploaded and under processing (assessees are advised to view the status after the end of a business day).

Ø FILED denotes that uploaded return is accepted by system.

Ø REJECTED denotes that return is rejected due to errors. (The assessees are required to correct the return and upload it again.)



There is no provision in ACES application to allow assessees to make corrections to the returns filed by them. Once the return is accepted by the system as successfully ‘filed’, no modification can be made by the assessee. However, if the return is rejected, the assessee can correct the errors and upload it again. Theassessees are, therefore, advised to take utmost care while fill-in in the returns. They may, however, bring it to the notice of the departmental officers.


e. Acknowledgement of E-Filing of the return



In the case of a Central Excise or service Tax return filed on-line, ACES application software acknowledges it by displaying an Acknowledgement message. A unique document reference number is generated which consist of 15-digit registration number of the assessee, name of the return filed, the period for which return is filed etc. This is also automatically communicated to the email id of the assessee by the application. In the case of an uploaded Central Excise return, using offline utility, similar acknowledgement is generated and sent after the acceptance of the return by the system as a valid return i.e. when the status changes to ‘FILED’.



f. Class of Assessees for whom e-filing of returns and e-payment is mandatory with effect from 1st April, 2010:



In terms of Notification No 04/2010-Central Excise (N.T.) dated the 19th February, 2010, an assessee, who has paid total duty of rupees ten lakhs or more including the amount of duty paid by utilization of CENVAT credit in the preceding financial year, is required to file the monthly or quarterly return, as the case may be, electronically, under sub-rule (1) of Rule 12 of the Central Excise Rules, 2002 and deposit the duty electronically through internet banking under sub-rule (1) of Rule 8 of the Central Excise Rules, 2002.


Similarly, in terms of Notification No. 01/2010 – Service Tax dated the 19th February, 2010, an assessee who has paid a total Service Tax of rupees ten lakhs or more including the amount paid by utilization of CENVAT credit, in the preceding financial year, is required to file the return electronically under sub-rule (2) of Rule 7 of the Service Tax Rules, 1994 and deposit the service Tax liable to be paid by him electronically, through internet banking under sub-rule (2) of Rule 6 of the Service Tax Rules, 1994.


The earlier facility of e-filing on the website (http://exciseandservicetax.nic.in), as provided in the CBEC Circular No.791/24/2004-CX. Dated 1.6.2004 is no more available and the assessees are required to file their returns online or by uploading the downloadable off-line return utilities to the new ACES website (http://www.aces.gov.in). Data structure for writing programmes to cull out the required return data (currently available for Dealer return) from the assessees’scomputers in XML format has also been provided. Such schema for ER 2 and ER 1 returns will be published in due course. For complete details and instructions,assessees can visit the aforesaid website. Assessees who are required to or opted to file returns electronically but are unable to file electronically, for any technical difficulty in filing the returns, on account of difficulties at the department’s end viz. server/application is down or due to some defect in the software, should file their returns manually within the due date.


g. e-payment



For e-payment, assessees should open a net banking account with one of the authorized banks (currently there are 28 banks, list of which is available on the EASIEST (Electronic Accounting System in Excise and service Tax) website of CBEC, maintained by NSDL (https://cbec.nsdl.com/EST/). Payment through ICICI Bank, HDFC Bank and Axis Bank can be done by assesses for select Commissionerates only, list of which is published in the aforesaid EASIEST website. Payment through all other authorized banks can be made for all Commissionerates.


For effecting payment, assessees can access the ACES website (http://www.aces.gov.in/) and click on the e-payment link that will take them to the EASIEST portal (https://cbec.nsdl.com/EST/) or they can directly visit the EASIEST portal.


Procedure for e-Payment:


To pay Excise Duty and Service Tax online, the assessee has to enter the 15 digit Assessee Code allotted by the department under erstwhile SACER/SAPS or the current application ACES.
There will be an online check on the validity of the Assessee Code entered.
If the Assessee code is valid, then corresponding assessee details like name, address, Commissionerate Code etc. as present in the Assessee Code Master will be displayed.
Based on the Assessee Code, the duty / tax i.e. Central Excise duty or Service Tax to be paid will be automatically selected.
The assessee is required to select the type of duty / tax to be paid by clicking on Select Accounting Codes for Excise or Select Accounting Codes for Service Tax, depending on the type of duty / tax to be paid.
At a time the assessee can select up to six Accounting Codes.
The assessee should also select the bank through which payment is to be made.
On submission of data entered, a confirmation screen will be displayed. If the taxpayer confirms the data entered in the screen, it will be directed to the net-banking site of the bank selected.
The taxpayer will login to the net-banking site with the user id/ password, provided by the bank for net-banking purpose, and will enter payment details at the bank site.
On successful payment, a challan counterfoil will be displayed containing CIN, payment details and bank name through which e-payment has been made. This counterfoil is proof of payment made.


