Reverse Charge Mechanism Under GST And Implications Of Exemption Upto Rs. 5000 Per Day

Let’s look at the critical provisions of the GST law which have enabled reverse charge mechanism :-
Compulsory Reverse Charge even if the supplier is registered –
Sec 9(3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
The above section primarily covers services availed from Goods Transport Agency, Lawyer, government, corporate sponsorships, director etc.         Chartered accountant in India

Reverse Charge if the supplier is unregistered –
Sec 9(4) The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. Company formation in India

Central Government had come up with an exemption to the small miscellaneous transactions from unregistered persons.

Notification No. 8/2017- Central Tax (Rate) dt 28.06.2017 issued by Central Government has exempted intra-State supplies of goods or services or both received by a registered person from any supplier, who is not registered, from the whole of the central tax leviable thereon under sub-section (4) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017)
The said exemption shall not be applicable where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the suppliers, who is or are not registered, exceeds five thousand rupees in a day.
To sum up, the supply should be intra state supply (within the state) and can be for goods as well as services or both. Moreover the supply should be received by the registered person from an unregistered dealer only and upto a daily limit of Rs. 5000/-
Example:-
Mr. X  purchased following items from unregistered dealer, all are dated 01.07.2017 as under:
1st bill – From Ram: Stationery = 2000/-
2nd bill – From Shyam: Lunch = 1000/-
3rd bill – From Madhu : Books = 3000/-
In this case, The bills of Mr. X will not get covered under this notification as aggregate value of all supplies exceeds 5000/- on a single date (01.07.2017)
Exemption would have been available if,:
1) Bill dates are different (So that it will come under 5000/- day limit, say bill date of Ram is 02.07.2017)
2) Any of the bills are 1000/- less than the mentioned value(Say Bill of Madhu is Rs 2000/-
3) If the one of the bills in the same of other person (say, one of the bill is in the name of Mr. Y)
FAQ’s
Whether these 5000 limit be availed for those cases where compulsory tax is payable in RCM basis as per section 9(3) of CGST act?
Where Compulsory tax is to be paid under the Reverse Charge Mechanism under 9(3) of CGST Act, and as per Notification N0o. 13/2017- Central Tax (Rate) dt 28.06.2017 the benefit of this limit cannot be availed. Reason being these notification cover only cases of 9(4) and not 9(3).
Mr. X purchased following items from unregistered dealer, all are dated 01.07.2017 as under:
1st bill – From Ram: Stationery = 2000/-
2nd bill – From Shyam: Lunch = 1000/-
3rd bill – From Madhu: Goods Transport Agency = 3000/-
In this case, The bills from Mr Ram and Mr Shyam will get covered under this notification as aggregate value of all supplies does not exceed 5000/- on a single date (01.07.2017). For the Third bill from Madhu Reverse charge is payable u/s 9(3) without any exemption threshold.
Whether this daily limit benefits would be available if the goods/services received from persons covered under 9(4) are blocked credits?
The benefit of daily limit would be available. Output Tax under reverse charge would be payable if it crosses the daily limit even though they are covered under blocked credits.
What if the limit crosses 5000 in a day, is GST payable over and above the value or from rupee 1?
If the value of taxable supplies exceeds Rs5000 per day for all suppliers, then GST would be payable on the Total value of the supplies received from unregistered persons.

Is this limit applicable to all supplies?
The limit is applicable to only taxable supply of goods or services or both. Exempt supplies are out of the preview of this notification.
Mr. X purchased following items from unregistered dealer, all are dated 01.07.2017 as under:
1st bill – From Ram: Stationery = 2000/-
2nd bill – From Shyam: Hotel Room = 1000/-
3rd bill – From Madhu: Books = 3000/-
In this case, the bills of Mr. X will not get covered under this notification as aggregate value of all supplies does not exceed 5000/- on a single date (01.07.2017) as the supplies from Shyam for Hotel room booking are exempt under Entry 14 of the exemption notification (12/2017).

