India: Overview Of The Draft GST Rules Issued By The GST Council

Last Updated: 26 April 2017
Article by SKP  

In preparation for the targeted roll-out of The Goods and Services Tax (GST), on 1 July 2017, the GST Council in its 13th meeting on 31 March 2017, approved four sets of draft GST Rules, pertaining to: 

  1. Composition Rules
  2. Determination of Value of Supply (Valuation Rules)
  3. Transition Rules
  4. Input Tax Credit (ITC) Rules 

Along with the above, another five sets of the draft GST rules were also released for stakeholder consultation which would be put forth for approval in the GST Council's next meeting. These draft GST Rules (mentioned below) were first released in September 2016 and have been aligned with the GST Bills passed by the Parliament. 

  1. Tax Invoice, Credit Notes & Debit Notes (Invoice Rules)
  2. Payment of Tax (Payment Rules)
  3. Refund Rules
  4. Registration Rules
  5. Return Rules 

The rules released have brought in long-awaited clarity on some crucial issues, some of which are mentioned below: 

  • Clarity on valuation in cases of related party supplies has been achieved after providing that invoice value would be accepted if the receiving party is eligible for input tax credit of the said supplies.
  • In respect of granting transitional credit to persons not possessing documents evidencing payment of excise duty, it has been provided that credit shall be allowed on 40% of the CGST paid on the supply of such goods.
  • Procedure for carry forward of transitional credit has been elaborated by specifying that application would be required in FORM GST TRAN/GST TRAN-1.
  • Mechanism for allowing ITC in case of common credit in relation to business, non-business, exempt, zero-rated supplies and blocked credits.
  • Clarity has been provided on various aspects of registration to be migrated and obtained under GST. The industry demand for providing a mechanism of centralised registration for service providers is yet to be addressed. 

The key points in respect of the Draft GST Rules issued for public consultation have been summarised as under: 

  1. Composition Rules
    As per Section 10 of the Central GST Bill, an assessee whose aggregate turnover (on a PAN India basis) does not exceed INR 5,000,000 may opt for payment on composition basis at the prescribed rates. Key issues addressed are:
    • The manner of opting for composition levy
    • The conditions and restrictions to be complied with
    • Validity and manner of opting out of composition levy 
  1. Valuation Rules
    The GST Bills provide for reference to the Valuation Rules in certain specified situations or where the transaction value cannot be accepted. The Valuation Rules prescribe the valuation mechanism for:
    • When the consideration is not wholly in money
    • When the supply is between related persons (other than through an agent) and determination in case of eligibility/non-eligibility of ITC.
    • Valuation in the case of certain specified supplies like purchase/sale of foreign currency, life insurance business, vouchers, etc.
    • Valuation in case of pure agent services (this is same as the valuation prescribed under the existing service tax provisions).
  1. Transition Rules
    The transition rules prescribe the procedures and conditions for transition from existing laws to the GST regime by providing for:
    • The declaration and forms to be furnished in relation to transfer of credit held in stocks.
    • The manner of availing credit in cases where the documents evidencing payment of duty are unavailable.
  1. ITC Rules
    The ITC rules provide for the manner in which ITC will be availed. The following critical points are provided under the ITC Rules:
    • The documents required for claiming ITC has been prescribed
    • Procedure for the distribution of ITC by an Input Service Distributor (ISD), procedure for claiming credits in case of sale, merger, amalgamation, etc.
    • Procedure for claiming ITC in case of a credit pool in relation to business, non-business, exempt, zero-rated supplies and blocked credits.
    • Claim of credit by a banking company or financial institution.
    • Conditions and restrictions in respect of inputs and capital goods sent to the job-workers, etc. 
  1. Invoice Rules
    The rules stipulate:
    • Particulars to be listed in the in the invoice i.e. quantity, description of goods, value of goods, tax charged thereon, etc. in the case of a registered person supplying taxable goods have been prescribed.
    • The preparation of invoices is triplicate in case of goods and duplicate for services.
    • Particulars for receipt vouchers (in the case of receipt of advance payment), ISD vouchers, etc. have also been stipulated. 
  1. Payment Rules
    The manner of maintenance of the electronic tax liability register, electronic credit ledger, electronic cash ledger and various forms for these purposes have been prescribed
    • Moreover, the Revised Payment Rules also provide that each debit or credit transaction will have a unique identification number generated at the common portal. 
  1. Refund Rules
    The Refund Rules relate to the manner of application for refund, grant of provisional refunds and the issuance of an order sanctioning interest on delayed refunds, etc. 
  1. Registration Rules
    • Detailed procedures and provisions in relation to application, procedures, amendment, issuance, revocation and cancellation of registration have been issued by way of these rules.
    • Furthermore, the registrations for online database access or retrieval services, etc. have also been specified. 
  1. Return Rules
    The Revised Return Rules promulgate the form and manner of furnishing details of outward supplies, returns by composition suppliers, manner of submission of return by non-resident taxable persons, matching ITC claims, etc.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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