GST Return Late filing & Penalties

The GST Act mandates filing returns. In cases where there are no transactions for a particular period, taxpayers will still need to file a nil GST return. Missed returns cannot be filed in a subsequent month or quarter. Therefore, late filing will have a cascading effect leading to heavy fines and penalty.

Pursuant to the GST Act, late fees of Rs. 100 per day per return will be levied on companies in cases of late filing. This means total late fees of Rs. 200 per day (100 under CGST and 100 under SGST), subject to a maximum of Rs. 5,000 for a particular period. There are no late fees for IGST returns.

The GST Council has waived late fees for GSTR-3B for July, August, and September 2017. Any late fees paid for these months will be credited back to the company’s electronic cash ledger under ‘Tax’ and can be utilized to make future GST payments.

In addition, the GST Council reduced the fees for filing GSTR-3B and GSTR-4 returns after their due dates to:

• Rs. 50 per day of delay in normal cases
• Rs. 20 per day of delay for taxpayers having nil tax liability for the month 

              Interest on delayed tax payments is charged at 18 percent per annum on the amount of outstanding tax and is calculated from the day following the missed due date until the actual date of payment.

No GST on cheque books & ATMs; late payment fee, MF exit loads to be taxed

The clarification by the department keeping free banking services like cheque book issuance and ATM withdrawals outside the ambit of GST has put to rest the confusion prevailing over the issue

Free services, like ATM withdrawals, provided by banks to customers will not attract GST, but late payment charges on outstanding credit card bills and purchase of insurance policies by NRIs will attract the levy.

In a set of FAQs on applicability of Goods and Services Tax (GST) on banking, insurance and stock brokers sectors, the revenue department has clarified that transactions relating to securitization, derivatives, future and forward contracts are exempt.

The clarification by the department keeping free banking services like cheque book issuance and ATM withdrawals outside the ambit of GST has put to rest the confusion prevailing over the issue.

Last month, the Department of Financial Services had approached the revenue department seeking exemption of these transactions from GST after the banks received service tax notice for free services offered to their clients.

Clarifying whether, services supplied without consideration to a recipient other than 'related party' / 'distinct person' taxable, the FAQ said Section 7 of the CGST Act, 2017 provides that services supplied without consideration to related persons or distinct persons only would qualify as 'supply'.

"Therefore, where the services are supplied by a supplier without consideration to an unrelated recipient or a person other than a related or distinct person, the same would not amount to supply and not liable to GST," it said.

On the levy of GST on insurance policies purchased by non-resident Indians (NRIs), it said the amounts from Non-Resident External Accounts are paid in Indian Rupees and are not received in convertible foreign exchange.

"Therefore, the conditions for export of services as provided under section 2(6) of IGST Act, 2017 are not satisfied. Life Insurance services in such cases would be treated as inter-State supplies and subject to GST," it said.

On whether GST will be levied on the exit-load of mutual funds, the department said exit load in the form of a fee (whether or not as a fixed percentage of the investment) is liable to GST.

"Even if the exit load is in the form of units in the fund, it may be concluded that the consideration received in money was later converted to NAV units," the FAQ said.

Besides, late payment of dues on credit card outstanding as well as interest on a finance lease transaction are taxable under GST.

The FAQ (frequently asked question) explained finance lease as a method of borrowing against the asset. The interest represents the time value of the money expended by the bank in financing the asset.

"Transactions relating to securitization, derivatives, future and forward contracts have been clarified to be exempt from GST, which have been debated since introduction of GST. While few aspects such as taxability of transactions between Indian and overseas offices of same bank still need some more clarity, industry would welcome the government's initiative”

Clarifications around services provided by multiple branches and to multiple locations of customers would provide much needed certainty to the industry and reduce possibility of litigation.

Article courtesy - Business Standard

GST turns one: From challenges which rocked boardrooms, government initiatives to possible solutions

The seventieth year of India's independence will go down in Indian history as the year the country switched over to one of its most ambitious tax regimes, Goods and Services Tax (GST). After several rounds of deadlock in the Parliament, GST was finally rolled out on July 1, 2017, replacing a thicket of indirect central and state levies that have been blamed for tarnishing India's tax-friendly image. 

