Unit 1

Indirect Tax: Concept and Types

Indirect tax is a type of tax where the incidence and burden of tax are on different persons. The tax is
levied on goods and services and is collected by intermediaries (such as retailers, manufacturers, or
service providers) from consumers and then paid to the government.
Types of Indirect Taxes (Before GST)
Before the introduction of the Goods and Services Tax (GST), India had multiple indirect taxes,
including:
1. Excise Duty – Levied on the manufacturing of goods.
2. Service Tax – Imposed on services provided.
3. Value Added Tax (VAT) – A state-level tax on the sale of goods.
4. Central Sales Tax (CST) – Levied on inter-state sales.
5. Customs Duty – Imposed on imported and exported goods.
6. Entry Tax & Octroi – Levied on goods entering a state/municipality.
7. Entertainment Tax – Charged on movie tickets and similar activities.

Right to Impose Indirect Tax by Centre, State, and Union Territories

Before the 101st Constitutional Amendment Act (2016)
 The power to levy indirect taxes was distributed between the Centre and States under different
Lists of the Seventh Schedule of the Indian Constitution:
o Union List: Taxes like Excise Duty, Customs Duty, and Service Tax were levied by the
Central Government.
o State List: Taxes like VAT, Entry Tax, Entertainment Tax, and Luxury Tax were
imposed by State Governments.
o Concurrent List: Certain taxes like Stamp Duty were levied by both.
 There was no uniform tax system, leading to cascading taxes (tax on tax).
After the 101st Constitutional Amendment Act (2016)
 The amendment introduced GST, merging various indirect taxes into a single tax system.
 It provided the Centre and States with concurrent power to levy GST on the supply of goods
and services under a dual GST model.
 Articles 246A, 269A, and 279A were added:
o Article 246A: Empowered both Centre and States to levy GST.
o Article 269A: Defined IGST and its collection by the Centre.
o Article 279A: Established the GST Council to decide GST rates and policies.

Introduction of GST in India

 GST was implemented in India on 1st July 2017, replacing multiple indirect taxes.
 It is a destination-based tax applied to the supply of goods and services.
 It eliminated the cascading effect of taxes and promoted a unified tax system across the country.

Key Definitions under GST

1. Supply – Includes sale, transfer, barter, lease, rental, and exchange of goods/services for
consideration in the course of business.
2. Aggregate Turnover – The total value of all taxable, exempt, export, and inter-state supplies
of a person (excluding inward supplies and taxes).
3. Person – Includes individuals, companies, firms, HUF, LLP, cooperative societies, trusts, and
government entities.
4. Business – Any trade, commerce, profession, or manufacture carried out with a profit motive.
5. Appropriate Government – The Central Government for IGST/CGST and the State
Government for SGST/UTGST.
 6. Mixed Supply – A combination of two or more goods/services supplied together at a single
price, but which can be supplied separately.
7. Composite Supply – A supply consisting of two or more goods/services that are naturally
bundled (e.g., a hotel room with breakfast).
8. GSTN (Goods and Services Tax Network) – IT infrastructure for GST implementation.
9. GSTIN (GST Identification Number) – A unique 15-digit registration number assigned to
taxpayers under GST.
10. E-Commerce – The supply of goods and services through an online platform.
11. Input Tax Credit (ITC) – The credit that businesses can claim for the GST paid on purchases
used for business activities.

GST Models
1. Single GST Model – Used in countries where only one government (central) levies GST.
2. Dual GST Model – Used in India, where both the Central and State Governments levy GST
concurrently.

Types of GST in India

1. CGST (Central Goods and Services Tax) – Levied by the Central Government on intra-
state supplies.
2. SGST (State Goods and Services Tax) – Levied by the State Government on intra-state
supplies.
3. UTGST (Union Territory Goods and Services Tax) – Levied by the Union Territory
Government on intra-UT supplies.
4. IGST (Integrated Goods and Services Tax) – Levied by the Central Government on inter-
state and import/export transactions.

Levy and Collection of GST

1. GST is levied on all taxable supplies of goods/services except:
o Alcoholic liquor for human consumption
o Petroleum products (to be included later)
2. GST is collected at every stage of supply but allows Input Tax Credit (ITC) to eliminate
cascading effects.
3. The tax is charged on the transaction value (i.e., the price actually paid or payable).

