UNIT - II

GST Registration

GST registration is the process through which a business obtains a

unique GST identification number (GSTIN) and becomes a taxpayer
under the Goods and Services Tax (GST) regime. It's mandatory for
businesses with a turnover above the specified threshold or who engage
in interstate supply of goods and services.

Eligibility for GST Registration

Businesses must register for GST if they meet one or more of the
following criteria:

1. Turnover Threshold:
o For goods: ₹40 lakhs for most states (₹20 lakhs for special
category states).
o For services: ₹20 lakhs (₹10 lakhs for special category
states).
2. Interstate Supply: Businesses involved in interstate supply of
goods or services must register for GST, irrespective of turnover.
3. E-Commerce Operators: Sellers who supply goods/services
through an e-commerce platform need to register.
4. Casual Taxable Persons: Individuals who occasionally provide
goods or services in a state where they don’t have a fixed place of
business (like exhibitors at trade fairs).
5. Non-resident Taxable Persons: Businesses located outside India
offering taxable goods/services in India.
6. Others: Agents of suppliers, input service distributors, etc.

Types of GST Registration

1. Regular Taxpayer: This is for businesses who deal with taxable

goods and services regularly and whose turnover exceeds the
threshold limit.
 2. Composition Scheme: This is for small businesses with turnover
under ₹1.5 crore (₹75 lakhs for some services). They pay a fixed
tax rate instead of the regular tax rates.
3. Casual Taxable Person: For those who occasionally supply
goods/services in India.
4. Non-Resident Taxable Person: For foreign businesses making
taxable supplies in India.
5. Input Service Distributor (ISD): For businesses that distribute
credits to their branches or units.

Procedure for GST Registration

1. Access the GST Portal:

o Visit the official GST portal at https://www.gst.gov.in/.
o Click on the “Services” tab, then go to “Registration” and
select “New Registration”.
2. Fill in the Application (Form GST REG-01):
o Part A: Provide the basic details like the name of the
business, PAN, email ID, and mobile number.
o After submitting Part A, you will receive an OTP (One-Time
Password) for verification. Enter the OTP to generate a
Temporary Reference Number (TRN).
o Part B: Use the TRN to log in and complete the remaining
details, such as:
 Business details (address, type, and nature of business).
 Bank account details.
 Details of authorized signatory.
 GST-specific documents like PAN, Aadhaar, proof of
business address, etc.
3. Documents Required for Registration:
o PAN card of the business or individual.
o Proof of business address (rent agreement, utility bill, etc.).
o Bank account details (a canceled cheque or a bank
statement).
o Passport-size photograph.
 o Aadhaar card (for individual or sole proprietor).
o GST-specific declarations (such as business constitution
certificate, partnerships deed, etc., if applicable).
4. Verification of Details:
o After submitting the application, the GST officer will verify
the provided details and documents. If all requirements are
met, the application is approved.
o If additional information is needed, the applicant may be
asked to provide the same.
5. GSTIN Issuance:
o Once your application is successfully processed, the GST
system will generate a GSTIN for your business. You will
also receive a GST Registration Certificate (in Form GST
REG-06) that can be downloaded from the portal.

Post-Registration Requirements

1. Display of GSTIN: You must display your GSTIN on business

premises and official documents like invoices and bills.
2. Regular Filing of GST Returns: After registration, businesses
need to file periodic GST returns such as GSTR-1 (outward
supply), GSTR-3B (summary return), GSTR-9 (annual return), and
others.
3. Maintain Records: Maintain proper records of sales, purchases,
and stock as per GST rules.

GST Registration for Special Cases

1. Voluntary Registration: Even if your turnover is below the

prescribed limit, you can opt for GST registration voluntarily. This
may be beneficial for businesses that want to claim input tax
credits (ITC) or if they are dealing with GST-registered customers.
2. GST Registration for Non-Residents: Non-resident taxable
persons must apply for GST registration through Form GST REG-
09. They do not have to provide a permanent place of business in
 India but must designate a person to be the authorized signatory in
India.

Important Notes

 Cancellation of GST Registration: If a registered taxpayer does

not meet the required threshold or ceases to operate, the GST
registration can be canceled. This may be done voluntarily or by
the GST department.
 GST for Online Sellers: If you are a seller on e-commerce
platforms like Amazon or Flipkart, GST registration is mandatory.
These platforms are required to collect TCS (Tax Collection at
Source).

Conclusion

GST registration is a critical requirement for most businesses in India,

ensuring compliance with tax laws and enabling businesses to claim
input tax credits. The process is straightforward, but it’s important to
ensure that all necessary documents and details are accurately provided
to avoid delays or rejections.

Under the Goods and Services Tax (GST) regime in India, certain goods
and services are exempt from tax. This is done to encourage certain
sectors, reduce the tax burden on essential goods and services, and
promote public welfare. The exemption can either be specific to the type
of goods or services or related to the value of the supply.

Exempted Goods under GST

Some goods are entirely exempt from GST, meaning no tax is levied on
their sale or purchase. These goods typically include essential items,
agricultural products, and other necessities.
Examples of Exempted Goods:

1. Agricultural Products:
o Fresh fruits and vegetables.
o Unprocessed cereals (wheat, rice, barley, etc.).
o Fresh milk, eggs, and other dairy products.
o Animal feed.
o Organic manure.
o Seeds for sowing.

2. Books and Printed Material:

o Printed books (except textbooks for educational
institutions).
o Newspapers and periodicals.
o Educational materials that are not commercial in nature.

3. Healthcare and Medical Products:

o Medicines and drugs that are essential for medical
treatment (such as life-saving medicines).
o Prosthetics and orthotics.
o Ambulances.

4. Food and Beverages:

o Unbranded food items (e.g., bread, flour).
o Fresh meat, fish, and poultry.

5. Other Exempted Goods:

o Salt (except when packaged in retail packs).
o Fertilizers and pesticides.
o Certain items of personal hygiene (e.g., sanitary napkins,
which are exempt from tax under GST).
o Raw cotton and handlooms.

Exempted Services under GST

Some services are also exempt from GST to promote specific sectors
and support individuals and entities that provide essential services.

Examples of Exempted Services:

1. Healthcare Services:
o Services provided by clinical establishments, hospitals,
nursing homes, or any other medical facility for health care
or medical treatment.
o Diagnostic and medical laboratory services.
o Health and medical insurance services.

2. Educational Services:
o Education provided by educational institutions, such as
schools, colleges, and universities, offering services up to
higher secondary school level or equivalent.
o Services provided by training providers that lead to
certification or accreditation of qualifications recognized by
the government.

3. Transportation Services:
o Transport of goods and passengers by rail, air, or road
(certain exemptions apply to certain types of transport).
o Transport services for the physically handicapped.
o Public transport services like buses and metro trains.

4. Public Welfare Services:

o Services provided by government or local authority such as
public services (e.g., sewage treatment, sanitation, water
supply).
o Services related to the collection and disposal of waste.

5. Financial Services:
 o Services related to loans and credit (e.g., lending by banks
and financial institutions, and services of insurance
companies and mutual funds).
o Services provided by an employee to an employer.

6. Cultural, Religious, and Charitable Services:

o Religious services and rituals.
o Charitable activities such as donation-based services,
activities by non-profits.

7. Other Exempted Services:

o Renting of residential property for personal use.
o Services provided by sports clubs to their members.
o Services by way of sponsorship of sporting events.