GST got thumbs up from nearly all sectors of the economy, barring few exceptions, and helped India reach a pedestal on the world stage for its 'ease of doing business' initiatives. Considering the scale of GST, it may be premature to pass a verdict on whether the 'one nation one tax' philosophy has lived up to the expectations or not. 

However, with GST touching the one-year mark, it would be interesting to recapitulate key challenges which rocked boardrooms, government initiatives to address the issues, possible solutions, and what lies ahead for GST as it enters its second year. 

New compliances 
One of the key challenges faced by dealers during the first year was adoption of new compliances such as obtaining GST registration in each state of operation. This proved to be particularly challenging for service providers who thus far were availing the benefit of centralized registration. 

Further, the law prescribes filing of three returns per month and an annual return (currently reduced to two monthly returns). In addition, there are other returns for input service distributor, job-work, which further add to the compliance burden. The number of returns to be filed for service providers increased from two half-yearly returns to around twenty-five in a year. 

Another complexity that arose was on account of the matching concept introduced under GST. Taxpayers are required to upload invoice level data on the portal and subsequently, match the same with the input data for availing credits. During the initial months, the GST portal was not able to support regular compliance tasks, let alone the matching mechanism. Considering the technical glitches, the government extended the return deadlines, introduced summary returns and kept the matching concept in abeyance. 

The government further plans to simplify the return filing process by the end of 2018, by creating a hybrid model comprising features of both summary return and matching concept. It is expected to augur well for the industry, if the government releases the formats in advance for the dealers to get accustomed to and implements the same after adequate sand-box testing of the portal. Also, it is pertinent to note that while a simplified new return process is good news, it would necessitate changes in the ERP systems for alignment with the new return process. 

E-way bill implementation 
Challenges were also encountered in the implementation of e-way bill system across India. The portal for the e-way bill system crashed on the launch date - February 1, 2018 -on account of over-load, bringing the business transport system to a standstill. 

Thankfully, following this episode, the GST council staggered the rollout of e-way bills, wherein inter-state e-waybills would be implemented first followed by intra-state e-waybills. Fortunately, the second innings of e-way bill system implementation was successful, replacing the earlier state-wise way bills implementation model. 

Frequent changes in rates 
Another problem encountered during the implementation of one of India's biggest tax reforms was high GST rates, which were subsequently changed. 

GST rates in India have been touted to be one of the highest compared to other developing countries. A multi-rate GST with four to five different slabs is an uncommon sight in the world tax map. 

The complexity on account of multiple rate structure, lower threshold for composition dealers and classification of commonly used goods under higher rate slabs caused furor amongst the business community. 

On the industry's behest, on November 15 2017, the government rationalized GST rates on several commonly used items such as furniture, shampoos and select electronic items. Furthermore, the government increased the threshold limit under the composition scheme for individuals to Rs 15 million as opposed to previously stipulated threshold of Rs 7.5 million. 

While reduction in GST rates was good for the industry as a whole, it came with its own set of challenges, revolving around the ERP system such as changing of the rate masters, updating of product masters on real-time basis, revision of pricing policy and, discount schemes, affixing of new labels, issuing of communications to customers and distributors. 

As GST moves into its second year, it is expected that tax rates would further be rationalized with an intent to unify them in a phased manner, thus bringing in opportunity for businesses to become more competitive globally. 

Ambivalent provisions 
Like any evolving reform, implementation of GST also brought with it various ambiguities and equivocal provisions. Though the intention of GST was to have a simplified tax regime, issues like double taxation (for example, goods deposited in customs bonded warehouse), misplaced/omitted transitional provisions, credit blockages, uncertainty on reversal of credit, added a layer of complexity surrounding GST. 

Credit must again be given to the government for addressing queries of taxpayers by regularly issuing circulars and frequently asked questions on various topics. 

