{"id":21501,"date":"2020-12-10T14:19:13","date_gmt":"2020-12-10T08:49:13","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=21501"},"modified":"2020-12-10T16:02:38","modified_gmt":"2020-12-10T10:32:38","slug":"migration-to-the-new-tax-structure-under-gst-transition-process","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/migration-to-the-new-tax-structure-under-gst-transition-process\/","title":{"rendered":"The Migration to the New Tax Structure under GST Transition Process"},"content":{"rendered":"\n<p class=\"has-drop-cap\">There is a lot of discussion regarding Goods and Services Tax and its impact on small and medium businesses in India. Large businesses are already formulating themselves for the change that they have to make in their current system to comply with the new <a href=\"https:\/\/corpbiz.io\/gst-registration\"><strong>Goods and Services Tax<\/strong><\/a> (GST) regime. <\/p>\n\n\n\n<p>There are certain doubts among all\nthe small and medium enterprises regarding the preparation that will be\nrequired for GST Transition Process. In this article, we will discuss how one\nmust prepare them for the migration to the new tax structure from the current\none.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Latest Update related to GST Transition Process<\/h2>\n\n\n\n<p>The CBIC has notified on May 18th, 2020, as the date from which the Section 128 of the Finance Act of 2020 will come into force. Section 128 of the Finance Act affects the amended section 140 of the <strong>Central Goods and Services Tax (CGST) Act, 2017<\/strong><sup><a href=\"http:\/\/gstcouncil.gov.in\/sites\/default\/files\/CGST.pdf\"><strong>[1]<\/strong><\/a><\/sup><strong>,<\/strong> which explicates the time limit for demanding transitional input tax credit under the Act.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">GST Transition Process<\/h2>\n\n\n\n<p>Goods and Services Tax consolidates multiple taxes into one. It is essential to have rules in place to make sure that a registered business runs smoothly for GST Transition Process. The three types of GST Transition Process are:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/12\/GST-Transition-Process-Corpbiz.png\" alt=\"GST Transition Process\" class=\"wp-image-21560\" width=\"592\" height=\"295\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/12\/GST-Transition-Process-Corpbiz.png 1000w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/12\/GST-Transition-Process-Corpbiz-300x150.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/12\/GST-Transition-Process-Corpbiz-768x383.png 768w\" sizes=\"(max-width: 592px) 100vw, 592px\" \/><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\">Input Tax Credit<\/h3>\n\n\n\n<p>Certain Provisions have been made\nfor the smooth transition of Input Tax Credit available under Service Tax,\nExcise Duty or VAT to GST.&nbsp; A registered\ndealer who selected for the composition scheme will not be allowed to carry\nforward the ITC available in the previous tax regime.<\/p>\n\n\n\n<p>Some of the instances where ITC transition provisions will be applicable are as follows:-<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">1.&nbsp;Closing balance of Credit on Inputs<\/h4>\n\n\n\n<p>The closing balance of ITC\naccording to the last return filed before GST can be taken as credit in the GST\nregime. After coming of GST in the year 2017, GST Transition Process started.<\/p>\n\n\n\n<p>The credit will be accessible only\nif the returns for the last six months from January 2017 to June 2017 were filed in the prior\nregime (i.e. Service Tax\nreturns, Excise and VAT had been filed).<\/p>\n\n\n\n<p>Form TRAN 1 has to be filed by December 27th, 2017 to\ncarry forward the ITC. Also, TRAN 1 can be corrected only once.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">2. Credit on Capital Goods<\/h4>\n\n\n\n<p>Before Goods and Services Tax, only\na part of input tax paid on Capital Goods could be taken as credit.<\/p>\n\n\n\n<p>For example, if ITC on Capital\nGoods purchased in the year 2016-17 is INR 10,000. 50% i.e. INR 5,000 can be\nclaimed as Input Tax Credit in the same year and balance INR 5000 can be\ndemanded in the next year.<\/p>\n\n\n\n<p>In such cases, there may be some\namount of unused credit available on the capital goods. This un-used credit can\nbe carried forwarded to GST by entering the particulars in Form TRAN 1.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">3. Credit on Stock<\/h4>\n\n\n\n<p>A service provider or a\nmanufacturer who has goods left in the closing stock on which the duty has been\npaid can also take the credit for the same. The merchant has to declare the\nstock of such goods on the GST Portal.<\/p>\n\n\n\n<p>The merchant should have the invoices for claiming Input Tax credit &amp; the invoices must be less than one year old.