What is GST (Goods and Services Tax) in India?

This post explain what is GST (Goods and Services Tax) in India, its benefit, what type of taxes are levied, different tax rates and role play by GSTN.

GST is a destination based consumption tax levied by the Government of the supply of goods or services. It is an indirect tax which allows a comprehensive and continuous chain of tax credits from the producer’s/service provider’s stage up to the retailer’s/consumer’s stage. Thus, taxing only the value addition at each stage of the supply chain.

Also Read : Guide on Reverse Charge under GST

Benefits of GST

The implementation of GST in India include the following benefits:

  • Reduction in Multiple Taxes
  • Mitigation of Cascading Effect
  • Reduction in Double Taxation

  • Buoyancy to the Government Revenue
  • Make National Products more Competitive
  • Uniformity in Procedures and Provisions

Also Read : GST on Blogger’s Earnings from WordAds or AdSense

Type of Taxes under GST

There are 3 taxes that are levied under gst which are as follows:

  • CGST: This tax is paid to the Central Government on the intra-state supply (i.e. supply of goods within the state)
  • SGST: This tax is paid to the State Government on the intra-state supply (just like CGST)
  • IGST: This tax is paid to the Central Government on the inter-state supply (i.e. supply of goods from one state to another)

Tax Structure under GST

In most cases, the tax structure under gst shall be as follows:

Basis GST will be applicable on Description
Goods / Services All Goods and Services (other than 5 petroleum products and Alcoholic Liquor for Human Consumption)
Intra – State Supply SGST + CGST Both the Central and State govt. shall equally shares the tax amount
Inter – State Supply IGST Central will first receive the whole tax and then will equally share it with the govt. of destination state.

Simple Example to understand the difference between the three –

Let say, a dealer in Delhi had sold goods worth Rs. 40,000/- to another dealer in Gujarat. The tax rate on the same is 18%.

In this case, Delhi’ s dealer has to additionally collect Rs. 40,000 x 18% = Rs. 7,200/- as the IGST from Gujarat’s dealer.

Now, let say, dealer in Delhi sold the same goods to another dealer within Delhi.

Delhi’s dealer now has to collect CGST and SGST of Rs. 40,000 x 9% = 3,600/- each from the another dealer.

Tax Rates under GST

Since its implementation from 1st July 2017, gst has different tax rates which are as follows:

0%, 0.25%, 3%, 5%, 12%, 18%, and 28% tax rate are applied in gst on the different goods and services.

Out of which 0% tax rate is generally on the goods or services on which is a necessity for the survival, or in the public interest not to tax them. However, goods or services under this list can be shifted to the higher brackets.

28% tax rate is for the luxuries or sinful goods or services.

Rest of the tax rates are as per the consumption power or requirement of the particular industry.

How to Calculate GST?

Taxable Value is a value on which tax is to be charged and an Invoice Value is a Total Value.

  • Invoice Value = Taxable Value + GST Amount

Case 1 – Ascertain Invoice Value from the Taxable Value

If we already know the Taxable Value, then in order to ascertain Invoice Value we need to find out GST Amount.

It can be ascertain by the following formula,

  • GST Amount = Taxable Value x GST Rate

So, GST Amount in case of,

  • Intra State Supply – GST Amount = Taxable Value x (CGST Rate + SGST Rate)
  • Inter-State SupplyGST Amount = Taxable Value x IGST Rate

Case 2 – Ascertain Taxable Value from the Invoice Value

If we know the Invoice Value, then we can find out Taxable Value by the following formula,

  • Taxable Value = {Invoice Value/(100+GST Rate)} x 100

So, Taxable Value in case of,

  • Intra State Supply –
    Taxable Value = {Invoice Value/(100+CGST Rate+SGST Rate)} x 100
  • Inter-State Supply
    Taxable Value = {Invoice Value/(100+IGST Rate)} x 100 

Also Read : What is Foreign Inward Remittance Certificate (FIRC)?

What is GSTN?

Goods and Services Network (GSTN) is basically a special purpose vehicle which has been set up to facilitate a shared IT infrastructure to different stakeholders. GSTN help to provide services to the Central and State Government, taxpayers and other stakeholders.

The functions of the GSTN, inter alia, include:

  • Facilitating GST registration of different stakeholders,
  • Forwarding the filed GST returns to Central and State authorities,
  • Computation and Settlement of IGST among Central and State governments,
  • Running the matching engine for matching, reclaim, or even reversal of Input Tax Credit, and
  • Providing various MIS reports to the central and state governments based on the taxpayers return information.

