Unit – IV

Corporate Tax Planning

Tax Planning
Tax planning can be defined as an arrangement of one’s financial and economic
affairs by taking complete legitimate benefit of all deductions, exemptions, allowances
and rebates so that tax liability reduces to minimum.

Direct Taxes
Direct taxes are those which a person pays directly from his income, wealth, or
estate. It is paid after the income or benefit reaches the han1ds of the person, which are
Income tax, wealth tax, corporate tax and gift tax.

Indirect Taxes
Which are not directly charged from the persons, which are collected in the form
of excise duty, customs duty and sales tax.

Taxable Turnover
It means the turnover on which a dealer shall be liable to pay tax as determined
after making such deductions from his total turnover and in such manner as may be
prescribed.

Tax Avoidance
Tax avoidance is reducing or negating tax liability in legally permissible ways and
has legal sanction. Tax avoidance is sound law and certainly not bad morality for
anybody to so arrange his affairs in such a way that the brunt of taxation is the minimum.
This can be done within the legal framework even by taking help of loopholes in the law.

Tax Evasion
All methods by which tax liability is illegally avoided are termed as tax evasion.
Tax evasion may involve an untrue statement knowingly, submitting misleading
documents, suppression of facts, not maintaining proper accounts of income earned (if
required under law), omission of material facts on assessment.

Tax Planning Vs. Tax Management

Tax Planning Tax Management
The objective of tax planning is to The objective of tax management is to comply
reduce the tax liability to the with the provisions of law.
minimum.
Tax planning is futuristic in its Tax management relates to past (i.e., assessment
approach. proceedings, rectification, revision, appeals etc.),
present (filing of return of income on time on the
basis of updated records) and future (corrective
action).
Tax planning is very wide in its Tax management has a limited scope, i.e., it deals
coverage and includes tax with specific activities such as filing of returns of
management. income on time, drafting appeals, deduction of tax
at source on time, updating records from time to
time, etc.
The benefits arising from tax As a result of effective tax management, penalty,
planning are substantial particularly penal interest, prosecution, etc., can be avoided.
in the long run.

Tax Avoidance Vs. Tax Evasion

Tax Avoidance Tax Evasion
Any planning of tax which aims at reducing All methods by which tax liability is
tax liability in legally recognised illegally avoided is termed as tax evasion.
permissible ways, can be termed as an
instance of tax avoidance.
Tax avoidance takes into account the Tax evasion is an attempt to evade tax
loopholes of law. liability with the help of unfair means/
methods.
Tax avoidance is tax hedging within the Tax evasion is tax omission.
framework of law
Tax avoidance has legal sanction Tax evasion is unlawful and an assessee
guilty of tax evasion may be punished under
the relevant laws.
Tax avoidance is intentional tax planning Tax evasion is intentional attempt to avoid
before the actual tax liability arises payment of tax after the liability to tax has
arisen
Causes of Tax evasion
1. Multiplicity of tax laws
2. Complicated tax laws
3. Higher rate of taxation
4. Inadequate information as to sources of tax revenue
5. Investment in real property
6. Ineffective tax enforcement
7. Deterioration of moral standard
Remedies for evasion
1. Through overhauling of tax laws
2. Reduction in tax rates
3. Replacement of sales tax & excise duties
4. Tax on agricultural income
5. Maintenance of proper accounts
6. Introduction of expenditure tax
7. Tightening of tax enforcement
Types of tax planning

There are four types of tax planning open to a business.

ILLEGAL LEGAL
Advance tax
Tax evasion No tax planning Basic tax planning
planning
Tax bills reduced by Tax bills reduced by
5%-20% 50% – 100%

(1) Tax evasion

All methods by which tax liability is illegally avoided are termed as tax evasion.
Tax evasion may involve an untrue statement knowingly, submitting misleading
documents, suppression of facts, not maintaining proper accounts of income earned (if
required under law), omission of material facts on assessment.

(2) No tax planning

This is what many businesses do by default. They simply complete their tax
returns and send them off to the taxman, having taken no prior action to arrange their
affairs in such a way to legally pay less tax.

(3) Basic tax planning

Most businesses do this since it is what most of the accountants advising them are
good at. Basic tax planning such as incorporating the business, taking dividends rather
than salaries and timing when they spend money can often reduce tax bills by 5% to 20%.

Various Basic methods of Tax Planning as follows :

a) Short Term Tax Planning: Short range Tax Planning means the planning thought
of and executed at the end of the income year to reduce taxable income in a legal way.

b) Long Term Tax Planning: Long range tax planning means a plan at the beginning
or the income year to be followed around the year. This type of planning does not help
immediately as in the case of short range planning but is likely to help in the long run ;

c) Permissive Tax Planning : Permissive Tax Planning means making plans which
are permissible under different provisions of the law, such as Planning of taking
advantage of different incentives and deductions, planning for availing different tax
concessions etc.

d) Purposive Tax Planning: It means making plans with specific purpose to ensure
the availability of maximum benefits to the assessee through correct selection of
investment, making suitable programme for replacement of assets, varying the residential
status and diversifying business activities and income etc.

