GST Transition Process Simplified

A lot is being said and discussed about GST and its impact on small & medium businesses. It can be witnessed that large enterprises are already gearing up for the changes required in their current system to comply with the new GST regime. However, there exists doubts among SMEs on how to prepare themselves for transition into the GST regime and how this transition will affect their businesses.

In a recent forum organized by the Institute of Chartered Accountants of India, concerns were raised on lack of preparedness among the SME sector towards transition into the GST regime.

The objective of this article is to enable SMEs to plan their migration from the current regime into GST.

Registration Procedure

As per the model law, every entity registered under any of the earlier laws shall be issued a certificate of registration on a provisional basis on the appointed day, which is the 1st of April 2017. This certificate will be valid for a period of 6 months within which a registered taxpayer may have to furnish the required information.

On analysis of this provision, we can conclude that a registered taxpayer need not worry to again register under the GST regime as automatic registration will be granted on the appointed day. However, such registration will be a provisional registration and the taxpayer may need to furnish some additional documents electronically which will be notified. Thereafter, the certificate of registration would be granted on final basis.

As per the recent developments GSTN, who is providing the IT infrastructure for the implementation and administration of GST has confirmed that all the registered taxpayers in the present law will be migrated to the new regime by 8th November. Thereafter, the department will start collecting all the additional documents that may be required in the new regime.

Input Tax Credit

As per the Model GST law, a taxable person will be entitled to take credit of the amount of tax paid and carried forward in a return furnished under the earlier law. This credit will have to be taken in his or her electronic credit ledger, for the period before the appointed day.

Now on analysis of this provision, what needs to be ensured as part of transition process is, taxpayer must furnish his last return under the old regime with utmost care and should account all the input taxes paid and claim the credit of same in the new regime. Thus, considering 1st April 2017 as the appointed day for the rollout of GST, a taxpayer should ensure that he has accounted all the stock lying on 31st March 2017 and claimed the input credit in the return filing for period ending on 31st March 2017.

For such purposes taxpayer may have to re-count and re-validate the stock lying before the appointed day and also ensure that credit of such goods/service are eligible under the GST law.

Input Credit on Capital Goods

Transition provisions as contained under the Model GST law clearly specifies that any balance of input tax credit on capital goods purchased in the previous regime, against which partial input credit has been availed, will be allowed to be availed in the new regime as well.

Credit of Excise Duty or Additional Customs Duty

This is perhaps one of the most critical and controversial transition provision of GST. Under the current regime a dealer or trader is not allowed credit of excise duty or additional customs duty in lieu of excise.

However, under the new regime, supply of such goods would attract GST but no credit of excise duty or additional custom duty will be allowed. This would result into levy of GST on goods which have already been subject to tax under present regime without availability of any credits, leading to cascading and price distortion. This may further trigger stock returns from dealers and traders to the manufacturers before the appointed day, and then making a new purchase subsequent to the appointed day. Such scenario may create panic for the manufacturers and may affect their profitability as well.

Composition Scheme

Composition scheme is going to be another critical aspect of the transition process wherein the taxpayer must keep himself updated about the implication from migration into the new regime. Such impact is expected to be huge as the limit of turnover for composition scheme under GST has been raised to Rs. 50 lakh from the current limit of Rs. 10 lakh. Thus it can be fairly assumed that a large number of taxpayers will convert themselves from regular taxpayer to a taxpayer under the composition scheme. Similarly, vice versa of such cases is also expected wherein dealers who are under composition scheme may get transformed into regular taxpayer as the goods they are dealing into may not be exempted anymore.

Impact of such change have been shown in the following chart:

GST transition process

Although we are at a very nascent stage for GST implementation and transition thereof, these are mission critical aspects and it may change the way SMEs operate their businesses. Immediate attention on these issues will only enable the transition to happen smoothly.