Special Exemption Based on Threshold Value

Certain small businesses with turnover below a prescribed limit are also
exempt from GST registration and tax liability. The thresholds vary
based on:

1. Goods: The threshold limit for goods varies based on the nature
of the business (e.g., ₹40 lakhs for most businesses, ₹20 lakhs for
special category states).
2. Services: The threshold limit for service providers is ₹20 lakhs
(₹10 lakhs for special category states).

Important Notes:

 Exemptions vs. Zero-Rated Goods/Services: Goods and services

that are "exempt" under GST do not require the payment of tax, but
businesses cannot claim input tax credit (ITC) on inputs. In
contrast, zero-rated goods and services (like exports) are taxed at
0%, but businesses can claim ITC.
  Notification Updates: GST exemptions can change over time
based on government policy decisions and new notifications.
Therefore, businesses must regularly check for updates on
exempted goods and services.

Conclusion

The exempted goods and services under GST are mainly targeted at
supporting public welfare, essential goods, and services in various
sectors such as agriculture, health, education, and more. Exemptions also
aim to reduce the tax burden on consumers and keep essential services
accessible.

GST AT 5%, 12%, 18% & 28%

GST (Goods and Services Tax) in India is levied at different rates

depending on the nature of the goods or services. The rates of GST are
structured into four primary slabs: 5%, 12%, 18%, and 28%. Some
specific goods and services may fall under 0% (exempt) or other
special rates, but these four rates cover the majority of taxable items.

1. GST at 5%

The 5% GST rate is typically applied to goods and services that are
essential, as well as certain consumer products. The aim is to keep these
items affordable for the public.

Examples of Goods and Services at 5% GST:

 Food Items:
o Edible oils (except branded ones).
o Tea and coffee (other than instant).
o Sugar and jaggery.
o Salt.
o Unbranded or loose cereals.
 Other Goods:
 o Medicines and medical devices (like essential medicines,
though certain life-saving drugs may be exempt).
o Small cars (e.g., electric vehicles like two-wheelers, e-
rickshaws).
 Services:
o Transport of passengers by rail in 2nd class, non-AC coaches.
o Construction of affordable housing (under the government's
schemes).
o Hotel accommodation below ₹1,000 per night.

2. GST at 12%

The 12% GST rate is applied to a range of products and services that are
more value-added but not luxury items. This is often used for
intermediate goods or higher value consumer products.

Examples of Goods and Services at 12% GST:

 Goods:
o Processed foods (e.g., food preparations, sauces, and ready-
to-eat meals).
o Stainless steel products (such as utensils and pipes).
o Computers and accessories.
o Most non-branded clothing and textiles (not exceeding
₹1,000 per piece).

 Services:
o Restaurant services (not in air-conditioned premises).
o Leasing and renting of properties (in certain cases).
o Transportation of goods by air (except for specific high-value
goods).

3. GST at 18%
The 18% GST rate is levied on a wide variety of goods and services,
which are considered standard products in the market and are not
necessarily classified as essential or luxury items.

Examples of Goods and Services at 18% GST:

 Goods:
o Consumer electronics (e.g., refrigerators, washing machines,
and air conditioners).
o Processed food items (such as confectioneries, chips, and
snacks).
o Automobiles (except for small cars or electric vehicles).
o Soap, detergents, and cosmetics.
o Furniture and home decor items (except those specifically
exempt or subject to other rates).

 Services:
o Telecom services (internet, mobile services, etc.).
o Financial and legal services (e.g., accounting, insurance).
o Hotel services with room tariffs between ₹1,000 and ₹7,500
per night.
o Professional services like consulting, business services.

4. GST at 28%

The 28% GST rate is the highest rate and is primarily applied to luxury
goods and non-essential items. This rate also applies to goods that are
seen as having a high value or those that fall into the "sin" tax category.

Examples of Goods and Services at 28% GST:

 Goods:
o Luxury cars and sports vehicles (e.g., high-end cars, SUVs).
o Tobacco products, cigarettes, and other tobacco-related
goods.
 o Aerated drinks and sugary beverages.
o Consumer goods with high brand value (e.g., premium
watches, branded apparel).
o Video games and gaming consoles.
 Services:
o Cinema and movie tickets (over ₹100 per ticket).
o Hotel accommodation with a tariff exceeding ₹7,500 per
night.
o Services provided by high-end restaurants or luxury hotels.

Special Categories under GST

 Zero Rate or Exemptions:

o Exports: Exports of goods and services are generally zero-
rated under GST, meaning that no GST is charged on
exports, but exporters can claim a refund on input tax credit
(ITC).
o Exemptions: Some goods and services (such as fresh
vegetables, milk, books, etc.) are exempt from GST entirely.

 GST on Non-Consumer Goods:

o Gold and Precious Metals: These are typically taxed at 3%
under GST, which is lower than the standard 5% rate.

Summary of GST Rates (5%, 12%, 18%, 28%):

GST Rate Examples

5% Edible oils, food items, medicines, small cars, etc.
12% Processed foods, stainless steel, computers, etc.
18% Consumer electronics, processed food, furniture, etc.
28% Luxury cars, cigarettes, aerated drinks, etc.
Important Notes:

 GST Slabs may change: GST rates may change based on new
government policies, economic needs, or tax reforms. Businesses
need to stay updated with official announcements to ensure
compliance.
 Cess: In addition to the standard GST rates, certain goods, like
luxury items and tobacco products, may attract cess, a higher tax
levy, to fund specific welfare schemes (e.g., education cess, health
cess, etc.).

PROCEDURE RELATING TO LEVY CGST & SGST

The levy of CGST (Central Goods and Services Tax) and SGST
(State Goods and Services Tax) is part of the dual GST structure in
India, where both the Central Government and the State Governments
have the authority to levy GST on the supply of goods and services. This
is applicable when a supply of goods and services occurs within the
same state or union territory (intra-state supply). The procedure
relating to the levy of CGST and SGST involves understanding how
taxes are collected and distributed between the central and state
governments.

1. General Overview of CGST and SGST Levy

 CGST (Central GST): This is the portion of GST that is collected by

the Central Government on the supply of goods and services
within a state.
 SGST (State GST): This is the portion of GST that is collected by
the State Government on the same intra-state supply of goods
and services.

When a supply is intra-state (i.e., the goods or services are sold and
consumed within the same state or union territory), the total GST is
divided equally between the Central Government and the State
Government:
  CGST: Collected by the Central Government.
 SGST: Collected by the respective State Government.

For example, if the GST rate on a product is 18%, the supplier will
charge:

 9% CGST to the buyer, and

 9% SGST to the buyer.

2. Procedure for Levy of CGST and SGST

Step-by-Step Process for Levy and Payment:

1. Determine the Nature of the Supply:

 The first step is to determine whether the supply is intra-state or

inter-state.
o Intra-state supply: CGST and SGST are applicable.
o Inter-state supply: IGST (Integrated GST) is applicable.

2. Determine the Applicable Rate of GST:

 The next step is to check which GST rate (e.g., 5%, 12%, 18%, 28%)
applies to the goods or services being supplied.
 The rate depends on the type of goods or services, as per the GST
rate schedule issued by the government.

3. Invoice Generation and Tax Calculation:

 The supplier generates an invoice for the goods or services

provided. The CGST and SGST are calculated on the taxable value
of the supply (excluding any exempt or zero-rated items).
o Example: If the taxable value of the supply is ₹10,000 and
the applicable GST rate is 18%, then:
 CGST = ₹10,000 × 9% = ₹900
 SGST = ₹10,000 × 9% = ₹900
 o Total GST = ₹1,800 (CGST + SGST).

4. Collection of CGST and SGST from the Customer:

 The supplier charges both CGST and SGST from the customer on
the sale of goods or services.
 The total GST amount (CGST + SGST) is collected and mentioned
on the invoice.

