APRIL 12, 2017

By Preety Parik, CA

WITH the start of new Financial Year and the Government's Target date of Goods and Service Tax (GST) roll out approaching near, it's time for businesses to relook and revise their working capital needs in view of the following GST provisions:-

- GST Liability will be due on Advance receipt of consideration for supply. The liability for payment of the current Taxes of Central Excise/VAT was only on removal/sale of Goods and there was no liability on advance receipt. Say, you are a supplier and against supply of Rs.4Lacs, you take advance of Rs.1Lacs. You may now either ask for advance of 1Lacs + GST or out of advance of Rs.1Lacs, part away with Rs.18000 into the GST kitty (assuming GST @18%).

- GST on advance payment of consideration for supply will not be eligible as input tax credit till the receipt of Goods/ services. Say, you are buyer and on an advance payment of Rs.1 Lacs, you pay GST of Rs.18000/-. This 18000/- will not be available for credit immediately and gets blocked till you receive the goods. (The provisional claim of credit allowed in Nov- Model GST Law has been removed in GST Bill passed by Lok Sabha.)

- At present there is no VAT liability on branch transfers. There is GST liability in case of interstate branch transfers. Working capital will be required for this additional compliance and the same shall be blocked till actual sale at the branch.

- In case of resale business, where the Trader, at present, is subject only to VAT (5/6/13.5 tax rate) will be liable to 12% or18% GST rate and working capital will be required for additional deposit of tax on monthly basis.

- In case of businesses where larger credit period on purchases beyond 180 days is legitimately availed,same will be subject to Tax liability for amount of ITC claimed on purchases along with interest in case payment alongwith Tax has not been made to the supplier for supplies of goods and services within 180 days from the date of invoice.

- In case of supplies from unregistered person, the registered recipient will have to pay tax on reverse charge basis. Many businesses have production cycle of more than one month or even in businesses where there is large stock holding, capital will be blocked till the actual sales. The tax liability of unregistered PAN India is shifted to the estimated 70-90Lacs registered PAN India. ( One may note that this provision has suddenly crept into GST bill and was not there in any of the earlier two GST drafts.)

- The claim of ITC on purchases will be provisional and finally allowed only on matching of details filed by the supplier. In case of mismatch or non – payment of tax by the supplier, the recipient will be subject to Tax for amount of mismatch of ITC along with interest. The working capital will be blocked till the reconciliation/ liability accepted and paid by the supplier.

So, "A Careful Planning for A Happy Beginning" should be your New GST Mantra.