Guide on Reverse Charge under GST

This post is all about the provisions of applicability, Time of Supply, Compliances like registration, Invoicing and ITC under Reverse Charge Mechanism.

Basics of Reverse Charge

In GST, generally, the supplier of the goods or service is liable to collect the tax on supply from the receiver on behalf of the government. He shall also be liable to pay the same to the government by the specified date. However, in case of a reverse charge, the receiver of the goods or service becomes liable to pay the tax on supply to the government.

Here, I will discuss the legal provisions regarding the applicability of reverse charge.

Also Read : What is Foreign Inward Remittance Certificate (FIRC)?

Applicability of Reverse Charge

Applicable Legal Provisions

As per section 9(3) of the CGST Act, 2017, the Government may, on the recommendations of the Council, specify categories of supply of goods or services or both by notification on which the tax shall be paid on reverse charge basis by the recipient of such goods or services or both.

According to section 9(4) of the CGST Act, 2017, tax in respect of the supply of taxable goods or services or both by an unregistered supplier, to a registered person, shall be paid by such registered person on a reverse charge basis.

As per Notification No. 22/2018 dated 6th August 2018, the applicability of the provisions of the principal Notification No. 8/2017 dated 28th June 2017, regarding the applicability of the reverse charge in case of supply of taxable goods or services by an unregistered supplier to a registered person where the aggregate value is more than 5,000 rupees in a day has been deferred till 30.09.2019.

Understanding the Legal Provisions

According to the aforesaid provisions, Reverse Charge is applicable on the 2 following cases:

Case A: Supply of certain goods or specified services published in the Official Gazette by the issue of notification

The CBIC has issued a list of Goods and Services on which reverse charge is applicable.

Also Read: List of Goods and Services on which Reverse Charge is Applicable

Case B: Supply of taxable goods or services or both by an unregistered supplier, to a registered person

The applicability of the provision of reverse charge, in this case, has been deferred till 30.09.2019.

E-Commerce Operator

Many E-Commerce Operator has the confusion regarding the applicability of reverse charge. Let us now examine the same.

Applicable Legal Provisions

As per section 9(5) of the CGST Act, 2017, the Government may, on the recommendations of the Council, specify categories of services by notification on intra-State supplies of which the tax shall be paid by the electronic commerce operator if such services are supplied through it.

Provided that where an electronic commerce operator does not have a physical presence in the taxable territory then representative shall be liable to pay the tax. In case, there is no representative in the said territory, then such electronic commerce operator shall have to appoint a person for the purpose of paying tax and such person shall be liable to pay tax.

Understanding the Legal Provisions

The Government has specified certain services on which tax is to be paid by the e-commerce operator. These services are provided as follows –

  • Transportation of Passengers by Radio-taxi, Motor-cab, Maxi cab and Motor Cycle
  • Services of Short Term Accommodation
  • Services by way of housekeeping, such as plumbing, carpentering and etc

One has to note that, in this case, since the E-Commerce operator is neither the supplier nor the receiver of service. He is only providing intermediary services through its platform which connects the supplier and the recipient.

For Example, Uber through its E-Commerce platform provides the service of transportation of passengers by Cab. Uber is neither the supplier, in this case, the driver, nor the receiver of service, in this case, passenger. Now, Uber has to collect the tax from passenger and pay it to the government.

Hence, the tax paid by the e-commerce operator on behalf of the supplier is not covered under reverse charge mechanism.

Time of Supply under RCM

Applicable Legal Provisions

As per section 12(3) of the CGST Act, 2017, in case of supply of goods on which tax is paid on a reverse charge basis, the time of supply shall be the earliest of the following dates, namely

(a) the date of the receipt of goods, or

(b) the date of payment in the books of account or the date on which payment is debited in the bank account of the recipient, whichever is earlier, or

(c) the date immediately following thirty days from the date of issue of invoice or any other document,

Provided that where it is not possible to determine the time of supply under clause (a) or clause (b) or clause (c), the time of supply shall be the date of entry in the books of account of the recipient of the supply.

As per section 13(3) of the CGST Act, 2017, in case of supply of services on which tax is paid on a reverse charge basis, the time of supply shall be the earlier of the following dates, namely

(a) the date of payment in the books of account or the date on which the payment is debited in the bank account of the recipient, whichever is earlier, or

(b) the date immediately following sixty days from the date of issue of invoice or any other document,

Provided that where it is not possible to determine the time of supply under clause (a) or clause (b), the time of supply shall be the date of entry in the books of account of the recipient of supply.