5. Deposit of Tax to the Respective Authorities:

 The collected CGST and SGST are deposited with the respective
authorities:
o CGST is paid to the Central Government.
o SGST is paid to the State Government where the supply is
taking place.
 This is done through the GST portal using challans during the
regular filing of GST returns.

6. Filing of GST Returns:

 The taxpayer (business or supplier) must file GST returns monthly

or quarterly, depending on their turnover and registration type.
 The GST returns (such as GSTR-1, GSTR-3B, etc.) report the details
of sales, purchases, output tax liability (CGST and SGST), and input
tax credits (ITC) on purchases.
 The taxpayer has to report the CGST and SGST liability under the
respective heads in the return.
o GSTR-1: For reporting outward supplies.
o GSTR-3B: For filing summary returns and paying the taxes
due (CGST, SGST, etc.).

7. Payment of Taxes:
  After filing the return, the taxpayer is required to pay the tax
liability (CGST + SGST) by the due date.
 Payments are made through the GST portal using online banking
or other authorized payment modes.

8. Input Tax Credit (ITC):

 Businesses are eligible to claim Input Tax Credit (ITC) on the GST
paid on their purchases (CGST, SGST) and use this to offset their
GST liability on sales.
 For instance, if a business pays CGST and SGST on inputs
(purchases), it can claim the credit and reduce the liability when it
makes outward supplies (sales).

Example of CGST and SGST Calculation:

Let’s assume a supplier is selling goods within the state and the goods
are taxed at 18% GST.

 Taxable value of the goods: ₹50,000

 GST rate: 18%

GST Calculation:

 CGST: 50,000 × 9% = ₹4,500

 SGST: 50,000 × 9% = ₹4,500

Total GST = ₹4,500 (CGST) + ₹4,500 (SGST) = ₹9,000.

Important Considerations in the Levy of CGST and SGST:

1. Dual GST: Since CGST and SGST apply only for intra-state
supplies, businesses operating in more than one state may have
to deal with multiple GST returns and compliance requirements.
2. Exemptions and Concessions: Some goods and services are
exempt from CGST and SGST, or may attract a concessional rate.
 3. Filing Due Dates: Businesses must adhere to the due dates for
filing GST returns and paying the taxes, to avoid penalties and
interest.
4. Reconciliation: Regular reconciliation between CGST, SGST, and
IGST (for interstate supplies) is essential to ensure proper tax
payments and claims.

Conclusion:

The levy of CGST and SGST is a critical component of the GST system
in India, with the aim of streamlining taxation for intra-state supplies. It
involves careful calculation of the tax on goods or services, invoicing,
and periodic filing of returns to deposit taxes with the appropriate
authorities.

Under the Goods and Services Tax (GST) regime in India, various
Schedules play a significant role in defining the treatment of goods and
services for tax purposes. These schedules cover a range of areas such as
exemptions, tax rates, special treatment for specific items, and other
provisions related to the supply of goods and services. The schedules are
primarily part of CGST Act and IGST Act, and they categorize goods
and services into different tax categories, including exemptions and
specific tax rates.

Various schedules related to supply under GST:

1. Schedule I: Supplies Made Without Consideration (Deemed

Supplies)

Schedule I lists deemed supplies, which are considered taxable under

GST, even if no monetary consideration is involved.
Deemed Supplies Include:

 Permanent transfer or disposal of business assets: When a

business transfers assets (like stock or capital goods) without
receiving consideration.
 Supply of goods/services between related persons: Such as
transactions between branches, companies, or individuals in the
same business group.
 Importation of services: Even if no consideration is paid, the
import of services is considered a supply.
 Securities: The transfer of securities in certain situations is
considered a supply.

Example: If a business gives a product for free to a related party, it is

considered a supply and would be subject to GST as per Schedule I.

2. Schedule II: Classification of Supply as Goods or Services

Schedule II outlines the classification of a supply as either goods or

services. This is crucial for understanding how different types of
supplies should be taxed under GST.

Key Provisions in Schedule II:

 Transfer of ownership or title: The transfer of ownership or title

of goods is considered a supply of goods.
 Works Contract: Works contracts (combination of goods and
services) are treated as a service.
 Supply of goods: Supply of goods with or without consideration is
categorized as the supply of goods.
 Supply of services: If there is no transfer of title of goods or a
permanent transfer of ownership, it is treated as a service.

3. Schedule III: Items Not Considered as Supply (Exempt from

GST)
Schedule III defines the activities that are not considered taxable
supplies under GST. These are exempt from GST, as they do not
involve any economic transaction.

Exempt Activities under Schedule III:

 Sale of land and building (except when the property is newly

constructed or sold under certain conditions).
 Actionable claims: Such as gambling, lottery, and betting (unless
explicitly made taxable by the government).
 Employee-related services: Employee services to the employer,
such as salaries, or where the employee is not receiving taxable
consideration.
 Services provided by a person to himself: For example, the use of
a car by its owner.
 Services provided by government or local authorities: Like water
supply, public health, etc., are exempt in many cases unless the
service is related to the business.

4. Schedule IV: Taxability of Goods and Services (Zero Rated)

Schedule IV deals with zero-rated supplies under GST. These goods

and services are taxed at 0% under GST. Importantly, businesses can
still claim the input tax credit (ITC) on such supplies.

Zero-rated Supplies Include:

 Exports of goods and services.

 Supply of goods and services to Special Economic Zones (SEZs).

This allows exporters to claim back the tax paid on inputs used to make
export goods.

5. Schedule V: Goods and Services Subject to Reverse Charge

Schedule V outlines the goods and services that are subject to reverse
charge mechanism (RCM). Normally, the supplier is responsible for
paying the GST, but under RCM, the recipient is liable to pay the GST.

Goods/Services under Reverse Charge:

 Services provided by a goods transport agency (GTA) to a

business (for example, transport services by road).
 Legal services provided by an individual advocate or a firm of
advocates to a business entity.
 Import of services (when the recipient is a business or a person
liable to pay the tax).
 Purchase of agricultural produce from unregistered suppliers (by
registered dealers).

6. Schedule VI: List of Exempted Goods and Services

Schedule VI contains a list of exempted goods and services under GST,

meaning these supplies are not subject to GST. The exemption may be
based on certain criteria like the nature of the goods/services or their
usage.

Exempt Goods and Services under Schedule VI:

 Agricultural goods like cereals, fruits, vegetables, and milk.

 Certain healthcare and medical products (e.g., life-saving drugs,
prosthetics).
 Certain educational services, including services provided by
educational institutions up to the higher secondary level.
 Public transport services like buses, local trains, etc.

7. Schedule VII: Activities Constituting Supply

Schedule VII details the various activities that constitute a supply

under GST. It provides clarification on what activities are taxable under
the GST law.
Activities Constituting Supply Include:

 Sale, transfer, barter, exchange, license, rental, lease of goods or

services.
 Import of goods and services into India.
 Services by intermediaries such as brokers, agents, and
facilitators.
 Supply of digital goods and services, such as online content,
software, and subscriptions.

8. Schedule VIII: Conditions for Composition Scheme

The Composition Scheme under GST is an optional scheme available

for small businesses. Schedule VIII outlines the conditions and
eligibility criteria for availing the composition scheme.

Key Features of Composition Scheme:

 Available for businesses with an annual turnover below ₹1.5 crore

(₹75 lakhs for certain states).
 Simplified tax compliance with reduced paperwork.
 Tax is paid at a fixed rate (usually lower than the standard rate) on
turnover.
 Businesses under the scheme cannot claim input tax credit (ITC).

