Goods & Service Tax (India)

Goods & Service Tax (India)
Contents
Overview - GST...................................................................................................... 2
Why do we need GST?........................................................................................... 3
Justification at the Center Level..........................................................................3
Justification at the State Level............................................................................ 3
Present Indirect Tax Structure of India...................................................................4
Proposed Indirect Tax Structure of India................................................................4
Features of GST..................................................................................................... 4
Taxes to be subsumed........................................................................................ 6
Taxes not to be subsumed.................................................................................. 6
Understanding GST................................................................................................ 7
SAP Solution Approach.......................................................................................... 8
Pre-Requisite....................................................................................................... 8
GST Areas of Impact........................................................................................... 8
Cut Over & Challenges......................................................................................... 23
Migration Activities........................................................................................... 23
SAP MM (Procurement to Pay)..........................................................................23
SAP SD (Order to Cash).................................................................................... 23
SAP Financial Accounting..................................................................................23
SAP HCM & Others............................................................................................ 23
Key Challenges................................................................................................. 24
Devanshu Gaur | Ernst & Young

Overview - GST
The Goods & Service Tax Bill or GST Bill, officially known as The
Constitution (One Hundred and Twenty-Second Amendment) Bill,
2014, proposes a national Value added Tax to be implemented
in India.
Goods and Services Tax" would be a comprehensive indirect tax on

manufacture, sale and consumption of goods and services
throughout
India,
to
replace
taxes
levied
by
the Central and State governments.
Goods and services tax would be levied and collected at each stage
of sale or purchase of goods or services based on the input tax
credit method. This method allows GST-registered businesses to
claim tax credit to the value of GST they paid on purchase of goods
or services as part of their normal commercial activity.
Taxable goods and services are not distinguished from one another
and are taxed at a single rate in a supply chain till the goods or
services reach the consumer.
Administrative responsibility would generally rest with a single

authority to levy tax on goods and services.
Exports would be zero-rated and imports would be levied the same

taxes as domestic goods and services adhering to the destination
principle.
The introduction of Goods and Services Tax (GST) would be a

significant step in the reform of indirect taxation in India.
Amalgamating several Central and State taxes into a single tax

would mitigate cascading or double taxation, facilitating a common
national market.
The simplicity of the tax should lead to easier administration and

enforcement.
From the consumer point of view, the biggest advantage would be in

terms of a reduction in the overall tax burden on goods, which is
currently estimated at 25%-30%.

Why do we need GST?
Despite the success of VAT, there are still certain shortcomings in the
structure of VAT, both at the Centre and at the State level.
Justification at the Center Level
At present excise duty paid on the raw material consumed is being

allowed as input credit only. For other taxes and duties paid for postmanufacturing expenses, there is no mechanism for input credit
under the Central Excise Duty Act.
Credit for service tax paid is being allowed manufacturer/ service

provider to a limited extent. In order to give the credit of service tax
paid in respect of services consumed, it is necessary that there
should be a comprehensive system under which both the goods and
services are covered.
At present, the service tax is levied on restricted items only. Many

other large numbers of services could not be taxed. It is to reduce
the effect of cascading of taxes, which means levying tax on taxes.
Justification at the State Level
A major defect under the State VAT is that the State is charging VAT
on the excise duty paid to the Central Government, which goes
against the principle of not levying tax on taxes.
In the present State level VAT scheme, Cenvat allowed on the goods
remains included in the value of goods to be taxed which is a
cascading effect on account of Cenvat element.
Many of the States are still continuing with various types of indirect
taxes, such as luxury tax, entertainment tax, etc.
As tax is being levied on inter-state transfer of goods, there is no

provision for taking input credit on CST leading to additional burden
on the dealers.