Also Read : GST on Blogger’s Earnings from WordAds or AdSense

Understanding the Legal Provisions

Let us take a simple example to understand the aforesaid provisions.

In Case of Goods,

  • Date of Payment – 13th Aug 2018
  • Invoice Date – 5th July 2018
  • Date of Entry in books by recipient – 14th Aug 2018
  • Date of receipt of goods – 18th Aug 2018

In this case, the time of supply shall be 5th Aug 2018

In Case of Services,

  • Date of Payment – 13th Oct 2018
  • Invoice Date – 5th July 2018
  • Date of Entry in books by recipient – 14th Oct 2018

In this case, the time of supply shall be 4th Sept 2018

Compliances under RCM

Registration Requirement

Applicable Legal Provisions

As per section 24 of the CGST Act, 2017, notwithstanding anything contained in sub section (1) of section 22, persons how are required to pay tax under reverse charge, shall be required to registered under this act.

Understanding the Legal Provisions

Any person who is required to pay tax under reverse charge has to compulsorily register under GST right from the start. That is to say, irrespective of the threshold limit of 20 or 40 lakhs, or 10 lakhs in case of some special category states.

Invoicing and ITC under RCM

Applicable Legal Provisions

As per section 31(3)(f) of the CGST Act, 2017, a registered person who is liable to pay tax under section 9(3) or 9(4) shall issue an invoice in respect of goods or services or both received by him from the supplier who is not registered on the date of receipt of goods or services or both. The invoice issue in this regard shall be subject to rule 46 of the CGST Rules, 2017.

According to section 31(3)(g) of the CGST Act, 2017, a registered person who is liable to pay tax under section 9(3) or 9(4) shall issue a payment voucher at the time of making payment to the supplier.

As per the second proviso of rule 46 of CGST Rules, 2017, where an invoice is required to be issued as per section 31(3)(f), a registered person may issue a consolidated invoice at the end of a month for supplies covered under section 9(4) the aggregate value of such supplies exceeds rupees five thousand in a day from any or all the suppliers.

According to rule 36 of the CGST Rules, 2017, The input tax credit shall be availed by a registered person, on the basis of an invoice issued in accordance with the provisions of section 31(3)(f), subject to the payment of tax.

Understanding the Legal Provisions

Invoicing is to be done by the receiver himself if the goods or services fall under reverse charge, and he purchased the same from an unregistered supplier.

One has to note that the provision regarding the issue of consolidated invoice at the end of the month has been deferred till 30.09.2019.

Self Invoicing is to be done because the supplier is unregistered. Therefore, he cannot issue a GST compliant invoice. And, thus recipient becomes liable to pay taxes on their behalf.

Also, in case of a reverse charge, the Input tax credit can be availed and utilized by the recipient on the basis of the invoice issued but after the payment of tax. Any amount payable shall be paid by debiting the electronic cash ledger i.e. to be paid in cash.

Details regarding all the invoices issued in respect of supplies attracting a reverse charge, to be furnished separately in table 4B of GSTR-1.

Also Read : What is GST (Goods and Services Tax) in India?

Disclaimer

The materials available on this website are for informational purposes only and not for the purpose of providing legal advice. You should contact your legal adviser to obtain advice with respect to any particular issue or problem. Every effort has been made to avoid errors or omissions in this publication. In spite of this, errors may creep in. The opinions expressed at or through this website are merely the opinions of the individual author. It is noted that neither the Admin nor the Individual authors are responsible for any loss, damage of action to anyone, of any kind, in any manner, therefrom. It is suggested that to avoid any doubt the reader should cross-check all the facts, law and contents of the publication with original Government publication or notification in this regard.


GST on Blogger’s Earnings from WordAds or AdSense

This post is all about whether GST is charged on the Earning from WORDADS or ADSENSE to the Indian Blogger’s.

Business Model: WordAds & AdSense 

WordAds and AdSense both are the online advertising programs run by WordPress and Google respectively, that gives the publishers (Website owners, Bloggers etc.) an opportunity to earn a fair amount of money by allowing to show the advertisements (ads) on their websites.