Conclusion

The Schedules under the GST law provide crucial definitions,

exemptions, and guidelines for determining the taxability, rate, and
treatment of goods and services under various scenarios. These
schedules help businesses, tax professionals, and the authorities
understand and apply GST consistently.

Computation of Taxable Value and Tax Liability under GST

(CGST & SGST)
The taxable value is the value on which Goods and Services Tax (GST)
is levied. It is essential to correctly compute the taxable value to ensure
proper payment of CGST (Central Goods and Services Tax) and SGST
(State Goods and Services Tax) for intra-state supplies.

Here's a detailed explanation of how to compute the taxable value and

the tax liability under GST for CGST and SGST.

1. Determining the Taxable Value

The taxable value is the price paid or payable for the goods and services
supplied, excluding GST (CGST, SGST, or IGST). It is essentially the
base amount on which GST is calculated.

Basic Formula:

Taxable Value=Price of Goods/Services−Any Discounts or Allowances

(if any)\text{Taxable Value} = \text{Price of Goods/Services} - \
text{Any Discounts or Allowances (if any)}

The taxable value is determined based on several factors, including:

1. Price: The consideration received or receivable for the supply.

2. Discounts: If a discount is given, it should be deducted from the
price if the discount is linked to the sale.
3. Additions: Any additional amounts that are included as part of the
price for the supply (e.g., packaging charges, freight charges, etc.).
4. Inclusions: Any other amount paid by the recipient for the supply
(e.g., installation fees).

Example of Taxable Value:

Let’s say a business sells goods worth ₹10,000 to a customer. The

customer gets a discount of ₹500, and there’s an additional freight
charge of ₹200.
  Price of Goods = ₹10,000
 Discount = ₹500
 Freight Charge = ₹200

So, the Taxable Value = ₹10,000 - ₹500 + ₹200 = ₹9,700.

2. Computation of GST Liability (CGST & SGST)

After determining the taxable value, the next step is to compute the GST
liability under CGST and SGST for intra-state supplies.

The GST rate applied depends on the nature of the goods or services
and the applicable GST slab (5%, 12%, 18%, 28%, etc.).

Formula for CGST and SGST Computation:

CGST=Taxable Value×CGST Rate2\text{CGST} = \frac{\text{Taxable
Value} \times \text{CGST Rate}}{2} SGST=Taxable Value×SGST Rate2\
text{SGST} = \frac{\text{Taxable Value} \times \text{SGST Rate}}{2}

Note: CGST and SGST are always split equally when the supply is
within the same state (i.e., intra-state supply).

Example:

 Taxable Value: ₹9,700 (calculated above)

 GST Rate: 18% (as an example, it may vary depending on the
product)

CGST Calculation:
CGST=9,700×18%2=9,700×9100=₹873\text{CGST} = \frac{9,700 \times
18\%}{2} = \frac{9,700 \times 9}{100} = ₹873
SGST Calculation:
SGST=9,700×18%2=9,700×9100=₹873\text{SGST} = \frac{9,700 \times
18\%}{2} = \frac{9,700 \times 9}{100} = ₹873
So, the total GST charged will be:

 CGST = ₹873
 SGST = ₹873
 Total GST = ₹873 + ₹873 = ₹1,746

3. Special Cases in Computing Taxable Value and Tax Liability

There are certain cases that require special treatment when computing
the taxable value and GST liability, such as:

a. Transaction Between Related Parties (Discounts,

Consideration, and Deemed Supply)

When a supply is made between related parties, the transaction value

must be computed based on the market value or the value of similar
supplies if no consideration is paid.

b. Reverse Charge Mechanism (RCM)

In the reverse charge mechanism (RCM), the recipient is liable to pay

GST instead of the supplier. In this case:

 The taxable value is calculated as usual.

 The recipient pays the CGST and SGST based on the rate
applicable.

c. Goods or Services Provided Free of Charge

If goods or services are provided free of charge (even for promotional

purposes or giveaways), they may still be considered a taxable supply
under Schedule I of the GST Act (Deemed Supplies). In such cases, the
market value of the goods or services will be considered the taxable
value, and GST will be levied accordingly.
d. Composite or Mixed Supplies

In case of composite supplies (where multiple goods or services are

bundled together) or mixed supplies (multiple items offered at one
price), GST will be calculated based on the principal supply (the
dominant supply in the bundle). This affects the taxable value and the
applicable rate.

4. Additional Charges to Consider

 Freight, Insurance, and Packing Charges: These are often included

in the taxable value if they are charged in addition to the supply
price.
 Handling Charges: If the supplier charges for handling, it is also
added to the taxable value.

Example: If the supplier charges ₹200 for freight, ₹100 for packing,
and ₹50 for handling, these amounts will be added to the taxable value.
In this case:

 Original Taxable Value = ₹9,700

 Additional Charges = ₹200 (freight) + ₹100 (packing) + ₹50
(handling) = ₹350
 New Taxable Value = ₹9,700 + ₹350 = ₹10,050

Then, the GST would be calculated on ₹10,050.

5. Calculation of Total Tax Liability

After calculating CGST and SGST, the total tax liability is simply the
sum of CGST and SGST.

Total GST Liability=CGST+SGST\text{Total GST Liability} = \text{CGST} + \

text{SGST}
Example Summary of Computation

 Price of Goods = ₹10,000

 Discount = ₹500
 Freight Charge = ₹200
 Taxable Value = ₹10,000 - ₹500 + ₹200 = ₹9,700
 GST Rate = 18%

CGST:
CGST=9,700×9100=₹873\text{CGST} = \frac{9,700 \times 9}{100} = ₹873
SGST:
SGST=9,700×9100=₹873\text{SGST} = \frac{9,700 \times 9}{100} = ₹873
Total GST Liability:
Total GST=₹873+₹873=₹1,746\text{Total GST} = ₹873 + ₹873 = ₹1,746

Conclusion

 The taxable value is the value of the goods or services on which

GST is levied. This is typically the price minus discounts and plus
additional charges.
 CGST and SGST are calculated as a percentage of the taxable
value, and they are equally divided in the case of intra-state
supplies.
 Properly calculating the taxable value and GST liability is crucial to
ensure compliance with GST laws and avoid penalties.

Procedure Relating to Levy of IGST (Integrated Goods and Services

Tax)

The Integrated Goods and Services Tax (IGST) is a tax levied on

inter-state supplies of goods and services under the GST regime in
India. Unlike CGST (Central GST) and SGST (State GST), which are
applicable to intra-state supplies (within the same state), IGST is applied
when goods or services are supplied between different states or Union
Territories.

The primary goal of IGST is to facilitate seamless inter-state trade

while ensuring that tax revenue is shared between the Central
Government and the State Government. It ensures that there is no
cascading tax effect on inter-state transactions.

Here's a detailed breakdown of the procedures and steps related to the

levy of IGST:

1. Determining the Nature of the Supply (Inter-state or Intra-state)

The first step in the IGST levy process is to determine whether the
supply is inter-state or intra-state:

 Inter-state supply (subject to IGST): The supply occurs between

two different states or Union Territories.
 Intra-state supply (subject to CGST and SGST): The supply occurs
within the same state or Union Territory.

IGST is applicable for inter-state supplies, which include:

 Sale of goods or provision of services between two different

states or UTs.
 Import of goods or services into India.

Example:

 If a supplier in Maharashtra sells goods to a buyer in Delhi, this is

an inter-state supply and IGST will apply.

