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GST ON ONLINE TRADING (AMAZON, FLIPKART, PAYTMMALL)

Compliance & accounting burden

  • According to the draft bill, the e-commerce platform will be liable to collect TCS (tax collected at source) on the supplies of goods and services made by the supplier.
  • It will be the responsibility of e-commerce firm to file monthly and annual returns.
  • Also, the supplies reported by the e-commerce firm will be matched with the details given by the supplier in his return for outward supplies and in case of a mismatch; the output liability of the vendor will be re-determined.

 

Working capital issues for small sellers

  • No threshold limit available to small businesses with annual turnover of less than Rs.10 lakh,
  • It expects e-commerce platforms to collect tax on every transaction no matter how small the seller might be.
  • This essentially means that a small seller on the platform will invariably end up paying tax and would later apply for a refund.
  • This could be a grave issue for small and medium businesses that work on very tight working capital.
  • A specific proposal in the draft law relating to tax collection at source will prove to be detrimental to lakhs of small and medium sellers who do business on e-commerce platforms.

 

Cash on delivery, Returns and Cancelled Order

  • E-commerce in India has a return or cancellation rate of about 15-18%.
  • Also, more than two-third of the transactions in the country are still on cash on delivery (COD) and the cash reconciliation for e-commerce firms happens about 7-15 days later.
  • Deducting tax at source would require e-commerce firms to bear the tax amount from their own capital and later seek refund from the government in case of returns and cancellations.
  • Thus TCS can be a major cash flow disadvantage for e-commerce firms especially in the case of cash on delivery or orders being rejected later.

 

Disadvantage on discounts and freebies

  • Most e-commerce firms are known for heavy discounting and subsidizing of products or offering free goods with specific purchases.- now not permitted in terms of FDI Guidelines
  • Under GST, freebies are expected to be taxed creating additional burden on the sellers.
  • Also, in case an e-commerce firm decides to sell an item on discount it will have to pay the tax on the price it has purchased the goods from the supplier, hence bearing the extra tax burden on its own.

For More details about GST Click here Pearl GST

Healthcare and Pharmaceutical Industry

Impact of GST on Healthcare and Pharmaceutical Industry in India

GST rates on Healthcare Commodities

  • 0% – Contraceptives, Human Blood
  • 5% – Medicines, Animal or Human Blood Vaccines
  • 12% – Ayurvedic Medicines, Medicinal Grade Hydrogen Peroxide, Anaesthetics, Potassium Iodate, Iodine, Steam, Glands And Other Organs For Organo-Therapeutic Uses, Ayurvedic, Unani, Homoeopathic Siddha Or Biochemical Systems Medicaments, Sterile Suture, pacemaker, heart valve
  • 18% – Tampons, Disinfectants, hospital beds, oxygen cylinder, consumables

Revised tax rate on Hospital Room Rent

  • Below Rs.1000 – 0%
  • Rs.1000 to Rs.2499 – 12%
  • Rs.2500 to Rs.7499 – 18%
  • Above Rs. 7500 – 28%

GST Rate Impact on Healthcare and Pharma Industry

The Goods and Service Tax had both negative and positive impacts on this industry. Whereas the pharma industry is expected to benefit from GST in the long term, most other health sectors see a decrease in growth.

GST has subsumed all the previous indirect taxes, including the service tax, with a single tax system. Also, there is no Central Sales Tax in GST which reduces the assembling and storage costs for medical companies.

The cost of life-saving treatments has increased under GST, thus directly impacting the budget of the common man. Even though it helps to make the tax system less complex and prompts business growth in this sector, the common individuals are not very happy with the increased burden of healthcare on their pockets.

For More details about GST Click here Pearl GST

 

GST On Real Estate

Currently, the sale of land and buildings has been kept out of the ambit of GST but it is expected to be taxed within a period of a year. Construction of land and building will benefit from the rates declared for cement, bricks, and iron under GST.

Cement will be taxed at the rate of 28% under GST. It is higher the current average rate of tax around 23-24% but a lot of additional taxes charged over the average rate would be subsumed under GST.  Iron rods and pillars used in the construction of buildings is charged at the rate of 18% which is similar to the current average rate of 19.5%.