It is for this reason that complex provisions like reverse charge on purchases from unregistered vendors, tax on advances on goods, tax deduction at source were deferred within the first six months of implementation. 

Anti-profiteering 
One of the most talked about provisions in the GST law is the anti-profiteering provision. The provision mandates reduction in tax rate on the supply of goods and services or the benefit of input tax credit to be passed on to customers by a corresponding reduction in output prices. 

Though such provisions have been introduced with an intention to check any profiteering, it is difficult for businesses to implement complex pricing decisions immediately after a rate cut/ increase in credit. Moreover, lack of clear mechanism for calculation of such benefit has caused uneasiness amongst the industry. Amidst such confusion, taxpayers, especially wholesalers and retailers have been issued notices to check whether they have passed on the benefits to end customers or not. 

In GST 2.0, the industry looks forward for the release of clear rules and guidelines on anti-profiteering with an insight into the documentation and periodicity of this exercise for due compliance. This is likely to clear the air surrounding the government's intention of introducing such a provision. 

Working capital blockage 
Another interesting recap is the concept of zero rating introduced under GST. Exports of goods/ services outside India along with supplies made to Special Economic Zones (SEZs) have been termed as zero-rated supplies under GST. Initially, it was provided that no tax shall be charged on such transactions, provided the supplier obtains a bond/Letter of Undertaking (LUT) as applicable. 

These concepts confounded the business community, especially service exporters who had never seen such requirements in the erstwhile regime. Further, for the first two trimesters, absence of a smooth and functional refund mechanism slowed down the exports nationwide. Given that exports directly impact India's standing at the world stage, the government came to the rescue of the exporters by relaxing LUT/bond requirements and introducing offline a manual refund filing facility. As a result, the exports and the refund process has begun to pick up at a decent pace during the last few months. However, it is imperative for the government to have a more robust refund mechanism (and that too online) with clear instructions to state as well as central officers to process the refunds without any reluctance. 

As can be seen from the above, though GST implementation witnessed mixed reactions in the last year, implementation of a reform of such grandiosity has truly been a historic event for all Indian taxpayers, government, and consumers. Despite the initial roadblocks, GST as a reform is likely to prove to be a catalyst in making India a hub for doing business across the globe. As a way forward, while the government is likely to focus on addressing the complexities in the law, businesses should actively plan to quickly adapt to the changes under GST. We hope the second innings of GST would be as successful and historic as its maiden year. 

Article courtesy - Economic Times

Know more about GSTR-1

GSTR-1 is a monthly or quarterly return to be filed by regular dealers, the return of which is divided into 13 sections. It is the base document upon which the entire compliance structure of GST is based.
For traders with turnover upto Rs 1.5 crore annually, GSTR-1 needs to be filed on quarterly basis while that for traders having turnover above that needs to be filed every month. The late fee for filing GSTR-1 is Rs 50 per day after the due date, and Rs 20, in case of nil returns.

Once GSTR-1 return is filed, a trader does not need to pay any tax immediately. The tax has to be paid at the time of filing GSTR-3B

Composition dealers need not file GSTR-1. Such traders need to file GSTR-4 every quarter.

Composition scheme withdrawal

This option shall remain valid so long as he satisfies all the conditions. The option shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds specified limit or occurrence of event of ineligibility. After ineligibility, person shall file an intimation for withdrawal within 7 days. If registered person intends to withdraw from this scheme, then he has to file intimation before the date of such withdrawal. Person shall also issue tax invoices instead of Bill of Supply for every taxable supply made thereafter. If proper office has reason to believe that registered person was not eligible to opt for this scheme then he can also issue order of withdrawal after giving opportunity of being heard and such person will be liable to pay the differential amount of tax along with penalty

NRE Taxpayers advance ruling

E Way Bill

ഒരു ഇൻവോയിസ് നൽകുമ്പോൾ അതിൽ എന്തൊക്കെ വിവരങ്ങളാണ് രേഖപ്പെടുത്തേണ്ടത് എന്ന് അറിയാമോ?

