The GST rate cut, as announced by interim finance minister Piyush Goyal during the GST Council meeting on 21 July, comes into effect today. About 88 items—from refrigerators and washing machines to toiletries and cosmetics—are set to get cheaper as they were moved from the highest tax bracket of 28% to 18%. Sanitary napkins were exempt from GST, but their prices may go up as manufacturers will not be able to avail of input tax credit on raw materials. Finance ministry officials, however, are of the opinion that prices should come down as input tax credit claimed was around 2-4%, while the GST rate was 12%.
Here’s a list of items on which GST rate cut will be applicable from today:
GST rate cut items—28% to 18%:
■ Paints and varnishes (including enamels and lacquers)
■ Glaziers’ putty, grafting putty, resin cements
■ Refrigerators, freezers and other refrigerating or freezing equipment including water coolers, milk coolers, refrigerating equipment for leather industry, ice cream freezer, etc.
■ Washing machines
■ Lithium-ion batteries
■ Vacuum cleaners
■ Electrical appliances such as food grinders and mixers and food or vegetable juice extractor, shavers, hair clippers, etc.
■ Storage water heaters and immersion heaters, hair dryers, hand dryers, etc.
■ Televisions up to the size of 68 cm
■ Crane lorries, fire-fighting vehicle, concrete mixer lorries, spraying lorries
■ Works trucks (self-propelled, not fitted with lifting or handling equipment) of the type used in factories, warehouses, dock areas or airports for short transport of goods
■ Trailers and semi-trailers
■ Miscellaneous articles such as scent sprays and similar toilet sprays, powder-puffs and pads for the application of cosmetics or toilet preparations
GST rate cut items—28% to 12%:
■ Fuel cell vehicles (also exempt from compensation cess)
GST rate cut items—18%, 12%, 5% to Nil:
■ Stone/marble/wood deities
■ Rakhi (other than that of precious or semi-precious material)
■ Sanitary napkins
■ Coir pith compost
■ Sal Leaves and their products and sabai rope
■ PhoolBhari Jhadoo (Raw material for brooms)
■ Khali dona
■ Circulation and commemorative coins, sold by Security Printing and Minting Corp. of India Ltd (SPMCIL) to ministry of finance.
GST rate cut items—12% to 5%:
■ Chenille fabrics and other fabrics
■ Handloom dari
■ Phosphoric acid (fertilizer grade only).
■ Knitted cap/topi having retail sale value not exceeding Rs 1000
■ Handmade carpets and handmade textile floor coverings (including namda/gabba)
■ Handmade lace
■ Handwoven tapestries
■ Handmade braids and ornamental trimming in the piece
GST rate cut items—18% to 12%:
■ Bamboo flooring
■ Brass kerosene pressure stove
■ Hand operated rubber roller
■ Zip and slide fasteners
■ Handbags including pouches and purses; jewellery box
■ Wooden frames for painting, photographs, mirrors, etc.
■ Art ware of cork (including articles of sholapith)
■ Stone art ware, stone inlay work
■ Ornamental framed mirrors
■ Glass statues (other than those of crystal)
■ Glass art ware (including pots, jars, votive, cask, cake cover, tulip bottle, vase)
■ art ware made of aluminium, iron, brass, copper/copper alloys, electroplated with nickel/silver
■ Handcrafted lamps (including panchloga lamp)
■ Worked vegetable or mineral carving, articles thereof, articles of wax, of stearin, of natural gums or natural resins or of modelling pastes, etc., (including articles of lac and shellac)
■ Ganjifa card
GST rate cut items— 18% to 5%:
■ Ethanol for sale to oil marketing companies for blending with fuel
■ Solid bio fuel pellets
■ Rate change made in respect of footwear
■ 5% GST is being extended to footwear having a retail sale price up to ₹ 1,000/pair
■ Footwear having a retail sale price exceeding ₹ 1,000 per pair will continue to attract 18%
The concept of audit under Indirect tax is not new to Indian legislation. Earlier under the Central Excise, Service tax, VAT and other indirect tax regime, there were various requirements of audit. However there was no mandatory turnover based audit provisions under Central Excise and Service tax provisions.
Although there is concept of self-assessment under GST, there are various assessments and audit provisions under GST regime. Under GST Act there are 3 types of audit prescribed:
- Audit if the turnover exceeds a specified limit.
