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Integrated GST - A way forward

JANUARY 04, 2010


By Amit Sarer ! An"#am Arora
T$% em#owered &ommittee of State 'inan&e (ini)ter) *a) i))"ed 'ir)t +i)&"))ion ,a#er
on Good) and Ser-i&e Ta. /GST0 in India on No-em1er 10, 2002 w*i&* o"t3ined t*e
)a3ient feat"re) of #ro#o)ed GST in India4 T*e Union 'inan&e (ini)ter (r4 ,rana1
("*er5ee *ad a3ready gi-en a g3im#)e of d"a3 GST d"ring *i) B"dget 2002 )#ee&* on
J"3y 6, 20024 $owe-er, t*e a1)tra&t of Integrated GST /a##3i&a13e in t*e &a)e of inter-
)tate )a3e) of good) and )er-i&e)0 in t*e +i)&"))ion ,a#er i) 3ie a new)-ree3 for a33 of ")4
Sin&e one State &annot *a-e 5"ri)di&tion o-er &ommer&ia3 tran)a&tion of good) in anot*er
State, on3y t*e 7entre &an 3e-y and &o33e&t ta. on inter-)tate tran)a&tion)4 T*e )ame
#rin&i#3e i) a3)o fo33owed #re)ent3y w*ere1y inter-)tate )a3e of good) are &o-ered "nder
t*e am1it of 7entra3 Sa3e) Ta. A&t, 1286 /7ST04 In t*i) &onte.t, it wo"3d 1e wort*w*i3e
to di)&")) t*e )ignifi&ant feat"re) of ta.a1i3ity of inter-)tate tran)a&tion) "nder t*e GST
regime a) mentioned in t*e +i)&"))ion ,a#er9
T*e 7entre wo"3d 3e-y IGST /w*i&* wo"3d 1e aggregate of 7GST and SGST04
IGST wo"3d 1e 3e-ied on a33 inter-)tate tran)a&tion of ta.a13e good) and )er-i&e)4
A##ro#riate #ro-i)ion) for &on)ignment or )to& tran)fer of good) and )er-i&e) wi33 1e
made4
T*e inter-)tate )e33er wi33 #ay IGST on -a3"e addition after ad5")ting a-ai3a13e &redit of
IGST, 7GST, and SGST on *i) #"r&*a)e)4
T*e e.#orting State wi33 tran)fer to 7entre t*e &redit of SGST ")ed in #ayment of IGST4
T*e Im#orting dea3er wi33 &3aim &redit of IGST w*i3e di)&*arging *i) o"t#"t ta. 3ia1i3ity
in *i) own State4
T*e 7entre wi33 tran)fer to t*e im#orting State t*e &redit of IGST ")ed in #ayment of
SGST4
:e *a-e made an attem#t to e.#3ain t*e #rin&i#3e) emerging from t*e )a3ient feat"re) of
IGST4 T*e )ame *a) 1een e.#3ained t*ro"g* a diagrammati&a3 #re)entation4
T*e inter-)tate )e33er wi33 #ay *i) o"t#"t ta. 3ia1i3ity of IGST after ad5")ting t*e &redit
a-ai3a13e wit* re)#e&t to IGST, 7GST and SGST in *i) 1oo) of a&&o"nt)4
;et ") a))"me t*at o#ening 1a3an&e of &redit a-ai3a13e wit* )e33er in t*e 1oo) of a&&o"nt
i) a) "nder9
IGST < R)4 280, 7GST < R)4 200 and SGST R)4 1804
A&&ording3y, t*e IGST 3ia1i3ity of t*e )e33er wo"3d 1e di)&*arged in t*e fo33owing
manner9
IGST #aya13e1,000
7GST &redit200
IGST &redit280
SGST &redit180
IGST #aya13e in &a)*400
T*e e.#orting State /(a*ara)*tra in t*e a1o-e &a)e0 wi33 tran)fer to 7entre t*e &redit of