h. Responsibility of the Assessee



It is the legal responsibility of the assessees, who are required to file returns, to file it within the due date as prescribed under law. The electronic filing of returns is mandatory for select class of Central Excise and Service Tax assessees, as mentioned in Notification No 04/2010-Central Excise (N.T.) dated the 19th February, 2010, and Notification No. 01/2010 – Service Tax dated the 19th February, 2010 respectively. Other assessees can also use ACES and file their returns electronically. It may, however, be noted that merely uploading the returns will not be considered as returns having been filed with the department. A return will be considered as filed, when the same is successfully accepted by the application as ‘Filed’ and the relevant date for determining the date of filing of return will be the date of uploading of such successfully ‘filed’ returns. In case a return is ‘rejected’ by the application, the date of uploading of the rejected return will not be considered as the date of filing, rather the date of uploading of the successfully ‘filed’, return (after the assessee carries out necessary corrections and uploads it again) will be considered as the actual date of filing.


In case the assessee experiences any difficulty in transacting in ACES such as filing of return, the assessees may lodge a complaint with the ACES Service Desk or the department by e-mail and/or by telephone, details of which are given below and obtain a ticket no. as an acknowledgement from the department. However, mere lodging of complaints with the ACES service desk will not be a valid ground to justify late filing of returns. If the difficulty is not on account of problems at theassessee’s end, and can be clearly attributed to the department’s IT infrastructure such as problems in accessing CBEC’s ACES application due to server, network or application being down, proportionate time will be deducted from the date of uploading of successfully ‘filed’ returns to ascertain the actual date and time of filing of the return. Since the department maintains logs of such technical failures, in case of any dispute, the decision of the department will be final.


VI. Digital Signatures



The ACES application is designed to accept digitally signed documents. However, in the beginning this functionality is not going to be activated. Pending its activation the electronic returns will be filed into ACES without digital signatures. Hence, wherever the returns are submitted through ACES there will not be any requirement to submit signed hard copy separately.



VII. System Requirements for ACES



To use ACES following systems requirements are recommended:



Ø Processor: Intel Pentium III and higher

Ø RAM: 256 MB and higher

Ø HDD: 80 GB and more

Ø Web Browser: IE 6.0 and above, Netscape 6.2 and above

Ø MS Excel 2003 and above for using offline utilities

Ø Sound Card, Speakers/Headphones, Colour Monitor for using Learning Management Systems ( LMS)





VIII. Help for Assessees



CBEC has set up a Service Desk with National toll-free No. 1800 425 4251, which can be accessed by between 9 AM to 7 PM on all working days (Monday to Friday). Besides, e-mails can be sent to aces.servicedesk@icegate.gov.in. All the calls/e-mails will be issued a unique ticket number, which will be attended to by the Service Desk agents for appropriate response.



A Learning Management Software (LMS) has been provided on the ACES website, which is a multimedia-based self-learning online tutorial guiding the aseesees in a step-by-step processes to use ACES. The downloadable version of Learning Management Software is also provided on the website. Besides, User Manuals, Frequently Asked Questions (FAQs), Power Point Presentation, and a Brochure have also been provided on the website to help the assessees use ACES

Deduction for Higher Educatoin Loan 80E on Sons Education

80E. (1) In computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, any amount paid by him in the previous year, out of his income chargeable to tax, by way of interest on loan taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education or for the purpose of higher education of his relative.

from above main points to avail the deduction are


1.Eduction loan should be taken by Assessee.
2.The amount eligible for deduction is repayment of eduction loan interest.
3.There is no limit for amount of repayment of interest.Unlimited amount of interest can be deducted under this section.
4.This deduction is available in respect of the initial assessment year and seven assessment years immediately succeeding the initial assessment year or until the interest is paid by the assessee in full, whichever is earlier.
5.Initial Assessment year means previous year in which assessee starts paying the interest amount.
6.The loan should be taken for the purpose of higher eduction,and higher eduction means " any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central Government or State Government or local authority or by any other authority authorised by the Central Government or State Government or local authority to do so;
7.The loan should be taken from any financial institution or any approved charitable institution.(in simple main Banks are covered)
8.The loan should be taken for higher study of himself or studies of relative
9.Relative under this section means the in relation to an individual, means the spouse and children of that individual the student for whom the individual is the legal guardian.
10.Earlier to previous year 2006-07 the above deduction is available for loan taken and repaid by the assessee only but after finance act 2007 ,"the deduction is available for the purpose of higher education of his relative also.relative, in relation to an individual, means the spouse and children of that individual or the student for whom the individual is the legal guardian.
11.There is no deduction available for repayment of principal ,this deduction is available to only for interest.
12.This deduction is available for individual only and not for other type of assessee .
13.The loan should be for pursuing higher studies means loans taken not only for tuition or college fees but also loan taken other incidental expenses for pursuing such studies like hostel charges,transport charges etc etc is also covered under this deduction,
14.There is no condition that the course should be in India .
please read some hypothetical examples for clarification.