Bricks used in the construction of buildings and houses are taxed under GST at the rate of 28% except for the rate of ceramic building bricks which is kept under 5%. Currently, all bricks except the ceramic bricks are charged an average tax rate of 25-26% inclusive of all state and central level taxes. Logistics cost of transportation of bricks, cement or iron is going to reduce through the subsuming and streamlining of taxes.

In Real estate sector, there is a huge percentage of each project expenditure goes unrecorded on the books currently. GST will cut down this percentage due to cloud storing of invoicing. Real estate sector will also benefit with new tax law having a positive effect on all ancillary industries.

Conclusion:

The impact of GST on real estate sector is expected to be neutral under GST. Though still, there is going to be a substantial benefit from GST as it will bring a lot of required transparency and accountability. Developers/Contractors would reap the benefit of many taxes which will be subsumed by GST.
“Real estate sector should be happy with GST even if the rate declared is higher than current rate”

For More details about GST Click here Pearl GST

 

GST Impacts on Books

NIL GST rate-

Printed books, Braille books, Newspapers, periodicals and journals (including those containing advertisements), Children’s drawing, colouring and picture books, wall maps, atlas, globes, printed maps and other similar charts, stamp papers (juridical/non-juridical), court stamps sold by the Government authorized vendors, rupee notes issued by the RBI, Postal items like postcard, envelope, etc., and cheque books.

5% GST Rate items/services-

Printed material like brochures and leaflets (single sheet or multi sheet)

12% GST Rate publishing material/services-

Printed music or manuscript, commercial plans/drawings for engineering, architecture, industrial and other purposes (originally drawn by hands), carbon copies, handwritten material, photographic reproductions, etc., unused postage, revenue stamps and similar items, banknotes, stamp-impressed paper, bond certificates, share certificates, cheque forms and title documents, any kind of printed calendars, transfer documents (decalcomanias), printed greeting cards, printed postcards, personal message cards or invitations (blank or illustrated, with or without envelopes), and all other printed materials, including printed photographs, pictures, any commercial or trade advertising printed matter, posters, catalogues, designs, pictures and similar items.

GST Impacts on Printing Industry in India

Even though there is no tax on books, the prices of most books have increased because of increased tax on printing and related things. The price of books will increase approximately by 10-20% after GST.

There is also a GST on printing paper, and the government is not offering any input credit on sales tax (and/or excise duty) paid by publishers on their transition stocks. It has further increased the loss for publishing houses.

High lights

  • 10-20% Increase in the prices of books
  • No ITC for publishers
  • 12% GST on author royalty

For More details about GST Click here Pearl GST

GST on Construction

Construction (Works contract) under GST-

A works contract is a mixture of service and transfer of goods. Examples of works contract are the construction of a new building, erection, installation of plant and machinery.

GST Schedule II clearly mentions that the following are supply of service

  • construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly,
  • works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract

Thus GST with its “One Nation One Tax” has removed the confusion regarding the tax treatment.

This means works contract will be treated as service and tax would be charged accordingly (not as goods or part goods/part services).

This treatment of works contract as service and not as supply of goods will bring in much needed clarification to the works contracts. Under the current regime, different states have different schemes for VAT. There are different composition schemes with different VAT rates. Service tax too is complex with 60% abatement on new works and 30% abatement on repair contracts. GST will solve such with a much simpler straightforward calculation

Input Tax Credit is NOT available

Revised Model GST Law mentions that input tax credit is not available for-

  • works contracts services when supplied for construction of immovable property, other than plant and machinery, except where it is an input service for further supply of works contract service
  • goods or services received by a taxable person for construction of an immovable property on his own account, other than plant and machinery, even when used in course or furtherance of business.

On analysis, one finds this provision is quite contradictory.

For example, any contractor/builder will not enjoy any input tax credit on the input services if he constructs any building. But he will enjoy input tax credit on input service for further supply of works contract service. These two sentences are confusing and contradictory.

Input tax credit is available to both a builder and a taxable person while constructing plant and machinery. But input tax credit is not available to any taxable person who constructs on his own account even if it is for business use.

This entire section is confusing and contradictory and further explanations are required.

Abatement is not mentioned

No abatement has been prescribed for works contract service so far. Currently VAT is payable on the works contract. Service tax is paid @15% on either 40% (on new work) or 70% (on repair, maintenance work).