TAX INVOICE, CREDIT AND DEBIT NOTES

1. Tax invoice

(1) Subject to rule 5, a tax invoice referred to in section 23 shall be issued by the supplier

containing the following details: -

(a) name, address and GSTIN of the supplier;

(b) a consecutive serial number containing only alphabets and/or numerals, unique

for a financial year;

(c) date of its issue;

(d) name, address and GSTIN/ Unique ID Number, if registered, of the recipient;

(e) name and address of the recipient and the address of delivery, along with the

name of State and its code, if such recipient is unregistered and where the taxable

value of supply is fifty thousand rupees or more;

(f) HSN code of goods or Accounting Code of services;

(g) description of goods or services;

(h) quantity in case of goods and unit or Unique Quantity Code thereof;

(i) total value of goods or services;

(j) taxable value of goods or services taking into account discount or abatement, if

any;

(k) rate of tax (CGST, SGST or IGST);

(l) amount of tax charged in respect of taxable goods or services (CGST, SGST or

IGST);

(m) place of supply along with the name of State, in case of a supply in the course

of inter-State trade or commerce;

(n) place of delivery where the same is different from the place of supply;

(o) whether the tax is payable on reverse charge;

(p) the word “Revised Invoice” or “Supplementary Invoice”, as the case may be,

indicated prominently, where applicable along with the date and invoice number of the

original invoice; and

(q) signature or digital signature of the supplier or his authorized representative.

Provided that the Board/Commissioner may, by notification, specify -

(i) the number of digits of HSN code for goods or, as the case may be, the

Accounting Code for services, that a class of taxable persons shall be required to

mention, for such period as may be specified in the said notification, and

(ii) the class of taxable persons that would not be required to mention the HSN

code for goods or, as the case may be, the Accounting Code for services, for such

period as may be specified in the said notification:

Provided further that in case of exports, the invoice shall carry an endorsement

“SUPPLY MEANT FOR EXPORT ON PAYMENT OF IGST” or “SUPPLY MEANT FOR EXPORT UNDER

BOND WITHOUT PAYMENT OF IGST”, as the case may be, and shall, in lieu of the details

specified in clause (e), contain the following details:

(i) name and address of the recipient;

(ii) address of delivery;

(iii) name of the country of destination; and

(iv) number and date of application for removal of goods for export [ARE-1].

(2) The invoice referred to in sub-rule (1), in case of taxable supply of services, shall be

issued within a period of thirty days from the date of supply of service:

Provided that in case of continuous supply of services, the invoice shall be issued

within a period of thirty days from the date when each event specified in the contract, which

requires the recipient to make any payment to the supplier of services, is completed:

Provided further that where the supplier of service is a banking company or a financial

institution including a non-banking financial company, the period within which the invoice is to

be issued shall be forty-five days from the date of supply of service.

2. Manner of Issuing Invoice

(1) The invoice shall be prepared in triplicate, in case of supply of goods, in the following

manner: –

(a) the original copy being marked as ORIGINAL FOR RECIPIENT;

(b) the duplicate copy being marked as DUPLICATE FOR TRANSPORTER; and

(c) the triplicate copy being marked as TRIPLICATE FOR SUPPLIER.

Provided that the duplicate copy is not required to be carried by the transporter if the supplier

has obtained an Invoice Reference Number under sub-rule (4).

(2) The invoice shall be prepared in duplicate, in case of supply of services, in the

following manner: -

(a) the original copy being marked as ORIGINAL FOR RECEIPIENT; and

(b) the duplicate copy being marked as DUPLICATE FOR SUPPLIER.

(3) The serial number of invoices issued during a tax period shall be furnished

electronically through the Common Portal in FORM GSTR-1.

(4) A registered taxable person may obtain an Invoice Reference Number from the

Common Portal by uploading, on the said Portal, a tax invoice issued by him in FORM GST

INV-1, and produce the same for verification by the proper officer as required under section

61 in lieu of the tax invoice.

(5) The Invoice Reference Number shall be valid for a period of 30 days from the date of

uploading.