Unit 2
1. Registration Under GST
Persons Liable to Get Registered Under GST
As per the GST Act, the following persons must obtain GST registration:
A. Threshold-Based Registration
 For Normal States: Businesses with an aggregate turnover exceeding ₹40 lakh (goods) or
₹20 lakh (services) in a financial year.
 For Special Category States (Himachal Pradesh, Uttarakhand, North-Eastern States, etc.):
Businesses with an aggregate turnover exceeding ₹20 lakh (goods) or ₹10 lakh (services).
B. Compulsory Registration (Irrespective of Turnover)
The following entities must register for GST, regardless of their turnover:
1. Inter-state suppliers – Businesses making inter-state supplies.
2. Casual taxable persons – Those engaged in occasional transactions in a state where they don’t
have a fixed place of business.
3. Non-resident taxable persons (NRTP) – Foreign entities supplying goods/services in India.
4. Persons required to pay tax under the reverse charge mechanism (RCM).
5. E-commerce operators (such as Amazon, Flipkart) and suppliers selling through them.
 6. Agents of a supplier and Input Service Distributors (ISD).
7. TDS/TCS deductors under GST (Government departments, e-commerce operators).
8. Suppliers engaged in online information and database access (OIDAR) services to Indian
consumers from outside India.

2. Procedure for GST Registration

The GST registration process is completely online via the GST Portal (www.gst.gov.in).
Steps to Register:
1. Visit GST Portal – Go to the official GST website.
2. Fill Part A (GST REG-01) – Provide details like PAN, mobile number, and email for OTP
verification.
3. Receive Temporary Reference Number (TRN) – Used for tracking the application.
4. Fill Part B – Enter business details, promoter details, bank account details, and upload
documents.
5. Verification & Submission – Submit the application using DSC (Digital Signature
Certificate) or EVC (Electronic Verification Code).
6. ARN Generation – Application Reference Number (ARN) is generated for tracking status.
7. GSTIN Allocation – If approved, a GST Identification Number (GSTIN) is issued within 7
working days.

3. Documents Required for GST Registration

The required documents vary by entity type:
For Proprietorship Firms
 PAN card and Aadhaar card of the proprietor
 Business address proof (electricity bill, rental agreement)
 Bank account details (Cancelled cheque or bank statement)
For Companies (Private Ltd, Public Ltd, LLP, Partnership)
 PAN card of the company and partners/directors
 Certificate of Incorporation or Partnership Deed
 MOA & AOA (for companies)
 Business address proof
 Bank account details
 Authorization letter for GST registration

4. Reverse Charge Mechanism (RCM)

Under RCM, the recipient (instead of the supplier) pays GST directly to the government.
When is RCM Applicable?
1. Specified Goods/Services – Certain notified goods and services (e.g., legal services from an
advocate).
2. Purchases from Unregistered Suppliers – If a registered business buys from an unregistered
supplier.
3. Import of Services – If an Indian business imports services from a foreign entity.

5. Composition Scheme & Assessment Under Composition Scheme

The Composition Scheme is for small businesses to reduce compliance and tax burden.
Eligibility for Composition Scheme
 Applicable to businesses with an annual turnover up to ₹1.5 crore (₹75 lakh for Special
Category States).
 Not available for inter-state suppliers, e-commerce sellers, and service providers (except
restaurants).
GST Rate Under Composition Scheme
 Business Type GST Rate
Manufacturers & Traders 1% (0.5% CGST + 0.5% SGST)
Restaurants (not serving alcohol) 5% (2.5% CGST + 2.5% SGST)
Service Providers (up to ₹50 lakh turnover) 6% (3% CGST + 3% SGST)
Key Features of Composition Scheme
 Pay GST at a lower rate.
 Cannot claim Input Tax Credit (ITC).
 Cannot make inter-state sales.
 Must file quarterly returns (GSTR-4) instead of monthly returns.

6. Zero-Rated Supply
A zero-rated supply means tax is levied at 0%, and the supplier can claim Input Tax Credit (ITC).
Examples of Zero-Rated Supplies
1. Exports of Goods or Services – All exports are treated as zero-rated supplies.
2. Supplies to SEZ (Special Economic Zone) Units – Any supply made to an SEZ developer or
unit.
Unlike exempted supplies, businesses engaged in zero-rated supplies can claim refunds on Input Tax
Credit.

7. Exemptions from GST

Some goods and services are exempted from GST, meaning no GST is charged, and no ITC is
available.
Examples of GST-Exempt Goods
 Unprocessed food items (fresh fruits, vegetables, milk, eggs)
 Education and healthcare services
 Books, newspapers, and stamps
 Public transport services (non-AC)
Examples of GST-Exempt Services
 Educational institutions up to higher secondary level
 Healthcare services by hospitals, doctors, and diagnostic labs
 Services provided by the government (except specific taxable activities)

8. GST Tax Rates

GST has four primary tax slabs based on the type of goods/services:
GST Slab Applicable to
5% Essential goods like food items, medicines, railway tickets
12% Processed food, mobile phones, business class air travel
18% Majority of goods and services, including electronics, restaurants
28% Luxury goods like cars, aerated drinks, tobacco products
Additional Cess – Luxury and sin goods (e.g., cigarettes, SUVs) attract an extra compensation cess.