In case no abatement/ composition is provided, it may lead to significant increase in tax burden, especially if such works contract is taxed at Standard GST rate (which is 18%) and even if subjected to lower tax rate (12%).

Composition Scheme is not available

Composition scheme is not available to works contractors as it is treated as service under GST. Composition scheme is only available to suppliers of goods. This will be a big blow to the small sub-contractors who cannot opt for composition scheme. They will be forced to register for normal taxation scheme increasing their compliances and costs.

While GST has clearly defined works contract as service bringing in some clarity, more information is required especially in the areas of input tax credit and composition schemes. Otherwise the same confusion and lengthy costly legal disputes will be seen also under GST regime.

For More details about GST Click here Pearl GST

GST on Technical Testing and Analytical services

The essential requisite of the present taxable service are

  • Services are provided or to be provided to any person.
  • Services are rendered by a technical testing and analysis agency.
  • Technical testing and analysis must be of goods or immovable property and not in relation to human beings or animals.

 

HSN CODE DESCRIPTION GST %
34011942 Soap; Organic Surface-active Products And Preparations For Use As Soap In The Form Of Bars Cakes Moulded Pieces Or Shapes Whether Or Not Containing Soap; Organic Surface Active Products And Preparations For Washing The Skin In The Form Of Liquid Or Cream 18%

Points for Laundry services & Dry cleaning:

  1. The section referred to hereinafter are the sections or clauses of the Finance Act, 1994 as amended by the Finance Act, 2002. Reference to sub-clause or clause means clause or sub-clause of section 65 of the Finance Act, 1994 as amended by the Finance Act, 2002.
  2. As per clause (31), “dry cleaning” includes dry cleaning of apparels, garments or other textile, fur or leather articles. As per clause (32) “dry cleaner” means any commercial concern providing service in relation to dry cleaning. The taxable service, as per clause (90)(zt) is any service provided to a customer, by a dry cleaner in relation to dry cleaning.
  3. Dry cleaner normally performs following process as on cloths during the process of dry-cleaning:

(i)    Tagging and inspection—Dry cleaner inspects the cloths and tags them with an identification label.

(ii)   Pre-treatment—A stain remover is applied to remove the stains. Use of stain remover depends on the nature of stains such as stains of grease, oil, ink, colours, etc. Fabric/cloth is then rinsed and dried.

(iii) Dry cleaning—A dry cleaning machine is a motor driven washer/extractor/dryer and it holds clothes in a rotating, perforated stainless steel basket. Cloths are washed with a solvent. There may be various types of solvents used for dry cleaning such as per chloethylene (perc), carbon tetrachloride, trichloethylene and petrol etc. As the clothesrotate in the perforated basket, there is a constant flow of clean solvent from the pump and filter system. After cleaning, the clothes are drained to expel the solvent and then goes into a dry cycle by circulating warm air.

(iv) Post spotting—If there is any spot/stain left after the dry cleaning, it is removed using water or any other appropriate chemical.

  1. A point has been raised as to whether service tax is leviable on wet cleaning also. Wet cleaning is a process of cleaning garments in water and water soluble detergent. It is clarified that service tax is leviable only on dry cleaning. Accordingly service tax is not leviable on wet cleaning/washing provided the dry cleaner clearly mentions it in the bill. If details are not mentioned in the bill, it would normally be understood that clothes have been dry cleaned and in such situation service tax is liable to be paid.
  2. A point has been raised whether service tax is payable on the job of dyeing, darning etc. It is clarified that since these activities are not dry cleaning, these services are not taxable provided it is clearly indicated in the bill.

For More details about GST Click here Pearl GST

 

Health Club & Fitness Centre Services

Health Club & Fitness Centre Services

Understanding the types of services:

One can see gyms and health fitness clubs including spas are mushrooming everywhere in India. The service envisaged under this head are sauna and steam bath, Turkish bath, solarium, spa, reducing / slimming saloons, gymnasium, yoga, meditation, massages and any other like services.

Value of services

Section 67 read along with Service Tax (Determination of Value) Rules, 2006 provides the manner of determining the value of taxable services on which services tax should be levied.

