India

Goods and services tax (GST)

GST is an indirect tax, which is a transaction-based taxation regime, that has been in effect in India since 1 July 2017. 

Multiple indirect taxes (except customs duty) have been subsumed within GST, and there is one single tax applicable on supply of goods and services. However, there are a few products that continue to be outside the ambit of GST, such as petrol, diesel, aviation turbine fuel (ATF), natural gas, alcohol for human consumption, and crude oil.

For smooth GST implementation, the government has formed a GST Council. The Council consists of the State Finance Ministers representing their states. The GST Council provides recommendations to the government on various aspects of GST law, such as rate revisions and amendments in GST rules, etc.

GST regime

GST is a comprehensive ‘consumption tax’ levied on the supply of all goods and services. Indian GST is a dual model:

• Central GST (CGST), levied by the Central Government.
• State GST (SGST)/Union Territory GST (UTGST), levied by the State Governments/Union Territories.

In case of intra-state supply of goods and services, CGST+SGST/UTGST would become applicable, and in case of inter-state supply of goods and services, Integrated GST (IGST) would become applicable. IGST is a sum of CGST and SGST/UTGST. The rate of GST varies from 5% to 28% depending upon the category of goods and services being supplied or procured, the general rate of tax being 18% for the majority of supplies. Additionally, some categories of goods/services, such as vehicles, aerated beverages, etc., notified by the government are subject to compensation cess under GST.

The threshold limit for the purpose of obtaining GST registration is INR 2 million aggregate turnover in a financial year (INR 1 million for some special category states, such as the North-Eastern states). For the purpose of the threshold, aggregate turnover will be computed on a PAN-India basis. For some specific categories of supplies and suppliers, the registration requirement is mandatory.

However, the threshold for obtaining GST registration by a person who is engaged in exclusive intra-state supply of goods is INR 4 million aggregate turnover in a financial year, except in some specified cases.

Also, for some special category states making supply of goods/services (viz. Arunachal Pradesh, Himachal Pradesh, Meghalaya, Sikkim, and Uttarakhand), the threshold limit has increased from INR 1 million to INR 2 million. For other special category states, the threshold continues to be INR 1 million.

Similar to previous VAT laws, there is a concept of composition scheme under GST for small traders. Small traders having turnover of INR 10 million have an option to avail a composition scheme. Under the said scheme, GST at a lower rate (1% of the taxable turnover for manufacturers/traders and 5% in case of restaurants) would apply. The option to avail such a scheme restricts the admissibility to avail input credit.

Further, the option to pay tax under a composition scheme has been extended to services, except for the following:

• Supply of services not leviable to tax under the CGST Act.
• Inter-state outward supply of services.
• Outward supply of services through an e-commerce operator.

Import of goods and services

The import of goods under the GST regime will be subject to IGST and compensation cess (if applicable), along with basic custom duty (BCD) and social welfare surcharge (up to 10% levied on the BCD). BCD and social welfare surcharge paid at the time of imports are not available as credit under GST; consequently, they will always be a cost to the importer.

Similar to erstwhile service tax laws, on import of service, service recipient would be liable to pay IGST under reverse charge. Also, there are specified categories of goods and services notified by the government on which GST needs to be paid by the recipient under reverse charge such as legal services, Goods Transport Agency services, etc.

Central Board of Indirect Taxes and Customs (CBIC) vide Notification Nos. 11/2023, 12/2023, and 13/2023, dated 26 September 2023, has exempted the importers from paying IGST on ocean freight in cost, insurance, and freight (CIF) contracts. This is pursuant to the Supreme Court’s pronouncement in the matter of Moht Minerals.

Zero-rated supplies/export of goods and services

Export of goods and services are zero rated under GST. Exporters can claim refund of input tax credit (ITC) of inputs/input services used in export of goods/services, subject to fulfilment of prescribed conditions. To claim the zero rate on exports, there is a requirement to file a bond/Letter of Undertaking (LUT) to the jurisdictional tax authorities at the beginning of each financial year. Alternatively, the exporter can pay tax on output and claim refund for the same. 

Also, the supplies to an SEZ for authorised operations have been made zero rated under GST. Unlike the erstwhile indirect tax regime, which involved a lot of paperwork to claim export refund claims, a simplified online process to claim refund of exports has been specified under GST. The taxpayer is required to file a refund application and submit the relevant documents online on the GST portal.

To facilitate trade for smaller exporters, the concept of 'merchant exporter' has been introduced under GST. Accordingly, the merchant exporters will now have to pay nominal GST of 0.1% for procuring goods from domestic suppliers for export, subject to specified conditions.

Some clarifications issued by the government in relation to claiming refunds are as follows:

• Aadhaar authentication of registration made mandatory for being eligible for filing refund claim.
• Bank account for credit of refund means such bank account of the applicant that is in the name of the applicant and obtained on one's PAN.
• Option for filing refund of accumulated ITC by taxpayers making exempt/nil-rated supplies, by selecting an option of not having an LUT number in the refund application (to enable a taxpayer making exempt and/or nil-rated supplies, without LUT, to file a refund application [as they don’t have a valid LUT number to enter in the refund application], the Form RFD-01 has now been modified).
• To facilitate exporters, bunching of refund claims across financial years has now been allowed.
• Previously, to claim a refund of zero-rated supply of services, there was a requirement to receive remittance in foreign exchange within a stipulated time period. Now this requirement has been extended to zero-rated supply of goods as well.
• Refund of accumulated ITC is restricted to the amount appearing in Form GSTR-2A/2B. However, the department has now clarified that the restriction will not impact the refund of ITC availed on the invoices/documents relating to imports, Input Service Distributor (ISD) invoices, and the inward supplies liable to reverse charge (RCM supplies) merely because the same is not reflecting in Form GSTR-2A.
• For export of goods, if unutilised ITC is claimed as refund, it is proposed to be mandated to realise the consideration in foreign currency within the timelines prescribed in the Foreign Exchange Management Act (FEMA) guidelines. If the consideration is not realised within the prescribed time, the refund needs to be remitted back to the government along with interest.
• Refund of payment wrongly made through electronic credit ledger is allowed (refund amount would be re-credited to credit ledger).