Conclusion
 GST Registration is mandatory for businesses meeting turnover or other criteria.
 Composition Scheme provides a simplified tax structure for small businesses.
 Zero-rated supplies allow ITC refunds, while exempted goods/services do not.
 GST tax rates vary based on the nature of goods/services.
Unit 3
Input Tax Credit (ITC) under GST
1. What is Input Tax Credit (ITC)?
Input Tax Credit (ITC) is the credit a taxpayer can claim for the GST paid on purchases (inputs)
used for business purposes. This credit can be used to offset the GST liability on sales (output tax).
2. Eligibility & Conditions for Claiming ITC
A registered taxpayer can claim ITC only if the following conditions are met:
1. Possession of a valid tax invoice or any other prescribed document.
2. Receipt of goods or services – ITC can be claimed only when the buyer receives the
goods/services.
3. Tax payment to the government – The supplier must have paid the GST to the government.
4. Filing of GST returns – ITC can be claimed only if the recipient files the GST return (GSTR-
3B).
5. ITC should not be restricted – ITC must not be restricted under Rule 42 and 43 of CGST
Rules (Apportionment & Blocked Credit).
6. ITC must be claimed within time limits – ITC for an invoice can be claimed before:
o The due date of filing GST return (GSTR-3B) for September of the next financial
year OR
o Filing of the Annual Return (GSTR-9), whichever is earlier.

3. Apportionment of ITC & Blocked Credit

A. Apportionment of ITC
If ITC relates to both taxable & exempt supplies, then it must be apportioned as follows:
1. ITC on taxable supplies & zero-rated supplies (exports, SEZ supplies) → Fully allowed.
2. ITC on exempt supplies (agricultural produce, education, healthcare, etc.) → Not allowed.
3. Common ITC (used for both taxable and exempt supplies) → ITC is proportionately
credited based on turnover.
B. Blocked Credit (ITC Not Allowed)
The following items are not eligible for ITC:
1. Motor vehicles (except for transport businesses, driving schools, etc.).
2. Food & beverages, outdoor catering, beauty treatment, health services, except if used for
taxable supply.
3. Membership of clubs, fitness centers, and recreational services.
4. Works contract services (except where used for further construction).
5. Personal consumption expenses.
6. Goods stolen, lost, written off, or disposed of as gifts/samples.

Various Documents Under GST

1. Tax Invoice
 A tax invoice is mandatory for all taxable sales of goods or services.
 It must include details like supplier GSTIN, buyer GSTIN, HSN/SAC code, value, tax
amount, and signature.
2. Bill of Supply
 Issued by composition dealers and exempt suppliers.
 Since GST is not charged, it does not include tax details.
3. Debit Note
 Issued when a supplier needs to increase the invoice value (e.g., additional charges, incorrect
pricing).
 The buyer’s tax liability increases accordingly.
4. Credit Note
  Issued when a supplier needs to reduce the invoice value (e.g., discounts, defective goods,
returns).
 The buyer’s tax liability decreases accordingly.
5. Payment Voucher
 Issued by a recipient when making payments under the Reverse Charge Mechanism (RCM).
6. Receipt Voucher
 Issued when an advance payment is received before supplying goods or services.
7. E-Way Bill
 Required for transporting goods worth more than ₹50,000.
 It contains details like supplier, recipient, transporter, and goods details.
8. HSN Code & SAC Code
 HSN (Harmonized System of Nomenclature) Code → Used for goods classification.
 SAC (Services Accounting Code) → Used for services classification.

Conclusion
 ITC helps reduce tax liability, but it has eligibility conditions and blocked credits.
 Various GST documents ensure proper tax compliance.
 HSN & SAC codes standardize classification for taxation.

Unit 4
1. Types of GST Returns
GST returns are periodic statements that registered taxpayers must file to report transactions and pay
taxes. The main types of GST returns are:
Return
Filed By Due Date Purpose
Type
Details of outward supplies
GSTR-1 Regular Taxpayers 11th of next month
(sales)
GSTR- Summary of sales, purchases,
Regular Taxpayers 20th of next month
3B and tax liability
Composition Scheme 30th April of next Quarterly return for
GSTR-4
Dealers financial year composition dealers
Summary of sales and
GSTR-5 Non-Resident Taxpayers 20th of next month
purchases
Input Service Distributors
GSTR-6 13th of next month Distribution of ITC
(ISD)
Details of Tax Deducted at
GSTR-7 TDS Deductors 10th of next month
Source (TDS)
Details of Tax Collected at
GSTR-8 E-commerce Operators 10th of next month
Source (TCS)
31st December of next Annual return (summary of
GSTR-9 Regular Taxpayers
financial year all transactions)
GSTR- Taxpayers whose GST Within 3 months of Final return after GST
10 registration is canceled cancellation registration cancellation
GSTR- 28th of the following Details of inward supplies for
Foreign diplomatic bodies
11 month claiming refunds