What if the supplies are procured from Interstate supply from unregistered?
Benefit of this notification is available only for Intra State Purchase. If any transactions are done on an interstate basis the same are covered under the forward charge and in any case the reverse charge provisions are not applicable.
Goods and services both inclusive 5000 or separate?
Yes, the benefit is inclusive for all goods or services or both.
What rate GST should be payable then?
GST should be payable as per the schedules rate of the product/service.
What if procured from Composition persons?
Since Composition persons are registered person, reverse charge is not applicable on such supplies.
Can credit be availed for these taxes paid and on what basis, any invoice issue requirement?
Credits can be availed on payment of GST in cash. A consolidated monthly tax invoice can be raised if supplies are received from a single vendor. The Invoice shall be raised on the date of receipt of goods or services or both. Also a payment voucher needs to be issued on the date of making any advance payment as the time of supply is invoice of payment whichever is earlier.

We have compiled the daily expenses which would be liable to GST if procured from unregistered supplier as below:-
Nature of Expenses GST Rate GST IMPACT/ OTHER REMARKS /Supplies from UR (RCM Applicable)
No GST / NIL GST or EXEMPTED :-
1 Electricity Charges 0% Out of GST
2 Water Charges 0% Out of GST
3 Bank Interest 0% Out of GST
4 Professional Tax 0% Tax levied by local body / other association out of GST
5 License renewal like Pollution, Factories & Boilers & Local Bodies 0% Tax levied by local body / other association out of GST
6 Building or Property Tax 0% Tax levied by local body / other association out of GST
7 Rent Deposits 0% If adjusted with rent or forfeited – GST applicable
8 Other Deposits 0% If adjusted with other expenses or forfeited – GST applicable
9 Petrol Expense 0% Petrol & Diesel out of GST
10 Salary 0% Out of GST
11 Staff Amenities 0% Out of GST if in lieu of salary.
12 Gifts to Staff 0% Gifts by employer of value above Rs. 50000/- shall be liable to GST as outward supply.
13 Staff Mediclaim Contribution 0% Out of GST if in lieu of salary
14 Allowance & incentive to employees 0% Out of GST if in lieu of salary
15 Stamp & Registration Fees 0% If only a pure agent service – ensure GL balance Nil
16 Provision for Doubtful Debts 0% No credit / deduction shall be allowed
17 Bad Debts Written Off 0% No credit / deduction shall be allowed
18 Warranty Labour Charges 0% If there is no supply element & no consideration
19 Donation 0% If there is no supply element & no consideration
20 Labour Welfare Fund Contribution 0% Out of GST
21 Staff Medical Expenses 0% Employee service without any margin
22 Fine & Penalties by Government 0% Out of GST
23 Discounts – shown in bill 0% GST applicable is after all discount
– if shown in the bill
24 Free Gifts, Gold Coin to Customers 0%
25 Interest on Service Tax/ TDS 0%
26 Interest on Vehicle Loan 0%
27 Interest Others 0%
28 Local Conveyance 0%
29 Transportation Charges – Non GTA / Trucks 0%
GST Applicable & No ITC :-
28 Food Expense 12% / No ITC
29 Travel claims – Radio Taxi (Rent-a-cab) 5% No ITC
30 Transportation Charges – GTA 5% No ITC
31 Club & Membership fees 18% No ITC
32 Life Insurance Exps for Employees 18% No ITC
33 Work Contract Services – Construction of Building 18% No ITC if not supplied for outward works contract services
GST Applicable / RCM supply of URD :-
34 Advertisement Charges 18%
35 Advertisement in Magazine, 18%
36 Advertisement in Media 18%
37 Discounts – after issue of invoice (Post supply discount) GST Impact Credit note has to be issued, liability will be reduced to extent of GST on discount.
38 Annual Maintenance Charges 18%
39 Bank Charges – Service charges recovered 18%
40 Broker Fee & Charges 18%
41 Call Centre Expense 18%
42 Customer Schemes by MSIL 18%
43 Construction Work 18% GST amount – no ITC – for immovable property (Building)
44 Consumables Paint material & Other Consumables 28%
45 Customer Welfare expense 18% Food charges – No ITC
46 Contract Labour Expense 18%
47 Extended Warranty Cancellation Charges 18%
48 Free Service Camp Expense 18% If any third party bill comes
49 House Keeping Charges 18%
50 Insurance Charges 18%
51 Legal charges to advocate 18% Advocate raise bill without GST component – RCM to us
52 Loading & unloading Charges 18%
53 Local Conveyance 5% / 12%
54 Mediclaim Policy Premium Contribution A/ c 18%
55 Mobile Allowance 18% Pure Agent Service / If margin then GST applicable
56 Other Training Expense 18%
57 Postage and Courier Charges 18% Subject to certain exemptions
58 Printing & Stationery(Flex Printing, Broad Printing, Notice Printing) 18%
59 Rates and Taxes Actuals Depends on case to case basis
60 Recruitment Expenses 18%
61 Rent Paid 18%
62 Rent Paid for Mess (Employees) 18%
63 Repair and Maintenance – Building / Electrical / P& M / Others 18%
64 RTO Expenses 18% or 28%
65 Sales Promotion – Others / SSI / Display 18%
66 Sponsorship services 18% Reverse Charge to Service Receiver – ITC can be availed
67 Security Charges 18%
68 Staff Recruitment 18%
69 Staff Training Expenses 18%
70 Staff Uniform Expenses 18% If a third party bill comes
71 Stationery Expenses 18%
72 Subscription & periodicals 18%
73 Telephone Charges 18%
74 Transportation Charges – GTA 5%
75 Travelling Expenses Interstate 5%/18% Services from Tour operators / Agencies
76 Travelling Expenses International 28%
Note: The above expense heads are for illustrative purpose only. The applicability of GST on a particular expense has to be checked on case to case basis.