Input tax credit (ITC)

As per the ITC provisions stipulated under GST law, a registered taxable person is eligible to claim ITC of such goods and services that are used or intended to be used in the course or furtherance of business. However, there is a specified list of goods and services mentioned below where credit will not be available under GST:

• Personal use of goods and services procured.
• Goods and services being used for effecting exempt supplies.
• Supply of the following goods and services:
  • Motor vehicles (credit available in certain cases where used for transportation business).
  • Specific credit restriction in respect of general insurance, servicing, repairs and maintenance, hiring, leasing, etc. in respect of motor vehicles, except when used for specified purposes (e.g. used in further supply of vehicles, for transportation of goods/passengers).
  • Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, except where such inward supply of goods or services of a particular category is used by a registered taxable person for making an outward taxable supply of the same category of goods or services.
  • Membership of a club, health, and fitness centre.
  • Rent-a-cab, life insurance, health insurance, except where the government notifies the services that are obligatory for an employer to provide to its employees under any law for the time being in force.
  • Travel benefits extended to employees on vacation, such as leave or home travel concession.
  • Works contract services when supplied for construction of immovable property, other than plant and machinery, except where it is an input service for further supply of works contract service.
  • Goods or services received by a taxable person for construction of an immovable property on one's own account, other than plant and machinery, even when used in the course or furtherance of business to the extend capitalised.
  • Goods lost, stolen, destroyed, written off, or disposed of by way of gift or free samples.

Having said the above, the ITC of goods and services that are obligatory for an employer to provide to its employees, under any law for the time being in force, is allowed.

Under GST, taxpayers are allowed to take ITC and utilise the same for payment of output tax liability. However, no ITC on account of CGST can be utilised towards payment of SGST/UTGST and vice versa. The credit IGST credit needs to be first utilised towards payment of output IGST liability. The IGST credit can be utilised to offset CGST/SGST or UTGST output liability, as the case may be, in any order.

Procedure for ITC availment

• Possession of tax invoice/debit note or any other credit availing document.
• Goods/services should have been received.
• ITC can be availed only on invoices/debit notes that have been furnished by the supplier in its Form GSTR-1 and are reflected in auto-populated Form GSTR-2A/2B of the buyer claiming ITC.
• The date of issuance of a debit note has been de-linked from the date of issuance of the underlying invoice for purposes of availing ITC. Given the same, ITC on debit notes is available irrespective of the date of invoice to which it relates (earlier there was a specified timeline to avail GST credit against a debit note). The functionality has been made effective on GST portal. Further, with effect from 1 January 2021, the date of issuance of debit note (not the date of underlying invoice) will determine the relevant financial year for the purpose of determining time period to avail credit as per the GST law.
• Where credit has been availed based on invoice, the recipient would be liable to pay credit so availed in case where return has not been furnished by the supplier.
• Penalty and prosecution provisions have been made more stringent in case of passing on or availing fraudulent ITC.

Also, it is pertinent to note that the credit pool is state-specific (i.e. IGST, CGST, and SGST of one state cannot be used to offset output of IGST, CGST, and SGST liability of another state).

Compliance

Monthly returns

There are three monthly returns for a normal taxpayer under GST:

• Form GSTR-1 for output (to be filed by the 11th day of the succeeding month). There is an option to file quarterly Form GSTR-1 returns (to be filed by the last day of the succeeding quarter) for suppliers whose turnover in the previous or current financial year was less than INR 15 million. Form GSTR-1 with no outward data can also be filed with a single click functionality on the GST portal.
• Form GSTR-2 for ITC (by the 15th day of the succeeding month).
• Form GSTR-3, a monthly tax return (by the 20th day of the succeeding month).

The government has notified a requirement to file monthly Form GSTR-3B (to be filed by the 20th day of the succeeding month).

Further, filing of Forms GSTR-2 and GSTR-3 continues to be suspended by the government.

The government had proposed to implement a new GST return system. The existing returns Form GSTR 1/GSTR 3B would be revamped in lines with the new format. However, this has currently been kept in abeyance (i.e. the existing system of Forms GSTR-1 and GSTR-3B is to continue).

Annual return

There is a requirement to file a GST annual return by 31 December of the succeeding financial year. Also, along with a GST annual return, suppliers whose turnover exceeds INR 50 million in a financial year are required to file a self-certified GST Audit Report by 31 December of the succeeding financial year.

