GST

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

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Devanshu Gaur | Ernst & Young

Goods & Service Tax (India) 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.

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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.

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Administrative responsibility would generally rest with a single authority to levy tax on goods and services.

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Exports would be zero-rated and imports would be levied the same taxes as domestic goods and services adhering to the destination principle.

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The introduction of Goods and Services Tax (GST) would be a significant step in the reform of indirect taxation in India.

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Amalgamating several Central and State taxes into a single tax would mitigate cascading or double taxation, facilitating a common national market.

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The simplicity of the tax should lead to easier administration and enforcement.

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Goods & Service Tax (India) 

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%.

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Goods & Service Tax (India) 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.

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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.

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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.

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Many of the States are still continuing with various types of indirect taxes, such as luxury tax, entertainment tax, etc.

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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.

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Goods & Service Tax (India) 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

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Apply to all stages of the value chain

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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


Goods & Service Tax (India) 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

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CGST & SGST on intra-state supplies of goods & services in India

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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

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Export of goods & services – Zero rated

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Additional tax of 1% on Inter-state taxable supply of goods by state of origin and non cenvatable

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Tobacco Products under GST with Central Excise duty.

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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

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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

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Goods & Service Tax (India) Taxes to be subsumed Excise duty Luxury Tax

CVD/SA D

Local Cess & levies

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Service Tax

Taxes Subsumed under GST

CST

Local VAT Local Entry tax / Octroi


Goods & Service Tax (India) 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

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Goods & Service Tax (India) 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

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Selling Price

GST Output Tax (16%)

Tot al

GST Input Tax

Net GST Payable

100

16

116

0

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 EHP3 for SAP ERP 6.0 EHP4 for SAP ERP 6.0 EHP5 for SAP ERP 6.0 EHP6 for SAP ERP 6.0 EHP6 for SAP ERP 6.0 HANA) EHP7 for SAP ERP 6.0

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(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


Goods & Service Tax (India) GST Areas of Impact Tax Registration: Define GST Registration levels GSTIN – GST Identification Number 

Single registration for CGST, SGST & IGST

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Individual registration to be obtained in each state of business establishment

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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


Goods & Service Tax (India) 

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.

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To be defined for CGST, SGST & IGST separately Vendor Master

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Goods & Service Tax (India) 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


Goods & Service Tax (India)

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.

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It could be for example: o Registration level o Document type o Combination of both

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Goods & Service Tax (India) Maintain Document Class

Assign document class to document types

Assign number range to Business Place

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Goods & Service Tax (India) Business Process Localization: Extend Support to currently localized Business Processes Sales: Sales - Sales Order `1

Sales – billing `1 document

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Goods & Service Tax (India) Purchase: Purchase – Purchase Order `1

Purchase – Vendor Invoice `1

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Goods & Service Tax (India) 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

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Goods & Service Tax (India) Subcontracting: Sub-Contracting`1Purchase Order

Sub-Contracting Purchase `1 Order Components

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Goods & Service Tax (India) Sub-Contracting Purchase Order – Taxes `1

Transfer`1Posting

Outgoing GST Invoice `1

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Goods & Service Tax (India) Outgoing GST Invoice `1 with receivable

Sub-Contracting`1- Goods Receipt

Incoming GST `1 Invoice

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Goods & Service Tax (India) Incoming GST Invoice with Payable `1

GST Tax Posting: 

Separate accumulation of credit and payables for CGST, SGST & IGST

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Separate accumulation at Registration level

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Automatic Tax posting to respective accounts from business processes

GST Tax Posting - Billing`1 A/R Accounting Document

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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

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Input SGST to be utilized against output SGST & IGST

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Input IGST to be utilized against output IGST, CGST & SGST in the order of IGST, CGST and SGST Utilization to`1handle GST

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Cross Utilization as per GST rule `1

`1

Reporting - Tax Register

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Goods & Service Tax (India) Cut Over & Challenges Migration Activities 

Business Place Settings

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Tax & Pricing Procedures

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Tax Codes

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GL, Vendor & Customer Master

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Open Purchase & Sales Order

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GL & Tax balances

What is changing?

SAP MM (Procurement to Pay) 

Material & Service Master

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Purchase Order, Invoices

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Subsequent Credit / Debit Notes

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Purchase Info Records

SAP SD (Order to Cash) 

Sales Order, Invoicing

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Distribution Channel & Sales Area

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Pricing (Types of conditions)

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Billing Schedules, Delivery

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Debit / Credit Notes

SAP Financial Accounting 

Accounts Payable & Receivable

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Invoicing (Non PO)

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Master Record Management

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Billing (Non SO)

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Petty Cash

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Invoicing & Credit Notes

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General Voucher

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Goods & Service Tax (India) SAP HCM & Others 

Employee Benefits

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Travel & Expenses

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FI, SD & MM Reports

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Statutory reports

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Vendor, Customer forms & reports

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GL Account reports

Key Challenges 

Penalties for delayed submissions & returns

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Complex rules for special condition (Cross border services, Transition rules)

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Interfaces & SAP customizations – Additional challenges for GST enablement

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Regression testing of SAP & all connected systems

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Managing transition scenarios such as Taxable goods / Services sold before GST effective date & returned on or after the effective date

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GST

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