SGST ")ed in #ayment of IGST4 T*e rationa3e 1e*ind t*i) i), IGST and 7GST are
7entre=) re-en"e and in t*e a1o-e &a)e )in&e t*e )e33er *a) di)&*arged *i) IGST 3ia1i3ity
1y "ti3i)ing &redit of SGST, t*e 7entra3 Go-ernment i) )*ort #aid 1y R)4 1804
T*e 1"yer &an &3aim t*e &redit of IGST w*i3e di)&*arging t*e o"t#"t ta. 3ia1i3ity in *i)
own State4 In &a)e t*e 1"yer de&ide) to )e33 t*e good) wit*in t*e )tate of G"5arat, )"&*
)a3e wo"3d 1e 3ia13e to 7GST and SGST4 $owe-er, t*e 1"yer wo"3d 1e a13e to "ti3i)e t*e
&redit of IGST for di)&*arging *i) 7GST and SGST 3ia1i3itie)4 T*i) fa&i3ity t*") mae)
t*e IGST mo)t f3e.i13e among)t a33 t*e t*ree ta.e)4
7ontin"ing wit* t*e a1o-e i33")tration, t*e 1"yer in G"5arat wi33 a-ai3 t*e &redit of IGST
#aid in t*e &o"r)e of inter-)tate #"r&*a)e to t*e )e33er in (a*ara)*tra4 S"1)e>"ent3y, at t*e
time of di)&*arging t*e o"t#"t ta. 3ia1i3ity in *i) own State i4e4 in t*e &o"r)e of intra-)tate
)a3e, t*e 1"yer /now a )e33er0 &an "ti3i)e t*e &redit of t*e IGST for di)&*arging t*e o"t#"t
ta. 3ia1i3ity of 7GST and SGST4
?"t#"t ta. 3ia1i3ity of SGST < 1,800
;et ") a))"me t*at t*e o#ening 1a3an&e of &redit a-ai3a13e wit* )e33er i) a) "nder9
IGST < R)4 180 7GST < R)4 800 and SGST < R)4 @804
T*e &redit of IGST a-ai3ed at t*e time of #"r&*a)ing t*e good) from (a*ara)*tra a)
)tated a1o-e i) R)4 1,0004 T*"), tota3 IGST &redit a-ai3a13e now wi33 1e R)4 1,1804 In t*e
#re)ent &a)e t*e &redit of IGST &an 1e "ti3i)ed for #ayment of 7GST a) we33 a) SGST in a
#ro#ortion de&ided 1y t*e )e33er9
7GST #aya13e 1,800 SGST #aya13e 1,800
7GST &redit 800 SGST &redit @80
IGST &redit 600 IGST &redit 880
7GST #aya13e in &a)* 400SGST #aya13e in &a)* 600
T*e 7entre wi33 tran)fer to t*e im#orting State /G"5arat in t*e a1o-e &a)e0 t*e &redit of
IGST ")ed in #ayment of SGST4 T*e rationa3e 1e*ind t*i) i), IGST and 7GST are
7entre=) re-en"e and in t*e a1o-e &a)e t*e )e33er *a) di)&*arged t*e 3ia1i3ity of SGST 1y
"ti3i)ing &redit of IGST4 T*erefore, t*e G"5arat Go-ernment *a) )*ort re&ei-ed SGST of
R)4 880 and a&&ording3y, t*e 7entra3 Go-ernment wo"3d #ay t*e e>"i-a3ent amo"nt to
G"5arat Go-ernment4
T*e ro33 of 7entra3 Agen&y wi33 1e &riti&a3 a) it wi33 a&t a) a &3earing *o")e w*i&* wi33
re&ei-e t*e information /m")t 1e from e- ret"rn)0, -erify t*e )ame and a&&ording3y )ett3e
t*e a&&o"nt) of t*e re)#e&ti-e Go-ernment)4 T*erefore, t*e #re)en&e of an integrated
data1a)e )y)tem wo"3d 1e an e))entia3 #re re>"i)ite for f"n&tioning of t*e IGST
me&*ani)m4
Ret"rn A Information