2. Levy of IGST

IGST is levied at the time of supply of goods or services, similar to

CGST and SGST. The taxable value for IGST is determined in the same
manner as for CGST and SGST. The tax rate for IGST is the sum of
CGST and SGST.

IGST Formula:

 The IGST rate on the supply is equal to the combined rate of

CGST and SGST.
o For example, if the GST rate is 18%, then IGST will be levied
at 18% on the taxable value of the goods/services.

IGST=Taxable Value×IGST Rate\text{IGST} = \text{Taxable Value} \

times \text{IGST Rate}

Example:

 Taxable Value = ₹10,000

 IGST Rate = 18%

IGST=10,000×18%=₹1,800\text{IGST} = 10,000 \times 18\% = ₹1,800

 Total Invoice Value = ₹10,000 + ₹1,800 = ₹11,800

3. Role of IGST in Import and Export

IGST is also levied on imports and exports, with a few key features:

a. IGST on Imports:

 When goods or services are imported into India, IGST is levied on

the customs value of the goods at the applicable IGST rate.
 The importer is liable to pay IGST at the point of customs
clearance, and the IGST is calculated on the customs value +
customs duty.
 The IGST paid on imports is eligible for input tax credit (ITC),
which can be used to offset the IGST liability on domestic supplies.
b. IGST on Exports:

 Exports of goods and services are generally zero-rated under

GST, meaning no IGST is levied on exports.
 However, exporters are eligible for a refund of the input tax
credit (ITC) on inputs, capital goods, and input services used to
manufacture the export goods or services.

4. Mechanism of Payment and Collection of IGST

The collection and payment process for IGST are slightly different from
the payment of CGST and SGST. The key points are:

a. Tax Collection by the Supplier:

 The supplier is responsible for collecting IGST from the recipient

on inter-state supplies.
 The taxable value of goods/services, along with the applicable
IGST, must be specified on the invoice.

b. Payment of IGST:

 IGST collected from the recipient must be paid to the Central

Government by the supplier.
 Payment of IGST is done through the GST Portal using the challan
system, similar to CGST and SGST payments.

c. Input Tax Credit (ITC):

 The recipient of the inter-state supply is eligible to claim input tax

credit (ITC) on the IGST paid on purchases, which can be utilized
to pay off the IGST liability on further sales.
 If the recipient is a registered taxpayer, ITC on the IGST paid on
purchases can be used to reduce the amount of output IGST
liability on sales.
5. Filing of GST Returns and Payment

Businesses are required to file monthly or quarterly GST returns

through the GST Portal. The key returns that deal with the levy of
IGST are:

 GSTR-1: This return reports details of outward supplies (sales),

including inter-state supplies.
 GSTR-3B: This is a summary return that needs to be filed every
month/quarter. It includes the details of output tax liability
(CGST, SGST, and IGST) and input tax credit.

Payment of IGST:

 Businesses must pay the IGST liability in GSTR-3B (monthly

summary) by selecting the appropriate option for IGST.
 The amount of IGST due on inter-state sales is paid after
deducting any ITC available.

6. Cross-utilization of Input Tax Credit (ITC) for IGST

One of the benefits of IGST is that it allows the cross-utilization of ITC

between CGST, SGST, and IGST. This makes the tax system more
flexible and reduces the compliance burden for businesses.

Rules for ITC Cross-utilization:

 IGST Credit: ITC on IGST can be used to offset CGST and SGST
liabilities (in that order).
o Example: If you owe ₹500 in CGST and ₹500 in SGST, and
you have an ITC of ₹1,000 in IGST, you can use ₹500 of IGST
credit to pay off the CGST and ₹500 of IGST credit to pay off
the SGST.
 CGST/SGST Credit: ITC on CGST and SGST can only be used for the
payment of CGST and SGST, respectively.
7. Refunds Under IGST

Businesses can claim refunds on unutilized input tax credit (ITC) on

exports or IGST paid on imports.

Refund Process:

 The exporter applies for a refund through the GST Portal for the
ITC accumulated on exports.
 Refund claims can also be filed for IGST paid on imports that are
not utilized within the taxable period.

8. IGST for E-Commerce Transactions

In the case of e-commerce platforms or online transactions, IGST is

applicable to inter-state sales of goods and services provided through the
platform.

 E-commerce operators collect IGST on behalf of the suppliers and

deposit it with the government.
 The platform will also need to ensure that tax invoices for inter-
state transactions reflect the correct IGST.

Conclusion

The IGST levy is central to the inter-state supply of goods and services
under the GST framework in India. The procedures for IGST involve
determining the nature of the supply, applying the IGST rate, ensuring
proper documentation, and claiming input tax credit where applicable.
By ensuring that the tax liability is accurately calculated and paid,
businesses can maintain compliance and optimize their tax obligations.
**********

GST UNIT III

Input Tax Credit (ITC) allows businesses to claim a credit for the tax paid on
purchases and expenses incurred for business purposes. It helps reduce the
cascading effect of taxes (tax on tax) and ensures that tax is levied only on the
value added at each stage of production.

Here’s a breakdown of eligibility and conditions for claiming ITC under the
Goods and Services Tax (GST) system in India:

Eligibility to Claim ITC

A taxpayer can claim ITC if they fulfill the following conditions:

1. Registered under GST: The business must be registered under GST, and it
must be a taxable person (except in certain cases like composition scheme).
2. Receipt of Goods/Services: The business should have received the goods or
services or both on which the tax has been paid, and these goods or services
must be used for business purposes.
3. Invoice/Document: A valid tax invoice or any other prescribed document
must be available. The supplier must issue the invoice and mention the GST
details such as GSTIN, amount of tax, etc.
4. Filing Returns: The taxpayer must file GST returns (GSTR-3B, GSTR-1,
etc.) on time. If returns are not filed, ITC cannot be claimed.
5. Goods or Services are Used for Business Purpose: ITC can only be
claimed on goods and services that are used for business purposes. ITC
cannot be claimed on personal expenses or exempt supplies.

Conditions for Taking Input Tax Credit

In addition to the above eligibility criteria, the following conditions need to be

fulfilled:

1. Receipt of Goods/Services: ITC can be claimed only when goods and

services have been received by the taxpayer. In case of goods, ITC can be
claimed only once the goods are physically received. In case of services,
ITC can be claimed when the services are actually received.
2. Matching of Invoices: The details of purchases (invoices) should be
properly reflected in the GSTR-2A or GSTR-2B, which is a system-
generated statement of outward supplies made by the supplier. If the supplier
has not uploaded the invoice, or if the invoice is incorrect or mismatched,
ITC cannot be claimed.
 3. ITC Cannot be Claimed on Certain Items: There are specific exclusions
under Section 17 of the CGST Act where ITC cannot be claimed, such as:
o Motor vehicles and conveyances (except for specific cases like
transportation of goods).
o Goods and services used for personal consumption.
o Goods and services used for making exempt supplies (e.g., certain
financial services or exports where the business is not paying GST).
o Works contract services for construction of immovable property
(other than plant and machinery).
4. No ITC on Unpaid Tax: If the supplier has not paid the tax to the
government (even though it was collected from the buyer), the buyer cannot
claim ITC.
5. ITC for Capital Goods: ITC on capital goods can be claimed, but it is
subject to a different set of rules, such as the requirement to reverse ITC if
capital goods are sold or used for non-business purposes.
6. Pre-Conditions for Claiming ITC on Imports: For imports of goods, the
taxpayer must be in possession of a bill of entry and must be able to
substantiate that the imported goods are used for business purposes.

