Topic: GST Input Tax Credit(ITC) & Utilization - Proposed … · 2015-06-26 · Input tax credit under GST Illustrative list of Input tax credits currently not available (that might

Topic: GST Input Tax Credit(ITC) &

Utilization - Proposed Guidelines and Recommended Practice

Hiral Raja

Chief Manager – Taxation

Asian Paints Limited

Satish V M

Product Expert, SAP Labs India

© 2015 SAP SE or an SAP affiliate company. All rights reserved. 2 Public

Agenda

Present Input Tax Credit Scheme and its Drawback

Input Tax Credit under GST

Treatment of Additional Tax Proposed on Inter State

Transactions

Open Issues

Maximise Input Tax Credit Availment (under GST)



Allowed

on input and input services

against manufacture of taxable

goods or provision of taxable

services

on inputs at factory level and in

case of service providers

depending on their registration

status

on input services allowed

subject to a negative list –

gives rise to interpretational

issues

on capital goods allowed 50%

in first year and remaining in

second year

on inputs not used directly in

manufacturing viz. Sales

promotion items,

advertisement materials

with respect to trading of

goods

Disallowed

Distribution of input services

thru ISD model - without

flexibility to distribute the

credits to any units

Does not have mechanism

for refund of accumulated

credits (except in case of

exporters)

Other Challenges

CENVAT CREDIT



Allowed

Input tax credit allowed

subject to a retention rate

for stock transfers outside

the state (burnout)

Varying rate of retention in

various states

on inputs of exempt sectors

viz. service sector,

agriculture, etc

with respect to trading of

goods

on CST paid on purchases

on Luxury Tax

on Entry Tax

Disallowed

Certain States allow ITC on

all business purchases and

certain states allow ITC

only on purchases in

relation to manufacturing of

goods or reselling of goods

Varying list of negative list

across the states

Other Challenges

VALUE ADDED TAX (VAT), CENTRAL SALES TAX (CST) & OTHERS


Cascading effect of taxes/increased cost of doing business:

Inability to avail credit of all taxes paid on sourcing/business expenditures

Accumulation of credits leading to blockage of funds

o Comprehensive Credit Mechanism under GST

o Smooth pass-through of all credits to pass incidence of

tax to the consumer without any cascading effect



Input tax credit under GST

CGST:

Central Excise Duty

• Additional Excise Duties

• Excise Duty levied under the Medicinal

and Toiletries Preparation Act

• Service Tax

• Additional Customs Duty - (CVD)

• Special Additional Duty of Customs - 4%

(SAD)

• Surcharges and Cesses

SGST:

VAT / Sales tax

Entertainment tax (unless it is levied by

the local bodies).

Purchase tax

Luxury tax

Taxes on lottery, betting and gambling

Octroi and Entry Tax

State Cesses and Surcharges in so far as

they relate to supply of goods and

services

Centre would levy IGST which would be CGST plus SGST on all inter-State

transactions of supply of taxable goods and services



Transaction Intra State Inter State

Purchase of

Goods CGST+SGST IGST

Receipt of

Services CGST+SGST IGST

Imports IGST

Separate accounts for each state need to be maintained for CGST,

SGST and IGST credits received



Credit of Can be utilized against

Liability of

CGST CGST and IGST

SGST SGST and IGST

IGST IGST,CGST and SGST

Cross utilization between SGST of one state and SGST of another state not

allowed

Credit of taxes paid on petroleum products not available (since it is not a part

of GST)

Refund/adjustment in case of exports, purchase of capital goods, inverted duty

structure on output tax to be completed in timely manner



Illustrative list of Input tax credits currently not available (that might be

available under GST):

Credit on inter state purchases/supply of goods

Burnouts on stock transfers and negative list of goods under each state

Service tax credit on freight from the place of removal to the customer and

other service tax credits currently not available

Excise credits for all business purchase expenses viz. Sales promotion

items, gifts, etc

Luxury tax paid in Hotels

Service tax credits on trading of goods

CVD and SAD on imported goods procured for trading of goods/sales

promotion

Tax credits on purchase of hardware and software


Treatment of additional tax proposed on inter-state

transactions

States allowed to collect additional tax (not exceeding 1%) on supply of goods in

course of inter state trade

No clarity on availability of input tax credit as well as mechanism for this

additional tax

Hon’ble Finance Minister in Lok Sabha has assured that 1% additional tax

levied in the course of interstate supply of goods shall have no cascading effect

Additional tax will have to be captured separately at each state level


Open issues

Will ISD Mechanism Continue?

What is the future of LTU Facility ?

Whether any burnouts/negative list would be there under GST ?

Would Input Tax Credit be available on :

All business purchases – Free Samples, Gifts, Sales promotion,etc

Damages/Shortages, etc

In cases wherein sale price is lower than the purchase price

What are the transitional provisions from pre-GST to GST regime?


Maximise Input Tax Credit Availment (under GST)

Identify the tax cost (with respect to taxes that are supposed to merged into GST)

in the profit and loss account and start capturing the same so as to enable the

business to understand the impact of GST

Identify the existing contracts/PO’s wherein contracts will have to be renegotiated

on account of availability of the input tax credit to the vendor as well as the

Company and include clauses for facilitation of renegotiating on implementation of

GST

Review the current operations/distribution models and evaluate the need for any

changes in the operation/distribution models on account of :

Availability of full credit under GST system; and

Impact of additional tax payable on the supply of goods in course of inter state trade


Input Tax Credit Utilization - Solution Approach

• Each GSTN registration to be created as a Business

Place

• Each Tax Component (CGST, SGST etc.) to be

configured as Transaction Key

• GL accounts can configured for each GST Registration &

Tax Component i.e. Business Place & Transaction

Key

Configuration Approach Goals

Tax Credit can be accumulated

at each registration by tax

component

• New Transaction to perform utilization

• Comparison of tax credits available vs. payables by GL

Account aggregation

Utilization Transaction

To enable control &

transparency in utilization

© 2015 SAP SE or an SAP affiliate company. All rights reserved.

Thank you

Contact information:

Hiral Raja

Asian Paints Limited

+91 – 22 - 39818336

Documents

Topic: GST Input Tax Credit(ITC) & Utilization - Proposed … · 2015-06-26 · Input tax credit under GST Illustrative list of Input tax credits currently not available (that might