Some i))"e) and area) of &on&ern ari)ing o"t of Integrated GST w*i&* need) attention
No do"1t t*e &on&e#t of IGST i) a 1oo)ter for t*e ind")try a) it )"rmo"nt) t*e e.i)ting
defi&ien&y, w*ere1y 7ST i) not a33owed a) )et-off4 $owe-er, a-ai3ment of &redit may not
1e a3way) 1e a win-win )it"ation )in&e t*e rate of IGST &o"3d 1e *ig*er a) &om#ared to
#re)ent rate of 7ST, w*i&* &o"3d 1e a di)tre)) for t*e ind")try4
,re)ent3y, t*e rate of ta. of 7ST i) 2B )"15e&t to t*e ad*eren&e of #re)&ri1ed &ondition)
and &om#3ian&e)4 In a1)en&e of )"&* &om#3ian&e) 7ST i) &*argea13e at a *ig*er rate4
Ne-ert*e3e)), IGST wi33 definite3y *a-e a *ig* rate of ta. wit*o"t any #re)&ri1ed
&ondition) t*o"g* &redita13e4 $owe-er, &a)* f3ow &o"3d 1e a matter of &on&ern4
GST i) )tated to 1e a de)tination 1a)ed &on)"m#tion ta. i4e4 ta. i) to 1e 3e-ied at t*e #3a&e
of &on)"m#tion4 Ser-i&e) 1eing intangi13e in nat"re re>"ire &3ear g"ide3ine) re3ating to
#3a&e of &on)"m#tion ot*erwi)e it wi33 1e a *ard n"t to &ra& a) to w*et*er a tran)a&tion
i) inter-)tate tran)a&tion or intra-)tate tran)a&tion4 $en&e, t*e drafting of t*e r"3e) re3ating
to #3a&e of )"##3y and &on)"m#tion wi33 1e a &riti&a3 ta)4 'rom a ta.#ayer=) #er)#e&ti-e
it may 1e a ne"tra3 #a&t a) rate of inter-)tate and intra-)tate wi33 1e )ame4 $owe-er, an
i))"e may ari)e from a &om#3ian&e #er)#e&ti-e a) to w*ere a )er-i&e #ro-ider )*o"3d #ay
t*e ta.4 'rom t*e e.i)ting )y)tem it &an 1e fore)een t*at 7entra3 Go-ernment or
re)#e&ti-e State Go-ernment) may rai)e an i))"e in order to &o-er )"&* tran)a&tion)
wit*in t*eir own 13anet4
'or t*e #"r#o)e of )a3e of good), di)#"te) re3ating to origin of )a3e) to determine inter-
)tate )a3e or intra-)tate )a3e &an fo33ow )"it from t*e e.i)ting )y)tem in a1)en&e of &3ear
#ro-i)ion) in GST4
In &a)e of &om#anie) in t*e Baning )e&tor or Sto& %.&*ange) *a-ing 3arge 1a)e of
&3ient), it wi33 1e a m"3tifa&eted ta) to identify t*e inter-)tate tran)a&tion and Intra-State
tran)a&tion4
,ara @48 of +i)&"))ion ,a#er )#ea) a1o"t t*e )to& tran)fer of good) and )er-i&e), it wi33
1e fa)&inating to )ee *ow )er-i&e) &an 1e tran)ferred4 I) t*at an indi&ation of )er-i&e to
)e3f C
A##ro#riate #ro-i)ion) for inter-)tate &on)ignment or )to& tran)fer of good) and )er-i&e)
*a-e to 1e introd"&ed4 ?ne of t*e o#tion) i) to 3e-y IGST on )"&* tran)a&tion) a) &redit
for t*e )ame &o"3d 1e a33owed4 T*e ot*er o#tion &o"3d 1e to grant e.em#tion or 3e-y Dero
rate on )"&* )to& tran)fer4 In t*i) regard, r"3e) re3ating to re)tri&tion) on a-ai3ment and
"ti3i)ation of &redit /a) e.i)ting in &"rrent EAT regime0 &o"3d 1e e.#e&ted4