Qus: Ram has taken a Eduction loan for his higher studies on 20.06.2005 and started paying installments including interest from 20.06.2007.


Ans:In above example Ram will get tax benefit under section 8o E from p.y 2007-08 i.e initial year of payment and next seven year i.e upto previous year 2014-15 or upto full payment of loan which ever is earlier.

Ques:Ram has taken a loan for his higher studies on 20.06.2005 and paid 20000 interest in previous year and his father has paid 15000 interest payment in previous year 2007-08.who can claim benefit of deduction.

Ans:Only ram will be eligible for deduction of 20000 rs .His father is not eligible for deduction the reason behind this is that loan has been taken by the Ram and not by his father as mentioned in point one above ,though his father is satisfy the condition of relative and paid the interest also but he has not taken the loan

Ques:Can son /daughter can claim the benefit of deduction for loan taken for higher studies of his /her father/mother.

Ans: No,on the reverse ,parents can claim the benefit for payment of interest for higher studies of their children.

Ques:Ram has taken a loan for his higher studies ,and has repaid the laon interest amount but unfortunately he has not succeeded in exams and could not complete his higher studies.

Ans:As per section loan should be for "pursuing his higher education or for the purpose of higher education of his relative"and ram has pursued the higher course so he should be eligible for the deduction as he has fulfilled all the conditions and there is no condition that the course assessee has persuaded should b completed or assessee should be passed definitely in the course the main dedmand of the section is purpose of the loan should be higher eduction and it should be drawn and used for the purpose of higher studies for his or his relatives

TDS Rate Applicability : Frequently Asked Questions

In which cases surcharge on TDS rates is NOT applicable ?


•On all payment to residents
•On all payment to non-corporate non-residents
•On all payments to foreign corporate if total payment is less than 1 Crore
In which cases surcharge on TDS rates is applicable ?

•On all payments to foreign corporate if total payment is more than 1 Crore
In which cases Education Cess, Secondary and Higher Education Cess is NOT applicable ?

•On all payments to residents except salaries payment
In which cases Education Cess, Secondary and Higher Education Cess is applicable ?

•On salaries
•On all payment to non-residents and foreign companies
What is the effective date for above changes in applicability of surcharge and education cess?


•These changes are applicable on the passing of Finance Bill . This date is 19-08-2009. However there are different views on applicability date. One view is that since these changes are for the full financial year, one can take benefit of Section 294 of the income tax Act and start applying this rate from the date of presentation of finance bill.(in my view its applicable from 01.04.2009 , same view is given in The Chartered Accountant Journal released by ICAI)
•Please ask your tax consultant for more clarifications.
Status
Payment
Surcharge
Cess

Resident
Corporate
Other than Salaries
N
N

Resident
Non-corporate
Other than Salaries
N
N

Resident
Non- Corporate
Salaries
N
Y

Non-Resident
Corporate
<= 1 crore
N
Y

Non-Resident
Corporate
> 1 crore
Y
Y

Non-Resident
Non- Corporate

N
Y



There has been change in TDS Rates for 94C- Contractual Payments and 94I- rental payments. What is the effective date for the same ?

•These changes are applicable from 01-10-2009.
Apart from the above , is there any other change in the TDS Rates ?

•Yes. The maximum rate of TDS is normalised to 10% in most cases. Please refer to the TDS Rate Chart for FY 2009-10 (check TDS Rate & downlaod Chart)
What about penal rate of 20% where valid PAN is not given ?

•This provision is applicable from 01-04-2010. Till such time even if valid PAN is not given , normal rate will be applied.
What is your source of above information.

•Applicability of surcharge is mentioned in Clause (5), (6), (7) and (8) in Chapter II of the Finance ( No 2) Act , 2009.
•Applicability of Education Cess : Clause (11). Applicability of Secondary and Higher Education Cess : Clause (12).

TDS ON JOB WORK U/S 194C AMENDED FROM 01.10.2009

As per amendment through Finance Act(2) ,2009,new Section 194C has been substituted for old section 194C .New Section is applicable from the 01.10.2009.The main changes in the new section is given as under

1.Separate rates for contractor and subcontractor has been removed.Now the tax rate has been categorised according the status of deductee and new TDS rates for contractors are as under
◦For payment made to Individual & Hindu undivided family=1 %
◦For payment to others =2%
2. Concessional rate of 1 % for advertisement Contracts has been removed and now rates as defined under (1) above is applicable on all type of contractor including Advertisement contracts.
3.No TDS on payment to transport operator (i.e in the business of playing,hiring or leasing goods carriage),if he/it furnishes his PAN to payer.
4.No surcharge and cess applicable on basic TDS rate in FY 2009-10 on payments made to resident except salary
5.Basic limit of 20000 and 50000 per annum remains unchanged.
6.No tds in case of payment of Job work ,if raw material has not been supplied by the payer.