Company registration in India

Company registration in India means legally getting the right to do business.In India, registration of company is also known as formation of business or incorporation of company.
Let us see what is this Company thing all about and then move on to Company Registration.

What are the documents required to register your startup?
An entity required to be incorporated as a Private Limited Company or a Limited Liability Partnership has to be registered with the Ministry of Corporate Affairs. Now the government has come up with several initiatives where an entity can be incorporated in just 1 day.

Private Limited Company
A Pvt. Ltd company allows you to play around with the capital structure, you can also play around with the rights distribution, which isn’t so easy in a limited liability partnership. Hence, investors will ask you to convert from an LLP to a Pvt. Ltd. company.
The Directors of the proposed company must have a Digital Signature Certificate (DSC) to sign the e-forms.
The proposed name of the company should be given along with the main line of business.

The directors and the subscribers of the proposed company should have the following:
(a) PAN as nationality proof
(b) Photo
(c) Aadhar/ Driving Licence/ Voter Card/ Passport as identification proof
(d) Utility Bill i.e, electricity bill/ telephone bill/ bank statement etc.
(e) email-id
(f) mobile number
The incorporation documents required are as follows:
(a) Affidavit by the promoters
(b) Declaration in DIR – 2 by the directors
(c) Declaration in INC – 9 by the promoters
(d) Declaration in INC – 8 by a Chartered Accountant/Company Secretary/Lawyer/Cost
Accountant

Limited Liability Partnership
A corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership.
The partners of the proposed LLP must have a Digital Signature Certificate (DSC) to sign the e-forms.
The proposed name of the LLP should be given along with the main line of business.

