Indirect taxes have always been contributing more than direct taxes to the Government’s Revenue. Services solely contribute major part of the whole Gross Domestic Product (GDP), subsequently, it shows the major contribution of Services in taxes also. Service sector does not only dominate the GDP contribution but attracts the foreign investment towards the Indian Economy. Service Sector contributes significantly in export as well as provide a large scale employment. India’s services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction.
Following are the areas which will be seen effected after the GST implementation:-
Currently Service tax provisions applies to all over India except Jammu & Kashmir because of that Central Govt. has no right to collect service tax on the services rendered in that part of India but as per the Model Goods and Services Tax Law, GST will extend to all over India including Jammu & Kashmir and also allows Central Govt. to collect the service taxes on rendered services in the state of Jammu and Kashmir which will eventually increase the Govt. Revenue.
In current tax regime, service tax is applicable at the rate of 15% on Services rendered which includes 0.5% for Swatch Bharat Cess and 0.5% for Krishi Kalyan Cess but it is expected that under GST regime services will be charged by higher rate of tax ranging between 18% to 26% which will make the services and works contracts costlier.
Notices from Taxation Authorities
In current tax system, both Central and State Govt. have right to collect the tax according to the rights given in list I, II and III in the Constitution and because of that sometimes it becomes so confusing to find out to pay taxes to which department in regards to goods and services like software, works contract etc. having disputes between Central and State Government and what’s happening is that the person paying tax to service tax department getting notices from the VAT/CST department and the person paying the VAT/CST liability gets the notifications from the Services tax department.
But with the introduction of single tax GST regime, the double taxation effect due to disputed goods and services in the current tax system will get eliminated. In GST tax structure both supplies of goods and services will be treated once with the unique rate of tax respectively.
Registration of Place of Business
Currently there are centralized registration provisions under Service tax that mean provider of services can render services from any place in India after getting registered once but in GST regime centralized registration will not be available as the dealer or the service provider needs to get registered with that particular state Govt where he has the provision for registering business site office as well from where he is intended to provide services.
In current Service tax system there are provisions for two half-yearly returns in regards to services rendered during that period but in GST Model law there are numbers of returns prescribed namely:-
- GST Return – 1 for Outward supplies of sale made by taxpayer except for Compounding taxpayer
- GST Return – 2 for Inward supplies received by a taxpayer except for Compounding taxpayer
- GST Return – 3 for Monthly return except for Compounding Taxpayer
- GST Return – 4 for Quarterly return for Compounding Taxpayer
- GST Return – 5 for Periodic return by Non-Resident Foreign Taxpayer
- GST Return – 6 for Return for Input Service Distributor (ISD)
- GST Return – 7 for Return for Tax Deducted at Source(TDS)
- GST Return – 8 for Annual Return
So, now a taxpayer needs to file three returns on monthly basis instead of two returns every year which could unlikely be a burden. These are some areas of Service Tax regime which will get affected by the GST Provisions. It is just the matter of time, how taxpayers will respond to it.