(4) Advanced tax planning: Historically this has really only been available to the richest
entrepreneurs. Indeed it has helped them become even richer as it can reduce tax bills by 50% to
100%. In recent years this has changed, and now all good accountants (including One
Accounting) can access a range of advanced tax planning solutions on behalf of their clients.
1. What is GST in India?
GST is known as the Goods and Services Tax. It is an indirect tax which has replaced many indirect
taxes in India such as the excise duty, VAT, services tax, etc. The Goods and Service Tax Act was
passed in the Parliament on 29th March 2017 and came into effect on 1st July 2017.
In other words, Goods and Service Tax (GST) is levied on the supply of goods and services. Goods and
Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied on
every value addition. GST is a single domestic indirect tax law for the entire country.
Before the Goods and Services Tax could be introduced, the structure of indirect tax levy in India was
as follows:

Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales, Central
GST and State GST are charged. All the inter-state sales are chargeable to the Integrated GST.
Now, let us understand the definition of Goods and Service Tax, as mentioned above, in detail.

Multi-stage
An item goes through multiple change-of-hands along its supply chain: Starting from manufacture until
the final sale to the consumer.
Let us consider the following stages:

 Purchase of raw materials

 Production or manufacture
 Warehousing of finished goods
 Selling to wholesalers
 Sale of the product to the retailers
  Selling to the end consumers

The Goods and Services Tax is levied on each of these stages making it a multi-stage tax.

Value Addition

A manufacturer who makes biscuits buys flour, sugar and other material. The value of the inputs
increases when the sugar and flour are mixed and baked into biscuits.
The manufacturer then sells these biscuits to the warehousing agent who packs large quantities of
biscuits in cartons and labels it. This is another addition of value to the biscuits. After this, the
warehousing agent sells it to the retailer.
The retailer packages the biscuits in smaller quantities and invests in the marketing of the biscuits, thus
increasing its value. GST is levied on these value additions, i.e. the monetary value added at each stage
to achieve the final sale to the end customer.

Destination-Based
Consider goods manufactured in Maharashtra and sold to the final consumer in Karnataka. Since the
Goods and Service Tax is levied at the point of consumption, the entire tax revenue will go to
Karnataka and not Maharashtra.

2. The Journey of GST in India

The GST journey began in the year 2000 when a committee was set up to draft law. It took 17 years
from then for the Law to evolve. In 2017, the GST Bill was passed in the Lok Sabha and Rajya Sabha.
On 1st July 2017, the GST Law came into force.
3. Objectives Of GST
1. To achieve the ideology of ‘One Nation, One Tax’
GST has replaced multiple indirect taxes, which were existing under the previous tax regime. The
advantage of having one single tax means every state follows the same rate for a particular product
or service. Tax administration is easier with the Central Government deciding the rates and policies.
Common laws can be introduced, such as e-way bills for goods transport and e-invoicing for
transaction reporting. Tax compliance is also better as taxpayers are not bogged down with multiple
return forms and deadlines. Overall, it’s a unified system of indirect tax compliance.
 2. To subsume a majority of the indirect taxes in India
India had several erstwhile indirect taxes such as service tax, Value Added Tax (VAT), Central
Excise, etc., which used to be levied at multiple supply chain stages. Some taxes were governed by
the states and some by the Centre. There was no unified and centralised tax on both goods and
services. Hence, GST was introduced. Under GST, all the major indirect taxes were subsumed into
one. It has greatly reduced the compliance burden on taxpayers and eased tax administration for the
government.
3. To eliminate the cascading effect of taxes
One of the primary objectives of GST was to remove the cascading effect of taxes. Previously, due
to different indirect tax laws, taxpayers could not set off the tax credits of one tax against the other.
For example, the excise duties paid during manufacture could not be set off against the VAT
payable during the sale. This led to a cascading effect of taxes. Under GST, the tax levy is only on
the net value added at each stage of the supply chain. This has helped eliminate the cascading effect
of taxes and contributed to the seamless flow of input tax credits across both goods and services.
4. To curb tax evasion
GST laws in India are far more stringent compared to any of the erstwhile indirect tax laws. Under
GST, taxpayers can claim an input tax credit only on invoices uploaded by their respective
suppliers. This way, the chances of claiming input tax credits on fake invoices are minimal. The
introduction of e-invoicing has further reinforced this objective. Also, due to GST being a
nationwide tax and having a centralised surveillance system, the clampdown on defaulters is
quicker and far more efficient. Hence, GST has curbed tax evasion and minimised tax fraud from
taking place to a large extent.
5. To increase the taxpayer base
GST has helped in widening the tax base in India. Previously, each of the tax laws had a different
threshold limit for registration based on turnover. As GST is a consolidated tax levied on both
goods and services both, it has increased tax-registered businesses. Besides, the stricter laws
surrounding input tax credits have helped bring certain unorganised sectors under the tax net. For
example, the construction industry in India.
6. Online procedures for ease of doing business
Previously, taxpayers faced a lot of hardships dealing with different tax authorities under each tax
law. Besides, while return filing was online, most of the assessment and refund procedures took
place offline. Now, GST procedures are carried out almost entirely online. Everything is done with
a click of a button, from registration to return filing to refunds to e-way bill generation. It has
contributed to the overall ease of doing business in India and simplified taxpayer compliance to a
massive extent. The government also plans to introduce a centralised portal soon for all indirect tax
compliance such as e-invoicing, e-way bills and GST return filing.
7. An improved logistics and distribution system
A single indirect tax system reduces the need for multiple documentation for the supply of goods.
GST minimises transportation cycle times, improves supply chain and turnaround time, and leads to
warehouse consolidation, among other benefits. With the e-way bill system under GST, the removal
of interstate checkpoints is most beneficial to the sector in improving transit and destination
efficiency. Ultimately, it helps in cutting down the high logistics and warehousing costs.