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>What if you don&#8217;t\nhave Invoices?<\/strong><\/h4>\n\n\n\n<p>Service providers or Manufacturers,\nwho do not have an invoice to prove payment of tax duty are not allowed to\nclaim the credit under the GST regime.<\/p>\n\n\n\n<p>Only dealers can claim credit in\ncase invoice is unavailable, subject to the following conditions:<\/p>\n\n\n\n<ul><li>The credit can be taken by the dealer only if the benefit of the same is passed on to the final consumer<\/li><li>The stock should be identified separately based on the following rate slab, which are as follows:-<\/li><\/ul>\n\n\n\n<table class=\"table table-bordered\"><tbody><tr><td>\n  <strong>Rate of GST on\n  Goods<\/strong>\n  <\/td><td>\n  <strong>Inter-state Credit\n  to IGST<\/strong>\n  <\/td><td>\n  <strong>Intrastate&nbsp;Credit\n  to CGST<\/strong>\n  <\/td><\/tr><tr><td>\n  18 % or more\n  <\/td><td>\n  30%\n  <\/td><td>\n  60%\n  <\/td><\/tr><tr><td>\n  Less than 18%\n  <\/td><td>\n  20%\n  <\/td><td>\n  40%\n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p><strong>Registered\nindividuals under GST who were not registered\nunder any previous law<\/strong><\/p>\n\n\n\n<p><strong>Every individual who is:<\/strong><\/p>\n\n\n\n<ul><li>A registered merchant and was unregistered under\nprevious law<\/li><li>Who was involved in the manufacture of exempted\ngoods or exempted services<\/li><li>Who was offering contract service and was\navailing for abatement<\/li><li>A first stage merchant or a second stage\nmerchant<\/li><li>A registered importer can also enjoy Input Tax\nCredit of inputs in stock held on 1st July.<\/li><\/ul>\n\n\n\n<p><strong>The following conditions should be fulfilled \u2013<\/strong><\/p>\n\n\n\n<ul><li>Inputs or goods are utilized for making taxable\nsupplies<\/li><li>Such advantages is passed on by way of abridged\nprices to the recipient<\/li><li>The taxable individual is eligible for the input\ntax credit on such inputs.<\/li><li>The individual in possession of invoices\nevidencing payment of duty under the earlier law<\/li><li>The invoices must be not older than 12 months.<\/li><li>The provider of services is not eligible for any\nabatement under GST<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\">Input tax credit on Goods Sent before 1st July<\/h4>\n\n\n\n<p>ITC can be claimed by the\ndealer\/manufacturer for those goods received after the appointed day, the tax\non which has been previously paid under previous law. Above credits will only\nbe permitted if the invoice\/tax paying document is recorded in the accounts of\nsuch individual within 1st August 2017. A 30-day extension may be allowed by\nthe competent authority on grounds of sufficient cause for delay.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Credit of Additional Customs or Excise Duty<\/h4>\n\n\n\n<p>This is probably the most perilous\nprovision of transition under GST regime. Under the present tax regime, a\nmerchant is not permitted an Input Tax credit of excise duty or additional\ncustoms against excise.<\/p>\n\n\n\n<p>However, things have changed in the\nnew GST regime. Under the new GST regime, supply of such goods falls under GST\nbut a credit of excise duty or additional custom duty will not be permitted.<\/p>\n\n\n\n<p>The instant result of this would be\nthe imposing of GST on goods which are already being taxed under the existing\nprocedure, without any credit obtainability. This may lead to distortion and\ncascading limits of prices.<\/p>\n\n\n\n<p>This can also result in stock\nreturns from merchants and traders to the manufacturers before the prescribed\nday, and further making a new purchase successive to that day. Such situations\nmay lead to fright among manufacturers and in turn affect their returns and\nprofits.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Refunds and Arrears<\/h3>\n\n\n\n<p>Any appeals\/claims pending for the\nrefund on the due amount of tax, CENVAT credit, or interest paid must be\ndisposed of as per the previous laws. The GST Transition Process for refunds\nand arrears will be applicable after 1<sup>st<\/sup> July, 2017. Moreover, any\namount payable under previous law will be treated as arrears of Goods and\nServices Tax and be recovered as per the GST provisions.