There are two principal indirect taxes in India – Goods and Services Tax (GST) and Customs Duty.
Customs Duty
Customs duty, a central government levy, is leviable on import/ export of goods to and from India.
India follows the Harmonised System of Nomenclature (HSN) classification rules and the goods are classified under different chapter/tariff headings (based on eight digit coding) primarily according to their description, components and use. Presently, the effective standard rate of Customs duty that is applicable on the import of goods is approximately 30.98% (taking GST rate of 18%), subject to exemption/concessions as may be available/notified from time to time and free trade agreements entered into by India with other countries. However, presently there is no export duty leviable on goods exported from India, except in public interest as notified.
Goods and Services Tax (GST)
GST was brought into force with effect from 1st July, 2017. It has subsumed various indirect taxes applicable under erstwhile regime such as Excise Duty, Central Sales Tax, Service Tax along with other states levies such as Entry Tax, Octroi, Luxury Tax, Value added Tax, Entertainment Tax, etc.
It is a destination based consumption tax levied on supply of all goods and services except alcohol for human consumption. It is also levied on import of goods and services into India. Although GST is ultimately borne by the consumer by being included in the price paid, the responsibility for charging, collecting and paying it to the tax authority at each stage of the process rests with the supplier. However, in specific cases, the responsibility of payment of tax is shifted to the recipient.
A business registered for the tax will charge GST (output tax) on its supplies, and incur GST (input tax) on its purchases (including any GST paid on importation). Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. 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.
A transaction is within the scope of GST if the following conditions are met:
The following types of taxes are levied under the GST regime:
Goods and services tax is broadly divided into five tax slabs for collection of tax:
Additionally, Compensation cess is also applicable on few items such as aerated drinks, cars, tobacco products, etc.
Businesses that make exempt supplies are unable to claim all of the input tax that they incur, so the GST paid to suppliers will be a ‘real’ cost.
Credit of input tax taken on purchases is refundable to exporters of goods or services, provided certain specified conditions of export are satisfied.
Customs Duty
Every person importing/exporting goods to/from India is required to obtain an import export code irrespective of turnover.
Goods and Services Tax
Every supplier shall be liable to be registered under GST in the state from where he makes a taxable supply of goods or services, if his aggregate turnover in a financial year exceeds INR 2 million (INR 1 million in the case of special category states). However, a supplier making exclusive supply of goods is liable to obtain registration if his aggregate turnover in a financial year exceeds INR 4 million (INR 2 million in case of special category states). A supplier can register on a voluntary basis even if the registration limit has not been exceeded.
However, there are certain cases in which registration is compulsory, irrespective of threshold, such as persons making any inter-state supply and persons who are required to pay tax under reverse charge (as a recipient) among few other cases.
It is important to note that a person making wholly exempt supplies is not liable to obtain registration.
A penalty of INR 10,000 or tax evaded, whichever is higher, may be imposed by the tax authority if a person, who is liable to be registered, fails to register at the correct time.
There is no such term used in Customs or GST laws. However, we understand that non-established businesses are foreign entities.
The same registration limit would apply to non-established businesses if they supply taxable goods or services from India either themselves or through a representative.
In the case of supplies of electronically supplied/digital services by non-resident supplier to private consumers in India (unregistered), the liability to pay GST is on the non-resident supplier. For this purpose, he is required to take a single registration under GST as a supplier of online information and database access or retrieval services.
In case such non-resident supplier does not have a physical presence or any representative in India, then he may appoint a person in India for the payment of GST.
It is not mandatory to appoint a fiscal representative. However, if non-established person does not have a physical presence in India, then he may appoint a person in India in order to register.
Customs duty
While there is no specific return that is required to be filed, however, every importer is required to file the bill of entry before the end of the next day following the day (excluding holidays) on which the aircraft/vessel/vehicle carrying the goods arrives at a customs station from which such goods are to be cleared for home consumption or warehousing.
Goods and services tax
Currently, the following returns are required to be filed:
Customs duty
Importer is liable to pay charges for late presentation of the bill of entry at the rate of INR 5,000 per day for the initial three days of default and at the rate of INR 10,000 for each day of default thereafter.
In case the importer has delayed in discharging the payment of tax, the said importer would be liable to an interest of 15% per annum.
Goods and services tax
A default late filing fee of INR 50 per day (subject to maximum of INR 10,000) shall be imposed by the tax authority if GST returns are not submitted on time. In case of Nil returns, late filing fee of INR 20 per day (subject to maximum of INR 10,000) shall be payable. If related tax is not paid by the due date, interest of 18% per annum is payable.
Also, the registered person may be liable to pay a penalty which may extend to INR 25,000. However, such penalty shall be imposed only after giving an opportunity of being heard.
Further, if returns are not submitted for a prescribed continuous tax period, authority may cancel the registration after giving the person an opportunity of being heard. (said period is yet to be notified by authorities).
There are prescribed declarations in the indirect tax law to be included on the invoices, documents, etc. for levy of tax/ availment of exemptions.
Further, specific declarations for import/export related documents are also required such as:
Yes. A range of penalties can be imposed where registered persons fail to comply with the provisions of the principal indirect tax laws.
Typically, penalties may be levied in case of non-payment of taxes, wrongful availment/utilisation of credits, non-filing of periodic returns, failure to maintain proper books of accounts and records, etc.
Further, in extreme circumstances, criminal proceedings (prosecution) are typically initiated under certain specified provisions of law.
No, the indirect taxes incurred by overseas business entities cannot be claimed if they are not registered in India.
Customs duty
Not applicable, as the importer typically accepts the commercial invoice issued by the seller along with the packing list.
Goods and services tax
In case of taxable supplies, tax invoice issued by the registered person shall contain the following particulars, namely:
In addition to above, in case of tax invoice issued in respect of export of goods or services, it shall include an endorsement ‘supply meant for export on payment of integrated tax’ or ‘supply meant for export under bond or letter of undertaking without payment of integrated tax’. Further, in lieu of point (e) it shall contain following details:
Bill of Supply has to be issued in case of supply of exempted goods or services.
Further, a registered supplier is required to issue e-invoice for B2B supplies on GST network if his aggregate turnover in a financial year exceeds INR 20 million.
A registered supplier is also required to have a dynamic QR code displayed on his B2C invoices if his aggregate turnover in a financial year exceeds INR 5,000 million.
Currently, invoice-wise reporting is required to be done digitally in respect of outward supplies in ‘GSTR-1’.
For further information on indirect tax in India please contact:
|
Krishan Arora |
Karan Kakkar |