Present Indirect Tax Structure of India
Present Tax
Structure
Excise Duty
Taxable event is
Manufacture
Service Tax
Taxable event is
provision of Service
Sales Tax /
VAT / CST
Taxable event is Sale
Customs Duty
Taxable event is Import

& Export
Entry Tax
Taxable event is Entry of

Goods
Proposed Indirect Tax Structure of India

Intra State
Taxable
Taxable supply
Excise &
Service Tax
Tax
will be known
as CGST
Local VAT &

other taxes
will be known
as SGST
Inter State
Taxable
Taxable supply
CST will be
known as
Integrated
GST (IGST)
Approx. Sum
total of CGST
& SGST
Custom Duty
In Place of
CVD & SAD,
IGST will be
charged
Import from
outside India
Features of GST
Destination based taxation
Apply to all stages of the value chain
Apply to all taxable supplies of Goods & Services made for a

consideration except
o Exempted goods or services common list for CGST & SGST
o Goods or Services outside the purview of GST
5

o Transactions below threshold limits
Dual GST having two concurrent components

o Central GST levied and collected by the center
o State GST levied and collected by the states
CGST & SGST on intra-state supplies of goods & services in India
IGST (Integrated GST) on inter-state supplies of goods or services in

India levied and collected by the center. IGST applicable to:
o Import of goods & services
o Inter-state stock transfers of goods & services
Export of goods & services Zero rated
Additional tax of 1% on Inter-state taxable supply of goods by state

of origin and non cenvatable
Tobacco Products under GST with Central Excise duty.
Optional threshold exemption in both components of GST

o All goods & services likely to be covered under GST except :
o Alcohol for human consumption State Excise plus VAT
o Electricity
o Real Estate Stamp Duty plus Property Taxes
Petroleum Products (to be brought under GST from date to be

notified on recommendation of GST Council)
o GST Rates to be based on RNR (Revenue Neutral Rate)
o Merit rate for essential goods & services
o Standard rate for goods & services in general
o Special rate for precious metals
o NIL Rate

Taxes to be subsumed
Excise
duty
Luxury
Tax
CVD/SA
D
Local
Cess &
levies
Service
Tax
Taxes
Subsumed
under GST
CST
Local
VAT
Local
Entry
tax /
Octroi

Taxes not to be subsumed
Basic
Custom
Duty
Export
Duty
Tolls
Tax on
Vehicles
Taxes not to
be
Subsumed
under GST
Electrici
ty
Termina
l Taxes
Stamp
duty
Land &
Building
tax
Understanding GST
Instances

Supplier Sells Raw Material: Supplier collects GST on the value added at
the first stage (sale of raw materials) and remits the tax to government
Manufacturer Sells Finished Goods: Manufacturer collects GST on the value
added at the second stage (raw material converted into finished goods) and
remits to the government
Retailer Sells Finished Goods: Retailer collects GST on the value added at
the third stage (sales of finished goods) and remits to the government
Consumer: Customer pays GST on the value of finished goods which is the
sum of the value added in the first to third stages.
Cost +
GST
Material
Supplier
Selling
Price
GST Output
Tax (16%)
Tot
al
GST
Input
Tax
Net GST
Payable
100
16
116
16
Manufactur
er
116
300
48
348
16
32
Wholesaler
348
500
80
580
48
32
Retailer
580
700
112
812
80
32
Consumer
812
Final Consumer pays the GST 112
SAP Solution Approach

Pre-Requisite
Tax Procedure - TAXINN
Minimum Support Pack Level Refer SAP Note no. 1175384
SAP APPL Release

SAP ERP 6.0 (600)
EHP2 for SAP ERP 6.0
HANA)
(602)
(603)
(604)
(605)
(606)
for HANA (616-SAP
(617)
Support Pack
SP 26
SP 16
SP 15
SP 16
SP 13
SP 14
SP 08
SP 07

GST Areas of Impact
Tax Registration: Define GST Registration levels
GSTIN GST Identification Number
Single registration for CGST, SGST & IGST
Individual registration to be obtained in each state of business

establishment
PAN based registration number Up to 15 characters in length

Capture GST Registration at Business Place Level
Business Place wise G/L Account Determination
Master Data Maintenance: Business Partner Tax Data, GST Accounts

