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India vat-2011-vat-gst-essentials India vat-2011-vat-gst-essentials Document Transcript

  • GLOBAL INDIRECT TAX IndiaCountry VAT/GST Essentials kpmg.com VAT
  • b | India: Country VAT/GST Essentials© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • India:Country VAT/GST EssentialsContentsScope and Rates 2 Invoices 6What supplies are liable to VAT? 2 What do I have to show on a tax invoice? 6What is the standard rate of VAT? 2 Can I issue invoices electronically? 7Are there any reduced rates, zero rates, or exemptions? 3 Is it possible to operate self-billing? 7Registration 3 Transfers of Business 7Who is required to register for Indian VAT? 3 Is there a relief from VAT for the sale of a businessAre there penalties for not registering or late as a going concern? 7registration? 3 Options to Tax 7Are there any simplifications that could avoid the Are there any options to tax transactions? 7need for an overseas company to register for VAT? 4 Head Office and Branch Transactions 8VAT Grouping 4 How are transactions between head office andIs VAT grouping possible? 4 branch treated? 8Can an overseas company be included in a VAT group? 4 Bad Debt 8Returns 5 Am I able to claim relief for bad debts? 8How frequently are VAT returns submitted? 5 Anti-Avoidance 8Are there any other returns that need to be submitted? 5 Is there a general anti-avoidance provisionVAT Recovery 5 under VAT law? 8Can I recover VAT if I am not registered? 5 Penalty Regime 9Does your country apply reciprocity rules for reclaims What is the penalty and interest regime like? 9submitted by non-established businesses? 5Are there any items that you cannot recover VAT on? 5International Supplies of Goods and Services 6How are exports of goods and services treated? 6How are goods dealt with on importation? 6How are services which are brought in from abroadtreated for VAT purposes? 6All information reflected in this document was obtained/summarized from KPMG in India as of October 2011.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 2 | India: Country VAT/GST EssentialsScope and RatesWhat supplies are liable to VAT? What is the standard rate of VAT?India has a federal structure with both federal and state VAT is generally charged at standard rates, namelyspecific indirect tax levies on sale of goods. India introduced 4/5 percent or 12.5/15 percent, depending upon the nature(in the period 2003–2006) VAT to replace the erstwhile sales of goods. The categories of goods eligible for exemption andtax regime on sale transactions within the state. The last subject to VAT at 4/5 percent, 12.5/14.5 percent, or higherstate to switch over to the VAT regime with effect from rates vary across states. Further, an additional tax/surcharge1 January 2008 was Uttar Pradesh. In tandem with the ranging from 0.1 percent to 1 percent is being levied inabove state VAT regime exists another regime namely central certain states such as Punjab, Haryana, Kerela.sales tax (CST), which is levied on sale of goods occasioningmovement across states. Sale by one taxable person to The definitions and scope of such categories of goods alsoanother taxable person across states is charged to CST vary across states. Certain categories of goods that are byat the rate of 2 percent, subject to the condition that the and large common across states are illustrated herein under.purchaser is able to issue statutory declarations and fulfillsother specified conditions. Alternatively, CST is charged at VAT is charged at 4/5 percent on several categories of goods,the VAT rate applicable in the originating state. The current including:tax regime does not envisage recovery of CST incurred on • agricultural implements not operated manually or drivenprocurement of goods and hence results in a cost. by animalsVAT is levied on the sale of goods made by a taxable person • communication equipment like PBX or EPABX, etc.in the course of a business carried on by the said person.Sale has been defined as transfer of property in goods for • intangible goods like patent, copyright, etc.valuable consideration. Mere supply of goods may not be • capital goodscharged to VAT. Import of goods into India is not subjectto VAT. Rendition of services is also not subject to VAT, • chemical fertilizersas services in India are governed at a federal level by an • cottonindependent legislation that is, service tax. • drugs and medicinesSale includes transfer of property in goods involved in • iron and Steelexecution of a works contract, transfer of the right to usegoods, and delivery of goods on hire purchase. A works • IT products (including hardware, software,contract generally means a contract which involves use of telecommunication equipment, etc.)labor and transfer of material in the course of execution of • industrial inputs (mainly certain basic chemicals andthe contract. minerals)A taxable person is liable for VAT after turnover of his/her • processed meat, fish, vegetables, and fruitsbusiness reaches the threshold prescribed by the relevantstate VAT legislation. • sports goods • tractors • transformers and transmission towers.