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  • Tax Matters: Is GST applicable to mutual fund distributors?

    The inclusion of EOUs for levy of IGST will lead to increase in the cost of working capital. As such, Indian products will become less competitive

    I am a mutual fund distributor. I operate from my residence that is owned by my husband. The residential address is registered with various asset management companies. Even income tax and service tax returns are being filed from the same residential address. What will be the input tax credit (ITC) under goods and services tax (GST)?

    — Kinjal Patel, email

    A registered person is entitled to avail ITC on his all expenses, procurements of goods, and services used in the course of or furtherance of business in the GST regime unlike in the indirect tax regime. At present, a significant portion of indirect taxes, that is, Central excise and service tax, form part of the cost component for which credit is not allowed. A person under GST will now be able to take full credit of the GST paid by him, except for a few items.

    The illustrative list of day-to-day expenditures in course of business on which GST paid is allowed as ITC while determining GST liability includes air-conditioner, computer and printer, furniture,  office equipment, TV, advertisement charges, audit fees, consumables,   loading and unloading charges, printing and stationery, recruitment expenses, rent paid, security charges, subscription, telephone expenses including mobile phones, traveling expenses other than leave travel concession, repair and maintenance, job work, labor charges and professional charges.

     However, such ITC is not allowed for GST paid on purchase of motor car or vehicle; works contract service for immovable property; expense incurred on foods, beverages and outdoor catering; renting
    a cab; club membership and life and
    health insurance.

    Thus, it is important that a registered person incurring any expenses on buying computers and air-conditioners provides his GST India (GSTIN) to the supplier. He has to ensure that his GSTIN is quoted in the invoice or bill issued by the supplier and the credit is shown in the return filed by the supplier. Proportionate amount of ITC will be reversed if goods or services are used for business and non-business purposes. A GST-registered person cannot claim ITC for goods and services used for personal purposes. If depreciation is claimed on the tax component of capital goods, then ITC cannot be claimed.

     

    What are the problems being faced by export-oriented units (EOU) because of the goods and services tax (GST)?

    — Sharath P, e-mail

    Duty-free imports were allowed by EOUs for their authorized operations. These will now get exemption of only customs duty. Such goods will attract integrated GST (IGST) and compensation cess. The GST Council has restricted the exemption from IGST to only specified category of importers including those in special economic zones (SEZs) and developers of these zones. The benefit has not been extended to EOUs.

    EOUs will be liable to pay IGST on imports and can avail credit of IGST paid. The credit can be used by them for local supply of goods manufactured by them. They will also be entitled for a refund of IGST if it is in excess accumulation of credit due to exports. The inclusion of EOUs for levy of IGST will lead to increase in the cost of working capital. As such, Indian products will become less competitive in the international markets.

    If an EOU makes domestic clearances, it will have to pay the basic custom duty (BCD) exemption benefit availed on imported inputs. The facility of duty-free import of capital goods under the procurement certificate procedure will not be available. To import capital goods at zero duty, EOUs will have to follow procedure as laid down by the customs (Import of Goods at Concessional Rate of Duty Rules, 2017).

    Suppliers to EOU will pay normal GST as they would while supplying to domestic units. An EOU can avail of input tax credit (ITC) of the GST paid while using domestic supplies. ITC can be used for payment of GST on finished goods cleared in the domestic tariff area (DTA).

     

    I am an importer registered under the state value-added tax (vat) laws but not under excise or service tax laws as all his sales are to traders or final consumers. Am I eligible, under Section 140(3) of CGST, to claim credit of eligible duties levied on goods held in stock on the appointed day? If the answer is yes, then is the full amount of countervailing duty (CVD) and special additional duty (Sad) allowed as ITC if he has all the documents showing that duty has been paid? Is CVD and Sad bifurcated in CGST and state GST (SGST) or is the entire amount of CVD & SAD considered as ITC of CGST?

    — Nikhil, e-mail

    A taxable person not eligible to take Central vat (Cenvat) credit can under GST avail of ITC of excise duty paid on the stock with him if he has invoice or other documents showing payment of excise duty. He has to submit a stock statement in GST Trans 1 form.

    In the GST regime, ITC of eligible duties and taxes on inputs and finished goods held in stock is available to eligible tax payers on fulfillment of certain conditions. The categories of registered taxable persons entitled to take credit subject to certain conditions are those not liable to be registered under current law as they are dealing in exempted goods or services, providing works contract service or availing benefit of exemption notification for services, first- and second-stage dealer and registered importer.

