TYBMS SEM 6 Financial: Indirect Tax (Most Imp Write Short Notes with Solution)

  Paper / Subject Code: 86017/Finance: Indirect Taxes

TYBMS SEM 6 

Financial: 

Indirect Tax

(Most Imp Write Short Notes with Solution)

Q.5. Write Short Note on: (Any 3)            (15)

(1) Business and Consideration Under GST

Ans: 

The concept of "business" under GST is broad and encompasses various activities. Here's a breakdown:

• Definition: Section 2(17) of the CGST Act defines a business as:
  • Any trade, commerce, manufacture, profession, vocation, or any other similar activity, whether or not for a pecuniary benefit.
  • Any activity or transaction connected with or incidental or ancillary to the above.
  • Any activity or transaction in the nature of the above, regardless of volume, frequency, continuity, or regularity.
  • Supply or acquisition of goods and services in connection with starting or closing a business.
  • Provision of facilities or benefits to members by clubs, associations, etc., for a subscription or consideration.
  • Admission charges for entry into premises.
  • Services supplied by a person holding a public office.
  • Activities of a race club or licensed bookmaker.

Essentially, any activity involving the supply of goods or services for a consideration (monetary or non-monetary) is considered a business under GST, with some exceptions.

Consideration under GST:

Consideration is a crucial aspect of determining whether a supply has taken place under GST. Here's what it means:

• Definition: Section 2(31) of the CGST Act defines consideration as the monetary value of any act or forbearance, whether voluntary or not, made in respect of, in response to, or for the inducement of the supply of goods or services.
• Key Points:
  • Consideration can be monetary (payment) or non-monetary (barter of goods or services).
  • The recipient or another person can pay the consideration.
  • Deposits for future supplies are not considered payment unless used for the supply.

Importance of Business and Consideration:

• Knowing if an activity is a business under GST helps determine:
  • Registration requirement: Businesses exceeding a specific turnover threshold must register for GST.
  • Tax liability: Registered businesses need to collect, pay, and file GST returns.
• Identifying consideration helps determine:
  • Whether a supply has taken place: Without consideration, there's no supply under GST (except in specific cases).
  • Taxable value: The consideration forms the basis for calculating GST liability.

(2) Composite and Mixed Supply

Ans: 

In India's Goods and Services Tax (GST) regime, differentiating between composite and mixed supply is crucial for determining the applicable tax rate. Here's a breakdown of both concepts:

Composite Supply:

• A composite supply is a single supply comprising two or more goods or services, naturally bundled in the ordinary course of business and offered at a single price.
• The key element is that the individual elements cannot be independently provided and are meant to be consumed together.

Example:

• Restaurant meal (food, beverage, service)
• Hotel stay (room, housekeeping, amenities)
• Movie ticket (admission, refreshments)

Tax treatment:

• The tax rate for a composite supply is determined by identifying the principal supply, which is the main element of the bundle that the customer primarily desires.
• The entire composite supply is taxed at the GST rate applicable to the principal supply.

Mixed Supply:

• A mixed supply involves two or more individually identifiable goods or services provided for a single price, but not naturally bundled.
• These elements can be independently supplied and have distinct values.

Example:

• Mobile phone with a free case
• Hairdresser service with a hair product
• Movie ticket with popcorn combo

Tax treatment:

• Each element in a mixed supply is taxed at its individual GST rate.
• If one element has a higher GST rate than the others, the entire supply is taxed at the highest rate.

Here's a table summarizing the key differences:

Feature	Composite Supply	Mixed Supply
Nature of elements	Naturally bundled	Individually identifiable
Independent supply	Not possible	Possible
Tax rate	Based on principal supply	Based on individual rates (highest rate for entire supply if one element has the highest rate)

(3) Tax deducted at sources

Ans: 

Tax deducted at source (TDS) is a mechanism in India where the government collects tax at the source of income, rather than waiting for individuals or businesses to file their tax returns and pay the tax themselves. Here's a breakdown of key aspects of TDS:

How it Works:

• When a specified payment is made (salary, rent, interest, etc.), the deductor (payer) is required to withhold a certain percentage of the amount as TDS.
• The deductor then deposits this collected TDS with the government on behalf of the deductee (recipient).
• The deductee receives a credit for the TDS deducted, which can be claimed when filing their income tax return.

Benefits:

• Reduces tax evasion: By collecting tax upfront, the government ensures a steady flow of revenue and discourages tax evasion.
• Simplifies tax filing: TDS reduces the tax burden on individuals and businesses by pre-collecting a portion of the tax liability.

Who Deducts TDS?