Other Key Points

 Time Limit: ITC must be claimed within the time limit prescribed under
GST, i.e., the due date of filing the GST return for the month of September
following the end of the financial year, or the actual date of filing the annual
return (whichever is earlier).
 Reverse Charge Mechanism: In some cases, if the goods or services are
procured under reverse charge (where the recipient is liable to pay tax), ITC
can still be claimed, provided the conditions are met.
 Blocked Credits: Certain credits are blocked, even if the conditions are
fulfilled, such as on certain food & beverages, health services, and travel
benefits provided to employees, among others.

Documents Required to Claim ITC

 GST Tax Invoices

 Debit/Credit Notes
 Bill of Entry (for imports)
 Payment Challan (if tax is paid under reverse charge)
 Any other prescribed document as per GST law
By adhering to these eligibility criteria and conditions, businesses can effectively
claim Input Tax Credit to reduce their tax liabilities. However, it is essential to
ensure compliance with all GST provisions to avoid any penalties or
disallowances.

Apportionment of Input Tax Credit (ITC)

Apportionment of ITC refers to the allocation of input tax credit between taxable,
exempt, and non-business uses. When a business makes both taxable and exempt
supplies, it cannot fully claim the ITC on the inputs or services used in the
production or provision of those supplies. The credit needs to be apportioned
between taxable and exempt supplies.

Key Scenarios for Apportionment of ITC:

1. Mixed Supplies (Taxable & Exempt)

o If a taxpayer is making both taxable and exempt supplies (e.g., selling
taxable goods and exempt goods), they must calculate the ITC
attributable to taxable supplies and the portion attributable to
exempt supplies.
o In such cases, the ITC should be apportioned based on the value of
taxable supplies compared to the total supplies (taxable + exempt).
o The proportionate credit can be calculated using a formula provided
in the GST law:
Apportioned ITC=Value of taxable suppliesTotal supplies×Total ITC av
ailable\text{Apportioned ITC} = \frac{\text{Value of taxable supplies}}
{\text{Total supplies}} \times \text{Total ITC available}

2. ITC on Common Inputs

o When common inputs or services are used for both taxable and
exempt supplies, the business must apportion the credit based on
the ratio of taxable to total supplies.
o The formula for apportioning ITC on common inputs is:
Common ITC=Value of taxable suppliesTotal value of all supplies×Tot
al ITC on common inputs\text{Common ITC} = \frac{\text{Value of
taxable supplies}}{\text{Total value of all supplies}} \times \text{Total
ITC on common inputs}

3. Credit on Capital Goods

 o For capital goods used for both taxable and exempt purposes, the
apportionment rule is similar, but the adjustment must be made over
a period of 5 years (for capital goods).

4. Proportional ITC
o In case of mixed supplies, the taxpayer must maintain records of
both taxable and exempt supplies and adjust the ITC based on the
proportion of taxable supplies.

Formula to Calculate Apportionment of ITC on Common Inputs:

Proportionate ITC=(Value of taxable suppliesTotal value of supplies)×Total ITC on
common inputs\text{Proportionate ITC} = \left(\frac{\text{Value of taxable
supplies}}{\text{Total value of supplies}}\right) \times \text{Total ITC on common
inputs}

This ensures that the input tax credit is claimed only to the extent of the taxable use
of goods and services.

Blocked Credits Under GST

Certain credits are blocked and cannot be claimed, even if all the conditions for
ITC are met. These are specified in Section 17(5) of the CGST Act, which lists
items for which ITC cannot be claimed.

Blocked Credits Include:

1. Motor Vehicles and Conveyances:

o ITC is not allowed on motor vehicles and conveyances unless:
 They are used for making taxable supplies of goods or
passenger transport services (e.g., if you use the vehicle for
transporting goods or people as part of your business).
 Used for training purposes (e.g., for driving school).
 Used for transportation of goods (e.g., in case of logistics or
freight business).
o ITC is not available on vehicles used for personal use or other non-
business purposes.

2. Food and Beverages, Outdoor Catering:

 o ITC is not allowed on food and beverages, outdoor catering, health
services, or cosmetic services provided to employees, unless they are
provided as part of a business or professional service.
o Exceptions include if the supply is used for outward taxable supply
or the business involves these services directly.

3. Construction Services for Immoveable Property:

o ITC is not allowed on goods or services used for construction of
immovable property (except for plant and machinery). However, ITC
can be claimed if the immovable property is used for business
purposes and is subject to tax (e.g., rental property used for
business).
o This includes construction of buildings or civil structures.

4. Personal Consumption:
o ITC cannot be claimed on goods or services used for personal
consumption.

5. Works Contract Services:

o ITC on works contract services is blocked unless the contract is
related to construction of plant and machinery.
o For example, construction of a factory building would not allow ITC,
but constructing machinery or equipment for a factory would.

6. Membership Fees, Subscriptions:

o ITC cannot be claimed on membership fees or subscriptions paid to
clubs, organizations, or societies (e.g., health clubs, fitness clubs, etc.)
unless they are used for business purposes.

7. Renting of Motor Vehicles:

o If renting of motor vehicles is for personal purposes or for non-
taxable business activities, ITC is not allowed.

8. Services in Relation to Employee Welfare:

o Any services provided in relation to the welfare of employees, such
as group insurance or health insurance, are blocked for ITC.

9. Works Contract for Personal Use:

 o If a works contract is for personal or residential purposes (e.g.,
renovation of a house), ITC is blocked.

Summary of Blocked ITC

 Motor vehicles (except for specific uses like transporting goods or services)
 Food & beverages (unless for business or provided to customers)
 Works contracts for construction of immovable property (except for
plant/machinery)
 Personal consumption (goods/services for non-business purposes)
 Health services (except if used for business)
 Membership fees/subscriptions (e.g., to clubs, unless related to business
activities)

Important Considerations for Apportionment and Blocked Credit:

 Accuracy: Businesses need to ensure that they correctly allocate ITC

between taxable and exempt supplies and avoid claiming ITC on blocked
credits.
 Documentation: Maintaining proper records and invoices for both taxable
and exempt supplies helps in proper apportionment of ITC.
 Review Periodically: Review your business activities and the applicability of
blocked credits periodically to ensure compliance with GST regulations.

VARIOUS DOCUMENTS UNDER GST

Under the Goods and Services Tax (GST) regime in India, various documents are
used to facilitate the smooth flow of transactions, filing returns, and ensuring
compliance. These documents help in tracking the movement of goods, the
payment of tax, and claiming Input Tax Credit (ITC). Here’s an overview of the
important documents under GST:

1. Tax Invoice (Section 31 of CGST Act)

A tax invoice is the most crucial document under GST, used to record a transaction
between the buyer and seller. It is issued by a registered supplier for taxable supply
of goods and/or services.
Key Features:

 Must contain GSTIN of the supplier and recipient.

 Should specify the details of the goods/services being sold.
 Date of issue, invoice number, and tax amount (GST) must be clearly
mentioned.
 It must be issued within a prescribed period (generally 30 days) from the
date of supply.

Purpose:

 A tax invoice is required to claim Input Tax Credit (ITC).

 Helps in reporting the transaction in GST returns (e.g., GSTR-1 and GSTR-
3B).

2. Debit Note (Section 34 of CGST Act)

A debit note is issued by the supplier to the buyer when there is an increase in the
taxable value or tax amount after the issuance of a tax invoice.

Key Features:

 It must specify the original invoice reference number.

 Must mention the reason for the debit (e.g., additional tax due to a change
in supply value).
 Used when there’s a need to increase the amount of an invoice due to
reasons like returns, price adjustments, etc.

Purpose:

 To amend the tax invoice when the amount of tax or supply increases.