Key updates

Compliance related

• Facility to view and download Electronic Credit Ledger, Electronic Cash Ledger, and Electronic Liability Register from the GST portal is available for 12 months (earlier this facility was available for six months).
• A download facility is available on the CBIC/GST portal for the entire Harmonised System of Nomenclature (HSN) directory in Excel format has also been provided to taxpayers under the link 'Download HSN in Excel Format'. This facility is available as a part of the ‘Search HSN’ functionality, available both in Pre and Post Login.
• The taxpayers having annual aggregate turnover up to INR 20 million are exempted from the requirement of furnishing annual return from FY 2020/21 onwards.
• Effective from 1 September 2021, the GSTN portal will check whether, before the filing of Form GSTR-1 of a tax-period, the following has been filed or not:
  • Form GSTR-3B for the previous month (for monthly filers), or
  • Form GSTR-3B for the previous quarterly tax period (for quarterly filers), as the case may be.
• Form GSTR-1 filing has been made mandatory before filing of Form GSTR-3B for the concerned month.
• Taxpayers whose annual aggregate turnover in the preceding financial year is above INR 50 million shall furnish ITC-04 (job work return) once in six months commencing on 1 April and 1 October.
• Taxpayers whose annual aggregate turnover in the preceding financial year is up to INR 50 million shall furnish ITC-04 once in a financial year.
• A self-service functionality has been made available on the GST Portal that can be used to search Bill of Entry (BOE) details, which did not auto-populate in GSTR-2A, in GST System, and fetch the missing records from ICEGATE.
• It usually takes two days (after reference date, either out of charge date, duty payment date, or amendment date, whichever is later) for BOE details to get updated on the GST Portal from ICEGATE.
• Enabled furnishing of nil return in Form GSTR 3B or in Form GSTR-1 for a tax period through a SMS using the registered mobile number, which shall be verified based on one-time password facility.
• An auto-populated ITC statement Form GSTR-2B facility has been enabled from 12 September 2020 (available on 14th of subsequent month) capturing details of credit available on import of goods, domestic procurement, etc. Basis statement taxpayers can reconcile credit to be availed/revered in monthly Form GSTR-3B. With effect from January 2022, only the credit that reconciles with GSTR-2B can be availed. No excessive credit permitted to be availed. Unreconciled credit can be carried forward to the next month’s compliance period for reconciliation with Form GSTR-2B. Such carryforward of credit can be made till the 30th day of November of the succeeding year, post which the credit would lapse.
• As per a Notification dated 28 September 2022, the government has made an amendment within the Finance Act, 2022 to specify that all year-end adjustments (i.e. availment of credit, reporting of credit/debit notes) can be made till 30 November of the succeeding financial year. Previously, such a timeline was specified as last date for filing of return for the month of September of succeeding financial year.
• CBIC Notification, dated 5 July 2022, notified amendment made in section 50(3) of the Central Goods and Services Tax Act, 2017 implementing the proposal within the Finance Act, 2022, wherein, it has been specified that interest on delayed payment of tax would be levied only in cases where the taxpayer has wrongly availed and utilised credit.
• New HSN disclosure norms applicable from 1 April 2021. This is in respect of HSN reporting of supply of goods or services at the time of filing GST returns. The requirement of quoting HSN as per table below has been mandated on e-way bills and e-invoices, respectively.
  
  

  Aggregate turnover in the preceding financial year	Number of digits of HSN code
  Below INR 50 million	4 (not required for B2C invoices)
  Above INR 50 million	6

• A GST Officer can proceed for cancellation of GSTIN where a taxpayer avails ITC exceeding that permissible in Section 16 of CGST Act, 2017 (i.e. not reconciling with Form GSTR 2B).
• Where the liability declared in Form GSTR-3B is less than that declared in Form GSTR-1 in a particular month, department may now proceed with cancellation of GSTIN.
• Now, no opportunity of being heard shall be given to a taxpayer for suspension of GSTIN, where the proper officer has reasons to believe that the registration of person is liable to be cancelled.
• Where a GSTIN is suspended, no refund under Section 54 of Central Goods and Services Tax Act, 2017 can be availed by the taxpayer.
• Where a taxpayer fails to file Form GSTR-3B for two subsequent months, Form GSTR-1 shall now be blocked. 
• The government through Notification 14/2022-Central Tax dated 5 July 2022 has introduced certain changes in Form GSTR-3B, such as reporting of ineligible credit, reporting of credit reversals, etc. Further, a new table 3.1.1 has also been introduced, whereby, electronic commerce operators can disclose supplies on which tax is to be paid by them.
• Pursuant to the above said notification, the CBIC has issued an advisory to clarify that the impact of credit notes and their amendments will now be auto-populated in Table 4(A) (i.e. ITC available) instead of Table 4(B) (i.e. ITC reversed) of Form GSTR-3B. Further, taxpayers can now enter negative values in Table 4A and 4D (2) of Form GSTR-3B.
• The GSTN portal, with a perspective to streamline the credit reversal and reclaim of ITC, has introduced the electronic credit reversal and reclaimed statement to validate the taxpayer’s reclaimed ITC. 
• In order to introduce uniformity in the reporting disclosure of reversal of input credit within Form GSTR-3B, amendments in Table-4 of Form GSTR-3B were introduced vide Notification No. 14/2022 dated 5 July 2022 read with Circular No. 170/02/2022-GST dated 6 July 2022. Post such amendments, the total input credit as reflected in the Form GSTR-2B (including ineligible credit) is auto-populated in Table-4A of Form GSTR-3B. Correspondingly, the total credit as available in Form GSTR-2B is bifurcated into the following two streams:
  • Permanent reversal of ineligible input credit in accordance with the provisions of rules 38/42/43 and section 17(5) of Central Goods and Service Tax Act, 2017.

Such ineligible credit is to be permanently reversed and reported within Table-4B (1) of Form GSTR-3B.

• • Temporary reversal of credit to be reported under Table-4(B) (2) of Form GSTR-3B.

Taxpayers need to report temporary reversal of ITC, which are not permanent in nature and can be reclaimed in future subject to fulfilment of specific conditions as per GST regulations. Such input credit is to be reported under Table-4(B) (2) of Form GSTR-3B. Till the time of the availment of such input credit within Form GSTR-3B return, such input credit is carried forward with the pool of the total credit and is reclaimed upon satisfaction of requisite criteria towards availment of input credit as per GST regulations.

