GST could eat your 'free' lunch: Perks, gifts may be taxed under regime

MARKET NEWS - The Goods and Services Tax (GST) may have a lesser known impact on you — your free office luncheons, among other things, may no longer be exactly free, that is to say that they will attract tax. In fact, it could even lead to an increase in your income tax burden. 

Online human resource industry portal, peoplematters.in, reported in March that all free amenities provided to an employee outside his or her CTC, or cost to company (total salary given to an employee), would attract GST. 

Also, the report said that GST would be applicable if an employee uses the company’s assets for personal use. 

According to the report, given that CTC structures vary from firm to firm, services ranging from scholarships for an employee’ children to even pick-and-drop service will fall under the GST's ambit. 

It does not end there, the report added that input tax credit would not be available for facilities like life and health insurance provided to employees. In fact, club and fitness membership, cab facility, free or subsidised lunches, among other things, are some of the facilities a company will not be able to claim input tax credit on. Input tax credit will only be available for those services or amenities that a company has to provide to its employees under the law and as notified by the government. 

Here are the relevant sections:
SCHEDULE I [Section 7] Activities to be treated as supply even if made without consideration Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:   Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both

SCHEDULE II [Section 7] ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES 4. Transfer of business assets - Clause (b) - where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services;

GST on gold: Buying and making jewellery to get expensive for customers

The Goods and Service Tax (GST) Council has been kind enough to provide a special 3 per cent  GST to gems and jewellery sector ( the exception being rough diamonds at 0.25 per cent).

Going by the economic survey of India and the hype which was created in the run-up to this meeting, a much higher rate was feared. However, the rate of GST for jewellery is in line with what it was under the old tax regime.

GST has increased paperwork and lot of compliance. Only time will tell if we as a country or an industry are ready for it.

The immediate impact would be on the investment buying of gold by consumers as the resale value will be down by three per cent. Here' an example:

Mr A bought gold worth   Rs 100

Paid GST                                Rs     3
                                                —————
Total cost                                Rs 103

Now, after 6 months he wants to sell this gold and presuming that the gold price remains constant, he will get Rs 100 and the GST amount would be lost at the consumer level.

The transaction impact cost has increased from about one per cent to three per cent.

From the government's point of view, this is in line with their thinking/ planning — don’t invest in physical gold, rather invest in gold sovereign bonds. The consumer will also be better of as there is an interest coupon attached to bonds and it tracks local gold prices.

The exchange business of old jewellery for new ones will also be affected as the cost of 3 per cent will affect the transaction.

Another area which will affect the industry and the consumer is making of gold jewellery out of gold/scrap supplied by the customer. At present, there was no tax impact on the making of jewellery. Labour or making charges of jewellery were exempt from service tax (similar exemption was also under excise rules ). Under GST no such exemptions exist and making charges will be subject to 18 per cent GST.  This is an undesired result.

Export from domestic tariff area (other than SEZ ) will be hit on two counts:

One, there is no exemption from GST for gold procured for export purposes. This would mean a higher blockage of working capital.

Second, the export business will also be harmed. It depends on raw material (gold ) being supplied by oversea buyers and the Indian party makes the jewellery and exports i.e. value addition in the form of design and labour.

Under GST regime, the overseas customer will have to register as a non-resident business person and undertake the required paperwork. This will deter many customers.

Bullion imports system may be disturbed/altered as most international suppliers (including bullion banks)  sending goods on consignment to India will have to register as a non-resident business. This requirement may deter many players operating in India.

The diamond segment, particularly in the home state of Gujarat, had a total exemption from indirect tax. Value-added tax was zero in Gujarat and there is no excise on diamonds.
READ MORE

Worried about GST rates? Know what gets cheaper and costlier from July 1

The Goods and Services Tax (GST) rehime is set to be rolled out from July 1, more than 11 years after a formal process to introduce it began. The GST Council on Thursday fixed rates for 1,211 items. In the second half of the Council meet, on Friday, rates of services and products like beedi, cigarettes, tobacco, footwear, gold, textile, handloom, handicraft, agricultural equipment and biscuits, will be discussed.

It appears from the first set of announced rates that consumers can rest assured most of the items will become cheaper (for now) as the new rates will be lower than the current effective levies.

Mobiles phones, however, might get costlier, with the government imposing a 12% GST, taking away the benefit under duty differential that was being offered to local manufacturers. So, under the new GST rate, while imported phones will become cheaper, most locally manufactured ones will get costlier.