All in all, there are three parties that are involved in every transaction. The first party is the customer who wants to promote their products or services by online ads on different websites. The Second party is an Online Advertising programs provider like WordPress or Google who is approached by the customer for this purpose. The Third party is the publisher who will publish the ads on their websites.

Generally, there are two transactions. First is between the customer and the WordAds, in which the wiling customer pays money in order to place their ads to the target audience. The Second is between the WordAds and the Publisher, in which WordAds pays money to the publisher for placing an ad on their websites.

However, there can be three transactions. One transaction is between the different subsidiary companies of the same online advertising program providers, like between Google AdWords and Google AdSense and the rest two transactions remain the same as above.

In the case of Publisher, AdSense sends the money based on Cost Per Click (CPC) and Cost Per Mile (CPM) and WordAds sends the money based only on CPC. AdSense and WordAds, both remit the money only after you achieve the minimum payable requirement of $100. AdSense sends the money to your Bank Account via Wire Transfer (ETF or Cheque options are also available based on your country) and WordAds sends the money to your Paypal Account only.

Now, as a publisher (Blogger or Website Owner), the real question that arises is whether GST is going to be charged on the Amount Received from WordAds or AdSense? Let us find out the same. For you to make it easy to understand with legal supporting, First, I am going to give you the Applicable Legal Provisions and then the Application of these legal provisions in case of Bloggers.

GST Implications

Supply of Service and Rate of Tax

Applicable Legal Provisions

As per section 7 of the CGST Act, 2017 the Supply inter alia includes, all forms of supply of goods or services or both, such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of the business.

According to section 7(5) of the IGST Act, 2017, the supply of goods or services or both, inter alia, when the supplier is located in India and the pace of supply is outside India, shall be treated as the supply of goods or services in the course of Inter-State trade or commerce.

As per section 13(2) of the IGST Act, 2017 where the location of the supplier of the services and the location of the recipient of the services is outside India then the location of the recipient shall be treated as the place of supply of service.

According to section 5 of the IGST Act, 2017 provides for levy of IGST  which provides that IGST shall be levied on all inter-state supplies of goods or services.

Application in the Case of Bloggers

In the case of bloggers, he is providing the service by selling the space for internet (or online) advertising for a consideration received from the WordAds or Google in the course or furtherance of business.

The location of the supplier (in case of blogger) is in India, and the location of the recipient (in this case WordAds or AdSense) is Outside India. Therefore, the Place of Supply of service being the location of the recipient is Outside India.

This also implies that the transaction between the blogger and the WordAds or AdSense shall be treated as the Inter-State Supply and IGST shall be Payable on such supply of service. Since it comes under the residuary category, hence the tax rate is going to be 18% and the ‘SAC Code shall be 998365’. But, there is a catch. If the same is treated as the Export of Service then the rate of tax shall be changed to 0%.

Export of Service & Zero Rated Supply

Applicable Legal Provisions

It shall be treated as Export of Service as per Section 2(6) of the IGST Act, 2017 if the following conditions are satisfied:

1. The Supplier of Service is Located in India

2. The Recipient of Service is Located outside India

3. The Place of Supply is Outside India

4. The payment for such service has been received by the supplier of service in convertible foreign exchange, and

5. The supplier of service and the recipient of the service are not merely establishments of the distinct person by Explanation 1 of Section 8 of the IGST Act. 2017

Also, as per section 16(1) of the IGST Act, 2017, Zero Rated Supply, inter alia means the export of goods or services or both.

As per section 16(2) of the IGST Act, 2017, subject to the provisions of section 17(5) of the CGST Act, 2017, the credit of input tax may be availed for making Zero-Rated Supplies, notwithstanding that such supply may be an exempt supply.

Application in the case of Bloggers

Let us now compare the above conditions of Export of Services on both, WordAds and AdSense.

ParticularsIn Case of WordAdsIn Case of AdSense
Location of SupplierIn India: As Blogger is in IndiaIn India: As Blogger is in India
Location of Recipient     Outside India: As Agreement is with Aut-O’Mattic Ltd. (Ireland Company).Outside India: As Agreement is with Google Asia Pacific Pte. Ltd. (Singapore Company)
Location of Place of Supply (as per Section 13(2) of the IGST Act, 2017)Location of Recipient: Outside India (Same as Above)Location of Recipient: Outside India (Same as Above)
Payment received in Convertible foreign Exchange Yes, as payment received in dollars in your PayPal Account Yes, as if the payment is received through Wire Transfer to your bank account.
Not Merely establishment of the Distinct Person     Yes, not an establishment of the Distinct person, as both the parties are not related to each other.Yes, not an establishment of the Distinct person, as both the parties are not related to each other.
 Based ConclusionsYes, an Export of Service as all the conditions are satisfied Yes, an Export of Service as all the conditions are satisfied

Advice: Also, If you are a blogger from India, I suggest you should also get the Foreign Inward Remittance Certificate (FIRC) issued by your bank on request and as per the guidelines issued by the Reserve Bank of India, the Purpose Code for Receipt Purposes shall be P1007 – “Advertising, Trade Fair, Market Research, and Public Opinion Poll Services”. 