Upon reclaiming of such credit in future, taxpayers will report it within Table-4A (5) and Table-4D (1). 

• Pursuant to the Notification No. 56/2023, dated 28 December 2023, the timelines for issuance of order under section 73(9) of the Central Goods and Service Tax Act, 2017 for recovery of tax short paid or ITC wrongly availed, as stipulated under section 73(10) of the Central Goods and Service Tax Act, 2017, was extended as follows:

• • For the FY 2018/19: Up to 30 April 2024.
  • For the FY 2019/20: Up to 31 August 2024.

Clarifications

• It is clarified that there is no need to carry a physical copy of tax invoice in cases where invoice has been generated by the supplier in the prescribed manner and production of the Quick Response (QR) code having an embedded Invoice Reference Number (IRN) electronically, for verification by the proper officer, would suffice.
• It is clarified that a company incorporated in India and a body corporate incorporated by or under the laws of a country outside India, which is also referred to as foreign company under Companies Act, are separate persons under the GST law, and thus are separate legal entities. Accordingly, these two separate persons would not be considered as 'merely establishments' of a distinct person in accordance with provisions of the GST law. This was one of the major issues why the tax authorities were rejecting the GST refund claims for various taxpayers.
• Time period to claim refund of tax paid on an intra-state/inter-state supply subsequently held to be inter-state/intra-state supply is two years from the date of payment of tax under the correct head. Earlier, there was ambiguity around the time period to claim such refund claim.
• It is clarified that service provided by way of cooking and supply of food, by cloud kitchens/central kitchens, are covered under the category of 'restaurant services' and attract 5% GST [without ITC].
• It is clarified that where ice cream parlours sell pre-manufactured ice cream and do not cook/prepare ice cream for consumption, such as a restaurant, it is supply of ice cream as goods and not as a service, even if the supply has certain ingredients of service. Accordingly, it is clarified that ice cream sold by a parlour or any similar outlet would attract GST at the rate of 18%.
• A circular dated 3 August 2022 clarified the GST implications on liquidated damages, compensation, and penalty arising out of breach of contract wherein it has been specified that amounts paid only to compensate for injury, loss, or damage suffered by the aggrieved party is not liable to GST. Similarly, forfeiture amounts, fines, penalties, etc. in which there is no underlying supply are not liable to GST.
• Guidelines for disallowing debit of electronic credit ledger have been issued.
• Clarification issued around classification of intermediary services.
• The CBIC clarified that director's remuneration declared as 'salaries' in the books of company (subject to tax deducted at source) is the consideration for the services provided by an employee to the employer in the course of or in relation to employment. Therefore, in terms of Schedule III of the Central Goods and Services Tax Act, 2017, such remuneration would not be subject to GST.
• Further, it has been clarified that part of employee director remuneration that is not declared as salary in the company's books and is subject to tax deducted at source (fee for professional or technical services) would be liable to GST under reverse charge (i.e. company would be liable to discharge GST liability on it under reverse charge).
• Through Notification dated 5 July 2022, the formula for claiming refund under inverted duty structure has been modified. Further, as per Notification dated 13 July 2022, certain goods have been specified against which refund of unutilised credit would not be allowed under inverted duty structure.
• Through the GST Council meeting held on 18 July 2022, the GST rates on several goods and services was revised. Further, the Council rendered clarification on supply of various goods and services.
• The CBIC has amended the notification of reverse charge to include the supply of services of renting of residential property from an unregistered person to the registered person, where such renting was for other than residential purpose and renting is not for one's personal purpose.
• The CBIC has clarified that the activity of providing corporate guarantee by a related person as well as by a holding company for its subsidiary company or related person is treated as a supply even if made without consideration, and the taxable value for this purpose will be the higher of the 1% of guarantee offered or actual consideration.
• It has also been clarified that no GST would be payable on personal guarantee offered by directors to the bank against the credit limits/loans sanctioned to the company if there was no consideration paid by the company to directors.
• Moreover, RCM is not leviable on services supplied by a director to the company in the director's personal capacity, such as renting of immovable property to the company or body corporate.
• It has been clarified that the supply of foods or beverages in a cinema hall that are supplied independent of cinema exhibition is taxable as restaurant service. Moreover, if sale of ticket and foods are clubbed together, then it is composite supply and tax applicable on cinema exhibition will apply.
• It is clarified that the manufacturing/distributors are not required to charge GST on free of cost under warranty replacement of parts/repair services, and there is no need for ITC reversal thereof.
• Holding of shares of a subsidiary company by the holding company cannot be treated as supply of services, as these are outside the purview of GST.
• The government on the basis of recommendation of the GST Council in the 50^th and 51^st meetings has made online gaming actionable claims in casinos as taxable supply and, with effect from 1 October 2023, specified actionable claims, including betting, casinos, gambling, horse racing, lottery, or online money gaming, will be subject to a tax rate of 28% on the full value of the bets placed.
• Through Circular No. 199/11.2023, dated 17 July 2023, the government had clarified that for prior transactions whereby ITC was transferred to other registrations of a single taxpayer through the cross-charge mechanism would be considered as valid and that for such prior period ISD was not mandatory.

However, post the 52^nd Council meeting, the government had stated that transmission of ITC through ISD would gradually be made mandatory. This provision has not been notified as yet.

• It was clarified vide Instruction No. 05/2023-GST, dated 13 December 2023, that show cause notice under section 74 of Central Goods and Service Tax Act, 2017 will be issued to the taxpayers only where an element of fraud or wilful misstatement or suppression of facts to evade tax exists, while investigating secondment arrangements of overseas employees within group companies.