TDS in case of JOB work according to specification(brief):In case of work contract being manufacturing or supplying product according to specification(by using material from such customer),tds shall be deducted on the invoice value excluding the value of material purchased from such customer,if such value is mentioned separately in the invoice.where the material component has not been separately mentioned in the invoice,tds shall be deducted on the whole value of the invoice.

Relevant clause of new section :is reproduced hereunder

EXPLANATION TO SECTION 194 C

(iv) work shall include
(a).......
(b).......
(e) 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.

subsection (3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source
(i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or
(ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice.


•There is ongoing litigation as to whether TDS is deductible under section 194C on outsourcing contracts and whether outsourcing constitutes work or not. To bring clarity on this issue, it is proposed to provide that “work” shall not include manufacturing or supplying a product according to the requirement or specification of a customer by using raw material purchased from a person other than such customer as such a contract is a contract for ‘sale’.
•This will however not apply to a contract which does not entail manufacture or supply of an article or thing (e.g. a construction contract).
•It is also proposed to include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, within the definition of ‘work’.
•It is further proposed to provide that in such a case TDS shall be deducted on the invoice value excluding the value of material purchased from such customer if such value is mentioned separately in the invoice. Where the material component has not been separately mentioned in the invoice, TDS shall be deducted on the whole of the invoice value.
amendments will apply to credits or payment effected on or after 1st October, 2009.


•So Explanation to new section clearly ruled out the TDS on payment to contractor on manufacturing or supply material according to specification of a customer ,if raw material used has not been purchased from the Customer(PAYER)
•Further subsection (3)clarifies that in case contractor has used the raw material supplied by the customer (payer ) then tds is deductible on invoice value excluding material value ,if shown separately .If material valud has not been mentioned in the Bill then TDS is required to be deducted on FULL invoice value.
•Further notes to this clause also clarifies that the above rule is applicable on contract for manufacturing and not on on construction contract





Example:1:



Bata shoe company has issued purchase cum work order of boxes according to company specification for packing of shoes to ABC Ltd. ABC ltd purchased the required raw material from market to manufacture such boxes and supplied the boxes to Bata shoe company.

In above situation Bata shoes company is not liable to deduct TDS on payment to ABC company .As per note (iv) to explanation of section 194C ,contract to manufacture the product according to customer specification ,but where material is not supplied by the customer ,is not covered under work contract definition as per section 194 C .


Example :2
Suppose in above contract Bata shoes Company has supplied all the raw material to ABC LTD for 100000/- Rs and total contract value of contract is 200000/- Rs.
(a) ABC billed Bata for 2 lakh and in invoice material value has been shown as one lakh.
(b) ABC LtD ,billed Bata for 2 lakh sum sum and no detail has been mentioned about the material.

In case (a) above BATA shoes co is required to deduct tax on one lakh rupees .(gross bill minus material value)(as per subsection (3) section 194C)
In Case (b) above Bata shoe co is required to deduct tax on Two lakh rupees (Gross bill,as nothing mentioned about material cost)(as per subsection (3) section 194C

SIMPLETAXINDIA:First Discussion Paper on GST (Goods and Services Tax) released

The Empowered Committee Of State Finance Ministers has released First discussion Paper on the GST (Goods and service tax).The GST as name suggests is a combined tax at a Uniform rate in lieu of Indirect tax like VAT,CST ,excise etc.except few exception here and there.According to discussion paper ,the main feature of the New GST system is given under.

1.There will two system one id for Inter State sale that will be Call Centeral GST(CGST) and second is State GST(SGST)
2.For CGST the following taxes will be subsumed (merged into GST rate)
◦Central Excise Duty
◦Additional Excise Duties
◦ The Excise Duty levied under the Medicinal and Toiletries Preparation Act
◦Service Tax
◦Additional Customs Duty, commonly known as Countervailing Duty (CVD)
◦Special Additional Duty of Customs - 4% (SAD)
◦ Surcharges, and
◦ Cesses.
3.





For State GST following taxes is planned to be subsumed (merged into GST rate)

◦VAT / Sales tax
◦Entertainment tax (unless it is levied by the local bodies).
◦Luxury tax
◦Taxes on lottery, betting and gambling.
◦State Cesses and Surcharges in so far as they relate to supply of goods and services.
◦Entry tax not in lieu of Octroi.








4.Committee has not agreed to merge Purchase tax ,tax on alcohol, tobacco, petroleum products with in GST.
5.There will be Inter State GST(IGST) rate which is a sum of CGST and SGST and applicable on all interstate transactions (goods or services) and input tax credit will be available to both importing and exporting states dealers.so that tax remain applicable only on value additions.advantage of IGST given in the paper are
◦Maintenance of uninterrupted ITC chain on inter-State transactions.
◦No upfront payment of tax or substantial blockage of funds for the inter-State seller or buyer.
◦ No refund claim in exporting State, as ITC is used up while paying the tax.
◦ Self monitoring model.
◦ Level of computerization is limited to inter-State dealers and Central and State Governments should be able to computerize their processes expeditiously.
6.There will be 10 lakh basic exemption under SGST and 1.5 Crore in CGST
7.ALL dealers will be issued a unique pan based registration number .
8.All inter state dealers will be e regsitered.
9.GST rate structure is yet not finalised .however small dealer(sale+service from 10 lakh to 50 lakks) may opt for flat compound rate of 0.5% of the sale or service.(same as under VAT named as TOT dealer)
10.GST is proposed to be implemented from 01.04.2010.
There are few Frequently asked question appended in the white paper which are reproduced hereunder.