8. To promote competitive pricing and increase consumption

Introducing GST has also led to an increase in consumption and indirect tax revenues. Due to the
cascading effect of taxes under the previous regime, the prices of goods in India were higher than in
global markets. Even between states, the lower VAT rates in certain states led to an imbalance of
purchases in these states. Having uniform GST rates have contributed to overall competitive pricing
across India and on the global front. This has hence increased consumption and led to higher
revenues, which has been another important objective achieved.
4. Advantages Of GST
GST has mainly removed the cascading effect on the sale of goods and services. Removal of the
cascading effect has impacted the cost of goods. Since the GST regime eliminates the tax on tax, the
cost of goods decreases.
Also, GST is mainly technologically driven. All the activities like registration, return filing, application
for refund and response to notice needs to be done online on the GST portal, which accelerates the
processes.

5. What are the components of GST?

There are three taxes applicable under this system: CGST, SGST & IGST.

 CGST: It is the tax collected by the Central Government on an intra-state sale (e.g., a
transaction happening within Maharashtra)
 SGST: It is the tax collected by the state government on an intra-state sale (e.g., a transaction
happening within Maharashtra)
 IGST: It is a tax collected by the Central Government for an inter-state sale (e.g., Maharashtra
to Tamil Nadu)

6. Tax Laws before GST

In the earlier indirect tax regime, there were many indirect taxes levied by both the state and the
centre. States mainly collected taxes in the form of Value Added Tax (VAT). Every state had a
different set of rules and regulations.

Inter-state sale of goods was taxed by the centre. CST (Central State Tax) was applicable in case of
inter-state sale of goods. The indirect taxes such as the entertainment tax, octroi and local tax were
levied together by state and centre. These led to a lot of overlapping of taxes levied by both the state
and the centre.

For example, when goods were manufactured and sold, excise duty was charged by the centre. Over
and above the excise duty, VAT was also charged by the state. It led to a tax on tax effect, also
known as the cascading effect of taxes.

The following is the list of indirect taxes in the pre-GST regime:

Central Excise Duty
Duties of Excise
Additional Duties of Excise
Additional Duties of Customs
Special Additional Duty of Customs
Cess
State VAT
Central Sales Tax
Purchase Tax
Luxury Tax
Entertainment Tax
Entry Tax
Taxes on advertisements
Taxes on lotteries, betting, and gambling
CGST, SGST, and IGST have replaced all the above taxes.

However, certain taxes such as the GST levied for the inter-state purchase at a concessional rate of
2% by the issue and utilisation of ‘Form C’ is still prevalent.
It applies to certain non-GST goods such as:
Petroleum crude;
High-speed diesel
Motor spirit (commonly known as petrol);
Natural gas;
Aviation turbine fuel; and
Alcoholic liquor for human consumption.
It applies to the following transactions only:
Resale
Use in manufacturing or processing
Use in certain sectors such as the telecommunication network, mining, the generation or distribution
of electricity or any other power sector

8. What are the New Compliances Under GST?

Apart from online filing of the GST returns, the GST regime has introduced several new systems
along with it.

e-Way Bills
GST introduced a centralised system of waybills by the introduction of “E-way bills”. This system
was launched on 1st April 2018 for inter-state movement of goods and on 15th April 2018 for intra-
state movement of goods in a staggered manner.
Under the e-way bill system, manufacturers, traders and transporters can generate e-way bills for the
goods transported from the place of its origin to its destination on a common portal with ease. Tax
authorities are also benefited as this system has reduced time at check -posts and helps reduce tax
evasion.

E-invoicing
The e-invoicing system was made applicable from 1st October 2020 for businesses with an annual
aggregate turnover of more than Rs.500 crore in any preceding financial years (from 2017-18).
 Further, from 1st January 2021, this system was extended to those with an annual aggregate turnover
of more than Rs.100 crore.
These businesses must obtain a unique invoice reference number for every business-to-business
invoice by uploading on the GSTN’s invoice registration portal. The portal verifies the correctness
and genuineness of the invoice. Thereafter, it authorises using the digital signature along with a QR
code.
e-Invoicing allows interoperability of invoices and helps reduce data entry errors. It is designed to
pass the invoice information directly from the IRP to the GST portal and the e-way bill portal. It will,
therefore, eliminate the requirement for manual data entry while filing GSTR-1 and helps in the
generation of e-way bills too.

Time of Supply
Time of supply means the point in time when goods/services are considered supplied’. When the seller knows
the ‘time’, it helps him identify due date for payment of taxes.

CGST/SGST or IGST must be paid at the time of supply. Goods and services have a separate basis to identify
their time of supply. Let’s understand them in detail.

Time of Supply of Goods

Time of supply of goods is earliest of:
1. Date of issue of invoice
2. Last date on which invoice should have been issued
3. Date of receipt of advance/ payment*.