In respect of Health Club and Fitness Centre Services, no specific provision for determination of taxable value has been provided.  However it has been clarified that the value of taxable services is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration are indicated separately in the invoice. Thus, the value of taxable Health Club and Fitness Centre Services is to be determined in terms of provision of Section 67 read with the prescribed Rules.

it has been clarified that monthly amount as membership is included in the value of taxable services.

Notifications

  1. As per clause (42), “health and fitness service” means physical well being service such as, sauna and steam bath, turkish bath, solarium, spas, reducing or slimming saloons, gymnasium, yoga, meditation, massage (excluding therapeutic massage) or any other like service. As per clause (90)(zw), the taxable service is any service provided to any person, by a health club and fitness centre in relation to health and fitness service. “Health club and fitness centre” means any establishment including a hotel or a resort providing health and fitness service.
  2. Health and fitness services are provided by clubs, fitness center’s, health saloons, hotels, gymnasium and massage centres. The services which fall under this category might be for weight reduction and slimming, physical fitness exercise, gyms, aerobics, yoga, meditation, reiki, sauna and steam bath, turkish bath, sun bath and massage for general well-being. However therapeutic massage does not come in the ambit of taxable service. Therapeutic massage basically means a massage provided by qualified professionals under medical supervision for curing diseases such as arthritis, chronic low back pain and sciatica etc. Ayurvedic massages, acupressure therapy, etc. given by qualified professionals under medical supervision for curing diseases/disorders will come under the category of therapeutic massages. If the massage is performed without any medical supervision or advice but for the general physical well-being of a person, such massages do not come under the purview of therapeutic massages and they would be liable to service tax.
  3. A point has been raised as to what would be the value of taxable service in case where clubs and fitness centres charge a monthly/periodic amount as membership fee and only members are allowed to avail their services. It is clarified that membership fee charged by the club is in lieu of service provided and therefore in such cases service tax would be leviable on periodic/monthly membership fee.
  4. Another point relates to service tax on membership fee already collected. It is clarified that no service tax will be payable on membership fee already collected prior to the date on which the new service tax has come into force.
  5. Certain recognized institutes impart diploma courses in yoga. A point has been raised as to whether service tax is leviable on such institutes. It is clarified that such institutes and research Centre do not fall in the category of health club and fitness centre and accordingly would not be liable to service tax.

For More details about GST Click here Pearl GST

Recruitment Service Providers

GST Registration for Recruitment Service Providers

GST registration would be mandatory for most recruitment service providers as they may become a taxable person under GST, Apart from the aggregate annual sales turnover criteria.

Inter-State Supply

If a business engages in inter-state, then GST registration would be required irrespective of annual aggregate turnover.

Casual Taxable Person

Casual taxable person means a person who occasionally undertakes transactions involving supply of goods or services or both in the course or furtherance of business, whether as principal, agent or in any other capacity, in a State or a Union territory where he has no fixed place of business. Most freelance professionals can be classified as a casual taxable person. Hence, GST registration would be mandatory for such persons.

Non-Resident Taxable Persons

Non-resident taxable person means any person who occasionally undertakes transactions involving supply of goods or services or both, whether as principal or agent or in any other capacity, but who has no fixed place of business or residence in India. This clause would again require many freelance recruitment service providers to be in conformance with the GST portal.

GST Rate for Recruitment Services or HR Services

Employment services including personnel search/referral service & labour supply service are classified under a heading Group 99851 of the SAC code. The following SAC codes are listed under group 99851:

SAC Code 998511 – Executive/retained personnel search services.
SAC Code 998512 – Permanent placement services, other than executive search services.
SAC Code 998513 – Contract staffing services.
SAC Code 998514 – Temporary staffing services.
SAC Code 998515 – Long-term staffing (pay rolling) services.
SAC Code 998516 – Temporary staffing-to-permanent placement services.
SAC Code 998517 – Co-employment staffing services.
SAC Code 998519 – Other employment & labour supply services.

GST rate of 18% is applicable for all recruitment services and/or HR services. The above services are not mentioned under the list of services that are exempt from GST. The rates for the above services have also not been explicitly mentioned by the GST Council. Hence, the default GST rate for services of 18% would be applicable for the above services.

For More details about GST Click here Pearl GST