3. Credit Note (Section 34 of CGST Act)

A credit note is issued by the supplier to reduce the taxable value or tax amount
after the issuance of a tax invoice. It is usually issued in the case of returns or
reduction in the value of goods.
Key Features:

 Should reference the original invoice number.

 Must mention the reason for issuing the credit note (e.g., a return of goods,
discount, etc.).
 Helps reduce the overall tax liability.

Purpose:

 Used to claim a reduction in tax liability due to returns, discounts, etc.

 Can be reported in the supplier's GST returns (e.g., GSTR-1).

4. Bill of Supply (Section 31 of CGST Act)

A bill of supply is issued in cases where no tax is charged, or the supply is exempt
from tax (like in the case of exempted goods or services).

Key Features:

 No GST is charged on this document.

 Typically used for exempt supplies or when a registered taxpayer provides
supplies under the composition scheme.

Purpose:

 Used when the supplier is not charging GST, and hence no tax invoice is
issued.

5. Receipt Voucher

A receipt voucher is issued when the supplier receives an advance or payment

before the actual supply of goods or services.

Key Features:

 It’s issued before the supply of goods or services (for advance payments).
 Contains the amount received as advance along with applicable GST.

Purpose:
  Issued to record the receipt of advance payment, and GST is paid on
receipt.

6. Payment Voucher

A payment voucher is issued when the recipient is liable to pay GST under the
reverse charge mechanism (RCM).

Key Features:

 The recipient, instead of the supplier, pays the GST.

 It's issued in cases where goods or services are subject to reverse charge,
and the recipient has to discharge the tax liability.

Purpose:

 To document the tax payment under the reverse charge mechanism (RCM).

7. Delivery Challan

A delivery challan is issued when goods are transported without an invoice. It is

commonly used in the transportation of goods for purposes like job work,
consignment, or return of goods.

Key Features:

 Used when goods are moved without a tax invoice.

 Details of the consignment and transport are mentioned.
 This document is required to be carried by the transporter.

Purpose:

 Used in situations where goods are being moved for job work, under a
transport agreement, or when the invoice is not ready yet.

8. E-Way Bill

An E-Way Bill is a document required for the movement of goods. It’s generated
electronically through the GST portal, especially for the transport of goods worth
over a certain threshold (typically ₹50,000).
Key Features:

 Required when goods are being transported, especially for inter-state

movement or if the value exceeds the threshold limit.
 Contains details such as the consignor, consignee, goods description,
transport mode, etc.

Purpose:

 To track the movement of goods and ensure compliance with GST

regulations. It is used as proof of movement during transit.

9. GST Certificate of Registration

This is the official document issued by the GST Department when a business is
successfully registered under GST.

Key Features:

 Contains the GSTIN (Goods and Services Tax Identification Number).

 Specifies the type of registration (e.g., regular, composition, etc.).
 Shows the scope of registration (state-specific, pan-India, etc.).

Purpose:

 Serves as proof of GST registration, allowing businesses to collect tax and

claim ITC.

10. GST Returns (GSTR Forms)

GST returns are a set of documents that need to be filed periodically (monthly,
quarterly, or annually) by registered taxpayers. Some key GSTR forms include:

 GSTR-1: Details of outward supplies (sales).

 GSTR-2: Details of inward supplies (purchases) (currently suspended).
 GSTR-3B: Summary of outward supplies, input tax credit, and tax paid.
 GSTR-9: Annual return for regular taxpayers.
 GSTR-10: Final return for a taxpayer who has canceled their registration.

11. Bill of Entry

A Bill of Entry is a document required for the importation of goods into India. It is
filed by the importer for customs clearance and to report the details of the goods
imported.

Key Features:

 Issued when goods are imported into India.

 Helps in determining the customs duty payable.

Purpose:

 To report the details of imported goods, and the corresponding GST on

imports can be claimed as input tax credit.

12. Export/Shipping Bill

An Export Bill or Shipping Bill is issued when goods are being exported from
India. It contains the details of the goods being exported, the buyer, and the
consignor.

Key Features:

 Used for exports to report goods leaving the country.

 It serves as a document for customs clearance and export rebates.

Purpose:

 To facilitate customs clearance and provide evidence for claiming export

benefits and exemptions.

Conclusion:

These documents form the backbone of the GST compliance system, ensuring
transparency and tracking for both businesses and the government. Proper
maintenance and timely issuance of these documents are crucial for seamless
operations, avoiding penalties, and claiming the correct Input Tax Credit (ITC).

HSC CODE AND SAC CODE

HSN Code and SAC Code are classification codes used under the Goods and
Services Tax (GST) system to identify and categorize goods and services. These
codes play an important role in determining the tax rate applicable to a particular
item or service.

HSN Code (Harmonized System of Nomenclature)

HSN Code is used to classify goods under the GST system. It is an international
system of categorizing goods based on their nature and characteristics. The HSN
code system is developed by the World Customs Organization (WCO) and is used
globally to standardize the classification of goods for customs and taxation
purposes.

Key Features of HSN Code:

 6-digit code: The HSN code typically consists of 6 digits, but it can extend to
8 or 10 digits in certain countries, including India, for more detailed
classification.
 International standard: HSN is a universally accepted coding system for
goods.
 Tax Classification: The HSN code helps in determining the tax rate for
goods. It facilitates the application of the correct GST rate based on the
nature of the goods.
 Used for imports and exports: It is also used for international trade,
customs clearance, and shipments.

HSN Code Structure:

The HSN code is divided into sections and chapters, with each section containing
several chapters that deal with specific categories of goods. For example:

 Chapter 1 to 24: Goods related to agriculture, foodstuffs, textiles, etc.

 Chapter 25 onwards: Items like chemicals, machinery, etc.

Example of HSN Code:

 HSN Code 1006: Rice (chapter on cereals)

 HSN Code 7308: Structures and parts of structures, like bridges and
prefabricated buildings.
HSN Code Under GST:

 Businesses with annual turnover up to ₹5 crores need to mention 4 digits

of HSN in their GST returns.
 Businesses with annual turnover above ₹5 crores must use the 6-digit HSN
code.
 Imports and Exports: HSN codes are also used in import/export
documentation (like Bill of Entry or Shipping Bill) for customs clearance.

SAC Code (Service Accounting Code)

SAC Code is used for classifying services under the GST regime. Unlike goods,
which are classified using HSN codes, services are categorized using SAC codes.
The SAC code is used to apply the correct GST rate on services and to ensure
smooth processing of GST returns for services.

Key Features of SAC Code:

 4-digit code: The SAC code typically consists of a 4-digit number that
represents a specific service.
 GST Applicability: SAC codes help determine the GST rate for services.
 Service Classification: Services like banking, legal services, consultancy,
etc., have their specific SAC codes to make identification and taxation
easier.

SAC Code Structure:

The SAC code is structured in a way where the first two digits represent the broad
category of the service, and the next two digits narrow it down to a specific
service within that category. For example:

 9983: This code is used for Professional, technical, and business services
like accounting, engineering services, etc.
 9954: This code is used for Construction services.

Example of SAC Code:

 SAC Code 9983: Professional, technical, and business services

 SAC Code 9997: Other services not elsewhere classified
SAC Code Under GST:

 SAC codes are particularly important for service providers because they
determine the GST rate applicable to their services.
 Service providers must use the correct SAC code when filing GST returns
(like GSTR-1 and GSTR-3B) to ensure that the correct tax rate is applied.