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • India: Country VAT/GST Essentials | 3 RegistrationMost other categories of taxable goods are subject to VAT at Who is required to register for Indian VAT?12.5/15 percent. If a taxable person effects taxable sales within India in excess of the prescribed VAT registration threshold, the saidHowever, the aforesaid rates/categorization is very generic person will be required to register and account for VAT inand can vary with the changes being brought by the the state from where such sales are made. The registrationrespective state legislations. threshold varies across states and range between approximately USD25 to USD25,000 (assumingAre there any reduced rates, zero rates, or exemptions? USD1 = INR50). However, in most states, if a person brings goods from outside the state for sale in the state,• books. the threshold limit in such cases is zero. Certain states provide for a voluntary registration even if a taxable person is below the registration threshold. However, no registration threshold has been prescribed for a taxable person effecting interstate sales. Accordingly, a taxable person is liable to register and account for VAT/CST after effecting first interstate sale transaction. Are there penalties for not registering or late registration? Yes. There are penalties for failing to register for VAT promptly which vary across states. The penalties are calculated based on the net tax due for the period commencing when the business should have applied for registration and ending on the date of application. The penalties can be reduced/waived on establishing a reasonable cause for late registration.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 4 | India: Country VAT/GST Essentials VAT GroupingAre there any simplifications that could avoid the need Is VAT grouping possible?for an overseas company to register for VAT? No. There is no provision for VAT grouping. In fact, a taxableAn overseas company is not liable to register for VAT in India person is liable to register and account for VAT separatelyunless it has an office in India which is engaged in business in each state from wherever he/she makes taxable salesof sale of goods. Registration is required where sale is in excess of VAT registration threshold. However, a taxableeffected in India and there are penalties for failing to register person is entitled to apply for single registration and filefor VAT promptly which vary across states. However, where consolidated return for various branches within a particularthere are direct sale from outside India that are not liable to state of operation.VAT, registration would not required. Can an overseas company be included in a VAT group? No.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • India: Country VAT/GST Essentials | 5Returns VAT RecoveryHow frequently are VAT returns submitted? Can I recover VAT if I am not registered?A registered taxable person is liable to file VAT returns in the No. Only registered taxable persons can recover VAT onrespective states. The frequency of VAT returns filing varies goods procured from within the state where he/she isacross states. Further, depending on the category of the registered.taxable person/turnover or tax liability incurred during thepreceding year or expected during the current year, the VAT Does your country apply reciprocity rules for reclaimsreturn filing could be monthly, quarterly, or half-yearly. submitted by non-established businesses?Failure to furnish timely VAT returns and settle outstanding No. Refunds are available only to registered taxable personsVAT payments may result in penalty and interest. The within the state.provisions for the imposition of penalties and interest varyacross states and depend upon the duration of delay and Are there any items that you cannot recover VAT on?the amount of net tax involved. The amount of penalty canbe waived/reduced on demonstration of reasonable cause Yes. Generally, VAT can be recovered on goods procuredfor delay. However, charging of interest in case of delay in from within the state for resale, or use in manufacture ordeposit of VAT due is mandatory. processing or packing of goods for sale. In addition, VAT can also be recovered on capital goods such as plant and machinery used in manufacture of goods.Are there any other returns that need to be submitted?Yes, VAT legislations of most of the states require filing of an Exempt supplies: The VAT paid on supplies which relateannual return within six to ten months from the completion to exempt sales is not recoverable. Where VAT relates toof the relevant financial year. both taxable and exempt sales, the taxpayer can recover proportionate VAT subject to appropriate apportionment. Negative list: Various state VAT legislations provide for a negative list of items on which VAT cannot be recovered (except on resale). The lists of such negative items vary across states and include: • motor vehicles • petroleum products or natural gas used as fuel • air conditioners installed in office • office equipment and consumables.