Foodgrains will cost less as the GST Council decided to exempt the daily-use commodities from the levy.

GST promises to stitch together a common national market by replacing a string of central and local levies such as excise, value added tax, octroi, service tax.

What will get cheaper?

"Categorisation of several consumer products like soaps, toothpaste and hair oil under 18 per cent is good news and should see price drop for consumers," said Pratik Jain, leader, indirect tax, PwC to Economics Times. "Similarly, several food items such as edible oil, tea, coffee, sugar, etc, have been kept at 5 per cent , with exemption for milk and foodgrain, which would also cheer industry."

Branded goods: Tax rates on branded goods have been slashed to 18 per cent. Currently, the effective tax rate for the three items is pegged at 23-24 percent.

Hotels: Staying at hotels post the implementation of GST will become cheaper as they are currently taxed at 22% and a posed to be under the 18% tax bracket.

Restaurants which will come down to 18% from 22% tax slab.

Foodgrains will cost less

Processed food items that draw tax rates of 15% will be taxed at 5% under GST.

Under services, entertainment services will be brought down from 22% to 18% under GST.

Soap which are currently taxed at 28% will be taxed at 18% under GST. Similarly toothpaste will come down from 22-24% current tax rate to 18%.

Personal hair products - hair oil will become cheaper as it will drop 10% from 28% current tax rate to 18% under GST.

Entry level cars, two-wheelers, paint, cement, electrical items, consumer durables are expected to get cheaper.
READ MORE

GST could throw spanner in Apple's Make in India plans: Report

Apple Inc for manufacturing its flagship devices in the country, reported The Economic Times on Monday.

The financial daily quoted Revenue Secretary Hasmukh Adhia as saying that giving individual exemptions under the GST regime was not possible. So, Adhia explained, all countervailing duty (CVD) exemptions would go.

As reported earlier, the Cupertino, US-headquartered company continues to engage in talks with the central government over full-scale manufacturing of its flagship devices in the country. For this, Apple is seeking a 15-year CVD exemption from the government to make India a hub for exporting the devices rather than just producing devices for the local market, according to officials at the commerce ministry. Apple is facing a challenge of rising input costs in China, apart from the Chinese government increasingly cracking down on foreign companies.(Read More)

GST to ease loan access for millions of firms: Nandan Nilekani

GST - The implementation of Goods and Services Tax (GST) should drive nearly seven million small businesses to the formal digital economy and help them get easy access to loans, said Nandan Nilekani, the technology entrepreneur and co-founder of Infosys who was tapped by the government to run an ambitious identity-recognition programme, on Friday. 

The new unified taxation system, which is scheduled to be implemented later this year, will bring in millions of unorganised businesses on one platform. This would effectively, Nilekani believes, help them get loans using digitalised data.  

   

Nilekani pointed out, though the country has over 60 million businesses, fewer than one million are incorporated and only a few thousand are listed. A digital trail through GST would help these firms get access to formal credit at a much lower cost, which would help more small enterprises get into the formal economy.

Nilekani headed the empowered group on information technology infrastructure on GST.  

“Digitisation is the basis for credit and credit becomes the attractive reason for businesses to enter the formal economy,” he said, adding that ‘India’s formal economy is small and only 7 per cent of the India’s employment is in the formal sector(Read More)

Also Be Updated On: Budget 2017

Demonetisation, GST to fetch more revenues to govt: Arun Jaitley

GST - Finance Minister Arun Jaitley on Friday put up a spirited defence of demonetisation, saying the drive "shook" the financial system for a short while, but will integrate the shadow economy with the formal in the long run and ensure better tax compliance.

He said most contentious issues regarding the Goods and Services Tax (GST) have been sorted out between the Centre and states and the new indirect tax regime is at the final stages of implementation.

"This (demonetisation), coupled with GST, in the days to come will ensure much larger revenues as far as states and the central government are concerned and expand the size as far as the formal economy is concerned," Jaitley said at the CII Partnership Summit in Visakhapatnam.

Stating that India is largely a tax non-compliant society, he said states and the central government struggled with their revenues to run the system which created an unfair enrichment in favour of the evader.

"It also becomes very unfair on the normal taxpayer because what the evader manages to evade is what the compliant has to pay more," Jaitley said.

The government, therefore, decided to demonetise the high denomination currency, "which shook the system for some time".