- General audit on an order by the commissioner
- Special Audit during any scrutiny, inquiry, investigation or any other proceedings as mandated by any officer not below the rank of Assistant Commissioner, having regard to the nature and complexity of the case and the interest of revenue
In this article, our scope is to cover the turnover based mandatory audit under GST regime.
Section 35(1) CGST Act read with rule 80 (3) of CGST rules casts liability upon a registered person having aggregate turnover more than Rs. 2 Crores to get the accounts audited. The audited accounts along with a reconciliation statement (as per form GSTR-9C) shall be uploaded on GST portal.
Hence any registered person whose aggregate turnover exceeds Rs. 2 Crores in a financial year shall get its accounts audited.
Since the word used is “aggregate turnover” the definition as given under section 2(6) of CGST Act is to be considered. Consequently PAN India Turnover of all supplies including the exempt supplies and export of goods and services will be considered for the applicability limit.
It is pertinent to note that the limit of aggregate turnover is to be seen PAN India wise. Hence if the PAN wise turnover crosses the limit, a view may arise that the registered person is required to get the accounts audited of all the states for which the GST registration has been obtained. So if the aggregate turnover crosses the PAN India Limit, audit will be required also for a unit in a state even if the turnover is Nil in that state.
Also the value of the exempt supplies are to be covered in the aggregate turnover, so Nil rated, exempt from GST and even Non GST supplies are to be clubbed for the checking of the applicability limit.
Pending: Whether separate audit is required for all of the locations
- Due date for the audit and audited accounts uploading
The audited accounts along with the reconciliation statement must be submitted along with the annual return. Since the due date for filing of annual return as per Section 44(1) of CGST Act is 31st December of the next year, the due date for filing of Reconciliation Statement and the audited accounts is 31st December of next year.
Although the due date for the audit is 31st December, but is suggested that the taxable person should get the accounts audited before the filing of annual return so that any inconsistencies could be identified at earlier stage. So as soon as the books of accounts are ready, the same be provided to the auditor.
- Form of audit report and reconciliation statement
If we go by the nomenclature as given in the GST Rules, there is no concept of and Audit report under GST Provisions. Section 35(5) read with rule 80 requires the submission of audited accounts along with the “reconciliation statement” as per Form GSTR-9C. But, there is no format of GSTR-9C given in the GST rules. However in September 2016 a draft audit report was released with a reconciliation statement. So the final format of the audit report/ reconciliation statement is still awaited.
- Audit by whom
The accounts are to be audited either by a Chartered Accountant or a Cost Accountant.
- What needs to be done by the Auditor
The draft reconciliation statement is quite extensive and requires various details to be furnished by the auditor. This report is not less than a marathon. Following are the major considerations in relation to GST Audit.
- Details furnished in the Return filed under GST Provisions matches with the books of accounts.
- The taxes as payable under the GST provisions have been paid timely and in case of late payment appropriate interest has been paid.
- Whether the value of supplies on which gst has been paid is as per the provisions of GST Law.
- Whether the rate applied on the supplies for the payment of gst is as per the GST provisions.
- Whether the place of supply has been determined correctly.
- Whether the input tax credit has been availed and utilized properly.
While carrying out the audit, the auditor must consider the compliance rating assigned to the auditee as per section 149 of CGST Act. As of now, there are no ratings being assigned by the Government.
Powers of Auditors
There are no detailed guidance under the GST rules in relation to the powers provided to auditor for carrying out the GST audit. Hence normal audit are to be followed for establishing the contours of the power allowed to the auditor.
These will include:
- Right of access to all the returns and GST related compliance documents filed.
- Right of access to books of accounts
- Right of access to the Cash Ledger, Credit Ledger and Liability ledger.
- To ask for the information as necessary for carrying out the audit.
- What needs to be done by the Auditee
- Provide access to books to accounts to the auditor
- Maintain the books and records as required Section 35 of CGST Act
(A major issue related to the books of accounts is that under GST Statewise books are required to be audited. Hence State wise financials and trial balance is to be provided by the Auditee which may become quite difficult)
- Provide the annual accounts to the auditor and get the accounts audited
- To provide the information and explanations as may be necessary to carry out the audit
- Uploading of the Annual return along with the audited accounts and the reconciliation statement
Crypto currency market has already got a great hype in international economy. Worldwide increasing popularity of crypto currency like BITCOIN is also having significant impact on Indian taxpayers who are investing in such crypto currencies. Now the question of taxability on crypto currency transaction is creating lot of confusion, since Indian tax laws are not having clarity on the same. Various experts have different views on taxation of crypto currency. Some opined the taxability as capital gains head treating the crypto as capital assets whereas some experts consider the income/ loss under the purview of other source head.
