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GST ON HOMEMAKER RUNNING A BOUTIQUE

Our valuable client is a homemaker running a boutique business from her residence. Her turnover for the FY16-17 was within Rs.20 lakh. She expects her turnover to increase beyond Rs.20 lakh in the current financial year. She has raised the following queries which have been answered serially as under.

Q.1. A business body (single owner small business) having turn over less than Rs.20 lakh would not able to trade outside state (inter - state) if not GST registered. Please tell me if this is correct understanding.

A.1. Your understanding is absolutely correct. For any interstate supply, the supplier has to compulsorily register himself under GST irrespective of the amount of turnover.

Q.2. Once registered, business owner has to submit/upload all tax invoices to GST portal every month (1st due is in September sometime).

A.2. Yes, a registered supplier has to file monthly returns into the GSTN portal. The supplier has to fill up the form GSTR-1 which will include details of all outward supplies of goods/services supplied by him/her during the month. The date of submitting the form GSTR-1 is by 10^th of the succeeding month. However, in order to ease the process of filing the returns for the first 2 months, Government has extended the date of filing the returns for the month of July and August – details of which has been given as under.

Q.3. Based on defined GST slab, owner has to add tax while selling. 

Now for example I assume GST tax % is 10 for easiness of calculation in below illustration. So here I have a single invoice of 133.10 INR and I would upload this to GST portal.

A.3. Your above question has 2 parts:

                   Part 1 – What/which tax will be added by the supplier while selling?

                   Part 2 – How will the tax be affected in the final selling price

We are answering your question part wise.

Part 1 – The supplier will add GST to his transaction value in order to arrive at the final invoice amount.  In case of intra-state supplies (within the same state) – both CGST and SGST will be charged. In case of inter-state supplies – IGST will be charged. The rates will vary from 5% to 28% depending on the type of product of the supplier.

GST rates on sarees will depend on the nature of the fabric used in making the same. It will be classifiable under the heading as if consisting wholly of that one textile material which predominates by weight over any other single textile material. In case no one textile material predominates by weight, it is to be classified as if consisting wholly of that one textile material which is covered by the heading which occurs last in numerical order among those which equally merit consideration.

Other natural fibres (except silk and jute) will be taxed at 5% and synthetic and manmade fibres will attract a higher tax of 18%. 

Part – 2- In the example shared by you, there is a payment of tax on tax. In the present GST regime, paying tax on tax is completely eliminated. GST aims at removing the cascading effect of taxes. In simple words, you don’t have to pay tax on tax in GST. If you have paid any tax while making an inward supply (purchase or acquisition), the amount of tax paid by you will be reduced from your outward tax liability by way of input tax credit. This has been explained below with the help of a simple example:

Q.4. Here in each level 10% tax is applied. Is it correct way GST model will work?

A.4. This has been clarified in the above example. GST will be levied only on the value added amount.

Q.5. Now how do I submit tax amount (i.e. 12.10 INR) of my part to GOVT.

A.5. As given in the above example, if say you are “Dealer D” – then you have to pay a tax amount of only Rs.480/- to the Government. There is no manual calculation involved in the present regime. The process goes as under:

1. You have to upload details of all your outward supplies in Form GSTR-1.
2. GSTR 2A will get auto populated which will contain details of inward supplies made available to the recipient on the basis of Form  GSTR-1 furnished by the supplier
3. Any rectification/ modification to the Form GSTR-2A should be submitted in Form GSTR-2.
4. GSTR 3 which will be the monthly return which will be submitted by you. Your tax liability will be automatically calculated  on the basis of finalization of details of outward supplies and inward supplies  along with the payment of amount of tax.

Q.6. Is the self assessment process will be used to pay goods and services tax every month to Government Or Is it for income tax (i.e. tax on profit amount).

A.6. Self assessment tax will be the amount of GST which will be paid on your supply. It is not income tax. As per the revised rules, a new form GSTR-3B has been introduced by the government. Every taxpayer needs to file his return on self-assessment basis for the first two months i.e July and August. These return forms have to be filed by 20th of next month. Simultaneously, the taxpayer has to file the GSTR-1 for the month of July on or before September 5; an extension of 25 days has been extended for the month of July. For the month of August, this extension is limited to a period of 10 days. Once GSTR-1 is filed, GSTR-2 and GSTR-3 will auto-populate with information furnished under GSTR-1. Eventually, this GSTR-3 will be matched against GSTR-3B and any difference will be refunded or needs to be paid as the case may be. However, no penalty or late fees will be charged on the difference.

Q.7. If this is for Income tax then how do I do my assessment how much income tax to pay (as income slabs are yearly defined).

A.7. This is not income tax as clarified in point no-5.

Q.8. Is it income tax return will be done yearly basis as BAU process with no change  and self assessment is only for Goods tax?

A.8. Income tax and self assessment tax to be paid under GST regime are completely different from each other. The former is direct tax which will be paid yearly on the profits from business and profession while the later is indirect tax which will now be paid monthly under the current GST regime.

Our advice in case of your business

Since you are running a boutique at your residence and your turnover is expected to cross Rs.20 lakh this year, then you may opt for a composition levy under the GST regime, in case you want to pay lower tax and avoid monthly returns procedure. The following are the key points under this scheme:

1. This scheme is optional.
2. Aggregate turnover in the preceding financial year does not exceed Rs.75 lakh
3. You have to pay a GST rate of 1% on your turnover (0.5% CGST and 0.5% SGST) since you are a trader.
4. Under the scheme a tax payer is required to file one return in each quarter.
5. Since a scheme holder is not required to pay taxes at regular rates, he is not liable to issue a Tax Invoice, rather issue a Bill of Supply making this a more convenient option as lesser details are required.
6. A taxpayer registered under the composition scheme is barred from carrying out inter-state transactions and cannot affect import-export of goods and services.
7. Under the scheme, the credit of input tax paid on the purchases of inputs from a normal tax payer will not be allowed. The buyer of goods supplier by scheme holder will also not enjoy input tax credit resulting in price distortion, cascading, loss of business to scheme holders.
8. As per the Model GST Law, if the taxpayer who has previously been given registration under composition scheme is found to be not eligible to the composition scheme or if the permission granted earlier was incorrectly granted, then such taxpayer will be liable to pay the differential tax along with a penalty.
9. Not applicable to the supplier supplying goods through E-commerce.