Question 1 : What is the justification of GST ?



Answer : There was a burden of “tax on tax” in the pre-existing Central excise duty of the Government of India and sales tax system of the State Governments. The introduction of Central VAT (CENVAT) has removed the cascading burden of “tax on tax” to a good extent by providing a mechanism of “set off” for tax paid on inputs and services upto the stage of production, and has been an improvement over the pre-existing Central excise duty. Similarly, the introduction of VAT in the States has removed the cascading effect by giving set-off for tax paid on inputs as well as tax paid on previous purchases and has again been an improvement over the previous sales tax regime.

But both the CENVAT and the State VAT have certain incompleteness. The incompleteness in CENVAT is that it has yet not been extended to include chain of value addition in the distributive trade below the stage of production. It has also not included several Central taxes, such as Additional Excise Duties, Additional Customs Duty, Surcharges etc. in the overall framework of CENVAT, and thus kept the benefits of comprehensive input tax and service tax set-off out of the reach of manufacturers/ dealers. The introduction of GST will not only include comprehensively more indirect Central taxes and integrate goods and services taxes for set-off relief, but also capture certain value addition in the distributive trade.

Similarly, in the present State-level VAT scheme, CENVAT load on the goods has not yet been removed and the cascading effect of that part of tax burden has remained unrelieved. Moreover, there are several taxes in the States, such as, Luxury Tax, Entertainment Tax, etc. which have still not been subsumed in the VAT. Further, there has also not been any integration of VAT on goods with tax on services at the State level with removal of cascading effect of service tax. In addition, although the burden of Central Sales Tax (CST) on inter-State movement of goods has been lessened with reduction of CST rate from 4% to 2%, this burden has also not been fully phased out. With the introduction of GST at the State level, the additional burden of CENVAT and services tax would be comprehensively removed,and a continuous chain of set-off from the original producer’s point and service provider’s point upto the retailer’s level would be established which would eliminate the burden of all cascading effects, including the burden of CENVAT and service tax. This is the essence of GST. Also, major Central and State taxes will get subsumed into GST which will reduce the multiplicity of taxes, and thus bring down the compliance cost. With GST, the burden of CST will also be phased out.

Thus GST is not simply VAT plus service tax, but a major improvement over the previous system of VAT and disjointed services tax – a justified step forward.



Question 2. What is GST? How does it work ?

Answer : As already mentioned in answer to Question 1, GST is a tax on goods and services with comprehensive and continuous chain of set-off benefits from the producer’s point and service provider’s point upto the retailer’s level. It is essentially a tax only on value addition at each stage, and a supplier at each stage is permitted to set-off, through a tax credit mechanism, the GST paid on the purchase of goods and services as available for set-off on the GST to be paid on the supply of goods and services. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

The illustration shown below indicates, in terms of a hypothetical example with a manufacturer, one wholeseller and one retailer, how GST will work. Let us suppose that GST rate is 10%, with the manufacturer making value addition of Rs.30 on his purchases worth Rs.100 of input of goods and services used in the manufacturing process. The manufacturer will then pay net GST of Rs. 3 after setting-off Rs. 10 as GST paid on his inputs (i.e. Input Tax Credit) from gross GST of Rs. 13. The manufacturer sells the goods to the wholeseller. When the wholeseller sells the same goods after making value addition of (say), Rs. 20, he pays net GST of only Rs. 2, after setting-off of Input Tax Credit of Rs. 13 from the gross GST of Rs. 15 to the manufacturer. Similarly, when a retailer sells the same goods after a value addition of (say) Rs. 10, he pays net GST of only Re.1, after setting-off Rs.15 from his gross GST of Rs. 16 paid to wholeseller. Thus, the manufacturer, wholeseller and retailer have to pay only Rs. 6 (= Rs. 3+Rs. 2+Re. 1) as GST on the value addition along the entire value chain from the producer to the retailer, after setting-off GST paid at the earlier stages. The overall burden of GST on the goods is thus much less. This is shown in the table below. The same illustration will hold in the case of final service provider as well.



Question 3 : How can the burden of tax, in general, fall under GST ?

