CLARIFICATIONS ON CRITICAL ISSUES IN GST - AN UPDATE

[Dr. Sanjiv Agarwal]

GST is now a reality with its mega launch on the midnight of 30^th June, 2017 and 1^st July, 2017. With about three weeks into GST regime, there have been many teething problems and issues requiring clarity by the tax payers on taxability, tax rates and other procedural aspects. The Government has been very open on this and is coming out with clarifications promptly in many forms, viz, direct interface, webinars, FAQ's, tweets, Circulars, Press Releases and Advertisements.

Some of the important issues as clarified are discussed in this write up.

TDS on GST

TDS (Income Tax) shall not be applicable or deductible on GST component (includes CGST / IGST / SGST / UTGST or even cess). It has been clarified by CBDT vide Circular No. 23/2017 dated 19.07.2017 that wherever in terms of the agreement or contract between the payer and the payee, the component of GST on services’ comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XVII-B of the Act on the amount paid or payable without including such GST on services’ component.

Though Circular is silent on compensation cess, the view can be taken that TDS will not be applicable on this Cess.

GST on Hotel Accommodation

Accommodation in any hotel, including 5-star hotels having declared tariff of a unit of accommodation of less than INR 7500 per unit per day, will attract GST @ 18%. Hotels are liable to pay GST @ 28% if the declared tariff of a unit of accommodation is ₹ 7500 or more.

Star rating of hotels is, therefore, irrelevant for determining the applicable rate of GST.

Transactions in Gold by Jeweller

Generally, individuals sell their used gold / jewllery to jewellers or gold smiths which may be for any reason, other than business.

Section 9(4) of the said Act mandates that tax on supply of taxable goods (gold in this case) by an unregistered supplier (an individual in this case) to a registered person (the jeweller in this case) will be paid by the registered person (the jeweller in this case) under reverse charge mechanism. This provision, however, has to be read in conjunction with section 2(105) read with section 7 of the said Act. Section 2 (105) defines supplier as a person supplying the goods or services. Section 7 provides that a supply is a transaction, for a consideration by a person in the course or furtherance of business.

Even though the sale of old gold by an individual is for a consideration, it cannot be said to be in the course or furtherance of his business (as selling old gold jewellery is not the business of the said individual), and hence does not qualify to be a supply per se. Accordingly the sale of old jewellery by an individual to a jeweller will not attract the provisions of section 9(4) and jeweller will not be liable to pay tax under reverse charge mechanism on such purchases. However, if an unregistered supplier of gold ornaments sells it to registered supplier, the tax under RCM will apply.

Services of Resident Welfare Associations (RWAs)

Supply of service by RWA (unincorporated body or a registered non- profit entity) to its own members by way of reimbursement of charges or share of contribution up to an amount of five thousand rupees per month per member for providing services and goods for the common use of its members in a housing society or a residential complex are exempt from GST.

If the aggregate turnover of such RWA is upto ₹ 20 Lakh in a financial year, then such supplies would be exempted from GST even if charges per member are more than Rs. five thousand.

RWA shall be required to pay GST on monthly subscription/contribution charged from its members if such subscription is more than ₹ 5000 per member and the annual turnover of RWA by way of supplying of services and goods is also ₹ 20 lakhs or more. Under GST, the tax burden on RWAs will be lower for the reason that they would now be entitled to ITC in respect of taxes paid by them on capital goods (generators, water pumps, lawn furniture etc.), goods (taps, pipes, other sanitary/hardware fillings etc.) and input services such as repair and maintenance services. ITC of Central Excise and VAT paid on goods and capital goods was not available in the pre-GST period and these were a cost to the RWA.

There is no change made to services provided by the Housing Society (RWA) to its members in the GST era.

Hostel facilities by Educational Institutions

Services provided by an educational institution to students, faculty and staff are fully exempt. Educational institution has been defined as an institution imparting

1. pre-school education and education up to higher secondary school or equivalent;
2. education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;
3. education as a part of an approved vocational education course.

Services of lodging/boarding in hostels provided by such educational institutions which are providing pre-school education and education up to higher secondary school or equivalent or education leading to a qualification recognised by law, are fully exempt from GST. Annual subscription/fees charged as lodging/boarding charges by such educational institutions from its students for hostel accommodation shall not attract GST.

Education institution means an institution providing services by way of:

1. pre-school education and education up to higher secondary school or equivalent.
2.  education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force.
3. education as a part of an approved vocational education course.

There is no change in tax liability relating to education and related services in the GST era, except reduction in tax rate on certain items of education.

It may however, be noted that this may not hold good for commercial coaching institutes which are not at par with educational institutions.

Gifts to Employees

Gifts upto a value of ₹ 50,000/- per year by an employer to his employee are outside the ambit of GST. However, gifts of value more than ₹ 50,000/- made without consideration are subject to GST, when made in the course or furtherance of business.

The services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods or supply of services). It follows that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST.

Gift has not been defined in the GST law. In common parlance, gift is made without consideration, is voluntary in nature and is made occasionally. It cannot be demanded as a matter of right by the employee and the employee cannot move a court of law for obtaining a gift.

If such services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer. The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C).