Impact of GST on Income Tax Act 1961

By | October 7, 2016

Impact of GST on Income Tax Act 1961

photo

Introduction

  • GST is pegged to be one of the biggest game changers for Indian economy, making India one unified common market.
  • The April 1, 2017, rollout deadline for the new indirect tax regime looks tough but not impossible and both the states and Centre are ready in terms of preparedness.
  • It will subsume all the taxes currently under the indirect tax basket, such as Central Excise Duty, Service Tax, VAT, CST, Entry Tax, and Luxury Tax and so on.
  • GST is no doubt more relevant to those professional colleagues who are practising in Indirect Tax area.
  • But I wish to discuss about GST Provision which are linked with Income Tax Act 1961 and vice versa.
  • This article can be useful for both who are practising in Indirect Tax as well as Direct Tax area.

The word “Income Tax Act 1961” in MODEL GST LAW (MGL)

Following are the sections of MGL which are linked with Income Tax Act 1961:

S.No.

Section of MGL

Name

Particulars

1

Section 2(13)

Definitions

“Associated enterprise” shall have the meaning assigned to it in section 92A of the Income Tax Act, 1961

2

Section 2(19)

Definitions

 

“Capital assets” shall have the meaning as assigned to it in the Income Tax Act, 1961 (43 of 1961) but the said expression shall not include jewellery held for personal use or property not connected with the business

3

Section 16(10)

Manner of Input Tax Credit

 

Where the registered taxable person has claimed depreciation on the tax component of the cost of capital goods under the provisions of the Income Tax Act, 1961, the input tax credit shall not be allowed on the said tax component

4

Section 19(4)

Registration

Every person shall have a Permanent Account Number issued under the Income Tax Act, 1961 (43 of 1961) in order to be eligible for grant of registration under subsection (1), (2) or (3)

5

Section 64(2) (V)

Access to business Premises

 

The income-tax audit report, if any, under section 44AB of the Income-tax Act,

1961 (43 of 1961)

6

Section 117(d)

Obligation to Furnish Income Tax Return

An income tax authority appointed under the provisions of the Income-tax Act, 1961

(43 of 1961)

Doubts over provision of GST which are linked with Income Tax Act 1961 

 

S.No.

Doubts

Answer

Authors Suggestion

Q.1

Where the registered taxable person has claimed depreciation on the tax component of the cost of capital goods under the provisions of the Income Tax Act, 1961, will ITC be allowed in such cases?

As per section 16(10) of the MGL, the input tax credit shall not be allowed on the said tax component.

 

Care should be taken at the time of capitalization of assets

For eligibility of input, amount of GST should be excluded from assets value

Q 2

Is possession of a Permanent Account Number (PAN) mandatory for obtaining a Registration?

Yes. Every person shall have a Permanent Account Number issued under the Income Tax Act, 1961 (43 of 1961) in order to be eligible for grant of registration under Section 19 of the MGL

Application of PAN should be submitted so that no issue arise at the time of registration under GST ACT(CGST/IGST/SGST)

 

Q 3

Is GST applied on disallowances value of expenditure treating the same as personal nature?

Yes,

GST may be applied on supply and as per Schedule 1 of Model GST Law, following matters to be treated as supply even without consideration:

(2) Temporary application of business assets to a private or non-business use.

(3) Services put to a private or non-business use.

Taxable person may maintain separate records of expenses personal as well as for business, so instead of disallowance, same is adjusted through capital

(In case of Individual and Firm) and hence no GST

 

Q4

Is Input tax credit allowed on the above value (Q3)?

No,

As per section 16(5) of MGL, Where the goods and/or services are used partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.

Q.5

Whether taxable person required maintaining two types of books of accounts?

Debatable,

As per Section 145 of Income Tax Act 1961,assessees have two option to maintain books of accounts either cash or mercantile system of accounting regularly employed by the assesses

However there is no option under GST

Hence even if the assesses maintains his books of accounts on cash basis, his liability towards GST does not delayed and liable to pay GST is whenever “Supply” occurs as per section 12/13 of MGL

For Instance: As per section 12(2) the time of supply of goods shall be the earliest of the following four dates, namely,-

1) (i) Removal date of Goods or

(ii) Date of availability of

goods (in a case where the goods are not required to be removed)

2) Issue date of Invoice

3) Payment received date with respect to the supply

4) The date on which the recipient shows the receipt of the goods in his books of account

Even if supplier issues invoice, GST attracts

But as per Income Tax Act the assesses is not required to account the same transaction if the assesses maintain his books of accounts on cash basis

Hence it is clear that even if assesses maintain his books of accounts on cash basis the same assesses required to maintain his books of accounts on mercantile basis

 

Q.6

Is Form 3CD needs to be revised, due to GST?

Yes

Refer “Annexure A”

Q.7

Are provisions under Income Tax Act 1961 needs to be revised, due to GST?

Yes

Refer “Annexure B”

Annexure A

Certain changes will be required in the followings point of form 3CD of Tax Audit Report to remove earlier laws and add certain things which required as per new GST laws (IGST/CGST/SGST):

S.No.

Point No.

Particulars

1

04

Whether the assessee is liable to pay indirect tax like excise duty, service tax, sales tax, customs duty,etc. if yes, please furnish the registration number or any other identification number allotted for the same

2

16

Amounts not credited to the profit and loss account, being, –

16(b)

the proforma credits, drawbacks, refund of duty of customs or excise or service tax, or refund of sales tax or value added tax where such credits, drawbacks or refunds are admitted as due by the authorities concerned;

Description

Amount

3

18

Particulars of depreciation allowable as per the Income-tax Act, 1961 in respect of each asset or block of assets, as the case may be, in the following form :

18 (d)

Additions/deductions during the year with dates; in the case of any addition of an asset, date put to use; including adjustment on account of :-

18 (d) (i)

Central Value Added Tax credit claimed and allowed under the Central Excise Rules, 1944, in respect of assets acquired on or after 1st March, 1994.