An e.em#tion on )"1)e>"ent )a3e of good) t*ro"g* inter-)tate trade effe&ted 1y a tran)fer
of t*e do&"ment) of tit3e, in t*e &o"r)e of mo-ement of good) from one State to anot*er i)
an o#en i))"e in t*e #ro#o)ed IGST regime4 In &a)e of )"&* )a3e) 1a)i) 1eing ta.ed, &redit
of IGST wo"3d *owe-er 1e a-ai3a13e4
Ade>"ate r"3e) re3ating to ref"nd on a&&o"nt of &redit a&&"m"3ation of IGST wo"3d 1e
re>"ired in &a)e of e.#ort, #"r&*a)e of &a#ita3 good) and in#"t ta. i) *ig*er t*an o"t#"t
ta.4
A3t*o"g* t*e +i)&"))ion ,a#er *a) #re)&ri1ed t*e t*re)*o3d 3imit for 7GST and SGST for
good) and )er-i&e), one )*o"3d e.#e&t a t*re)*o3d 3imit for IGST )#e&ifi&a33y for t*e
)er-i&e)4 T*i) i) on a&&o"nt of fa&t t*at t*o"g* 7ST #ro-i)ion doe) not #re)&ri1e any
t*re)*o3d 3imit, 'inan&e A&t 1224 #ro-ide) t*re)*o3d 3imit for #ro-i)ion of ta.a13e
)er-i&e)4
T*e +i)&"))ion ,a#er &3ear3y 1ring) o"t t*e fa&t t*at t*e 7entre wo"3d 3e-y IGST, t*o"g*
it i) )i3ent on it) admini)tration and &o33e&tion i))"e)4
To )ign off, t*e effort) #"t 1y t*e mem1er) of t*e %m#owered 7ommittee &annot 1e
denied and t*e &on&e#t of IGST )*o"3d not 1e taen a) a fift* w*ee34 T*e effe&ti-e
im#3ementation of IGST &3ear3y in-o3-e) drafting of "nam1ig"o") r"3e) in order to
red"&e t*e 3itigation and mae GST ta.#ayer friend3y4
/T*e a"t*or) are woring wit* a Big 'o"r A&&o"nting 'irm0


:i33 GST rea33y mae rea3 e)tate &*ea#erC
JANUARY 06, 2010
By , Eeera Reddy
?:N *o")e i) a dream for t*e &ommon man4 Under t*e #ro#o)ed modern GSTAEAT,
*o")ing and &on)tr"&tion )er-i&e) are treated 3ie any ot*er &ommodity4 :*en a rea3
e)tate de-e3o#er 1"i3d) and )e33) a *ome, it i) )"15e&t to EAT on t*e f"33 )e33ing #ri&e4 A
)t"dy *a) fo"nd t*at fir)t *ome 1"yer) were 1ig 3o)er) after t*e introd"&tion of a Good)
and Ser-i&e) Ta. in A")tra3ia, New Fea3and and 7anada t*ere1y it re)"3ted in fa33 in
demand for rea3 e)tate4 To tide o-er t*e #redi&ament an amo"nt of GH000 wa) #aid to t*e
owner) "nder t*e 'ir)t $ome ?wner) S&*eme to #ro-ide &om#en)ation in A")tra3ia,
*owe-er, t*e owner) fe3t it wa) not )"ffi&ient4 In India too, )"&* a )&*eme #ro-iding more
&om#en)ation to t*e 3e))er in&ome gro"#) and 3e))er &om#en)ation "##er in&ome gro"#)
)*o"3d 1e de-i)ed4
GST i) &*arged on9
7o)t of 3and
B"i3ding materia3)
7on)tr"&tion )er-i&e)4 /7B%7 &3arified t*at any )er-i&e #ro-ided 1y a )e33er in
&onne&tion wit* t*e &on)tr"&tion of re)identia3 &om#3e. ti33 t*e e.e&"tion of )a3e deed
wo"3d 1e in t*e nat"re of I)e3f-)er-i&eJ and &on)e>"ent3y wo"3d not attra&t )er-i&e ta.