Business Partner Tax Data
10
GST reg. no. to be captured for each registered customer & vendor
GST Tax Accounts
Separate tax A/P and A/R accumulation might be required at GST

registration level.
To be defined for CGST, SGST & IGST separately

Vendor Master
11

Customer Master
Tax Configuration & Computation: Configure Tax & Pricing Procedures;

Tax Computation
Intra-State transactions
CGST & SGST applicable
Inter State/Import transactions
IGST applicable
Export transactions
Zero rated
Region level rate variations may exist

New condition types/access sequences and account determination
Tax Procedure New condition types
12
SD Pricing Procedure New Condition Types
Document Numbering: Outgoing Invoice Numbering

Unique sequential numbering for outgoing GST invoicing
Critical for legal numbering may be specified by govt.
It could be for example:

o Registration level
o Document type
o Combination of both
13

Maintain Document Class
Assign document class to document types
Assign number range to Business Place
14

Business Process Localization: Extend Support to currently localized
Business Processes
Sales:
Sales - Sales
Order
`1
Sales billing
`1 document
15

Purchase:
Purchase Purchase
Order
`1
Purchase Vendor
Invoice
`1
16

Stock Transfer:
Stock Transfer `1Purchase Order
Outgoing GST Invoice

`1 Accounting Entry
Outgoing GST invoice

`1 with receivable
`1
Stock Transfer Goods Receipt at receiving plant

17
Incoming `1
GST Invoice
Incoming GST invoice

with Payable
`1
18

Subcontracting:
Sub-Contracting`1Purchase Order
Sub-Contracting Purchase
`1 Order Components
19

Sub-Contracting Purchase
Order Taxes
`1
Transfer`1Posting

`1
20

`1 with receivable
Sub-Contracting`1- Goods Receipt
Incoming GST
`1 Invoice
21

Incoming GST Invoice
with Payable
`1
GST Tax Posting:
Separate accumulation of credit and payables for CGST, SGST &

IGST
Separate accumulation at Registration level
Automatic Tax posting to respective accounts from business

processes
GST Tax Posting - Billing`1

A/R Accounting Document
22
GST Tax Posting - Vendor Invoice

Accounting Document
`1
Utilization: Input tax credit utilization against payable for GST taxes
Input CGST to be utilized against output CGST & IGST
Input SGST to be utilized against output SGST & IGST
Input IGST to be utilized against output IGST, CGST & SGST in the
order of IGST, CGST and SGST
Utilization to`1handle GST
23
Cross Utilization as per GST rule

`1
`1
Reporting - Tax Register
24
25

Cut Over & Challenges
Migration Activities
Business Place Settings
Tax & Pricing Procedures
Tax Codes
GL, Vendor & Customer Master
Open Purchase & Sales Order
GL & Tax balances
What is changing?
SAP MM (Procurement to Pay)
Material & Service Master
Purchase Order, Invoices
Subsequent Credit / Debit Notes
Purchase Info Records
SAP SD (Order to Cash)
Sales Order, Invoicing
Distribution Channel & Sales Area
Pricing (Types of conditions)
Billing Schedules, Delivery
Debit / Credit Notes
SAP Financial Accounting
Accounts Payable & Receivable
Invoicing (Non PO)
Master Record Management
Billing (Non SO)
Petty Cash
Invoicing & Credit Notes
General Voucher
26

SAP HCM & Others
Employee Benefits
Travel & Expenses
FI, SD & MM Reports
Statutory reports
Vendor, Customer forms & reports
GL Account reports
Key Challenges
Penalties for delayed submissions & returns
Complex rules for special condition (Cross border services, Transition

rules)
Interfaces & SAP customizations Additional challenges for GST

enablement
Regression testing of SAP & all connected systems
Managing transition scenarios such as Taxable goods / Services sold

before GST effective date & returned on or after the effective date
27

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Devanshu Gaur | Ernst & Young