Answer : As already mentioned in Answer to Question 1, the present forms of CENVAT and State VAT have remained incomplete in removing fully the cascading burden of taxes already paid at earlier stages. Besides, there are several other taxes, which both the Central Government and the State Government levy on production, manufacture and distributive trade, where no set-off is available in the form of input tax credit. These taxes add to the cost of goods and services through “tax on tax” which the final consumer has to bear. Since, with the introduction of GST, all the cascading effects of CENVAT and service tax would be removed with a continuous chain of set-off from the producer’s point to the retailer’s point, other major Central and State taxes would be subsumed in GST and CST will also be phased out, the final net burden of tax on goods, under GST would, in general, fall. Since there would be a transparent and complete chain of set-offs, this will help widening the coverage of tax base and improve tax compliance. This may lead to higher generation of revenues which may in turn lead to the possibility of lowering of average tax burden.


Question 4 : How will GST benefit industry, trade and agriculture ?



Answer : As mentioned in Answer to Question 3, the GST will give more relief to industry, trade and agriculture through a more comprehensive and wider coverage of input tax set-off and service tax set-off, subsuming of several Central and State taxes in the GST and phasing out of CST. The transparent and complete chain of set-offs which will result in widening of tax base and better tax compliance may also lead to lowering of tax burden on an average dealer in industry, trade and agriculture.


Question 5 : How will GST benefit the exporters?

Answer : The subsuming of major Central and State taxes in GST, complete and comprehensive setoff of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.


Question 6 : How will GST benefit the small entrepreneurs and small traders?

Answer : The present threshold prescribed in different State VAT Acts below which VAT is not applicable varies from State to State. The existing threshold of goods under State VAT is Rs. 5 lakhs for a majority of bigger States and a lower threshold for North Eastern States and Special Category States. A uniform State GST threshold across States is desirable and, therefore, the Empowered Committee has recommended that a threshold of gross annual turnover of Rs. 10 lakh both for goods and services for all the States and Union Territories may be adopted with adequate compensation for the States (particularly, the States in North-Eastern Region and Special Category States) where lower threshold had prevailed in the VAT regime. Keeping in view the interest of small traders and small scale industries and to avoid dual control, the States considered that the threshold for Central GST for goods may be kept at Rs.1.5 crore and the threshold for services should also be appropriately high. This raising of threshold will protect the interest of small traders. A Composition scheme for small traders and businesses has also been envisaged under GST as will be detailed in Answer to Question 14. Both these features of GST will adequately protect the interests of small traders and small scale industries.



Question 7 : How will GST benefit the common consumers?

Answer : As already mentioned in Answer to Question 3, with the introduction of GST, all the cascading effects of CENVAT and service tax will be more comprehensively removed with a continuous chain of set-off from the producer’s point to the retailer’s point than what was possible under the prevailing CENVAT and VAT regime. Certain major Central and State taxes will also be subsumed in GST and CST will be phased out. Other things remaining the same, the burden of tax on goods would, in general, fall under GST and that would benefit the consumers.


Question 8 : What are the salient features of the proposed GST model?

Answer : The salient features of the proposed model are as follows:

(i)Consistent with the federal structure of the country, the GST will have two components: one levied by the Centre (hereinafter referred to as Central GST), and the other levied by the States (hereinafter referred to as State GST). This dual GST model would be implemented through multiple statutes (one for CGST and SGST statute for every State). However, the basic features of law such as chargeability, definition of taxable event and taxable person, measure of levy including valuation provisions, basis of classification etc. would be uniform across these statutes as far as practicable.

(ii)The Central GST and the State GST would be applicable to all transactions of goods and services except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits.

(iii) The Central GST and State GST are to be paid to the accounts of the Centre and the States separately.

(iv)Since the Central GST and State GST are to be treated separately, in general, taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST.

(v) Cross utilisation of ITC between the Central GST and the State GST would, in general, not be allowed.

(vi) To the extent feasible, uniform procedure for collection of both Central GST and State GST would be prescribed in the respective legislation for Central GST and State GST.
(vii) The administration of the Central GST would be with the Centre and for State GST with the States.

(viii) The taxpayer would need to submit periodical returns to both the Central GST authority and to the concerned State GST authorities.

(ix)Each taxpayer would be allotted a PAN-linked taxpayer identification number with a total of 13/15 digits. This would bring the GST PAN-linked system in line with the prevailing PAN-based system for Income tax facilitating data exchange and taxpayer compliance. The exact design would be worked out in consultation with the Income-Tax Department.

(x)Keeping in mind the need of tax payers convenience, functions such as assessment, enforcement, scrutiny and audit would be undertaken by the authority which is collecting the tax, with information sharing between the Centre and the States.


Question 9 : Why is Dual GST required ?

Answer : India is a federal country where both the Centre and the States have been assigned the powers to levy and collect taxes through appropriate legislation. Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal federalism.


Question 10 : How would a particular transaction of goods and services be taxed simultaneously under Central GST (CGST) and State GST (SGST)?

Answer : The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, both would be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of CENVAT. While the location of the supplier and the recipient within the country is immaterial for the purpose of CGST, SGST would be chargeable only when the supplier and the recipient are both located within the State.