3. Bill of supply

A bill of supply referred to in the second proviso to section 23 shall be issued by the supplier

containing the following details: -

(a) name, address and GSTIN of the supplier;

(b) a consecutive serial number containing only alphabets and/or numerals, unique

for a financial year;

(c) date of its issue;

(d) name, address and GSTIN/ Unique ID Number, if registered, of the recipient;

(e) HSN Code of goods or Accounting Code for services;

(f) description of goods or services;

(g) value of goods or services taking into account discount or abatement, if any;

and

(h) signature or digital signature of the supplier or his authorized representative:

Provided that the proviso to sub-rule (1) of rule 1 shall apply, mutatis mutandis, to the

bill of supply issued under this rule:

Provided further that the registered taxable person may not issue a bill of supply if the

value of the goods or services supplied is less than one hundred rupees except where the

recipient of the goods or services requires such bill:

Provided also that a consolidated bill of supply shall be prepared by the registered

taxable person at the close of each day in respect of all such supplies where the bill of supply

has not been issued in terms of the second provision.

4. Supplementary tax invoice and Credit or debit notes

(1) A supplementary tax invoice under section 23 and a credit or debit note under section

24 shall contain the following details -

(a) name, address and GSTIN of the supplier;

(b) nature of the document;

(c) a consecutive serial number containing only alphabets and/or numerals, unique

for a financial year;

(d) date of issue of the document;

(e) name, address and GSTIN/ Unique ID Number, if registered, of the recipient;

(f) name and address of the recipient and the address of delivery, along with the

name of State and its code, if such recipient is unregistered;

(g) serial number and date of the corresponding tax invoice or, as the case may be,

bill of supply;

(h) taxable value of goods or services, rate of tax and the amount of the tax credited

or, as the case may be, debited to the recipient; and

(i) signature or digital signature of the supplier or his authorized representative.

 (2) Every registered taxable person who has been granted registration with effect from a

date earlier than the date of issuance of certificate of registration to him, may issue revised

tax invoices in respect of taxable supplies effected during the period starting from the

effective date of registration till the date of issuance of certificate of registration:

Provided that the registered taxable person may issue a consolidated revised tax

invoice in respect of all taxable supplies made to a recipient who is not registered under the

Act during such period:

Provided further that in case of inter-State supplies, where the value of a supply does

not exceed two hundred and fifty thousand rupees, a consolidated revised invoice may be

issued separately in respect of all recipients located in a State, who are not registered under

the Act.

5. Tax Invoice in special cases

(1) A tax invoice issued by an Input Service Distributor shall contain the following details: -

(a) name, address and GSTIN of the Input Service Distributor;

(b) a consecutive serial number containing only alphabets and/or numerals, unique

for a financial year;

(c) date of its issue;

(d) name, address and GSTIN of the supplier of services, the credit in respect of

which is being distributed and the serial number and date of invoice issued by such

supplier;

(e) name, address and GSTIN of the recipient to whom the credit is distributed;

(f) amount of the credit distributed; and

(g) signature or digital signature of the supplier or his authorized representative:

Provided that where the Input Service Distributor is an office of a banking company or a

financial institution including a non-banking financial company, a tax invoice shall include any

document in lieu thereof, by whatever name called, whether or not serially numbered but

containing the information as prescribed above.

(2) Where the supplier of taxable service is a banking company or a financial institution

including a non-banking financial company, the said supplier shall issue a tax invoice or any

another document in lieu thereof, by whatever name called, whether or not serially numbered,

and whether or not containing the address of the recipient of taxable service but containing

other information as prescribed under rule 1.

(3) Where the supplier of taxable service is a goods transport agency supplying services in

relation to transportation of goods by road in a goods carriage, the said supplier shall issue a

tax invoice or any other document in lieu thereof, by whatever name called, containing the

gross weight of the consignment, name of the consignor and the consignee, registration

number of goods carriage in which the goods are transported, details of goods transported,

details of place of origin and destination, GSTIN of the person liable for paying tax whether as

consignor, consignee or goods transport agency, and also contains other information as

prescribed under rule 1.