• Various entities act as deductors, including:
  • Employers (deducting TDS from salaries)
  • Banks (deducting TDS on interest payments)
  • Tenants (deducting TDS on rent payments)
  • Government agencies (deducting TDS on certain payments)

Who is Subject to TDS?

• TDS applies to various types of income, including:
  • Salaries
  • Interest income
  • Rent income
  • Professional fees
  • Commissions
  • Dividends (in some cases)

TDS Rates:

• The TDS rate varies depending on the type of income, the deductee's tax residency status, and other factors.
• Rates are specified by the Income Tax Department and can be found on their official website.

Claiming TDS Credit:

• The deductee can claim the TDS deducted on their income tax return.
• The deductor provides a TDS certificate (Form 16, 182T, etc.) containing details of the TDS deducted, which can be used for claiming the credit.

Important Points:

• Not everyone is subject to TDS. Individuals below a certain income threshold might not have TDS deducted from their income.
• Deductible TDS helps reduce the final tax liability that needs to be paid.
• Excess TDS can be claimed as a refund if the total TDS deducted exceeds the actual tax liability.

(4) Electronic way bill

Ans: 

An electronic way bill (e-way bill) is a digital document required for the movement of goods within India. It serves as a documentation and verification tool for the Goods and Services Tax (GST) regime. Here's a breakdown of key aspects of e-way bills:

Purpose:

• Ensures compliance with GST regulations by tracking the movement of goods.
• Reduces the need for physical checkpoints, facilitating smoother movement of goods.
• Helps identify and prevent tax evasion.

Who Needs an E-way Bill:

• Generally, an e-way bill is mandatory for the movement of goods exceeding a value of ₹50,000 (within or outside a state).
• Some exceptions exist for specific goods, movement within a state (depending on state rules), and specific modes of transport.

Who Generates an E-way Bill:

• The e-way bill can be generated by the registered supplier, recipient, or the transporter (depending on the agreement).
• It's typically generated online through the eWay Bill Portal 

Information Required:

• Details of the supplier, recipient, and transporter
• Description and value of goods being transported
• Origin and destination of the goods
• E-way bill validity period (usually 100 days or less)

Benefits:

• Reduced paperwork: Eliminates the need for physical waybills.
• Improved logistics: Faster movement of goods due to fewer checkpoints.
• Enhanced transparency: Real-time tracking of goods helps in tax administration.
• Reduced tax evasion: Makes it difficult to transport goods illegally.

Penalties for Non-Compliance:

• Penalties are levied for non-generation or carrying an invalid e-way bill.
• The penalty amount can be a percentage of the value of goods being transported.

(5) Credit Note

Ans: 

A credit note, also known as a debit note to recipient, is a document issued by a registered supplier under the Goods and Services Tax (GST) regime in India. It serves various purposes related to reducing the tax liability of the supplier and adjusting the invoice amount for the recipient.

• There are several scenarios where a supplier might issue a credit note:
  • Return of goods: If a customer returns goods to the supplier, a credit note is issued to reflect the returned value and adjust the original invoice amount.
  • Price reduction: If there's a post-sale agreement to reduce the price of supplied goods or services, a credit note is issued for the difference.
  • Invoice error: If the original invoice contains an error (overcharged amount, incorrect tax rate), a credit note is used to rectify the mistake.
  • Deficiency in supply: If the quantity or quality of supplied goods or services falls short of what was invoiced, a credit note is issued for the difference in value.

Impact on Tax Liability:

• A credit note allows the supplier to reduce their tax liability for the transaction.
• The tax amount corresponding to the reduced invoice value is no longer payable by the supplier.

How Does it Work for the Recipient?

• The recipient should ideally accept the credit note issued by the supplier.
• Upon acceptance, the recipient can adjust their accounts payable and claim a corresponding reduction in their input tax credit (ITC) availed on the original invoice.
• However, the recipient is not obligated to accept the credit note, especially if they disagree with the reasons mentioned.

Important Points:

• A credit note needs to be issued within a specific timeframe (usually one year from the date of the original invoice).
• Specific information needs to be included in the credit note, such as details of the original invoice, reason for issuance, and the revised amount.
• Both the supplier and recipient should retain copies of the credit note for record-keeping purposes.

6. Inter and Intra state supply

Ans: 

In the context of Goods and Services Tax (GST) in India, understanding the difference between inter-state and intra-state supply is crucial for businesses. Here's a breakdown:

Intra-state Supply:

• Occurs when the supplier and the recipient of goods or services are located in the same state or union territory.
• Applies to both goods and services.
• Tax levied: Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST). These are collected and deposited with the central and state governments, respectively.
• Example: A clothing store in Mumbai sells a t-shirt to a customer in Mumbai.