SEZ-related updates

• A new declaration has been introduced in the SEZ online portal while filing the DTA Procurement Form (Goods) and DSPF (services) confirming that the supplies are availed by an SEZ entity from DTA for authorized operations only.
• Ad hoc extension till 30 June 2020 had been provided for undertaking compliances filing of SOFTEX, Annual Performance Reports, Extension of Letter of Approval (LoA), etc. For ease of doing business on account of the COVID-19 outbreak, revised guidelines for work from home have been issued. Further, the last date of filing ARPs/QPRs by SEZ units/Developers/EOUs has been extended to 31 December 2020. This had been further extended to 31 December 2021 and further extended again to 30 June 2022.
• The government has amended the SEZ rules to permit IT/ITeS units in SEZs to allow 100% of their workforce to work from home (WFH) till 31 December 2023, subject to certain conditions.
• A uniform list of services to SEZ for day-to-day operations has been notified to avoid the requirement of getting approval from the Development Commissioner.
• The time period for renewal of Registration Cum Membership Certificates (RCMCs) has been extended. The RCMC is issued by the relevant Export Promotion Council and is valid for a particular period. The Directorate General of Foreign Trade has directed the concerned licensing authorities not to seek an RCMC in cases where the validity expired on or before 31 March 2020 for grant of export benefits/incentives. This dispensation would remain in force till 30 September 2020. Considering this, SEZ units can renew an RCMC granted by the Export Promotion Council for EOU and SEZ (EPCES) till 30 September 2020.
• Development Commissioners have been requested to advise State Government/Private SEZs to consider similar relief measures.
• In the Union Budget for FY 2022/23, the government proposed to replace the existing law governing SEZs with a new legislation, proposals of which include incentives, such as retention of zero-rating of IGST on domestic procurement by a unit in an SEZ, continuation of indirect tax benefits to developers of these zones, and allowing depreciation on sale of used capital goods cleared to domestic tariff areas. The new legislation is envisaged to enable states to become partners in 'Development of Enterprise and Service Hubs' (DESHs).
• A new facility has been implemented in the SEZ Online System regarding Service Exports Filing (SERF) to declare the foreign currency value of the transaction, and the system will automatically calculate and present the rupee value based on the exchange rates present in the system for the invoice date. This facility is already available in 'Softex Forms' and now it has been extended to 'SERF' as well. Also, in case of non-standard currencies (if any), the exchange rate declared by the user will be considered for calculating the rupee value.
• Facility for Online Payment of Customs Duty (SEZ to DTA transactions) is being significantly enhanced to enable net-banking facility and API-based processing. This will be an additional facility (i.e. in addition to existing facility of NEFT/RTGS-based payments). SEZ online has initiated testing with ICEGATE for the same. ICEGATE is expected to enable this from 1 April 2023 tentatively.

Concept of e-invoicing under GST

The government introduced an e-invoicing system under GST laws with effect from 1 October 2021. A summary of the key aspects of the proposed e-invoicing system is briefly explained below.

• The e-invoicing (for B2B invoices/GST registered recipients) was made mandatory from 1 October 2021 for the taxpayers whose aggregate turnover in a financial year (in any of the last three financial years) exceeded INR 500 million. 
• The applicability of the e-invoicing threshold was INR 5 billion till 31 December 2020 and INR 1 billion till 31 March 2021, which was further revised to INR 500 million with effect from 1 April 2021, INR 200 million with effect from 1 April 2022, and INR 100 million with effect from 1 October 2022.
• The turnover limit for e-invoicing purposes has been revised to INR 50 million with effect from 1 August 2023.

• E-invoicing is a system in which invoices would be authenticated electronically by a portal of the government.
• The companies would need to submit details related to the invoice on the government approved/authorised portal known as the Invoice Registration Portal (IRP), which would issue a unique identification number (i.e. Invoice Registration Number [IRN]) and QR code against every invoice.
• Without an IRN/QR code, the invoice issued by the company would be invalid and the recipient company would not be eligible to avail credit.
• All invoice information will be transferred from the IRP to the GST portal (of both supplier and recipient).
• Certain classes of registered persons (insurance company, banking company, financial institution, non-banking financial institution, GTA, passenger transportation service, SEZ units, government departments and local authorities, persons supplying services by way of admission to the exhibition of cinematographic films in multiplex services, etc.) are exempted from issuing e-invoices or capturing dynamic QR codes.
• Further, effective from 1 October 2021, for invoices issued to unregistered customers (B2C), such taxpayers are required to issue/capture dynamic QR code on the invoice. The purpose of dynamic QR code is to encourage digital payments where buyers can scan the dynamic QR code and make payment from mobile wallet directly.
• According to an update on the e-invoice portal, with effect from 1 November 2023, it has been decided to impose a time limit of 30 days on reporting of old invoices (including debit notes and credit notes) on the e-invoice portal for taxpayers with turnover greater than or equal to INR 1 billion.

Other GST returns

With effect from 1 October 2018, the government has made tax deducted at source/tax collected at source provisions stipulated under GST laws effective.

Tax deducted at source provisions are applicable on cases specified under section 52 of the Central Goods and Services Tax Act, 2017. The notified taxpayers, like the government, Public Sector Undertakings, etc., are required to deduct 2% tax (1% CGST, 1% SGST, or 2% IGST) on payments made for goods/services to suppliers where payment exceeds INR 0.25 million. The tax so collected would be available as credit to the supplier in its electronic cash register, which can be used for set-off against future tax liabilities.