Recently Income tax department has issued tax notices on lakhs of high net worth individuals transacting in crypto currency, hence the issue of taxing crypto currencies has assumed more importance in India.
The Centre is reportedly planning to bring in a regulatory framework for crypto currencies in the forthcoming Union Budget. This should clear the status of such digital currencies and how they will be taxed. Meanwhile, here is a look at how transactions in crypto currencies may be treated and taxed under various laws and regulations.
- Whether Currency or not?
According to the Foreign Exchange Management (FEMA) Act, 1999, currency includes currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers cheques, letters of credit, bills of exchange and promissory notes, credit cards and other such instruments, as notified by the RBI.
As various entities accept crypto currency as a mode of payment, it appears that it is a currency. But it has not been termed as a currency under the FEMA Act, or as legal tender by the RBI; so, it may not qualify as currency.
- Capital gain or business income
According to Section 2 (14) of the Income Tax Act, 1961, a capital asset means “a property of any kind held by a person, whether or not connected with his business or profession”. The term ‘property’ has no statutory meaning, yet it signifies every possible interest that a person can acquire, hold or enjoy.
So, crypto currencies could be deemed as capital asset if they are purchased for investment. Any gain arising on transfer of a crypto currency shall be taxable as capital gain. However, if the transactions in crypto currencies are substantial and frequent, it could be held that the taxpayer is trading in crypto currencies, and the income would be taxable as business income. The decision regarding quantum and nature of transactions to qualify as business transactions is a subjective matter and needs judgement to determine whether the gains are to be treated as Capital Gains or Business Income.
- Taxation of crypto currencies earned through mining
If profits earned from crypto currencies are taxable as business income, then the crypto currencies earned in the ‘mining’ process would also be taxable as business profits.
However, if crypto currencies are classified as capital assets, the virtual currency earned from crypto currency mining may not be taxed. Crypto currencies generated during the mining process are classifiable as self-generated capital assets. Since the cost of acquisition of such crypto currencies is not available, the taxpayer can take the benefit of judgement of the Hon’ble Supreme Court in the case of B. C. Srinivasa Setty (1981).
The court held that if the cost of acquisition of an asset cannot be ascertained, the machinery provision for computation of capital gains will fail. Therefore, no capital gains can be levied on transfer of such assets. This could mean crypto currencies generated through mining may escape from taxation in such a case.
- Location of crypto currencies for taxation:
Since transactions in crypto currencies are being carried out on international level, for determining the taxability, the source rule plays an important rule. Hence it is very much pertinent to determine the location of the crypto currencies.
Crypto currencies are intangible assets. For income tax purposes, location of an intangible asset can vary according to its nature and obligations attached to it. Location of an intangible property is decided on the basis of the law of the land where protection for the property is sought.
Location of an intangible asset can be linked with such tangible property with which it is most closely connected. For example, a patent is associated with plant and machinery, and a trademark or brand name is associated with goods. Thus, the Location of crypto currency can be linked with the country where its operating server is located. For Example, if Indian Government launches its own crypto currency “Laxmi”, the operating server of the same may be most probably in India and hence the location of this crypto currency will be in India.
- Is it goods or service – GST?
If crypto currency gets classified as a currency, it will be considered as ‘money’ in the CGST Act and no GST can be charged on its trading. However, exchanging crypto currency to rupees might be considered a service for the purpose of levy of GST under the category of ‘financial services’.
Here, if the supplier charges any commission for providing exchange services, then GST shall be payable at 18 per cent on the commission. If no separate commission is being charged for the services, the supplier shall be liable to pay GST at 18 per cent on 1 per cent of the gross amount of rupees paid by the recipient since consideration is inbuilt in the currency exchange transaction.
There is a conflicting view also. If crypto currency is not considered as currency, any trading in crypto currency may be considered a service. Therefore, the supplier (who is selling the crypto currency) may be required to pay 18 per cent GST on the total value charged by him from the buyer.
- Taxability of crypto currency mining under GST:
In the crypto currency mining process, individuals process the transactions and secure the network by using specialized hardware. In exchange, they are awarded new crypto currencies. In other words, the crypto currency is a consideration awarded to individuals in lieu of their services to secure the network. Therefore, crypto currency miners may be required to pay GST on the fair market value of the crypto currency at 18 per cent.