For example:
Mr. X sold goods to Mr. Y worth Rs 1,00,000. The invoice was issued on 15th January. The payment was
received on 31st January. The goods were supplied on 20th January.
*Note: GST is not applicable to advances under GST. GST in Advance is payable at the time of issue of the
invoice. Notification No. 66/2017 – Central Tax issued on 15.11.2017
Let us analyze and arrive at the time of supply in this case.

Time of supply is earliest of –

Date of issue of invoice – 15th January
Last date on which invoice should have been issued – 20th January.
Thus the time of supply is 15th January.

What will happen if, in the same example an advance of Rs 50,000 is received by Mr. X on 1st January?
The time of supply for the advance of Rs 50,000 will be 1st January(since the date of receipt of advance is before
the invoice is issued). For the balance Rs 50,000, the time of supply will be 15th January.

Time of Supply for Services

Time of supply of services is earliest of:
Date of issue of invoice
Date of receipt of advance/ payment.
Date of provision of services (if invoice is not issued within prescribed period)
Let us understand this using an example:

Mr. A provides services worth Rs 20000 to Mr. B on 1st January. The invoice was issued on 20th January and
the payment for the same was received on 1st February.
In the present case, we need to 1st check if the invoice was issued within the prescribed time. The prescribed
time is 30 days from the date of supply i.e. 31st January. The invoice was issued on 20th January. This means
that the invoice was issued within a prescribed time limit.

The time of supply will be earliest of –

Date of issue of invoice – 20th January
Date of payment = 1st February
This means that the time of supply of services will be 20th January.

Value of Supply of Goods or Services

Value of supply means the money that a seller would want to collect the goods and services supplied.
The amount collected by the seller from the buyer is the value of supply.
But where parties are related and a reasonable value may not be charged, or transaction may take place as a
barter or exchange; the GST law prescribes that the value on which GST is charged must be its ‘transactional
value’. This is the value at which unrelated parties would transact in the normal course of business. It makes sure
GST is charged and collected properly, even though the full value may not have been paid.

Time of Supply under Reverse Charge

In case of reverse charge the time of supply for service receiver is earliest of:

Date of payment*
30 days from date of issue of invoice for goods (60 days for services)
*w.e.f. 15.11.2017 ‘Date of Payment’ is not applicable for goods and applies only to services. Notification No.
66/2017 – Central Tax

For example:
M/s ABC Pvt. Ltd undertook service of a director Mr. X worth Rs. 50,000 on 15th January. The invoice was
raised on 1st February. M/s ABC Pvt Ltd made the payment on 1st May.

The time of supply, in this case, will be earliest of –

Date of payment = 1st May
60 days from date of date of invoice – 2nd April
Thus, the time of supply of services is 2nd April.

Input Tax Credit – ITC

One of the fundamental features of GST is the seamless flow of input credit across the chain (from the
manufacture of goods till it is consumed) and across the country.
What is input tax credit?
Input credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs
and pay the balance amount.

Here’s how:
When you buy a product/service from a registered dealer you pay taxes on the purchase. On selling, you collect
the tax. You adjust the taxes paid at the time of purchase with the amount of output tax (tax on sales) and balance
liability of tax (tax on sales minus tax on purchase) has to be paid to the government. This mechanism is called
utilization of input tax credit.

For example- you are a manufacturer: a. Tax payable on output (FINAL PRODUCT) is Rs 450 b. Tax paid on
input (PURCHASES) is Rs 300 c. You can claim INPUT CREDIT of Rs 300 and you only need to deposit Rs
150 in taxes.

Who can claim ITC?

ITC can be claimed by a person registered under GST only if he fulfils ALL the conditions as prescribed.

a. The dealer should be in possession of tax invoice

b. The said goods/services have been received
c. Returns have been filed.
d. The tax charged has been paid to the government by the supplier.
e. When goods are received in installments ITC can be claimed only when the last lot is received.
f. No ITC will be allowed if depreciation has been claimed on tax component of a capital good
A person registered under composition scheme in GST cannot claim ITC.

What can be claimed as ITC?

ITC can be claimed only for business purposes. ITC will not be available for goods or services exclusively used
for: a. Personal use b. Exempt supplies c. Supplies for which ITC is specifically not available

Reversal of Input Tax Credit

ITC can be availed only on goods and services for business purposes. If they are used for non-business
(personal) purposes, or for making exempt supplies ITC cannot be claimed . Apart from these, there are certain
other situations where ITC will be reversed.
ITC will be reversed in the following cases-
1) Non-payment of invoices in 180 days– ITC will be reversed for invoices which were not paid within 180 days
of issue.
2) Credit note issued to ISD by seller– This is for ISD. If a credit note was issued by the seller to the HO then the
ITC subsequently reduced will be reversed.
3) Inputs partly for business purpose and partly for exempted supplies or for personal use – This is for businesses
which use inputs for both business and non-business (personal) purpose. ITC used in the portion of input
goods/services used for the personal purpose must be reversed proportionately.
4) Capital goods partly for business and partly for exempted supplies or for personal use – This is similar to
above except that it concerns capital goods.