2. Types of Assessment & Assessment Procedure

A. Types of Assessment Under GST
1. Self-Assessment (Section 59) – Done by the taxpayer while filing GST returns.
 2. Provisional Assessment (Section 60) – Done when the taxpayer is unable to determine the
correct tax rate or value of goods/services.
3. Scrutiny Assessment (Section 61) – Conducted by GST officers to check for discrepancies in
returns.
4. Best Judgment Assessment –
o Assessment of non-filers (Section 62) – When a taxpayer fails to file returns, the
officer determines tax liability based on available data.
o Assessment of unregistered persons (Section 63) – If a person is liable to register but
hasn’t, the officer assesses tax based on information available.
5. Summary Assessment (Section 64) – Done when there is conclusive evidence of tax liability
and delay may cause loss to revenue.
B. Assessment Procedure
 Taxpayer files returns → Self-assessment (GSTR-3B, GSTR-1, etc.).
 Scrutiny by the department → If discrepancies are found, notices are issued.
 Best judgment assessment → If no response, the tax officer determines the tax.
 Appeal mechanism → Taxpayer can appeal against any assessment order.

3. Role and Functions of GST Council

The GST Council is the apex decision-making body for GST-related matters in India.
A. Composition of GST Council
 Chairperson: Union Finance Minister
 Members: Ministers of State for Finance and Finance Ministers of all States/UTs
B. Functions of the GST Council
1. Recommend GST rates, exemptions, and slabs.
2. Decide on special provisions for certain states.
3. Determine the framework for GST laws and procedures.
4. Resolve disputes between the Centre and States.
5. Monitor GST implementation and suggest amendments.

4. Tax Authorities and Their Powers

A. GST Authorities
 CBIC (Central Board of Indirect Taxes & Customs) – Administers CGST & IGST.
 State GST Authorities – Administer SGST & UTGST.
B. Powers of GST Authorities
1. Inspection, Search, and Seizure (Section 67) – GST officers can inspect premises if tax
evasion is suspected.
2. Summons (Section 70) – Officers can summon individuals for investigations.
3. Arrest Powers (Section 69) – Officers can arrest individuals in case of severe tax fraud.
4. Provisional Attachment of Property (Section 83) – Property can be attached to prevent tax
evasion.

5. Tax Deduction at Source (TDS) & Tax Collection at Source (TCS)

A. Tax Deduction at Source (TDS) – Section 51
 Applicable to:
o Government departments, PSU, local authorities, and notified entities.
 TDS Rate: 1% CGST + 1% SGST (or 2% IGST) if the contract value exceeds ₹2.5 lakh.
 Due Date of TDS Payment: By the 10th of the next month.
 TDS Certificate (GSTR-7A) to be issued within 5 days of deposit.
B. Tax Collection at Source (TCS) – Section 52
 Applicable to: E-commerce operators like Amazon, Flipkart.
 TCS Rate: 1% CGST + 1% SGST (or 2% IGST).
  Due Date of TCS Payment: By the 10th of the next month.
 TCS Return (GSTR-8) to be filed monthly.

6. Refund of Tax Under GST

A. Situations Where Refund Can Be Claimed
1. Excess payment of GST – If paid more than liability.
2. Zero-rated supplies (Exports/SEZ supplies) – Refund of ITC available.
3. Inverted Duty Structure – When ITC is higher than output tax liability.
4. Refund of TDS/TCS – If deducted but the supply is not completed.
5. Deemed Exports – Supply to entities like EOUs (Export-Oriented Units).
6. Finalization of Provisional Assessment – When final tax liability is lower.
B. GST Refund Process
1. Apply through Form GST RFD-01 on the GST Portal.
2. Acknowledgment in GST RFD-02 within 15 days.
3. Verification by tax officer within 30 days.
4. Refund issued via GST RFD-06 if approved.

Conclusion
 GST returns ensure compliance with tax laws.
 GST assessment includes self-assessment, scrutiny, and best judgment assessment.
 The GST Council formulates policies and tax rates.
 Tax Authorities have powers to inspect, arrest, and attach property in cases of evasion.
 TDS/TCS provisions apply to certain businesses.
 Refund mechanisms provide relief in cases of excess payment, exports, and inverted duty.