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Goods and Service Tax – How this affects our purchases and Sales
1. Impact of GST on the purchases:
|
State
of Supplier |
Rate |
Creditable |
Proposed GST Rate |
Creditable |
|
Outside Tamil Nadu |
CST
2% |
No |
IGST
16% to 18% |
Yes |
|
Inside Tamil Nadu |
VAT
5% / 14.5% |
Yes |
SGST
+ CGST 16% to 18% |
Yes |
|
Outside India |
Imports |
BCD – No CVD+SAD Yes |
BCD
(present rate) + SGST + CGST 16% to 18% |
BCD
– No Others – Yes |
Inferences:
(a) Based on the above table, it could be referred that in all purchases, the Company had to pay tax of around 16% to 18%. For Imports, there will be an additional levy of Basic Customs Duty.
(b) However, there will be cost reduction to the extent of 2% CST due to IGST eligible for CENVAT credit.
(c) All services and inputs are eligible for credit (except certain items to be listed by the government)
(d) Hence, the company may have to shell out an additional 14% to 16% on its inter–state purchases, but it shall not affect the cash flows of the company because it is also going to collect the additional % from its suppliers. There could be a minor impact on cash flow during the initial months of implementation of the GST (depending upon the Company’s debtors credit period) till the existing stocks are cleared.
(e) There is a press release in December 2014 which indicates the
Government’s intention to continue CST at 1% for further 2 years (whereas
powers are given in the Constitution Amendment Bill to levy CST for maximum 5
years). This could be a cost to the company.
2. Impact of GST on the Sales:
|
Supplier |
Proposed GST Rate |
Creditable for buyers |
|
Sales within the State |
SGST
+ CGST 16% to 18% |
Yes |
|
Sales outside the State |
IGST
16% to 18% |
Yes |
|
Exports |
Zero
rated |
N.A. |
Inferences:
(a) From buyer’s perspective, they can claim credit of all GSTs (whether it is SGST / CGST / IGST).
(b) Reversal of credidit in relation to Stock transfers may be phased out in the new regime. But, given that the direct sale to the customers is better, there may not be much need for stock transfers, except for operational convenience.
CA T.R.Srinivasan
Shree Guru Kripa’s Institute of Management
Ph.No.: 97899 76079
Mail ID: trs.connects@gmail.com
