GST Act : Major Amendments

What is the GST Bill?

A bill is a draft of a proposed law presented to the Parliament for discussion. Once it is passed by the Parliament, it becomes an act. So GST Bill has now become GST Act.

Are There Any Changes to the GST Act?

The Model GST law was first drafted in June 2016 and later revised in November 2016. Lok Sabha has passed the 4 bills with certain amendments. Here is a list of the major changes proposed in GST bill:

Applicability of GST Law in the State of Jammu and Kashmir

J&K Finance Minister Haseeb Drabu has confirmed that J&K will apply GST. However, since J&K has a separate constitution and has special provisions regarding legislature, CGST & IGST will be passed separately. SGST will be passed separately, similar to the other states.

Employer’s Gifts to Employee Will No Longer be Taxed under GST

Earlier the supply of goods or services between related persons (made during the course of business) was treated as ‘supply’ even when there is no consideration. Employer and Employee were covered in the definition of related person. So, it stood that any supply of goods or services by employer to his employees (even if free of cost) would have been covered under the scope of GST.

Proposed change to the Act provides that GST will not apply on gifts upto Rs. 50,000 by an employer to a particular employee. However, gifts above Rs. 50,000 will attract GST.

GST not Applicable on Sale of Land/Building

Earlier, the term ‘goods’ included all movable property including actionable claims. Only money and securities were excluded. “Services” had a vague definition of “anything other than goods”.

Thus, there was an apprehension that the Government may levy GST on supply of immovable property (land/building) apart from levy of Stamp duty.

Now, the government has clearly mentioned in Schedule III that sale of land and/or building will neither be treated as a supply of goods nor a supply of services, i.e., GST will not be applicable on this.

So currently it stands that:

• GST will apply on renting, leasing of land and/or building
• GST will NOT apply on sale of land/building (Stamp duty will continue to apply)
• GST will apply on works contract, i.e., constructing a building
• GST will apply on sale of an under-construction building

However, there are discussions of bringing in sale of land and/or building under GST within 1 year from GST implementation date.

Fixing the Upper limits of GST rates- CGST- 20% & IGST- 40%

Earlier, the upper cap fixed was 14% and 25% respectively in both the laws. Now, the upper cap has been fixed at 20% and 40% respectively under CGST and IGST Law to keep a flexibility for rates increase in future. However, the GST slabs remain the same – 5%, 12%, 18% and 28%.

Petroleum Products Will Come under GST

The petroleum products (crude oil, high speed diesel, petrol, natural gas and aviation turbine fuel/ATF) have now been brought under GST.

This will be highly beneficial to Indian businesses as businesses now can take input credit on petrol products purchased. Many industries like the plastic and chemical industries have petroleum products as inputs for manufacture. Besides, machinery, vehicles use petrol/ATF to run. Availability of input credit will help to reduce prices of goods.

Unregistered Seller and registered Buyer – GST is Applicable on Reverse Charge Basis

An unregistered supplier cannot charge GST on sales. The Model law did not mention the tax treatment if an unregistered dealer sold to a registered buyer.

The Act now provides that when a registered buyer buys from an unregistered dealer, then reverse charge is applicable, i.e. the buyer (recipient of  goods/services) is liable to pay GST. This is similar to the current purchase tax on purchase of goods from an unregistered dealer applicable in many states.

Reduction in Composition Rates

Particulars	Earlier Composition Scheme	Now in GST Act
Trader	1%	0.5%
Manufacturer	2.5%	1%
Restaurant	N/A	2.5%
Service provider	N/A	N/A

Reduction in composition rates is a welcome move for the MSME sector. Composition scheme has many restrictions such as non-availability of ITC, not eligible for inter-state transactions. Reduction in composition rates will attract more taxpayers to register.

However, service providers are still not eligible for composition scheme thus burdening the various professionals and freelancers.

No Permission Required for Composition Scheme

Now a taxpayer, whose turnover was less than 50 lakhs in the last financial year, can OPT to pay under composition scheme. He does not have wait for the permission of the proper officer. He can directly register himself under composition scheme.

Change in the Provision Time of Supply of Services

Model GST law contained that the time of supply of services (i.e., the point of taxation when liability to pay tax arises) would be the earlier of:

• Date of issue of invoice, OR
• The last date on which the invoice should have been issue, OR
• Date of receipt of payment by the supplier.

Now in the Act, as passed in the parliament, the provisions for determining time of supply for services have been changed. Thus, the time of supply of services shall be earlier of the following dates:

If the invoice is issued within time prescribed:

• Invoice issue date,OR
• Date of receipt of payment

—whichever is earlier

If the invoice is not issued within time:

• The date of providing of services,OR
• The date of receipt of payment

—whichever is earlier

If clauses (a) & (b) are not applicable then:

The date on which the recipient shows the receipt of services in his books of accounts.

Change in Conditions for Disallowing ITC

According to the earlier provisions of GST Law, if the recipient/buyer failed to pay the service provider within 3 months, then the input credit tax (ITC) availed by the buyer would be disallowed. He would be required to pay the amount of ITC availed along with interest. This was only for services. There were no provisions of re-allowing the ITC if the buyer paid after 3 months.

Now, in the amended act, this provision includes goods also. Further, the time period for payment is extended to 180 days instead of 3 months before ITC is disallowed. Now, if payment is made even after 180 days then the ITC will be re-allowed.

Credit of Rent-a-cab, Life Insurance and Health Insurance Allowed if used Against Sale of Same Category

Earlier rent-a-cab, life insurance, and health insurance businesses were not eligible to take input tax credit. Only those services, as notified by the government, which are mandated to be provided to an employee by the employer will enjoy input tax credit.

The earlier provision of denial of credit would have had many consequences. For example, a life insurance company, in case of reinsurance of life insurance, will not be eligible to take credit of GST paid on reinsurance amount.

To reduce the taxpayer’s burden, input tax credit will be allowed for the above services subject to the following condition:

Credit must be adjusted only against outward supply (sale) of the same category of service. It can also be a part of mixed or composite supply.

GST will apply on petrol on a date and at a rate notified by the Government on the recommendations of the Council.

Non-Applicability of GST on Actionable Claims

The Model GST law included “Actionable claims” in the definition of “Goods”, i.e., GST would apply on actionable claims. The Lok Sabha amendments to the GST act in Schedule III clarify that actionable claims, other than lottery, betting and gambling will neither be treated as a supply of goods and not as a supply of services. Thus, GST will be applicable on lottery, betting, gambling but not on other actionable claims.

‘Actionable Claims’ means claims which can be enforced only by a legal action or a suit, example a book debt, bill of exchange, promissory note. A book debt (debtor) is not goods because it can be transferred as per Transfer of Property Act but cannot be sold. Bill of exchange, promissory note can be transferred under Negotiable Instruments Act by delivery or endorsement but cannot be sold. 

Conclusion

These changes show that the government is trying its best to make GST litigation free.