5) ITC reversed is less than required- This is calculated after the annual return is furnished. If total ITC on inputs
of exempted/non-business purpose is more than the ITC actually reversed during the year then the difference
amount will be added to output liability. Interest will be applicable.
The details of reversal of ITC will be furnished in GSTR-3B. To find out more about the segregation of ITC into
business and personal use and subsequent calculations, please visit our article.
Reconciliation of ITC
ITC claimed by the person has to match with the details specified by his supplier in his GST return. In case of
any mismatch, the supplier and recipient would be communicated regarding discrepancies after the filling of
GSTR-3B. Learn how to go about reconciliation through our article on GSTR-2A Reconciliation. Please read our
article on the detailed explanation of the reasons for mismatch of ITC and procedure to be followed to apply for
re-claim of ITC.
Documents Required for Claiming ITC
The following documents are required for claiming ITC: 1. Invoice issued by the supplier of goods/services 2.
The debit note issued by the supplier to the recipient (if any) 3. Bill of entry 4. An invoice issued under certain
circumstances like the bill of supply issued instead of tax invoice if the amount is less than Rs 200 or in
situations where the reverse charge is applicable as per GST law. 5. An invoice or credit note issued by the Input
Service Distributor(ISD) as per the invoice rules under GST. 6. A bill of supply issued by the supplier of goods
and services or both.

What are Debit Notes?

An invoice is raised whenever there is a purchase or sale transaction with a consideration. When such
consideration falls short due to certain anomalies, or extra goods being delivered to the purchaser, then
the seller shall issue a debit note in that case. Such a debit note will take care of the upward revision of
prices in an already issued invoice and will intimate the purchaser of the future liability that he has to
pay.

Debit notes are raised in cases where there is a tax invoice issued, but the taxable value of the goods
therein changes after such issuance. Similarly, there can be a tax invoice issued but the amount of tax
changes after such issuance. In both these cases, a seller has to intimate the purchaser about such
change.

There is no specified format to issue a debit note, but it can be issued as a letter or a formal document.
It is mostly a document specifying future liability and having commercial implications. They increase
the credit period of a transaction, but are affected after shipping of goods takes place.

There can be a situation where a purchaser is returning the goods on account of some quality issues, or
shortage of quantities, etc. In such cases also, a debit note is raised to account for the difference. The
physical movement of goods is taking place without any payments actually being made.

Debit notes are also helpful in identifying through the books of accounts, any movement of stocks
between the transacting parties. These notes do not have to be paid instantaneously but have to be
settled at a later date.

Debit Notes Under GST

GST takes care of all the changes made in a transaction. It is obvious to have a free flow of credits to
the last mile in a GST environment. Hence, dealers and assessees have to follow a tough regime of
uploading and updating every single transaction that they enter into.

Since debit notes are a major change to an invoice, they have to be reported separately in the GST
returns. Debit notes are explained under section 2(38) of the GST Law.

The word debit note also includes supplementary invoice, it is issued when the-

Taxable value present in the invoice is less than the actual taxable amount or
Tax charged in the invoice is less than the actual tax payable
Value of invoice increases due to extra goods/services are delivered or incorrect amount( taxable
value/tax) is entered in the invoice. In this case, the supplier will issue debit note. As in the books of the
supplier, customer account has the debit balance and on accounting of debit note, customer account
balance be will increase. The customer gives credit note on receipt on the debit note to the supplier.
The credit note will increase the liability in the books of the customer, as he has pay an extra amount to
settle the liability.

The content of Debit Note

The following things are to be maintained in the debit note, for proper update and reporting. Although
there is no predefined format for the same, necessary care has to be taken to mention these important
details in the debit notes.

Rule 53 states that the debit note shall contain the following particulars:
1. The word “Debit Note”, to be indicated prominently
2. Supplier’s name, address, and GSTIN
3. Nature of the document
4. The consecutive serial number which is a unique number for every financial year
5. Date of issue of the document
6. Name, address and GSTIN or UIN, if registered, of the recipient
7. Name and address of the recipient and the address of delivery, along with the name of State and its
code, if such recipient is unregistered
8. Serial number and date of the corresponding tax invoice or, as the case may be, bill of supply
9. Value of taxable supply of goods or services, the rate of tax and the amount of the tax credited or
debited to the recipient and
10. Signature or digital signature of the supplier or his authorized representative

The details of debit notes have to be declared in the month following the month on which such debit
note has been raised. Debit notes can be issued anytime without any time limit.

What are Credit Notes?

Similar to the debit notes, credit notes are issued when there is a downward revision in prices of goods
or services supplied. It can be compared to a negative invoice that has the ability to nullify the effects
of an invoice. It offers a reduction in the value of the invoice and thus, reduces the liability of the
purchaser. It is often inflicted with a return of goods to the supplier. It always has a negative impact on
the accounting balance in the books of the seller.

Sometimes, the purchaser is unhappy with the quality of product shipped to him. In that case, he shall
return the goods to the supplier, and in return, the supplier issues the purchaser, a credit note to the
extent of the value of the goods being returned. There is no predefined format in which the credit note
has to be issued; rather it is an intimation to the purchaser about such credit being offered.

Credit Notes Under GST

GST takes care of credit notes as well, just like debit notes. Credit notes have to be issued by a taxable
person, where there is a shortage of products supplied and for which there is no payment to be made by
the purchaser. Since it has a commercial impact, the same has to be informed or declared in GST
returns in the month to which it prevails.