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Job Work<\/h3>\n\n\n\n<p>No tax must be payable on Inputs,\nsemi-finished products removed for job work for carrying certain processes and\nreturned on or after 1st of July<\/p>\n\n\n\n<p><strong><em>Conditions when there is no tax\npayable:<\/em><\/strong><\/p>\n\n\n\n<ul><li>Goods returned to the factory within six months\nfrom 1st of July which is extendable for a maximum period of two months<\/li><li>Goods held by job worker declared in Form\nTRANS-1<\/li><li>Supply of semi-finished goods done only on\npayment of tax in India or the goods exported out of India within six months\nfrom 1st of July&nbsp; which is extendable by\nnot more than two months<\/li><\/ul>\n\n\n\n<p>Taxes are not imposed if finished\ngoods were removed before the 1st of July for carrying certain processes and\nare returned within six months from the 1st of July. ITC will be recovered if\nthe goods are not returned within six months<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Credit Distribution by Input Service Distributor<\/h3>\n\n\n\n<p>GST Transition Process will be\napplicable in cases where the service was received prior to the 1st of July and\nthe invoices received on or after the 1st of July. Input Service Distributor\nwill be eligible to distribute ITC under GST.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Composition Dealer<\/h3>\n\n\n\n<p>When a registered trader who was\npaying tax under composition scheme previously but is a normal taxpayer under\nthe GST can claim credit of inputs available as on 1st of July by satisfying\nsome conditions \u2013<\/p>\n\n\n\n<ul><li>The Input is used for the taxable supply<\/li><li>Registered individual is eligible for Input Tax\nCredit under GST<\/li><li>Invoice or other duty payment receipts are\navailable<\/li><li>Such invoices are not more than 12 months old<\/li><\/ul>\n\n\n\n<p>GST Transition Process will be\napplicable on new tax regime where the taxpayer has to keep himself\/herself\naware regarding the implications that the migration from the old regime to the\nnew regime may have. At this time of transition, such migration is anticipated\nto have a large impact as the limit of the turnover under GST is INR 50 lakh,\nas against the existing INR 10 lakh.<\/p>\n\n\n\n<p>Therefore, it would be fair and\nsafe to assume that many taxpayers will move from being regular taxpayers to\npaying taxes under the composition scheme.<\/p>\n\n\n\n<p>The opposite of this would be\nwherein merchants, who are under the composition scheme, would be transformed\ninto a being regular taxpayers. This may happen if the goods they are dealing\nin do not qualify under the exemption list of the new regime.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion&nbsp;&nbsp;&nbsp;&nbsp; <\/h2>\n\n\n\n<p>Goods and Services Tax combines multiple taxes into one. It is necessary to have rules &amp; regulation in place to make sure that a registered business runs smoothly for GST Transition Process in India. Certain Provisions have been made for the smooth transition of Input Tax Credit available under Service Tax, Excise Duty or VAT to GST.&nbsp; A registered dealer who selected for the composition scheme will not be allowed to carry forward the ITC available in the previous tax regime.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/list-of-goods-and-services-where-gst-is-applicable-latest-rates\/\">List of Goods and Services where GST is Applicable: Latest Rates<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>There is a lot of discussion regarding Goods and Services Tax and its impact on small and medium businesses in India. Large businesses are already formulating themselves for the change that they have to make in their current system to comply with the new Goods and Services Tax (GST) regime. There are certain doubts among [&hellip;]<\/p>\n","protected":false},"author":18,"featured_media":21503,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[16],"tags":[1301],"acf":{"service_id":"68"},"authorName":"Sakshi Srivastava","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/IMG-20180130-WA0007.jpg","authorDescription":"Sakshi has pursued B.B.A.LL.B.(IPR Hons.). She is an avid reader and is keen to gather and share her knowledge on the subjects relating to IPR, Company Law and GST. Priorly she has worked as a legal researcher and vide her articles she aims at improving the core knowledge of the subjects to the masses.","postViews":4491,"readingTime":6,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/21501"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/18"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=21501"}],"version-history":[{"count":26,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/21501\/revisions"}],"predecessor-version":[{"id":21563,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/21501\/revisions\/21563"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/21503"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=21501"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=21501"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=21501"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}