-ide 7B%7 7ir&"3ar No4 10KA2A2002-S4T4, dated 22-1-20024 T*e &ir&"3ar i) inter#reted
different3y 1y t*e de#artment and t*e )er-i&e #ro-ider)40
7ommer&ia3 1"i3ding) and fa&tory )a3e) are Renta3 &*arge) for 3ea)ing of ind")tria3 and
&ommer&ia3 1"i3ding)4
,"r&*a)e of a new *ome$ome reno-ation) and re#air) Ser-i&e) a))o&iated wit*
#"r&*a)ing a *ome )"&* a) in)#e&tion), &on-eyan&ing and )o3i&itor)4
Sa3e or renta3 of -a&ant 3and w*i&* in&3"de) renta3 of &ar #aring )#a&e), fee) for mooring
of 1oat) and &am#ing )ite)
GST i) not &*arged on9
LL A )a3e of ")ed *ome) and dwe33ing) i) e.em#ted 1e&a")e t*e ta. *a) a3ready 1een
&o33e&ted at t*e time of t*eir fir)t #"r&*a)e, e)#e&ia33y for *ome) a&>"ired after t*e
im#3ementation of t*e ta.4 If t*e )a3e were to 1e made ta.a13e, t*en &redit wo"3d need to
1e gi-en for t*e ta. #aid on t*e origina3 #"r&*a)e and on any reno-ation) and addition)
after t*e #"r&*a)e4 %.&e#t w*ere t*e #ri&e) *a-e gone "#, t*e net in&rementa3 ta. on
re)a3e may not 1e )ignifi&ant4 T*eoreti&a33y, t*i) )y)tem doe) &reate a windfa33 for t*e
e.i)ting *ome) 1"i3t and a&>"ired #rior to t*e &ommen&ement of t*e ta.4 A) of now t*e
&on)tr"&tion attra&t) )er-i&e ta. and ot*er ta.e) on &on)tr"&tion materia3) and )er-i&e)4
LL Re)identia3 renta3) are a3)o e.em#ted for t*e )ame rea)on4 If rent) are to 1e made
ta.a13e, t*en &redit *a) to 1e a33owed on t*e #"r&*a)e of t*e dwe33ing and on re#air) and
maintenan&e4 ?-er t*e 3ife of t*e dwe33ing, t*e #re)ent -a3"e of ta. on t*e rent) wo"3d 1e
a##ro.imate3y t*e )ame a) t*e ta. #aid on t*e #"r&*a)e of t*e dwe33ing and on any
reno-ation, re#air, and maintenan&e &o)t)4 In effe&t t*e #ayment of EAT on t*e f"33
#"r&*a)e #ri&e at a&>"i)ition i) a #re#ayment of a33 t*e EAT d"e on t*e &on)"m#tion
)er-i&e) t*at t*e *o")e wi33 yie3d o-er it) f"33 3ifetime4 (any #ri-ate indi-id"a3) and
fami3ie) own re)identia3 dwe33ing) in&3"ding t*eir *ome) and )"mmer re)iden&e) w*i&*
t*ey may rent to ot*er)4 T*ey are genera33y not in t*e EAT )y)tem, )o do not get a &redit
for t*e EAT #aid4
Eirt"a33y a33 &o"ntrie) e.em#t 3ong-term re)identia3 rent) and re)a3e of ")ed re)identia3
dwe33ing4 $owe-er, )*ort-term re)identia3 a&&ommodation /in *ote3), for e.am#3e0 i)
norma33y )"15e&t to EAT4 Any &ommi))ion) &*arged 1y t*e agent) and 1roer) for t*e )a3e