The credit note has to be issued based on an original invoice already issued. The original invoice will
get reduced to the extent of such credit notes. In some cases, the original invoice value can become
zero. Credit notes are defined in section 2(37) of the GST Law.

Credit notes can be issued in the following cases:

Taxable value present in the invoice is more than the actual taxable amount or
Tax charged in the invoice is more than actual tax payable
Recipient returns the goods to the supplier(sales return)
Goods are found deficient or not as per satisfaction of the buyer
In the above situation, the liability to pay the amount by recipient reduces and hence debit note is
issued by them and as an acknowledgment to debit note, credit note is issued by the supplier. As in
 the books of the recipient, supplier account has a credit balance and by issuing the debit note credit
balance will be reduced. In other words, we can also say that recipient is reducing the liability.

Credit notes must also mention the details as noted above in case of debit notes. The particulars are
the same in this case as well. Such credit notes must be mentioned in the returns of the following
month about which the credit note has been raised. Unlike debit notes where there is no time limit for
issuance, credit notes have to be declared in earlier of the following dates:

 Annual return filing date or,

 By the 30th of September, following the year to which credit notes relate toLet us understand the
above time limits with some examples –
Situation 1 Situation 2
Year of supply 2017 2017
Date of filing annual return(assumed) 30/11/2018 15/9/2018
30th of September of the
30/09/2018 30/09/2018
following(next) year
Earlier of the following dates 30/09/2018 15/9/2018

Where the input tax credit and interest on such invoice is already passed on to other registered person,
then such credit note shall have no effect on reduction of output tax liability.

The Content of a Credit Note:

Rule 53 states that the credit note shall contain the following particulars:
1. The word “Credit Note”, to be indicated prominently
2. Supplier’s name, address, and GSTIN
3. Nature of the document
4. The consecutive serial number which is a unique number for every financial year
5. Date of issue of the document
6. Name, address and GSTIN or UIN, if registered, of the recipient
7. Name and address of the recipient and the address of delivery, along with the name of State and its
code, if such recipient is unregistered
8. Serial number and date of the corresponding tax invoice or, as the case may be, bill of supply
9. Value of taxable supply of goods or services, the rate of tax and the amount of the tax credited or
debited to the recipient and
10. Signature or digital signature of the supplier or his authorized representative

How to calculate tax under GST

After implementing Goods and Services Tax (GST), many Entrepreneurs seek assistance on
how to calculate GST payment in a transaction. In this article, let us cover all aspects of
calculating GST in a business transaction. To calculate GST, the following aspects in a
transaction must be considered in a logical, step by step manner.
Step 1: Find the GST Rate Applicable for the Goods or Service
The first step in calculating GST is to find the GST Rate applicable for the Goods or
Service under the GST Act. Over the past month, the GST Council has conveyed GST rates
for almost all goods and services in India.

To find GST Rate, the individual must first make a distinction between the type of supply
supplied, i.e., is it a good or service. If the supply is a good, then its important to interpolate
with the HSN Code applicable for the Good. HSN Code is an international system for
classifying all types of goods in international transactions.

The concerned individual shall verify the SAC Code, whether the SAC Code relates to the
service when a transaction involves the supply of a service. SAC Code stands for Service
Accounting Codes and used for classifying all the services under GST.

Determine the GST Rate applicable for the HSN or SAC Code
Once the HSN or SAC Code is determined for the supply, then the GST Rate for the HSN
Code or SAC code can be easily interpolated. GST is levied under 5 different slab rates at
NIL, 5%, 12%, 18% and 28% for both goods and services. Hence, the GST rate applicable
for the Goods or Service would be any of the slab rates.

Step 2: Determine the Applicability of IGST or CGST and SGST

Once the GST rate is determined, then the applicability of IGST or CGST and SGST must
be determined. To determine if IGST or CGST and SGST would be applicable, the
individuals should have to determine the place of supply. In most cases, the place of supply
of goods or services would be the address where the goods were delivered or the service
was provided. For some types of transactions involving e-commerce or OIDAR services,
the determination of place of supply is a more complex issue.

Inter-State Supply
If goods or services are provided between two states, i.e., from one state to another, then
IGST or Integrated Goods and Services Tax would be applicable on the transaction.
Whenever any supplier is involved in providing inter-state supply, GST registration is
mandatory.

Intra-State Supply
If the individual provides the goods or service within the same state, then CGST or Central
Goods and Services Tax and SGST or State Goods and Service Tax would be applicable.

Calculating IGST, CGST and SGST

If IGST is applicable and the supply is inter-state, then the entire GST applicable for the
HSN or SAC code must be accounted for under IGST. If CGST and SGST is applicable and
the supply is intra-state, then the GST applicable for the HSN or SAC code must be divided
between CGST and SGST. The calculation for IGST, CGST or SGST is only for
classification purposes for crediting the tax revenue to the state of consumption. The GST
tax rate would remain same and there would be no double-taxation.

