Significant Amendments Introduced in the Goods and Services Tax Act

A legislative proposal, known as a bill, is submitted to Parliament for debate. Upon parliamentary approval, it transitions into an act. Consequently, the GST Bill has been enacted as the GST Act.

Has the GST Act Undergone Revisions?

The initial draft of the GST legislation was prepared in June 2016, with a subsequent revision in November 2016. The Lok Sabha has since approved four related bills, incorporating specific modifications. The following outlines the significant amendments introduced in the GST bill:

Implementation of GST Regulations in Jammu and Kashmir

The Finance Minister of Jammu and Kashmir, Haseeb Drabu, verified the state's adoption of GST. Due to J&K's distinct constitution and unique legislative provisions, the Central Goods and Services Tax (CGST) and Integrated Goods and Services Tax (IGST) will be legislated independently. The State Goods and Services Tax (SGST) will also be enacted separately, mirroring procedures in other states.

Employer-Provided Gifts to Employees Exempt from GST Up To a Limit

Previously, any provision of goods or services between connected entities, including employers and employees, within a business context, was classified as a 'supply' even without monetary exchange, thus falling under GST. The revised Act now specifies that gifts from an employer to an individual employee up to Rs. 50,000 are exempt from GST. Gifts exceeding this threshold will, however, be subject to GST.

Sale of Land and Buildings Not Subject to GST

Initially, the definition of 'goods' encompassed all movable property, including actionable claims, excluding only money and securities. Services were broadly defined as 'anything other than goods,' raising concerns that the government might impose GST on immovable property transactions (land/building) in addition to stamp duty. Schedule III of the amended Act now explicitly states that the sale of land and/or buildings is neither considered a supply of goods nor services, meaning GST does not apply.

The current position is:

• GST is applicable to the renting or leasing of land and/or buildings.
• GST is not applicable to the sale of land/buildings, where stamp duty continues to apply.
• GST is applicable to works contracts, such as building construction.
• GST is applicable to the sale of under-construction buildings.

Nevertheless, there are ongoing discussions about potentially bringing the sale of land and/or buildings under GST within one year of its implementation date.

Revised Upper Limits for CGST and IGST Rates

Previously, the maximum rates were set at 14% for CGST and 25% for IGST in both legislative frameworks. The current amendment raises these ceilings to 20% for CGST and 40% for IGST, providing future flexibility for rate adjustments. Despite this, the existing GST rate slabs of 5%, 12%, 18%, and 28% remain unchanged.

Inclusion of Petroleum Products Under GST Regime

Key petroleum products, including crude oil, high-speed diesel, petrol, natural gas, and aviation turbine fuel (ATF), are now incorporated into the GST framework. This change offers significant advantages to Indian enterprises, as they can now claim input tax credit (ITC) on petroleum product purchases. Industries such as plastics and chemicals utilize petroleum products as manufacturing inputs, while various machinery and vehicles rely on petrol/ATF for operation. The ability to claim ITC is expected to contribute to a reduction in the prices of goods.

Reverse Charge Mechanism for Unregistered Sellers and Registered Buyers

Unregistered suppliers are prohibited from levying GST on their sales. The initial Model Law lacked provisions for taxing transactions where an unregistered dealer sold goods or services to a registered buyer. The revised Act now mandates the reverse charge mechanism in such scenarios, making the registered buyer (recipient of goods/services) responsible for paying GST. This mirrors the existing purchase tax on unregistered dealer transactions in several states.

Lowered Composition Scheme Tax Rates

| Category | Previous Composition Scheme Rate | Current GST Act Rate ||---|---|---|| Trader | 1% | 0.5% || Manufacturer | 2.5% | 1% || Restaurant | N/A | 2.5% || Service Provider | N/A | N/A |

The decrease in composition rates is a positive development for the Micro, Small, and Medium Enterprises (MSME) sector. The composition scheme carries several limitations, including the inability to claim Input Tax Credit (ITC) and restrictions on inter-state transactions. Lowering these rates is expected to encourage more taxpayers to register under the scheme. Nevertheless, service providers remain ineligible for the composition scheme, which continues to pose a financial burden on professionals and freelancers.

Simplified Enrollment for Composition Scheme

Taxpayers whose turnover in the previous financial year was below Rs. 50 lakhs can now choose to pay tax under the composition scheme without needing prior approval from the designated officer. They can directly enroll under this scheme.

Alterations in the Time of Supply Provisions for Services

The initial Model GST law stipulated that the time of supply for services (the moment tax liability accrues) was the earliest of: the invoice issue date, the last date by which the invoice should have been issued, or the supplier's payment receipt date. The recently passed Act, however, has revised these provisions for determining the time of supply for services.

The new rules are as follows:

If the invoice is issued within the stipulated timeframe, the time of supply is the earlier of:

• The invoice issue date, or
• The date of payment receipt.

If the invoice is not issued within the stipulated timeframe, the time of supply is the earlier of:

• The date the services were provided, or
• The date of payment receipt.

Should neither of the above clauses apply, the time of supply is the date on which the recipient records the receipt of services in their accounting records.

Modified Conditions for Input Tax Credit Disallowance

Under the previous GST law, if a recipient or buyer failed to pay a service provider within three months, the input tax credit (ITC) claimed by the buyer would be disallowed, requiring them to repay the ITC amount plus interest. This rule applied only to services, with no provision for re-allowing ITC if payment occurred after three months. The updated Act now extends this provision to include goods. Furthermore, the payment period before ITC disallowance has been prolonged from three months to 180 days. Crucially, if payment is made even after 180 days, the ITC will now be reinstated.

ITC for Rent-a-Cab, Life, and Health Insurance Allowed Under Specific Conditions

Previously, businesses offering rent-a-cab, life insurance, and health insurance were generally ineligible to claim input tax credit (ITC), except for government-mandated services provided by employers to employees. This denial of credit had significant implications; for instance, a life insurance company could not claim ITC on GST paid for reinsurance. To alleviate the tax burden, ITC for these services is now permitted, provided the credit is offset exclusively against outward supplies (sales) of the same service category. This allowance also extends to mixed or composite supplies. Additionally, GST will be levied on petrol at a future date and rate determined by the government based on Council recommendations.

Actionable Claims and GST Exclusions

Initially, the Model GST law classified 'actionable claims' as 'goods,' implying GST applicability. However, amendments introduced in the GST Act via Schedule III by the Lok Sabha now clarify that actionable claims, excluding lottery, betting, and gambling, are neither considered a supply of goods nor services. Consequently, GST applies solely to lottery, betting, and gambling, but not to other forms of actionable claims. Actionable claims refer to claims enforceable only through legal proceedings, such as book debts, bills of exchange, or promissory notes. A book debt, for example, is transferable under the Transfer of Property Act but not sellable as goods. Similarly, bills of exchange and promissory notes can be transferred through delivery or endorsement under the Negotiable Instruments Act, but not sold as commodities.

Conclusion

These modifications demonstrate the government's efforts to streamline GST implementation and minimize potential disputes.