Differences Between HSN and SAC Code

Aspect HSN Code SAC Code

Full Form Harmonized System of Nomenclature Service Accounting Code
Purpose Classifies goods Classifies services
Length Typically 6 to 8 digits Typically 4 digits
Manufacturers, Traders, and
Used By Service Providers
Importers/Exporters
GST Mentioned for goods in GSTR-1 & Mentioned for services in
Returns GSTR-3B GSTR-1 & GSTR-3B
SAC Code 9983: Professional
Example HSN Code 1006: Rice
Services
Used for Determining GST on goods Determining GST on services

Why are HSN and SAC Codes Important?

1. Proper Classification: Helps businesses correctly classify goods and

services, ensuring they comply with GST regulations.
2. Correct Tax Application: HSN and SAC codes are critical in determining the
correct GST rate for both goods and services.
3. Facilitates Smooth Trade: The use of these codes streamlines cross-border
trade (exports/imports) and customs clearance.
4. Avoiding Penalties: Correctly using these codes in GST returns ensures that
businesses avoid penalties or non-compliance issues.

Summary:
  HSN Code: Used for goods classification. It is a 6-digit or 8-digit code that
helps determine the tax rate for goods.
 SAC Code: Used for services classification. It is a 4-digit code used to
determine the applicable tax rate on services.

Both these classification systems are essential for smooth operation, taxation, and
compliance under the GST framework.

SIMPLE PROBLEMS OF INPUT TAX

Here are some simple problems on the utilization of Input Tax

Credit (ITC) to help clarify how businesses can claim and utilize
ITC under GST:
Problem 1: Basic ITC Utilization

Scenario:

 A registered taxpayer, ABC Ltd., buys goods worth ₹1,00,000 (exclusive of

GST).
 The GST rate on goods is 18%.
 ABC Ltd. sells taxable goods worth ₹1,50,000 (exclusive of GST), with the
same GST rate of 18%.

Solution:

1. ITC on Purchases:
o The purchase value is ₹1,00,000, and the GST rate is 18%.
o The ITC eligible for ABC Ltd. on the purchase is:
ITC on Purchase=1,00,000×18%=₹18,000\text{ITC on Purchase} =
1,00,000 \times 18\% = ₹18,000
2. Output GST on Sales:
o The sale value is ₹1,50,000, and the GST rate is 18%.
o The GST on sales (output tax) is:
Output GST=1,50,000×18%=₹27,000\text{Output GST} = 1,50,000 \
times 18\% = ₹27,000
3. Utilization of ITC:
o ABC Ltd. can utilize the ITC of ₹18,000 on the purchase against the
output GST liability of ₹27,000.
 o The net GST liability payable to the government is:
Net GST Liability=27,000−18,000=₹9,000\text{Net GST Liability} =
27,000 - 18,000 = ₹9,000

Answer:

 ABC Ltd. can use ₹18,000 as ITC to pay a portion of the ₹27,000 GST
liability on sales, and the remaining ₹9,000 must be paid in cash.

Problem 2: ITC on Mixed Supplies (Taxable and Exempt)

Scenario:

 XYZ Enterprises makes taxable supplies worth ₹2,00,000 (exclusive of

GST) and exempt supplies worth ₹50,000 in a month.
 The total input GST paid by XYZ Enterprises on purchases is ₹36,000 (18%
GST on ₹2,00,000 worth of taxable supplies).

Solution:

1. Apportionment of ITC:
o Total supplies = ₹2,00,000 (taxable) + ₹50,000 (exempt) =
₹2,50,000.
o The ITC needs to be apportioned between taxable and exempt
supplies.
o The proportion of taxable supplies to total supplies is:
Proportion of Taxable Supplies=2,00,0002,50,000=0.8or80%\
text{Proportion of Taxable Supplies} = \frac{2,00,000}{2,50,000} =
0.8 \quad \text{or} \quad 80\%
2. ITC Eligible for Utilization:
o ITC on total purchases = ₹36,000.
o The ITC eligible for taxable supplies is:
Eligible ITC=36,000×80%=₹28,800\text{Eligible ITC} = 36,000 \
times 80\% = ₹28,800
3. Net GST Liability:
o The output GST on taxable supplies is ₹2,00,000 × 18% = ₹36,000.
o XYZ Enterprises can utilize ₹28,800 of the ITC to pay the output
GST of ₹36,000.
o The net GST liability payable to the government is:
Net GST Liability=36,000−28,800=₹7,200\text{Net GST Liability} =
36,000 - 28,800 = ₹7,200
Answer:

 XYZ Enterprises can use ₹28,800 of ITC for taxable supplies and must pay
₹7,200 in cash.

Problem 3: ITC on Capital Goods

Scenario:

 LMN Ltd. purchases capital goods worth ₹5,00,000 (exclusive of GST)

with an 18% GST rate.
 The total GST on capital goods is ₹90,000 (₹5,00,000 × 18%).
 LMN Ltd. uses these capital goods to manufacture taxable goods, and the
business expects to use the capital goods for a period of 5 years.

Solution:

1. ITC on Capital Goods:

o The total GST paid on capital goods is ₹90,000.
o ITC can be claimed on capital goods, but it must be adjusted over a 5-
year period (as per GST rules).
2. Annual Adjustment of ITC:
o The ITC for the capital goods will be spread over 5 years.
o The annual ITC claim is: Annual ITC=90,0005=₹18,000per year\
text{Annual ITC} = \frac{90,000}{5} = ₹18,000 \quad \text{per
year}

Answer:

 LMN Ltd. can claim ₹18,000 as ITC per year for 5 years on the capital
goods purchased.

Problem 4: ITC on Reverse Charge Mechanism (RCM)

Scenario:

 PQR Ltd. purchases services worth ₹1,00,000 (exclusive of GST) from an

unregistered supplier.
 The GST rate on the service is 18%, and the GST must be paid under
Reverse Charge Mechanism (RCM).
  The GST on the service is ₹18,000, and PQR Ltd. has paid the GST to the
government.

Solution:

1. ITC on Reverse Charge Service:

o Under the Reverse Charge Mechanism, PQR Ltd. can claim ITC on
the GST paid for services received from an unregistered supplier.
o The ITC eligible for utilization is the GST paid under RCM, i.e.,
₹18,000.
2. Utilization of ITC:
o PQR Ltd. can utilize the ₹18,000 ITC to offset their output GST
liability.

Answer:

 PQR Ltd. can utilize the ₹18,000 ITC paid under the Reverse Charge
Mechanism to set off any output GST liability in the month.

Problem 5: ITC on Ineligible Purchases

Scenario:

 DEF Ltd. purchases goods worth ₹2,00,000 from a registered supplier.

 The GST rate on the goods is 18%, and the total GST on the purchase is
₹36,000.
 However, the goods are for personal use, not for business purposes.

Solution:

1. ITC Eligibility:
o Since the goods are for personal use and not for business purposes,
DEF Ltd. cannot claim ITC on these purchases.
2. Net GST Liability:
o Since no ITC is available, DEF Ltd. must pay the full GST liability on
the goods purchased.

Answer:
  DEF Ltd. cannot claim ITC on these goods, and the entire GST of ₹36,000
will need to be paid by DEF Ltd.

Conclusion:

These simple problems demonstrate how ITC is utilized in different scenarios,

such as:

 Offset of output GST with input GST,

 Apportionment of ITC for taxable and exempt supplies,
 ITC on capital goods and reverse charge, and
 Disallowance of ITC for non-business purposes.

Understanding the correct utilization of ITC is crucial for businesses to ensure

compliance and avoid paying GST out of pocket when they have eligible credits
available. Let me know if you'd like more examples or a deeper explanation!