4

26 (II)

(State whether sales tax, customs duty, excise duty or any other indirect tax, levy, cess, impost, etc., is passed through the profit and loss account.)

5

27 (a)

Amount of Central Value Added Tax credits availed of  or utilized during the previous year and its treatment in the profit and loss account and Treatment of outstanding Central Value Added Tax credits in the accounts.

6

38

Whether any audit was conducted under the Central Excise Act, 1944, if yes, give the details, if any, of disqualification or disagreement on any matter/item/value/quantity as may be reported/identified by the auditor.

 

Annexure B

Certain changes will be required in the followings sections of Income Tax Act 1961 because of GST:

 

S.No.

Section

Particulars

1

28(iiic)

Any duty of customs or excise re-paid or re-payable as drawback to

any person against exports under the Customs and Central Excise

Duties Drawback Rules, 1971

2

Explanation 9 to Section 43(1)

Explanation 9.—For the removal of doubts, it is hereby declared that

where an asset is or has been acquired on or after the 1st day of March,

1994 by an assessee, the actual cost of asset shall be reduced by the

amount of duty of excise or the additional duty leviable under section

3 of the Customs Tariff Act, 1975 (51 of 1975) in respect of which a

claim of credit has been made and allowed under the Central Excise

Rules, 1944.]

3

80-IE (7) (IV)

“eligible article or thing” means the article or thing other than the

following :—

(a) goods falling under Chapter 24 of the First Schedule to the

Central Excise Tariff Act, 1985 (5 of 1986), which pertains to

tobacco and manufactured tobacco substitutes;

(b)pan masala as covered under Chapter 21 of the First Schedule to

the Central Excise Tariff Act, 1985 (5 of 1986);

(d) goods falling under Chapter 27 of the First Schedule to the

Central Excise Tariff Act, 1985 (5 of 1986), produced by petroleum

oil or gas refineries;

4

145A

145A. Notwithstanding anything to the contrary contained in section 145,—

(a) the valuation of purchase and sale of goods and inventory for the

purposes of determining the income chargeable under the head

“Profits and gains of business or profession” shall be—

(i) in accordance with the method of accounting regularly employed

by the assessee; and

(ii) further adjusted to include the amount of any tax, duty, cess or

fee (by whatever name called) actually paid or incurred by the

assessee to bring the goods to the place of its location and

condition as on the date of valuation.

Explanation.—For the purposes of this section*, any tax, duty, cess or

fee (by whatever name called) under any law for the time being in

force, shall include all such payment notwithstanding any right

arising as a consequence to such payment;

(b) interest received by an assessee on compensation or on enhanced

compensation, as the case may be, shall be deemed to be the income

of the year in which it is received.]

Note: Section 145A talks only about Goods but not about services

Other Related Things

  • Registration will be issued on the basis of PAN Number
  • Tax Audit Report u/s 44AB of the IT Act 1961, is required to make available before inspecting authority under GST
  • Reconciliation: Between “consolidated amount as per annual return” and “amount as per audited financial statements” (GSTR 9B)

reco GST

(CA Akshay Kumar Jain, Contact: +91-99-5005-4004, Email: akshayjain1793@gmail.com) 

Free Education Guide on Goods & Service Tax (GST)


SR No

Topic -GST

Resources

1

Model GST Law

Model GST Law

2

GST Overview

Goods and Services Tax (GST): An Overview

Integrated Goods & Service Tax (IGST) Act Overview

Meaning and Scope of Supply

Time of Supply

Place of Supply of Goods and Service under GST

Valuation in GST

Levy of GST & Exemption from Tax

Job Work under Goods & Service Tax (GST)

Electronic Commerce under Goods & Service Tax (GST)

3

Transition to GST

Transitional Provisions in Goods & Service Tax (GST)

4

Registration

GST Registration FAQ’s

GST Registration Process -Video

GST -Draft Registration Rules

GST -Draft Registration Formats

5

Invoice

GST Draft Invoice Rules released by CBEC

GST Draft Invoice formats Released by CBEC

6

Input Tax Credit

Input Tax Credit under Goods & Service Tax (GST)

Concept of Input Service Distributor in Goods & Service Tax (GST)

7

Payment

GST Payment of Tax

GST Draft Payment Rules Released by CBEC

GST Draft Payment formats Released by CBEC

8

Refunds

Refund under GST

Draft GST Refund Forms released by CBEC

Draft GST Refund Rules released by Govt

9

Returns

Returns Process and matching of Input Tax Credit under GST

Draft GST Return Rules Released by Govt

Draft GST Return Formats released by Govt

10

Assessment and Audit

Assessment and Audit under GST

11

Inspection, Search, Seizure and Arrest

Inspection, Search, Seizure and Arrest under GST

12

Offences, Penalty, Prosecution & Compounding

Offences, Penalty, Prosecution & Compounding in GST

13

Demands and Recovery

Demands and Recovery under GST

14

Appeals and Review

Appeals, Review and Revision in GST

15

Advance Ruling

Advance Ruling in Goods and Service Tax (GST)

16

Settlement Commission

Settlement Commission in Goods and Service Tax (GST)

17

GST Portal

Frontend Business Process on GST Portal

Leave a Reply