Step 3: Determine if GST is Chargeable on Reverse Charge Basis

Normally under GST, the supplier of the goods or service is liable to collect tax from the
recipient and remit the same with the Government. However, the recipient shall become
liable if the services provided to the user notified as reverse charge services. Hence, the user
and the service provider should know whether the transaction involves reverse charge under
GST.
Step 4: Enrolling under GST Composition Scheme by Suppliers
Typically, GST compliance requires the supplier to maintain extensive accounts, records
and file 3 GST filing a month. However, many SMEs in India would find GST compliance
tough and would require a simpler mechanism. Such businesses having a turnover of less
than Rs.75 lakhs, can enrol under the GST Composition Scheme and pay a flat GST based
on their aggregate turnover. Suppliers enrolled under GST composition scheme should
provide proper documents detailing the recognition as composition Suppliers and hence not
eligible to collect tax. Hence, before the transaction, the user should verify if the supplier
had enrolled under GST Composition Scheme.

Step 5: Determine Type of Transaction

Under GST, transactions can be broadly specified under the following three categories:

Business to Business,
For Business to Consumer – Value of supply more than Rs.2.5 lakh,
Business to Consumer – Value of supply less than Rs.2.5 lakh.
For a supply to be termed as a B2B transaction under GST and made available for GST
input tax credit, both the supplier and the recipient of the goods or service must have a
GSTIN. GSTIN is provided when a business obtains GST registration. Do you need GST
Registration? Easily find out using this guide.

In a B2C transaction under GST, the recipient of the goods or service would not be eligible
for receiving the input tax credit. However, in a B2C transaction the recipient need not
provide details of his/her GSTIN or GST registration. However, if the transaction value is
more than Rs.2.5 lakhs, the recipient would have to furnish details like name, address and
other details to determine the place of supply.
What is a GST Invoice?
An invoice or a GST bill is a list of goods sent or services provided, along with the amount
due for payment.
Who should issue GST Invoice?
If you are a GST registered business, you need to provide GST-complaint invoices to your
clients for sale of good and/or services.
Your GST registered vendors will provide GST-compliant purchase invoices to you
What are the mandatory fields a GST Invoice should have?
A tax invoice is generally issued to charge the tax and pass on the input tax credit. A GST
Invoice must have the following mandatory fields-

 Invoice number and date

 Customer name
 Shipping and billing address
 Customer and taxpayer’s GSTIN (if registered)**
 Place of supply
 HSN code/ SAC code
 Item details i.e. description, quantity (number), unit (meter, kg etc.), total value
 Taxable value and discounts
 Rate and amount of taxes i.e. CGST/ SGST/ IGST
 Whether GST is payable on reverse charge basis
 Signature of the supplier
 **If the recipient is not registered AND the value is more than Rs. 50,000 then the
invoice should carry:
 name and address of the recipient,
  address of delivery,
 state name and state code
Here is a sample invoice for your reference:

When should you issue invoices?

The GST Act has defined time limit to issue GST tax invoice, revised GST bill, debit note,
and credit note. Following are the due dates for issuing an invoice to customers:
How to personalize GST Invoices?
You can personalize your invoice with your company’s logo. The ClearTax BillBook
allows you to create and personalize GST Invoice free of cost.
What are other types of invoices?
A. Bill of Supply
A bill of supply is similar to a GST invoice except for that bill of supply does not contain
any tax amount as the seller cannot charge GST to the buyer.
A bill of supply is issued in cases where tax cannot be charged:
Registered person is selling exempted goods/services,
Registered person has opted for composition scheme
Invoice-cum-bill of supply
As per Notification No. 45/2017 – Central Tax dated 13th October 2017 If a registered
person is supplying taxable as well as exempted goods/ services to an unregistered person,
then he can issue a single “invoice-cum-bill of supply” for all such supplies.
B. Aggregate Invoice
If the value of multiple invoices is less than Rs. 200 and the buyer are unregistered, the
seller can issue an aggregate or bulk invoice for the multiple invoices on a daily basis.
For example, you may have issued 3 invoices in a day of Rs.80, Rs.90 and Rs. 120. In such
a case, you can issue a single invoice, totaling to Rs290, to be called an aggregate invoice.
C. Debit and credit note
A debit note is issued by the seller when the amount payable by the buyer to seller
increases:
Tax invoice has a lower taxable value than the amount that should have been charged
Tax invoice has a lower tax value than the amount that should have been charged
A credit note is issued by the seller when the value of invoice decreases:
Tax invoice has a higher taxable value than the amount that should have been charged
Tax invoice has a higher tax value than the amount that should have been charged
Buyer refunds the goods to the supplier
Services are found to be deficient
Can you revise invoices issued before GST?
Yes. You can revise invoices issued before GST. Under the GST regime, all the dealers
must apply for provisional registration before getting the permanent registration certificate.
Refer to this image below to understand the protocol of issuing a revised invoice:

This applies to all the invoices issued between the date of implementation of GST and the
date your registration certificate has been issued.
As a dealer, you must issue a revised invoice against the invoices already issued. The
revised invoice has to be issued within 1 month from the date of issue of the registration
certificate.
How many copies of Invoices should be issued?
For goods– 3 copies
For services– 2 copies

Reverse Charge Mechanism:

Reverse charge is a mechanism where the recipient of the goods or services is liable to pay
Goods and Services Tax (GST) instead of the supplier.
What is a reverse charge mechanism?
Usually, the supplier of goods or services pays the tax on supply. In a reverse charge, the
receiver becomes liable to pay the tax, i.e., the chargeability gets reversed.
When is a reverse charge applicable?
Section 9(3), 9(4) and 9(5) of Central GST and State GST Acts govern the reverse charge
scenarios for intrastate transactions. Also, sections 5(3), 5(4) and 5(5) of the Integrated GST
Act govern the reverse charge scenarios for inter-state transactions. Let’s have a detailed
discussion regarding these scenarios:

A. Supply of certain goods and services specified by the CBIC

As per the powers conferred in section 9(3) of CGST Acts, CBIC has issued a list of goods
and services on which reverse charge is applicable.