Tax collected at source provisions are applicable for e-commerce operators. Every e-commerce operator is required to deduct 1% tax (0.5% CGST, 0.5% SGST, or 1% IGST) on net value of supplies provided by suppliers through the e-commerce operator's portal. As per the Notification, for the supplies made through the platform of an e-commerce operator, tax is to be paid by the said e-commerce operator. Further, such transactions are to be reported by the e-commerce operator within their Form GSTR-3B.

The requirement of issuance of the tax deducted at source certificate under GST laws has been relaxed (post acceptance of tax deducted at source by deductee on GST portal, it shall be electronically available on GST portal).

The due date of filing the tax collected at source return (Form GSTR-8) is the 10th day of the next month. 

E-way bills

The e-way bill is an electronic bill that will be required for the movement of goods in case the value of the consignment is above INR 50,000. The movement of goods may be (i) in relation to supply, (ii) for reasons other than supply, or (iii) due to inward supply from unregistered persons.

The e-way bill can be generated from the GSTN portal, and every GST-registered taxpayer is required to comply with the requirement to issue an e-way bill.

With effect from 16 November 2018, new enhancements have been made in the e-way bill system, which involves checking of duplicate e-way bills, complete knock down/semi knock down movement of goods imported/exported, shipping address to be mentioned on e-way bill for goods exported outside India, etc.

A rule was inserted such that a person, including consignor, consignee, transporter, courier agency, or an e-commerce operator, who has not filed their GST returns for two consecutive tax periods will not be allowed to generate an e-way bill. 

In cases where the principal supply is purely a supply of service and involving no movement of goods, the e-way bill is not required to be generated.

However, in cases where, along with the principal supply of service, movement of some goods is also involved, the e-way bill may be generated. Such situations may arise in cases of supply of services like printing services, works contract services, catering services, pandal or shamiana services, etc. In such cases, the e-way bill may be generated by entering the details of HSN code of the goods, along with SAC (Service Accounting Code) of services involved.

Advance rulings for Customs and GST

To enable foreign investors to ascertain their indirect tax liabilities arising from proposed business ventures in India, the Central Government has constituted the Authority for Advance Rulings (AAR) as a high-level, quasi-judicial body. The functions of the AAR consist of giving advance rulings on a specific set of facts relating to specified matters under Customs and GST.

Advance rulings may be sought by any resident/non-resident investor entering into a joint venture in India in collaboration with another non-resident or resident of India, or by a resident setting up a joint venture in India in collaboration with a non-resident. This facility has also been made available to existing joint ventures in India. The Central Government is also empowered to include any other class or category of persons as eligible for the benefit of an advance ruling. Under the customs law, the Central Government has allowed a ‘resident public limited company’ to be eligible for an advance ruling. Under the erstwhile excise and service tax regime, advance rulings could be given only on a proposed transaction, whereas under GST, advance rulings can be obtained on a proposed transaction as well as a transaction being undertaken by the appellant.

In terms of GST provisions, the following matters/questions specified can be sought before the AAR:

• Classification of any goods or services, or both.
• Applicability of a notification issued under the provisions of the Central Goods and Services Tax Act, 2017.
• Determination of time and value of supply of goods or services, or both.
• Admissibility of ITC of tax paid or deemed to have been paid.
• Determination of the liability to pay tax on any goods or services, or both.
• Whether applicant is required to be registered.
• Whether any particular thing done by the applicant with respect to any goods or services, or both, amounts to or results in a supply of goods or services, or both, within the meaning of that term.

The comprehensive provision for advance rulings is provided under GST to ensure that disputes are minimal. Timelines are also given within which the ruling is to be given by the concerned authority. The aim is to provide certainty to the taxpayer with respect to one's obligations under the Central Goods and Services Tax Act, 2017 and an expeditious ruling, so that the relationship between the taxpayer and administration is smooth and transparent and avoids unnecessary litigation.

Amnesty scheme under indirect tax

Various states (viz. Gujarat, Maharashtra, Karnataka, Haryana, etc.) have introduced amnesty schemes for settlement of past VAT dues with waiver (certain percentage) of tax dues, interest, and penalty dues, subject to fulfilment of prescribed conditions.

Late fees for composition dealers have been reduced to INR 500 through Notification No. 2/2023-Central Tax, dated 31 March 2023, in case of delayed filing of GSTR-4 from 1 July 2017 to 31 March 2022, provided that the taxpayer’s file it on or before 30 June 2023. Further, if the tax payable is nil, then no late fees is required to be paid.

As per Notification No. 2/2023-Central Tax, dated 31 March 2023, the taxable person whose registration got cancelled on account of non-filing of returns and who had failed to file revocation within the time limit (i.e. 30 days) can now apply for revocation of cancellation up to 30 June 2023 only after furnishing the returns due till effective date of cancellation along with due tax, interest, penalty, and late fee.

Best judgement assessment order shall be deemed to be withdrawn, provided returns along with interest and late fees have been filed up to 30 June 2023.

The late fees for delayed furnishing of the annual return for FY 2017/18 to FY 2021/22 has been reduced through Notification No. 7/2023-Central Tax, dated 31 March 2023, to INR 20,000 (CGST 10,000 + SGST 10,000), provided such return has been furnished up to 30 June 2023.

The time limit for passing order under section 73(10) (i.e. non-fraud cases) has been extended by further three months in each of FY 2017/18, 2018/19, and 2019/20, as follows:

• FY 2017/18: 31 December 2023.
• FY 2018/19: 31 March 2024.
• FY 2019/20: 30 June 2024.

The CBIC extended the time limit for availing the benefit of amnesty schemes as stated above, which were notified dated 31 March 2023, till 31 August 2023.