or renta3 of a dwe33ing are treated a) a )er-i&e )e#arate from t*e )a3e or renta3 of t*e
dwe33ing and attra&t ta. regard3e)) of w*et*er #aid 1y t*e 1"yer or t*e )e33er4
T*e $ig* 7o"rt of +e3*i in $ome So3"tion Retai3 India ;td4 -er)") Union of India -
/2002-TI?;-126-$7-+%;-ST0 *e3d t*at in )o far a) renting of immo-a13e #ro#erty for
")e in t*e &o"r)e or f"rt*eran&e of 1")ine)) or &ommer&e i) &on&erned t*ere i) no -a3"e
addition, *en&e not 3ia13e )er-i&e ta.4
LL $ome 3oan fee) and a##3i&ation fee)
LL Sa3e of a *o")e 1y a #ri-ate owner
Some i))"e)9
In t*e &a)e of &ommer&ia3 and ind")tria3 3and and 1"i3ding), t*eir e.&3")ion from t*e 1a)e
wo"3d 3ead to ta. &a)&ading effe&t t*ro"g* 13o&age of in#"t ta.e) on &on)tr"&tion
materia3) and )er-i&e)4 It i) for t*i) rea)on t*at e-en "nder t*e %"ro#ean )y)tem an o#tion
i) a33owed to EAT regi)trant) to e3e&t to treat )"&* )"##3ie) a) ta.a13e4 $o")ing
e.#endit"re) are di)tri1"ted #rogre))i-e3y in re3ation to in&ome and t*eir ta.ation wo"3d
&ontri1"te to t*e fairne)) of t*e GST4
T*e State EAT and t*e Ser-i&e Ta. a3ready a##3y to &on)tr"&tion materia3) and )er-i&e)
re)#e&ti-e3y, 1"t in a &om#3e. manner4 'or e.am#3e, t*ere i) )ignifi&ant "n&ertainty
w*et*er a #re-&on)tr"&tion agreement to )e33 a new re)identia3 dwe33ing i) a wor)
&ontra&t and )"15e&t to EAT4 :*ere t*e EAT doe) a##3y, di)#"te) ari)e a1o"t t*e
a33o&ation of t*e )a3e #ri&e to 3and, good), and )er-i&e)4 :*i3e 3and i) t*e on3y ma5or
e3ement t*at doe) not attra&t ta., t*e ta. rate) a##3i&a13e to good) and )er-i&e) differ,
ne&e))itating a #re&i)e de3ineation of t*e two4 %.tending t*e GST to a33 rea3 #ro#erty
)"##3ie), in&3"ding &on)tr"&tion materia3) and )er-i&e), wo"3d 1ring an end to )"&*
di)#"te), )im#3ify t*e )tr"&t"re, and en*an&e t*e o-era33 e&onomi& effi&ien&y of t*e ta.4
?ne #otentia3 arg"ment again)t t*e 3e-y of GST to 3and and rea3 #ro#erty wo"3d 1e t*at
t*ey a3ready attra&t t*e )tam# d"ty4 T*e )tam# d"ty i) >"ite different from t*at of t*e
GST4 Stam# d"ty i) a &a)&ading ta. on ea&* &on-eyan&e of tit3e to rea3 #ro#erty, w*erea)
t*e GST i) a ta. on fina3 &on)"mer e.#endit"re)4 T*e GST doe) not im#inge on
&ommer&ia3 #ro#erty tran)a&tion)4 It doe) not re)"3t in ta. &a)&ading4 GST a##3ie) to t*e
fir)t )a3e on3y4 T*"), t*e two ta.e) &annot 1e -iewed a) )"1)tit"te)4

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