Illustration I : Suppose hypothetically that the rate of CGST is 10% and that of SGST is 10%. When a wholesale dealer of steel in Uttar Pradesh supplies steel bars and rods to a construction company which is also located within the same State for , say Rs. 100, the dealer would charge CGST of Rs. 10 and SGST of Rs. 10 in addition to the basic price of the goods. He would be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government. Of course, he need not actually pay Rs. 20 (Rs. 10 + Rs. 10 ) in cash as he would be entitled to set-off this liability against the CGST or SGST paid on his purchases (say, inputs). But for paying CGST he would be allowed to use only the credit of CGST paid on his purchases while for SGST he can utilize the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.


Illustration II: Suppose, again hypothetically, that the rate of CGST is 10% and that of SGST is 10%. When an advertising company located in Mumbai supplies advertising services to a company manufacturing soap also located within the State of Maharashtra for, let us say Rs. 100, the ad company would charge CGST of Rs. 10 as well as SGST of Rs. 10 to the basic value of the service. He would be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government. Of course, he need not again actually pay Rs. 20 (Rs. 10+Rs. 10) in cash as it would be entitled to set-off this liability against the CGST or SGST paid on his purchase (say, of inputs such as stationery, office equipment, services of an artist etc). But for paying CGST he would be allowed to use only the credit of CGST paid on its purchase while for SGST he can utilise the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.


Question 11 : Which Central and State taxes are proposed to be subsumed under GST ?

Answer : The various Central, State and Local levies were examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind:

(i)Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services.

(ii)Taxes or levies to be subsumed should be part of the transaction chain which commences with import/ manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other.

(iii) The subsumation should result in free flow of tax credit in intra and inter-State levels.
(iv)The taxes, levies and fees that are not specifically related to supply of goods & services should not be subsumed under GST.
(v)Revenue fairness for both the Union and the States individually would need to be attempted.

On application of the above principles, the Empowered Committee has recommended that the following Central Taxes should be, to begin with, subsumed under the Goods and Services Tax:

(i) Central Excise Duty
(ii)Additional Excise Duties

(iii) The Excise Duty levied under the Medicinal and Toiletries Preparation Act

(iv)Service Tax

(v)Additional Customs Duty, commonly known as Countervailing Duty (CVD)

(vi)Special Additional Duty of Customs - 4% (SAD)

(vii) Surcharges, and

(viii) Cesses.


The following State taxes and levies would be, to begin with, subsumed under GST:

(i)VAT / Sales tax

(ii)Entertainment tax (unless it is levied by the local bodies).
(iii)Luxury tax
(iv)Taxes on lottery, betting and gambling.
(v)State Cesses and Surcharges in so far as they relate to supply of goods and services.
(vi) Entry tax not in lieu of Octroi.
Purchase tax: Some of the States felt that they are getting substantial revenue from Purchase Tax and, therefore, it should not be subsumed under GST while majority of the States were of the view that no such exemptions should be given. The difficulties of the foodgrain producing States was appreciated as substantial revenue is being earned by them from Purchase Tax and it was, therefore, felt that in case Purchase Tax has to be subsumed then adequate and continuing compensation has to be provided to such States. This issue is being discussed in consultation with the Government of India.

Tax on items containing Alcohol: Alcoholic beverages would be kept out of the purview of GST. Sales Tax/VAT could be continued to be levied on alcoholic beverages as per the existing practice. In case it has been made Vatable by some States, there is no objection to that. Excise Duty, which is presently levied by the States may not also be affected.

Tax on Tobacco products: Tobacco products would be subjected to GST with ITC. Centre may be allowed to levy excise duty on tobacco products over and above GST with ITC.

Tax on Petroleum Products: As far as petroleum products are concerned, it was decided that the basket of petroleum products, i.e. crude, motor spirit (including ATF) and HSD would be kept outside GST as is the prevailing practice in India. Sales Tax could continue to be levied by the States on these products with prevailing floor rate. Similarly, Centre could also continue its levies. A final view whether Natural Gas should be kept outside the GST will be taken after further deliberations.

Taxation of Services : As indicated earlier, both the Centre and the States will have concurrent power to levy tax on goods and services. In the case of States, the principle for taxation of intra-State and inter State has already been formulated by the Working Group of Principal Secretaries /Secretaries of Finance / Taxation and Commissioners of Trade Taxes with senior representatives of Department of Revenue, Government of India. For inter-State transactions an innovative model of Integrated GST will be adopted by appropriately aligning and integrating CGST and IGST.



Question 12 : What is the rate structure proposed under GST ?

Answer : The Empowered Committee has decided to adopt a two-rate structure –a lower rate for necessary items and items of basic importance and a standard rate for goods in general. There will also be a special rate for precious metals and a list of exempted items. For upholding of special needs of each State as well as a balanced approach to federal flexibility, it is being discussed whether the exempted list under VAT regime including Goods of Local Importance may be retained in the exempted list under State GST in the initial years. It is also being discussed whether the Government of India may adopt, to begin with, a similar approach towards exempted list under the CGST.