 (4) Where the supplier of taxable service is supplying passenger transportation service, a

tax invoice shall include ticket in any form, by whatever name called, and whether or not

containing the address of the recipient of service but containing other information as

prescribed under rule 1.

EID MUBARAK

EID MUBARK TO ALL OUR BELOVED CLIENTS

May Allah bring you joy, happiness, peace and prosperity on this blessed occasion. Wishing you and your family on this happy occasion of Eid! 

Eid Mubarak by TEAM ELV

Debit Note and Credit Note under GST

There comes a time when humans errors in making an entry or a transaction. These cases often lead to anomalies and a further reconciliation is required between the interacting parties to make correct, such anomalies. This can happen due to a machine malfunction as well. Such an erroneous situation leads to the creation of what we call as Debit Notes or Credit Notes, wherever applicable.

Whenever there are value related errors, these documents come into play. Whether it is an upward revision or a downward revision in prices, they are always catered with the help of debit or credit notes. It is not just in India that these documents are used, but are used across the globe in generally accepted accounting parlance.

In this article, we’ll explain what are debit notes and credit notes in the context of GST. Find out, in which situations you should create these vouchers.

What are Debit Notes?

An invoice is raised whenever there is a purchase or sale transaction with a consideration. When such consideration falls short due to certain anomalies, or extra goods being delivered to the purchaser, then the seller shall issue a debit note in that case. Such a debit note will take care of the upward revision of prices in an already issued invoice and will intimate the purchaser of the future liability that he has to pay.

Debit notes are raised in cases where there is a tax invoice issued, but the taxable value of the goods therein changes after such issuance. Similarly, there can be a tax invoice issued but a number of tax changes after such issuance. In both these cases, a seller has to intimate the purchaser about such change.

There is no specified format to issue a debit note, but it can be issued as a letter or a formal document. It is mostly a document specifying future liability and having commercial implications. They increase the credit period of a transaction, but are affected after shipping of goods takes place.

There can be a situation where a purchaser is returning the goods on account of some quality issues, or shortage of quantities, etc. In such cases also, a debit note is raised to account for the difference. The physical movement of goods is taking place without any payments actually being made.

Debit notes are also helpful in identifying through the books of accounts, any movement of stocks between the transacting parties. These notes do not have to be paid instantaneously but have to be settled at a later date.

Debit Notes Under GST

GST takes care of all the changes made in a transaction. It is obvious to have a free flow of credits to the last mile in a GST environment. Hence, dealers and assesses have to follow a tough regime of uploading and updating every single transaction that they enter into.

Since debit notes are a major change to an invoice, they have to be reported separately in the GST returns. Debit notes are explained under section 2(36) of the Model GST Law.

Debit notes can be raised in GST under two situations:

• When the amount of taxable value of the goods changes after issuance of invoice
• When a number of tax changes after issuance of invoice

The following things are to be maintained in the debit note, for proper update and reporting. Although there is no predefined format for the same, necessary care has to be taken to mention these important details in the debit notes.

• ·         Name and address of the dealer supplying the goods or services
• ·         GST Identification Number (GSTIN) of the supplier
• ·         Nature of the document – DEBIT NOTE in bold, capital letters.
• ·         Unique serial number assigned to the document
• ·         Date of the document
• ·         Name and address of the recipient of goods or services
• ·         GST Identification Number (GSTIN) of the recipient
• ·         When the recipient is an unregistered person, then name and address of place of delivery.
• ·         The corresponding original tax invoice to which the debit note relates to
• ·         Changes in taxable value of the goods or services, or changes in tax amount, as the case may be, for which such debit note is being raised.
• ·         Digital signature for online debit notes or physical signatures for paper-based documents.

The details of debit notes have to be declared in the month following the month on which such debit note has been raised. Debit notes can be issued anytime without any time limit.

What are Credit Notes?