Jaitley said demonetisation has gradually increased the process of integrating the shadow, parallel and informal economies in far greater number with the formal economy.(Read More)

GST Council: 70,000 tax officials warn of non-cooperation movement

Union Budget 2017 - Opposing some recent decisions taken by GST Council, various indirect tax officials' associations today decided to start non-cooperation movement.

To start with, the employees associations will not celebrate international customs day on Friday. Besides, they will observe 'black day' by wearing black badges on Martyrs' Day, i.e. January 30, as per minutes of meeting held among their representatives here.

The associations said that their members are "highly disappointed" and feel "cheated" over the decisions taken by Finance Minister Arun Jaitley-led GST Council in its meeting on January 16.

The Council had agreed to give states the powers to levy tax on economic activity within 12 nautical miles of territorial waters and to administer 90 per cent of the tax payers under Rs 1.5 crore annual turnover.

"We feel that the biggest tax reform of the century should have been in conformity with the principles of responsibility and authority going together and also in conformity with the Constitutional design. We feel that the decision shall weaken the Centre's ability to ensure its revenues.

"The decision will not only adversely affect the career of revenue officers but it is not in national interest. We oppose the decisions taken by GST Council and requests for deferment and review of above inappropriate and incorrect decisions," as per the minutes of meeting of steering committee of associations representing Group A, B and C employees of Central Board of Excise and Customs (CBEC).

The decision came after a meeting of representatives of Indian Revenue Service (Customs and Central Excise), All India Association of Central Excise Gazetted Executive Officers, All India Central Excise Inspectors' Association and All India Central Excise and Service Tax Ministerial Officers Association, comprising 70,000 personnel, here, office bearers said.(Read More)

KDK Softwares launches helpline number to resolve GST-related queries

GST Council - Ahead of the Union Budget, city-based tax solutions provider KDK Softwares has launched a toll-free number to resolve GST-related queries.

The company, which launched its 'GST Helpline' service recently, said it has received over10,000 calls with most of the callers inquiring about the new tax regime whether it will be beneficial for small businesses.

"Over 70 per cent calls received by the helpline had a single concern on GST rates and whether this will be a beneficial tax structure to small businesses," KDK Softwares CEO Mohit Bhambhani said here.

Queries of over ten thousands callers were studied, he said.

"About 80 per cent calls received were from the organisation having a business turnover below Rs 1 crore. Most of them were worried on the GST rates and how it will be levied on supply in case a company is supplying products directly to the end customers," he added.

With the recent demonetisation and upcoming GST regime, SMEs and startups are facing very challenging economic environment in addition to their experience of several highs and lows during the past five years, the CEO said.

But at the same time, understanding the importance of the SME sector, the central government has re-implemented Public Procurement Policy and also launched Make in India, Startup India and Skill India campaigns to promote the sector, he noted.

The company said its national toll-free helpline number 1800 103 9271 is available in 6 languages - English, Hindi, Gujarati, Marathi, Kannada and Malayalam.(Read More)

Revenue body asks FM not to implement GST in hurry; threatens legal action

GST - Claiming that demonetisation has affected country's growth, a major central revenue body has asked Finance Minister Arun Jaitley not to implement Goods and Services Tax (GST) in a hurry and threatened to take legal recourse in case their concerns are not addressed.

It termed as "illegal" certain decisions taken by Jaitley-headed GST Council and demanded a correction. It also sought that the officer's body be consulted before any final decision is taken.

The council in its meeting on January 16, had agreed to give states the powers to levy tax on economic activity within 12 nautical miles of territorial waters.

Also, it was decided that the states will have powers to assess and administer 90 per cent of the tax payers under Rs 1.5 crore annual turnover, while the remaining would be controlled by the Centre.

In a letter to Jaitley, the All India Association of Group B Central Excise Gazetted Executive Officers said the decision to transfer 90 per cent of service tax assessees to states is not supported by any lawful and logical base and therefore, the decisions taken by GST Council should be withdrawn immediately.

"Needless to say, any judicial intervention in the illegal decisions taken by GST Council, and if implemented by the Centre, would cause unnecessary delay in the implementation of GST.

"It is further added that due to demonetisation of old bank notes of Rs 500 and Rs 1,000, the GDP of the country is expected to fall at least 1 per cent (from 7.6 estimated to 6.6 per cent, as reviewed), and in case implementation of GST is delayed further, due to judicial scrutiny of the illegal decisions taken by GST Council, the country may suffer economically as the GDP may further slow down," it said.(Read More)