    Section 140(3) of the CGST Act also refers to registered importers. An importer is considered eligible to claim credit provided the goods are used for taxable supply under CGST, the registered person is entitled for ITC under CGST, the registered person is in possession of invoice or other duty payments documents and such invoices are not more than 12 months old.

    The Integrated GST (IGST) Act, 2017, provides that goods imported into India will attract IGST. It will be collected in accordance with the provisions of the Customs Tariff Act, 1975, on the value as determined as per the Customs Act, 1962. The IGST on goods will be in addition to the applicable basic customs duty (BCD) levied as per the Customs Tariff Act. In addition, GST compensation cess will also be levied on certain luxury and demerit goods under the Goods and Services Tax (Compensation to States) Cess Act, 2017.

    Goods that are imported into India, in addition to the BCD, will be liable to IGST at a rate applicable on a similar article supplied in India.

    The definition of input tax for a registered person also includes the integrated tax charged on import of goods. Thus, ITC of the integrated tax paid while importing is available to the importer. It can be utilized by him as ITC for payment of taxes on his outward supplies.

    CVD and Sad can be claimed as credit subject to fulfillment of these conditions. BCD will not be available as ITC.

    However, items out of the GST net will be eligible for Sad refunds as earlier. All imports and exports will be deemed as inter-state supplies for levy of GST. IGST is to be levied on inter-state supply of goods and services. The present levy of CVD and Sad will be replaced by integrated tax on imported goods. Accordingly, imports will attract BCD, IGST, customs cess and compensation cess as applicable. Therefore, CVD and Sad in your case will be considered as IGST credit and not CGST or SGST credit.

     

    Our co-operative housing society is thoroughly confused about the items under the goods and services tax (GST). Can you explain?

    — Devang, e-mail

    A co-operative housing society is required to be registered under GST if the aggregate turnover exceeds Rs 20 lakh annually. The aggregate turnover should include all taxable and exempt services. Aggregate turnover means all billing other than municipal tax, but including interest received from banks and members.

    If the society has to pay GST under reverse charge on a account of supply of services, irrespective of the turnover, it has to register under GST. A society registered under GST has to pay GST on inward supply of goods and services from an unregistered vendor under reverse charge.

    If the maintenance charges for reimbursement of contributions are less than Rs 5000 per month, GST will not be charged to such members. If the maintenance charges for reimbursement of contributions exceed Rs 5000 per month, GST will be charged provided the aggregate turnover is more than Rs 20 lakh annually.

    Bills raised on members include municipal tax on services provided by the society to its members as an agent of the service recipient and, thus, outside the provisions of GST. However, the exact amount of municipal tax is required to be recovered from members.

    Water is procured by the society from the municipal corporation and is supplied to the members. Charges recovered from members on actual basis do not attract GST. If water charges collected exceed the payments, only the excess is chargeable to GST. Water is goods and attracts zero rate of tax.

    Property tax is not subsumed under GST. There cannot be GST on property tax as there cannot be double taxation. Property tax is a statutory levy. The society is a mere collecting agent. If the amount collected from members does not exceed the actual amount, then there is no GST.

    All other charges including electricity, repair, maintenance charges including service charges, vehicle parking charges, non–occupancy charges and any other recovery of expenditure will attract GST. Interest on delayed payment of maintenance charges is taxable under GST.

    Advance received from members, if any, towards maintenance charges, is taxable under GST but is adjustable against GST payable on the monthly or quarterly bill. Interest earned from banks is exempt from GST. Rent received from any hoarding or cell phone tower from members and non-members is taxable. All other incomes and receipts from members and non-members such as reimbursement of expenditure, share transfer premium, membership entrance fee, share transfer fee and exhibition in the society premises are taxable. All refundable security deposits are outside the provisions of GST.

    GST paid on inward supply, either for services or for goods, i.e., elevator, housekeeping, security, repairs, accounts and services can be set off against liability to pay GST by the society. However, on procurement of capital goods (fixed assets), the input tax credit (ITC) can be availed, equally spread over five years. If taxes are paid on electricity, stamp duty and property tax, ITC will not be available.

    If the society is availing the benefit of exemption, then proportionate ITC as is attributed to exempted services will not be available.

    The replies are only in the nature of guidelines. The tax counsellors and the publication are not responsible for any decision taken by readers on the basis of the same.
    Readers may e-mail their queries on direct taxation to:
    tax-matters@capitalmarket.com

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