Also Read: What is the Foreign Inward Remittance Certificate (FIRC)?

Government follows the simple rule “Export the Goods or Services, Not the Taxes”

Since the transaction between the blogger and the WordAds or AdSense is an Export of Service it also qualifies as the Zero-Rated Supplies. Due to this, the Rate of Tax shall now be 0% and also a blogger can apply for the Refund under the GST.

Refund under GST

Applicable Legal Provisions

By applying the crux of section 16(3) of the IGST Act, 2017, a registered taxable person who exports the services can choose any one of the two options:

1. Supply the Services under a Bond or a Letter of Undertaking (LUT) without the payment of IGST and claim the refund for unutilized Input Tax Credit (ITC), or

2. Can apply for the refund after payment of IGST within 2 years from the date of export.

As per Rule 96A of the CGST Rules, 2017, any registered person availing the option to supply services for export without payment of integrated tax shall furnish, prior to export, a bond or Letter of Undertaking (LUT) in FORM GST RFD-11 to the jurisdictional Commissioner, binding himself to pay the tax due along with the interest specified under section 50(1) within a period of –

Fifteen days after the expiry of one year, or such further period as may be allowed by the Commissioner, from the date of issue of the invoice for export, if the payment of such services is not received by the exporter in convertible foreign exchange.

Application in case of Bloggers

Practically, bloggers usually prefer to follow the LUT method under the first option.

Following are the mandatory filed required for the filing of FORM GST RFD-11 under LUT –

1. Registered Name and Number (i.e. GSTIN)

2. Address

3. Date of Furnishing

4. Signature, Date, and Place

5. Details of Witnesses (Name, Address, and Occupation)

One has to note that the LUT for the Export of Service shall be furnished on the yearly basis.

Registration Requirement & Composition Scheme

Applicable Legal Provisions

As per section 24 of the CGST Act, 2017, Notwithstanding anything contained in section 22(1), the persons making any inter-state taxable supply shall be required to be registered under this act.

As per section 35(1) of the CGST Act, 2017, inter alia, Every registered person shall keep and maintain, at his principal place of business, as mentioned in the certificate of registration, a true and correct account of –

a) inward and outward supply of services,

b) input tax credit availed,

c) output tax payable and paid, and

d) such other particulars as may be prescribed

As per section 10(2) of the CGST Act, the registered person shall be eligible to opt for composition scheme, if he is not engaged in the supply of service other than supplies related to restaurant services.

Application in case of Bloggers

As discussed earlier, the transaction between the blogger and the WordAds or AdSense shall be treated as the Inter-State Supply. Therefore, the registration and maintenance of books of account under GST is mandatory right from the start in case of bloggers.

And also, a blogger cannot opt for composition scheme.

Conclusion

In light of the foregoing discussions, the transaction between AdSense or WordAds shall attract GST @ 18%. However, it is treated as a Zero Rated Supply due to its fulfillment of all the conditions required to qualify as the Export of Service. Hence, if you prefer to follow the LUT method, then after fulfillment of compliance requirement, no GST is required to be paid in nutshell.

Also one has to fulfill all the compliance requirement given under the GST Law which inter alia includes, mandatory registration and maintenance of the books of accounts under GST right from the start.

Disclaimer

The materials available on this website are for informational purposes only and not for the purpose of providing legal advice. You should contact your legal adviser to obtain advice with respect to any particular issue or problem. Every effort has been made to avoid errors or omissions in this publication. In spite of this, errors may creep in. The opinions expressed at or through this website are merely the opinions of the individual author. It is noted that neither the Admin nor the Individual authors are responsible for any loss, damage of action to anyone, of any kind, in any manner, therefrom. It is suggested that to avoid any doubt the reader should cross-check all the facts, law and contents of the publication with original Government publication or notification in this regard.