The time limit for filing appeal against demand orders under sections 73 and 74 issued till 31 March 2023 has been extended to 31 January 2024. The extension is subject to making a pre-deposit of 12.5% (as against 10%) of the tax under dispute (with at least an incremental 2.5% to be discharged from the electronic cash ledger).

Customs duty

All goods imported into India are subject to customs entry requirements and are subject to customs duty generally on an ad valorem basis, except for few items (e.g. edible oils, gold, silver) that are subject to specific tariff rate as notified from time to time.

The customs duty is levied based on the classification as laid down in the Customs Tariff Act, 1975 which follows the Harmonized System of Nomenclature of the World Customs Organisation (WCO), with certain localisation. The customs duty on entry of goods is levied on transaction value (i.e. price paid or payable in additions as provided under Customs Valuation Rules, which are based on GATT Valuation Code). The value basis for assessment is CIF apart from other additions that may be required as directed by Customs in terms of Customs Valuation Rules. However, related-party transactions are scrutinised closely by Indian Customs for arm’s-length nature of transaction and complete disclosure of value for the purpose of assessment of customs duty.

The customs duty comprises basic customs duty (generally levied at 7.5% or 10%) apart from other duties comprising of:

• Social Welfare Surcharge: An additional surcharge up to 10% of the BCD is levied to fund social welfare programs.
• IGST and Compensation Cess: Imports are subject to IGST and, if applicable, Compensation Cess under the GST regime as levied on identical goods manufactured and sold in India.
• Health Cess: Effective from 2 February 2020, a 5% health cess is imposed on the import of medical devices to support health infrastructure.
• Agriculture Infrastructure and Development Cess (AIDC) is an additional levy imposed on certain imported goods. It is levied at a specified rate on the assessable value of the imported goods. It is designed to fund infrastructure development in the agriculture sector.

In addition to these duties, which are dependent on classification, certain goods are subject to anti-dumping, countervailing, and safeguard duty as well. Also, depending upon the economic and trade requirement, the government can change the rate of duties on specified goods/sectors.

Exemption from these duties is extended on certain classifications and/or end use/sectoral promotion, including bilateral/multilateral trade agreements. Some of these exemptions can be conditional and require additional compliances as well. Moreover, exemptions now have a validity of two years from the date of notification.

Exemption from customs duties is also extended to promote exports, including businesses located in Free Trade Zones. However, these are linked to export commitments and other conditions/requirements.

Apart from customs duty, imports into India are subject to compliance with trade policy requirements as notified under Foreign Trade Policy. Largely, goods are freely importable; however, some goods may require pre-approval/licences and compliance with domestic regulations in terms of certifications, approvals, etc.

On the export side, while largely no customs duty is levied except on a few specified items, India, being part of the export control regime, monitors export of potential dual use goods and technology.

The cross-border transaction is done through the online portal of Indian Customs, which also has single window facilitation for other approvals. The customs duty needs to be paid electronically within 24 hours of importation and filing of import entry; otherwise, interest and penalty is payable as well. However, specific Authorised Economic Operator (AEO) status holders are eligible for duty deferment benefit, subject to conditions. Apart from this benefit, the AEO status holders are extended certain additional benefits in terms of compliances and procedural relaxations.

Moreover, while the clearances are handled by the Customs Broker, the consequences of any error or mis-declaration lie with the importer. Hence, the Customs Broker arrangement needs to be examined and reviewed periodically vis-à-vis compliance status.

While Indian Customs now follows a self-declaration regime with faceless customs assessment system in operation, trade needs to ensure that declarations made at the time of import/export entry are correct and compliant with the applicable laws. Indian Customs has adopted post clearance audits where the trade is audited on these compliances as per internal guidelines or periodic checks.

As a trade facilitation measure, an Advance Ruling mechanism is available under Indian Customs for the trade to seek ruling on specific aspects prior to import, like classification, exemption/duty rates, valuation methodology, and origin compliance.

Non-compliance or evasion of duty through suppression of facts or mis-declaration can trigger investigation by the investigative arm of Indian Customs, which, depending upon the facts, can cover a five-year period and may result in notices for demand and penalties, including personal penalties. Hence, having a robust compliance and record management system is a must, as well as being updated on relevant developments.

Property taxes

Property tax is levied by the governing authority of the jurisdiction in which the property is located. The rate of tax levied varies from city to city in India and is generally related to the prevailing market prices for property in each locality.

Stamp duties

Stamp duty is a government tax that is levied on all legal property transactions. Stamp duty is a tax that is paid as evidence for any purchase or sale of a property between two or more parties. Stamp papers, which are bought either in the name of the buyer or seller, are valid for six months, provided the stamp duty is paid without any delay. No document that has not been duly stamped can be introduced as evidence in any court proceedings. Stamp duty is charged at both central and state levels. State level stamp duties vary from state to state, and on the document type. Stamp duty should be paid in full without any delay, failing which, a penalty is levied. Stamp duty has to be paid prior to execution (signature by an individual’s party) of a given document, the next day, or on the day of document execution. Stamp duty is paid by a buyer in most cases. However, both the seller and the buyer have to bear the burden of stamp duty for property exchange cases. Stamp duty rates differ in various states across the country, as stamp duty in India is a state subject. However, the Central Government fixes the stamp duty rates of specific instruments.

