Impact of GST on Traders

As is well known, the “Goods and Services Tax” went into effect on July 1st, 2017. Numerous ambiguities and issues with the GST law still exist even after nearly 5 years. The regular updates and numerous modifications are the main causes of the same.

By reading the present essay, one will explore and investigate how GST affects traders as both regular taxpayers and GST composition scheme dealers.

Under the GST, the merchant is required to ascertain the GST applicability, the type of tax payable, the moment at which the incidence of tax becomes apparent, and the dollar amount on which tax becomes due for each and every transaction. The same is summed up and made simpler in the following table.

SupplyTo determine whether GST is applicable.
Place of supplyIdentify whether CGST + SGST, UTGST, or IGST is the relevant tax type.
Time of supplyA requirement to ascertain the timing of tax incidence
Value of SupplyNecessary to calculate the tax liability amount

In light of this, the principles of supply, location, timing, and value of supply—all of which are crucial for traders—are succinctly outlined here.

GST’s effect on businesses and its applicability [Supply]

According to GST, a tax is due when a good or service is “SUPPLIED.” Notably, supplies that are provided in the course or advancement of the business and are made against “Consideration” will be subject to tax.

In order to make things clear, GST will become liable in the case of a dealer under the following conditions:

  • There is a supply of one or more “goods,”
  • One or more “services,” or both.
  • A variety of goods and services are available.

The GST levy will be as follows:

Levy of TaxSection authorizing the levy of tax
Central Good and Services Tax (CSGT)Imposed in accordance with Section 9 of the 2017 Central Goods and Services Tax Act
State Goods and Service Tax (SGST)According to the relevant State Goods and Services Tax Act of 2017’s Section 9
Union Territory Goods and Services Tax (UTGST)Imposed in accordance with Section 7 of the 2017 Union Territory Goods and Services Tax Act
Integrated Goods and Service Tax (IGST)Imposed in accordance with Section 5 of the 2017 Integrated Goods and Services Tax Act.

Location of Goods Supply for GST

The “place of supply” is crucial for determining the type of tax that will apply to the supply transaction, specifically:

TransactionNature of TaxType of GST payable
The supplier’s location and the supply location are both in the same state.Intra-StateCGST +SGST/ UTGST
The supply location is in a different state or union territory from the supplier’s location.Intra-stateIGST

Notably, in the case of products, the location of supply typically corresponds with the location of delivery.

Let’s take the case of M/s. A (Trader), which is based in Delhi. Gujarat-based M/s. B receives machinery from M/s A. However, M/s. B directs that the machinery be brought to Kanpur. Kanpur will be the location of supplies in this scenario.

Additionally, the location of the service recipient is typically the place of supply in the case of services.

GST Time of Supply

Under GST, determining the “Time of supply” is significant in and of itself. It refers to the moment at which the goods, services, or both are regarded as supplied. The GST becomes due as a result.

In other words, the appropriate taxes for the transaction—CGST, SGST, UTGST, or IGST, as the case may be—become due at the “Time of Supply.” The following details the time of supply for both commodities and services:

Time of supply in case of the supply of goodsTime of supply in case of the supply of services
the preceding earlier   Date of invoice, a final date by which invoice should have been sent, or day payment was received.the preceding earlier   Date of invoice, Date of Payment Reception, or Date of Service Provided

Value of supply subject to GST: Relevant to Traders

According to GST, the transaction value, or price actually paid or due for the supply of goods or services between unrelated parties when the price is the only consideration, is referred to as the value of supply.

It is significant to remember that section 15 of the CGST Act, 2017, which addresses numerous inclusions and exclusions, must be consulted in order to determine the “transaction value.”

The inclusions to the transaction value are as follows:

  • SGST, CGST, and compensating cess are the only taxes, fees, levies, and charges that may be individually assessed on the receiver and imposed under any other statute;
  • However, the recipient is responsible for paying any amounts due to the supplier and they are not included in the price;
  • Those subsidies that are directly related to the price (as opposed to those that are offered by the federal government and state governments);
  • Interest, a penalty, or a late fee for a supply’s delayed payment of consideration;
  • Charged by the supplier at the time of or before delivery of the products or services are incidental costs like packing, commission, etc.

Effect of GST on Traders: GST Invoices

The merchant must create the proper tax invoice, bill of supply, or e-invoice, as necessary, and include all the information. The trader’s GST invoice must include HSN or SAC in the manners listed below. HSN stands for Harmonized System of Nomenclature.

Aggregate turnoverNumber of digits of HSN/SAC
Up to INR 5 crores4 digit
More than INR 5 Crores6 digit

Applicability of Composition Scheme

The traders can also take advantage of the composition scheme’s benefits. The trader must, however, meet the following requirements in order to choose the composition scheme and receive the benefit:

  • The trader shouldn’t engage in the supply of products or services over state lines;
  • The trader shouldn’t be offering items or services that are exempt from GST tax;
  • The dealer should not be a non-resident trader or a casual taxpayer;
  • If the dealer is providing services, the amount should not be greater than the higher of the following: 10% of turnover or INR 5 Lakhs.
  • The trader shall refrain from making products like pan masala, ice cream, and other edible ice, as well as all items falling under category 24 like tobacco and manufactured tobacco.
  • The trader should also refrain from providing goods or services via an e-commerce operator.

Contact us right away if you’re a trader who wants to file for a new GST registration in Tambaram, Chennai and wants to choose the composition scheme directly.