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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
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)

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Present Input Tax Credit Scheme and its Drawback

CENVAT CREDIT

Allowed Disallowed Other Challenges


on input and input services on inputs not used directly in Distribution of input services
against manufacture of taxable manufacturing viz. Sales thru ISD model - without
goods or provision of taxable promotion items, flexibility to distribute the
services advertisement materials credits to any units
on inputs at factory level and in with respect to trading of Does not have mechanism
case of service providers goods for refund of accumulated
depending on their registration credits (except in case of
status exporters)
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

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Present Input Tax Credit Scheme and its Drawback

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

Allowed Disallowed Other Challenges


Input tax credit allowed on
inputs of exempt sectors Certain States allow ITC on
subject to a retention rate viz. service sector, all business purchases and
for stock transfers outside agriculture, etc certain states allow ITC
the state (burnout) with respect to trading of only on purchases in
Varying rate of retention in goods relation to manufacturing of
various states goods or reselling of goods
on CST paid on purchases
Varying list of negative list
on Luxury Tax
across the states
on Entry Tax

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Present Input Tax Credit Scheme and its Drawback

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

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Input tax credit under GST

CGST: SGST:
Central Excise Duty VAT / Sales tax
Additional Excise Duties Entertainment tax (unless it is levied by
Excise Duty levied under the Medicinal the local bodies).
and Toiletries Preparation Act Purchase tax
Service Tax Luxury tax
Additional Customs Duty - (CVD) Taxes on lottery, betting and gambling
Special Additional Duty of Customs - 4% Octroi and Entry Tax
(SAD) State Cesses and Surcharges in so far as
Surcharges and Cesses 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

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Input tax credit under GST

Transaction Intra State Inter State


Purchase of
CGST+SGST IGST
Goods
Receipt of
CGST+SGST IGST
Services
Imports IGST

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


SGST and IGST credits received

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Input tax credit under GST

Can be utilized against


Credit of
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
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Input tax credit under GST

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

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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

Honble 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

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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?

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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/POs 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

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Input Tax Credit Utilization - Solution Approach

Configuration Approach Goals

Each GSTN registration to be created as a Business


Place
Tax Credit can be accumulated
Each Tax Component (CGST, SGST etc.) to be at each registration by tax
configured as Transaction Key component
GL accounts can configured for each GST Registration &
Tax Component i.e. Business Place & Transaction
Key

Utilization Transaction

New Transaction to perform utilization To enable control &


Comparison of tax credits available vs. payables by GL transparency in utilization
Account aggregation

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Thank you

Contact information:

Hiral Raja
Asian Paints Limited
+91 22 - 39818336

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

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