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 6 | India: Country VAT/GST EssentialsInternational Supplies of Goods and Services InvoicesHow are exports of goods and services treated? What do I have to show on a tax invoice?Export of goods out of India is zero rated. A taxable person A tax invoice is issued when sales are made to anothercan claim refund of VAT paid on inputs used in export of registered taxable person. While the precise format/contentgoods, subject to the prescribed requirements. Alternatively, requirements differ across states, in this regard a tax invoicesubject to conditions, a taxable person can also purchase should broadly contain the following information/details:goods for export without payment of VAT. • name, address, and registration number (VAT number) ofSimilarly, export of services from India is exempt from the sellerservice tax, (a separate federal levy on provision of notified • the word TAX INVOICE mentioned at a prominent placeservices), subject to conditions. • name, address, and VAT number of the buyerHow are goods dealt with on importation? • date of the invoiceNo VAT is payable on importation of goods into India. • a pre-printed serialized numberHowever, customs duty may be payable on such imports. • description, quantity, volume, unit price, and VAT rate of each itemHow are services which are brought in from abroadtreated for VAT purposes? • total gross amount payable, excluding VATNo VAT is payable on importation of services into India. • amount and nature of any discount offeredHowever, service tax may apply under the reverse charge • total amount of VAT payablemechanism. • signature of the selling dealer or his/her authorized representative • where exempt or zero-rated supplies are included in the invoice, each such item should be distinguished separately. Apart from the above, certain states have prescribed certain specific requirements such as name of the printer, time of sale, statutory declaration regarding nature of the transaction/seller, etc. In case taxable sales are made to a non-registered person or taxable person outside the state, generally a retail invoice is issued. The retail invoice should also contain the above information/details except that the words retail invoice should be indicated prominently instead of tax invoice.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • India: Country VAT/GST Essentials | 7 Transfers of BusinessCan I issue invoices electronically? Is there a relief from VAT for the sale of a business as aThe invoices can be generated electronically. However, duly going concern?signed original invoice in paper form has to be issued by the Yes, if a business is sold as a going concern, VAT maytaxable person to enable the purchasing taxable person to avail not apply, subject to certain conditions. For example, theinput VAT. business should be transferred as a whole and the purchaser should be able to carry on the business by stepping into theIs it possible to operate self-billing? shoes of the seller. Where part of a business is transferred,No. then that part of the business should have independent and separate operations. Options to Tax Are there any options to tax transactions? The VAT legislation in India does not provide for an option to tax transactions. However, there are alternative schemes (viz. composition/ad-hoc/normal scheme) for valuation and payment of VAT in relation to works contract activities.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 8 | India: Country VAT/GST EssentialsHead Office and Branch Transactions Anti-AvoidanceHow are transactions between head office and branch Is there a general anti-avoidance provision under VATtreated? law?The transactions involving supply of goods between head Most VAT legislation in India do not specifically provideoffice and a branch or vice versa are not subject to VAT, for a general anti-avoidance provision. However the VATsubject to conditions and furnishing of prescribed statutory authorities in India may challenge the genuineness ofdeclarations. the transactions in order to ensure transactions are not undervalued or underreported in order to evade payment of VAT.Bad Debt Various courts in India have examined this issue on severalAm I able to claim relief for bad debts? occasions. In view of the recent jurisprudence, the VATNo. The VAT legislations generally in India do not provide for a authorities are required to restrict themselves to the relevantrelief for bad debts. agreements/documentation only and produce legal evidence, in order to allege the transaction as an artificial device aimed at avoiding tax. The VAT authorities would not be permitted to allege the transaction as sham or a device intended to avoid tax solely on the basis of suspicion or hypothetical assessment of the underlying motive of the parties. Thus, the application of anti-avoidance principles has to be examined on the basis of specific facts of each case.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • India: Country VAT/GST Essentials | 9Penalty RegimeWhat is the penalty and interest regime like?VAT legislations in India provide for penalties fornon-compliance.The penalties are generally computed on the basis of natureand duration of non-compliance and amount of tax involved.However, voluntary disclosure of non-compliance generallymitigates the penalty.The delay in deposit of VAT attracts mandatory interest whichvaries across states and ranges from 15 percent to24 percent per year.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • www.kpmg.comThe information contained herein is of a general nature and is not intended to address the circumstances of any particular individualor entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information isaccurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such informationwithout appropriate professional advice after a thorough examination of the particular situation.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independentfirms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority toobligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any suchauthority to obligate or bind any member firm. All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.Designed by Evalueserve.Publication name: India – Country VAT/GST EssentialsPublication number: 111202Publication date: January 2012