For CGST relating to goods, the States considered that the Government of India might also have a two-rate structure, with conformity in the levels of rate with the SGST. For taxation of services, there may be a single rate for both CGST and SGST.

The exact value of the SGST and CGST rates, including the rate for services, will be made known duly in course of appropriate legislative actions.


Question 13: What is the concept of providing threshold exemption for GST?


Answer : Threshold exemption is built into a tax regime to keep small traders out of tax net. This has

three-fold objectives:

a)It is difficult to administer small traders and cost of administering of such traders is very high in comparison to the tax paid by them.
b)The compliance cost and compliance effort would be saved for such small traders.
c)Small traders get relative advantage over large enterprises on account of lower tax incidence.


The present thresholds prescribed in different State VAT Acts below which VAT is not applicable varies from State to State. A uniform State GST threshold across States is desirable and, therefore, as already mentioned in Answer to Question 6, it has been considered that a threshold of gross annual turnover of Rs. 10 lakh both for goods and services for all the States and Union Territories might be adopted with adequate compensation for the States (particularly, the States in North-Eastern Region and Special Category States) where lower threshold had prevailed in the VAT regime. Keeping in view the interest of small traders and small scale industries and to avoid dual control, the States also considered that the threshold for Central GST for goods may be kept Rs.1.5 Crore and the threshold for services should also be appropriately high.


Question 14 : What is the scope of composition and compounding scheme under GST?

Answer : As already mentioned in Answer to Question 6, a Composition/Compounding Scheme will be an important feature of GST to protect the interests of small traders and small scale industries. The Composition/Compounding scheme for the purpose of GST should have an upper ceiling on gross annual turnover and a floor tax rate with respect to gross annual turnover. In particular there will be a compounding cut-off at Rs. 50 lakhs of the gross annual turnover and the floor rate of 0.5% across the States. The scheme would allow option for GST registration for dealers with turnover below the compounding cut-off.


Question 15 : How will imports be taxed under GST ?

Answer : With Constitutional Amendments, both CGST and SGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import on goods and services.


Question 16 : Will cross utilization of credits between goods and services be allowed under GST regime?

Answer : Cross utilization of credit of CGST between goods and services would be allowed. Similarly, the facility of cross utilization of credit will be available in case of SGST. However, the cross utilization of CGST and SGST would generally not be allowed except in the case of inter-State supply of goods and services under the IGST model which is explained in answer to the next question.



Question 17 : How will be Inter-State Transactions of Goods and Services be taxed under GST in terms of IGST method ?

Answer : The Empowered Committee has accepted the recommendation for adoption of IGST model for taxation of inter-State transaction of Goods and Services. The scope of IGST Model is that Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and services. The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases. The Exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST. The relevant information is also submitted to the Central Agency which will act as a clearing house mechanism, verify the claims and inform the respective governments to transfer the funds.

The major advantages of IGST Model are:

a) Maintenance of uninterrupted ITC chain on inter-State transactions.

b) No upfront payment of tax or substantial blockage of funds for the inter-State seller or buyer.

c) No refund claim in exporting State, as ITC is used up while paying the tax.

d) Self monitoring model.

e) Level of computerisation is limited to inter-State dealers and Central and State Governments should be able to computerise their processes expeditiously.

f) As all inter-State dealers will be e-registered and correspondence with them will be by e-mail, the compliance level will improve substantially.

g) Model can take ‘Business to Business’ as well as ‘Business to Consumer’ transactions into account.


Question 18 : Why does introduction of GST require a Constitutional Amendment?

Answer : The Constitution provides for delineation of power to tax between the Centre and States. While the Centre is empowered to tax services.and goods upto the production stage, the States have the power to tax sale of goods. The States do not have the powers to levy a tax on supply of services while the Centre does not have power to levy tax on the sale of goods. Thus, the Constitution does not vest express power either in the Central or State Government to levy a tax on the ‘supply of goods and services’. Moreover, the Constitution also does not empower the States to impose tax on imports. Therefore, it is essential to have Constitutional Amendments for empowering the Centre to levy tax on sale of goods and States for levy of service tax and tax on imports and other consequential issues.As part of the exercise on Constitutional Amendment, there would be a special attention to the formulation of a mechanism for upholding the need for a harmonious structure for GST along with the concern for the powers of the Centre and the States in a federal structure.


Question 19: How are the legislative steps being taken for CGST and SGST ?

Answer : A Joint Working Group has recently been constituted (September 30, 2009) comprising of the

officials of the Central and State Governments to prepare, in a time-bound manner a draft legislation

for Constitutional Amendment.


Question 20: How will the rules for administration of CGST and SGST be framed?

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Answer : The Joint Working Group, as mentioned above, has also been entrusted the task of preparing draft legislation for CGST, a suitable Model Legislation for SGST and rules and procedures for CGST and SGST. Simultaneous steps have also been initiated for drafting of legislation for IGST and rules and procedures. As a part of this exercise, the Working Group will also address to the issues of dispute resolution and advance ruling.