B. Supply from an unregistered dealer to a registered dealer

Section 9(4) of the CGST Act states that if a vendor is not registered under GST supplies
goods to a person registered under GST, then reverse charge would apply. This means that
the GST will have to be paid directly by the receiver instead of the supplier. The registered
buyer who has to pay GST under reverse charge has to do self-invoicing for the purchases
made.

In intra-state purchases, CGST and SGST have to be paid under reverse charge mechanism
(RCM) by the purchaser. Also, in the case of inter-state purchases, the buyer has to pay the
IGST. The government notifies the list of goods or services on which this provision gets
attracted from time to time.

The RCM in case of supplies made by unregistered persons to registered persons deferred
to 30th September 2019. Previously, this provision was applicable from 1st October 2018.

In the real estate sector, the government notified that the promoter should buy inward
supplies to the extent of 80% from registered suppliers only. Suppose the purchases from
registered dealers shortfall 80%; then the promoter should GST at 18% on the reverse
charge to the extent short of 80% of inward supplies. However, if the promoter purchases
cement from an unregistered supplier, he must pay tax at 28%. This calculation is to be
done irrespective of the 80% calculation.

The promoter is liable to pay GST on reverse charge basis on TDR or floor space index
supplied on or after 1st April 2019. Even if a landowner is not engaged in a regular business
of land-related activities, transfer of development rights by such an individual to the
promoter is liable to GST as it is considered as supply of service under section 7 of CGST
Act. Also, in case of outward supply of TDR by one developer to another, GST is
applicable at 18% on reverse charge.

C. Supply of services through an e-commerce operator

All types of businesses can use e-commerce operators as an aggregator to sell products or
provide services. Section 9(5) of the CGST Act states that if a service provider uses an e-
commerce operator to provide specified services, the reverse charge will apply to the e-
commerce operator and he will be liable to pay GST. This section covers the services such
as:

Transportation services to passengers by a radio-taxi, motor cab, maxi cab and motorcycle.
For example – Ola, Uber.

Providing accommodation services in hotels, inns, guest houses, clubs, campsites or other
commercial places meant for residential or lodging purposes, except where the person
supplying such service through electronic commerce operator is liable for registration due
to turnover exceeding the threshold limit. For example – Oyo and MakeMyTrip.
Housekeeping services, such as plumbing and carpentering, except where the person
supplying such services through electronic commerce operators are liable for registration
due to turnover beyond the threshold limit. For example, UrbanClap provides the services
of plumbers, electricians, teachers, beauticians etc. In this case, UrbanClap is liable to pay
GST and collect it from the customers instead of the registered service providers.
Also, suppose the e-commerce operator does not have a physical presence in the taxable
territory. In that case, a person representing such an electronic commerce operator will be
liable to pay tax for any purpose. If there is no representative, the operator will appoint a
representative who will be held liable to pay GST.

2 Marks

1. What is Tax planning?

Arrangements of financial activity.
2. Write the objectives of Tax planning-
 Save the hard labour of the tax payer and enjoy the fruits of his income and wealth,
Reduction of tax liability, Minimization of litigation, Productivity investment.
3. Define Tax Evasion-
Evade their tax liability.
4. Define Tax Avoidance-
Minimize or adjusting the account with in the four corners of tax law.
5. What do you mean by Onus of Proof?
Duty of the tax assesse to produce all relevant fact.
6. Define Input Tax-
Payable by a registered dealer in the course of business, on the purchase of any goods
made from a registered dealer.
7. Define Output tax-
Tax charged or chargeable under this act by a registered dealer in respect of sale of goods
in the course of his business
8. What are the various types of dealers?
 TOT dealer
 VAT dealer
 Exempted dealer
9. Write various types of sales Tax-
Single point sales tax- tax imposed at only one point between production and sales
Multiple point Tax levied at all stages of commodity
10. How will you determine sales tax?
Rate of tax * Aggregate of sales
-----------------------------------------------
100
11. Write varius types of registration- Voluntary – Dealer whose turnover exceed Rs30,000
and who deals multiple point tax goods can apply voluntary registration.
Compulsory- Turnover is more than Rs. 50,000
12. Define- Octroi
Toll or tax levied at the gates of a city on articles brought to the city

13. Explain the elements of Sale.

 Transfer of property in goods
 Two parties
 Consideration
 Valid consent of both parties


14. Define Zero tax company.

Company is showing book profits and declaring dividends to share holders but they were not
paying income tax

21. Define ad valorem duty.

  Levy of octroi either on specific basis or advalorem
 It is based on value of articles
 Types – Low advalorem- less cost articles
 High advalorem- high cost articles

22. Explain the issues towards implementation of VAT.

1. Tax is collected at each stage of sale when there is a value addition to the goods
2. Several taxes are still not covered under VAT
3. CST will be eliminated over a period of time
4. Tax is only on value added items