Similar to the debit notes, credit notes are issued when there is a downward revision in prices of goods or services supplied. It can be compared to a negative invoice that has the ability to nullify the effects of an invoice. It offers a reduction in the value of the invoice and thus, reduces the liability of the purchaser. It is often inflicted with a return of goods to the supplier. It always has a negative impact on the accounting balance in the books of the seller.

Sometimes, the purchaser is unhappy with the quality of product shipped to him. In that case, he shall return the goods to the supplier, and in return, the supplier issues the purchaser, a credit note to the extent of the value of the goods being returned. There is no predefined format in which the credit note has to be issued; rather it is an intimation to the purchaser about such credit being offered.

Credit Notes Under GST

GST takes care of credit notes as well, just like debit notes. Credit notes have to be issued by a taxable person, where there is a shortage of products supplied and for which there is no payment to be made by the purchaser. Since it has a commercial impact, the same has to be informed or declared in GST returns in the month to which it prevails.

The credit note has to be issued based on an original invoice already issued. The original invoice will get reduced to the extent of such credit notes. In some cases, the original invoice value can become zero. Credit notes are defined in section 2(35) of the Model GST Law.

Credit notes can be issued in the following cases:

• ·         When the goods are returned by the recipient
• ·         When the supplier has charged excessive tax, where a lower rate should have been charged.
• ·         When the goods supplied are of inferior quality, and the same are returned to the supplier

Credit notes must also mention the details as noted above in case of debit notes. The particulars are the same in this case as well. Such credit notes must be mentioned in the returns of the following month about which the credit note has been raised. Unlike debit notes where there is no time limit for issuance, credit notes have to be declared in earlier of the following dates:

Annual return filing date or,By the 30th of September, following the year to which credit notes relate to.

From the above we can analyze that the due date of filing of annual return is 31st December and where the annual return is filed after 30th September, then the credit notes have to be declared on 30th September.

Where the input tax credit and interest on such invoice is already passed on to other registered person, then such credit note shall have no effect on reduction of output tax liability.

Understanding the HSN Code under GST

The World has been thriving ever since International Trade and Commerce came into picture. There are thousands of products being transacted around the World, some specific to a country and some relating to most of the countries. It has thus become imperative to have a common understanding of the goods being traded and countries speaking the same language, irrespective of their national boundaries. Hence came the inception of HSN Codes, which are an integral part of International trade and commerce today.

In this article, we’ve explained what is HSN code, what is SAC? Format of HSN code and how to use HSN under GST in India.

What is HSN Code in the first place?

Harmonized System of Nomenclature, or HSN, was conceived and developed by the World Customs Organization (WCO) with the vision of classifying goods from all over the World in a systematic and logical manner. It is a six digit uniform code that classifies more than 5,000 products and is accepted worldwide. These set of defined rules is used for taxation purposes in identifying the rate of tax applicable to a product in a country. It is also used to determine the quantum of product exported or imported in and out of a country. It is a crucial feature to analyze the movement of goods across the World. It is a combination of different sections, further drilled down to chapters, which are further classified into headings and sub-headings. The resultant figure is the six-digit code.

HSN is widespread and is adopted in more than 200 countries, covering a staggering 98% of goods in the World. It is by far, the best logical system of classification and identification adopted in International Trade. It has helped in reducing efforts and costs related to complex procedures of International Trade.

HSN in India

Now that we have been through the concept of HSN, we now move on to understanding HSN from the Indian context.

India is all set to have its very own Goods & Services Tax or GST, which applies to all goods and services alike. It shall subsume many indirect taxes and reduce the burden on the end consumer. India has already been using HSN system since 1986 in the Central Excise and Customs regime. It is a much more detailed classification that added another two digits to the 6-digit structure. Indian manufacturers under GST shall be required to follow a 3-tiered structure of HSN.