Inter-state Supply:

• Occurs when the supplier and the recipient of goods or services are located in different states or union territories.
• Applies to both goods and services.
• Tax levied: Integrated Goods and Services Tax (IGST). This tax is collected by the central government and then distributed to the originating and consuming states.
• Example: A furniture manufacturer in Delhi sells a sofa set to a customer in Bangalore.

• Determining the place of supply (where the supply is considered to take place) is crucial for classifying a transaction as intra-state or inter-state. Generally, the place of supply for goods is the destination where they are delivered, and for services, it's the location where the service is provided.
• The type of supply (intra-state or inter-state) determines the applicable GST rate and the GST compliance procedures that businesses need to follow.

Here's a table summarizing the key differences:

Feature	Intra-state Supply	Inter-state Supply
Location of Supplier	Same state as recipient	Different state from recipient
Location of Recipient	Same state as supplier	Different state from supplier
Tax Levied	CGST + SGST	IGST
Tax Collected By	Central Government (CGST) + State Government (SGST)	Central Government
Tax Distributed To	Central Government (CGST) + State Government (SGST)	Split between originating and consuming states

7. Supply with consideration

Ans: 

In the context of GST (Goods and Services Tax), a "supply with consideration" refers to a transaction where there's an exchange of value for the goods or services provided. This exchange can be in two main forms:

1. Monetary Consideration: This is the most common type of consideration, where the recipient pays money for the goods or services received. This money can be paid directly to the supplier, or it can be paid by a third party on behalf of the recipient.

2. Barter: This involves exchanging goods or services for other goods or services of (ideally) comparable value. The concept of "money's worth" still applies, even though no physical cash is involved.

Here's what's NOT considered "consideration" under GST:

• Gifts: If you freely give away goods or services without expecting anything in return (monetary or otherwise), it's not a supply with consideration. However, there might be exceptions for free samples used for promotional purposes.
• Subsidies: Government subsidies provided to businesses or individuals are not considered consideration for GST purposes.

Why is "consideration" important?

• It's a key element for determining whether a transaction is considered a "supply" under GST. Transactions without consideration generally fall outside the scope of GST.
• The presence of consideration helps distinguish between taxable and non-taxable activities.
• It affects the calculation of GST liability. The value of the consideration forms the basis for calculating the taxable value on which GST is levied.

Examples of supply with consideration:

• A bakery selling bread to a customer for cash.
• A plumber charging for repairing a leaky faucet.
• A company hiring a consultant and paying them a fee for their services.
• Two businesses exchanging goods or services of equal value.

8. Definition of Goods and Services under GST

Ans: 

The Goods and Services Tax (GST) in India applies to both the supply of goods and services. Here's a breakdown of their definitions:

Goods:

• Defined as every kind of movable property other than money and securities.
• Includes:
  • Tangible items like furniture, electronics, clothes, etc.
  • Actionable claims (enforceable rights)
  • Growing crops, grass, and things attached to land if agreed to be severed before supply.

Services:

• Defined as anything other than goods, money, and securities.
• Includes:
  • Professional services (accounting, legal, consulting)
  • Transportation and communication services
  • Hotel accommodation, restaurant services, and entertainment
  • Activities related to the use of money or its conversion (banking, financial services)

• The distinction between goods and services is crucial for determining the applicable GST rate and procedures.
• The supply concept is central to GST. GST applies on every "supply," which includes sale, barter, exchange, lease, license, etc. of goods or services.

9. Time of supply of goods in case of Voucher.

Ans: 

The time of supply for goods purchased using vouchers depends on the type of voucher:

1. Single-purpose Voucher:

• Identifies the specific good(s) to be supplied at the time of issuance.
• Time of Supply: Date of issuing the voucher.

2. Multi-purpose Voucher:

• Allows purchase of various goods within a defined value or category.
• Time of Supply: Date of redeeming the voucher for the specific good(s)

• GST implications like tax rate and filing deadlines depend on the time of supply.
• These are general guidelines, and specific rules or exceptions might apply in certain cases. It's advisable to consult a tax professional for detailed advice.

10. Casual Taxable Person.

Ans: 

A Casual Taxable Person (CTP) is someone who occasionally supplies taxable goods or services in a state/territory where they don't have a permanent business presence. Here's a quick summary:

• Who is a CTP?

  • A person who occasionally sells taxable goods or services (acting as a principal or agent) in a state/territory different from their main business location.
  • Example: A consultant from Bangalore providing services in Hyderabad (where they have no office).

• Registration Requirement

  • CTPs (except for specific handicraft suppliers) need to register for GST before making the supply.
  • There's no minimum threshold for registration unlike regular businesses.

• Tax Payment

  • CTPs need to deposit an estimated GST amount in advance for the period of registration.

• Returns

• CTPs have to file monthly GST returns.