Equalisation levy

Action Plan 1 (Digital Economy) of the OECD’s BEPS project discussed several options to tackle direct tax challenges in the digital environment. Taking cues from this, an equalisation levy is available, the summary of which is as follows:

• Rate of levy: 6% of the amount of consideration for specified service.
• Meaning of ‘specified service’: Online advertisement, any provision for digital advertising space, or any other facility or service for the purpose of online advertisement, which includes any other service as may be notified by the Central Government in this regard.
• On whom: Non-resident receiving consideration for specified services from:
• a person resident in India and carrying on business or profession, or
• a non-resident having a PE in India.
• Exemption from income tax: The income arising to the non-resident from the specified service and chargeable to an equalisation levy will be exempt from income tax.
• With effect from 1 April 2020, equalisation levy is extended to include transactions where consideration exceeding INR 20 million is received/receivable by a non-resident ‘e-commerce operator’ for ‘e-commerce supply or services’ made/provided/facilitated on or after 1 April 2020. Rate of equalisation levy on such transactions will be at the rate of 2%. This will include the following transactions where services are provided by e-commerce operator to:
• a person resident in India
• a non-resident in specified circumstances, or
• a person who buys goods/services using an IP address located in India.
• Non-applicability in specified cases: Equalisation levy will not be charged in the following cases:
• The non-resident providing specified service has a PE in India and the specified service is effectively connected with the PE.
• The aggregate consideration received or receivable in the previous year by the non-resident does not exceed INR100,000.
• The payment for the specified service by the Indian resident or PE is not for conducting business or a profession in India.

The Finance Act, 2021 has amended the provisions of equalisation levy to clarify that ’online sale of goods‘ and ’online provision of services‘ will include one or more of the following online activities:

• Acceptance of offer for sale.
• Placing the purchase order.
• Acceptance of the purchase order.
• Payment of consideration.
• Supply of goods or provision of services, partly or wholly.

Consideration received or receivable from e-commerce supply or services will include:

• consideration for sale of goods, irrespective of whether the e-commerce operator owns the goods, and
• consideration for provision of services, irrespective of whether service is provided or facilitated by the e-commerce operator.

In addition to the above, it has been provided that the consideration taxable as royalty or fees for technical services will not be subjected to Equalisation levy.

These amendments have been made effective retrospectively from 1 April 2020.

Further, withholding tax (WHT) provisions on e-commerce operators making payments to resident e-commerce participants were introduced. These provisions provides that e-commerce operator making payment to resident e-commerce participant will withhold taxes at the rate of one percent of the gross amount of sales/services. The e-commerce participant means as an Indian resident who is selling goods or providing services or both through digital or electronic facility or platform. These provisions are applicable from 1 October 2020.

Compliances under Equalisation levy provisions:

Payment of Equalisation Levy

Equalisation Levy is required to be deposited to the credit of the Central Government on a quarterly basis by the below mentioned due dates:

Furnishing of Annual Statement

Annual Equalisation Levy Statement is required to be filed on or before 30 June of each year. 

Processing of Equalisation Levy Statement

The Indian tax authorities have notified a Scheme for Centralised Processing of Equalisation Levy Statements, 2023 (Equalisation Levy Scheme 2023). The Scheme also provides that the taxpayer or e-commerce operator may furnish the Equalisation Levy Statement or a revised Equalisation Levy Statement at any time before the expiry of two years from the end of the financial year in which the e-commerce services were provided or e-commerce supply or services were made or provided or facilitated, or furnish the Equalisation Levy Statement in response to a notice sent by the tax officer.

Virtual digital assets (VDAs): Crypto taxation

Finance Act, 2022 has introduced provisions to bring VDAs (including crypto currencies, NFTs, etc) into tax ambit. The gains arising on transfer of VDAs would be taxable at 30% without providing any deduction of expenses other than cost of acquisition. Further, any loss arising on transfer of VDAs is not permitted to be set-off against any other income in the current year or subsequent years.

Tax is to be deducted at 1% payment to a resident on transfer of VDAs with effect from 1 July 2022.

Buyback of shares

An additional tax is payable on transactions involving buyback of shares by Indian companies from its shareholders. A tax at 20% (plus surcharge at 12% and health and education cess at 4%) is payable by the company on the difference of consideration paid on buyback and the issue price of shares. The CBDT has prescribed the methodology for determination of amount received for issue of shares under 12 different situations, being a subject matter of tax on buyback. The buyback consideration received will be tax exempt in the hands of the receiver. No tax credit will be allowed in case of such taxes paid either to the company or to the shareholder.

Securities transaction tax (STT)

STT is applicable to transactions involving the purchase/sale of equity shares, derivatives, units of equity-oriented funds through a recognised stock exchange, or the purchase/sale of a unit of an equity-oriented fund to any mutual fund. The STT leviable in respect of such transactions varies for each kind of instrument, whether delivery based or non-delivery based. Rate of STT varies from 0.001% to 0.125%, depending upon the nature of securities. However, securities transacted by any person on a recognised stock exchange located in an International Financial Services Centre where the consideration for such transaction is paid or payable in foreign currency are not subject to STT.

Taxability of Partnership/ LLP

A partnership firm and an LLP are taxed as separate legal entities. The share of income of partners from a partnership firm or an LLP is exempt from tax. Partnerships and LLPs are taxed at 31.2% (inclusive of surcharge and health and education cess) if the income is less than INR 10 million and 34.944% (inclusive of surcharge and health and education cess) if the income exceeds INR 10 million. Alternate minimum tax at the rate of 18.5% applies to a partnership/LLP.

The interest payment to partners on capital or current account is allowed as tax-deductible expenditure. However, the maximum interest rate allowable for tax purposes is 12% per annum. A working partner can be paid salary, bonus, commission, or remuneration. The maximum permissible deduction in respect of remuneration payable collectively to all working partners is based on the book profit of the firm, at slab rates for different levels of book profit.

Payroll taxes and social security payments

Please see Social security contributions in the Other taxes section of the Individual tax summary.