·         Those with a turnover of less than INR 1.5 Crores need not follow HSN

·         Those with a turnover exceeding INR 1.5 Crores but less than INR 5 Crores shall be using the 2 digit HSN codes

·         Those with a turnover exceeding INR 5 Crores shall be using the 4 digit HSN codes

·         Those dealers who are into imports or exports shall mandatorily follow the 8 digit HSN codes

Understanding the digits of HSN Code

The HSN structure contains 21 sections, with 99 Chapters, about 1,244 headings, and 5,224 sub-headings. The commodity’s manufacturing and technological complexity define the section or chapter to which it belongs. As such, all natural commodities like vegetables, animal produce, etc. belong to the earlier sections, whereas industrial machinery is seen at the later stages.

For e.g. – Processed cotton appears later whereas uncombed, normal cotton appears earlier.

The sections are categorized on a broader perspective. Chapters, on the other hand, have a much more specific categorisation. Like Section 11 covers all kinds of textiles and textile articles, whereas Chapter 62, which falls under Section 11 is expressly for accessories for men and women.

Going further down the chain, chapters have been sub-classified into headings and sub-headings. The headings focus on specific types of products under the Chapters. Continuing with the above example, Chapter 62, heading 13 covers all kinds of handkerchiefs, whereas heading 14 covers scarves and shawls of different types. These headings have a product attached to it.

In the above example, handkerchiefs made of other textile materials are under the heading 13 under Chapter 62. The HSN code for the product is 62.13.90, where 90 is the product code for handkerchiefs made of other textile materials. For a deeper classification, Indian GST has 2 more digits to these commodities. Where the handkerchiefs are made from a human-made fibre, then the HSN code becomes 62.13.90.10. Similarly, 62.13.90.90 belongs to handkerchiefs made out of silk or waste from silk.

When a classification of a product takes places in the above structure, the General Interpretation Rules have to be applied. The trade parlance of the product must be checked first while classifying the product and not its technological manipulation. Where the product is classified on the very first level, then there is no need to drill down further in the strata below.

Service Accounting Codes (SAC)

Similar to the International HSN Codes, India has adopted a Service Accounting Code (SAC) for all its services. GST will subsume the service tax, which covers all kinds of services at a national rate of 15%, apart from other rates in some cases. Since GST is a combination of goods and services both, an equable classification for services is also required. SAC will remain the same under the GST regime.

Here is a list of SACs announced by Government.

Top 5 FAQs on HSN

1) Is HSN Code is mandatory for all the dealers?

A:    HSN codes shall not be used mandatorily in the following cases:

·         Dealers who have an annual turnover of less than INR 1.5 Crores

·         Dealers registered under the Composition Scheme of GST are exempted from the usage of HSN Codes

2) Why is it necessary to follow HSN Codes and SAC Codes?

A:    HSN codes are internationally recognized system of codifying and classifying all the products in the World. It will make GST compliant with the international standards and ensure proper levy of taxes. HSN gives a systematic and logical way of classification, thereby reducing the chances of any misinterpretations. Further, a common structure enables governments of countries to collaborate data of purchases and sales of commodities and analyze the same. Post this analysis, they can decide on macro-economic policies relatable to important commodities.

3) Has the Government notified HSN Codes and Service Accounting Codes?

A:    Yes. HSN Codes and SAC are available on the Ministry’s website. They are controlled by the ACES website, which was earlier used by the Central Board of Excise and Customs (CBEC) for its operations.

4) How can I find the product in HSN list and its relevant HSN Code?

A:    ACES or other websites have the functionality of searching your product or service and its relevant HSN / SAC Codes. Gst Suvidha kendra by EL Ventures offers a way to allocate right HSN code to the product by using a database search through our efficient software.

5) Why are HSN Codes important at the time of filing GST returns?

A:    Since GST returns are completely automated, it will be hard for the dealers to upload the description of the products being supplied. Hence, HSN Codes shall be automatically picked up from the registration details of the dealer and will reduce the efforts thereby. Dealers have to be careful in choosing the correct HSN/SAC code while migrating to GST or making a fresh registration.

Way Forward..

In order to minimize errors while filing GST returns, its important to know the right HSN code for the product or service you are selling. Right from creating invoices in GST format to filing GST returns through GST Suvidha kendra by EL Ventures,Irinjalakuda.