The partners of the proposed LLP should have the following:
(a) PAN as nationality proof
(b) Photo
(c) Aadhar/ Driving Licence/ Voter Card/ Passport/ electricity bill/ telephone bill/ bank statement
(d) email-id
(e) mobile number
For Registered office of the LLP:
(a) Ownership deed (if the property is owned) or
(b) Rent agreement along with latest Rent receipt and P.Tax (if the property is rented) or
(c) NOC from the owner of the property and
(d) Latest Utility Bill in the name of the owner i.e, electricity bill/mobile bill/ telephone
bill/ gas bill.
The LLP agreement should be prepared and executed on the stamp paper.

Related : HOW GST WORKS IN INDIA

How India & Afghanistan can grow together

India remains an integral part of Afghanistan’s steady progress in institutionalizing peace, pluralism, and prosperity. Ties between Afghanistan and India go beyond the traditionally strong relations at the government level. Since time immemorial, the peoples of Afghanistan and India have interacted with each other through trade and commerce, peacefully coexisting on the basis of their shared cultural values and commonalities.
This history has become the foundation of deep mutual trust. Public opinion polls in Afghanistan confirm this, as well as the sentiment Afghans share about feeling at home whenever they visit India.

Growing Asia

• Fastest growing continent in the world with 60% of world’s
  population (4.2 billion)
•  Two-third of global growth would come from Asia in next few
  years
•  In 1990, the top five economies were not among Asia. Today,
  Japan, China and India are top 3 economies in the world
•  Asia’s share is expected to touch 50% of world’s GDP by 2050

Why Afghanistan

• A population of 34 million and increasing
•  Five year compound annual growth (CAGR) is 5.4%
•  GNI per capita is US$630
•  FDI has increased from US$ 230k in 1970 to US$ 169mn in 2015
•  Exports and imports taken together equals 53% of GDP
•  Infusion of billions of dollars in international assistance and investments as well as
  remittances from Afghan expats
•  World Bank expects to provide US$250-300 mn in grants annually to Afghanistan
  through the World Bank Group
•  One of the mineral-rich countries of the world
  (the country holds US$ 3 trillion in untapped mineral deposits without Uranium )
•  Low tax rates in Afghanistan
  (Corporate tax rates are 20% with an overall tax burden of 6.5% only of total domestic income)
•  Improved agricultural production
•  Formation of democratic government & improved regulatory environment

India- Afghanistan relations

• Bilateral relations between the two countries have always been strong and
  friendly
•  India’s financial assistance to Afghanistan was 880 crore in 2015-16
•  In 2016, India has also extended an aid of over UD$2 billion to Afghanistan
  for one of India’s most expensive projects in Afghanistan (Salma dam)
•  India-Afghanistan bilateral trade stood at US$643 million in 2015-16
•  Afghanistan sets a target of US$10 billion for bilateral trade and
  investment with India in five years
•  In February 2017, Indian visa regime has been further liberalised to make
  it even more convenient for Afghan nationals to visit India

Our support to Afghanistan

• Needs in Afghanistan
  • Skilled manpower
  • Professional services for businesses
•  Strengths to work with India
  • Convenience of working in the same time zone
  • Connectivity time is less than two hours
  • Similar cultural backgrounds

Why India can be a strong partner to Afghanistan

• World’s third largest economy (Would double in size to US$ 4–5 trillion in a decade)
•  Fastest growing economy in the world (Current: 7% , by 2018: 7.8%)
•  By 2020, retail market is expected to grow to US$ 1.1 trillion (growing at a high rate of 20%-25% p.a.)
•  IT-business process management (BPM) sector in India is estimated to expand at a CAGR of 9.5% to US$ 300 billion by 2020
•  Indian construction equipment industry’s revenues are estimated to reach US$ 22.7 billion by 2020
•  Total FDI equity inflows touched US$ 35.84 billion (till December 2016)
•  Under FDI, all sectors other than sectors which are specifically prohibited or under approval route
•  Taxes on companies has been reduced to 25% (For companies with annual turnover less than 50 Crores)
•  Low labor costs (Total labor force of nearly 530 million)
•  Working age group will be more than 64% by 2021 (15-59 years)
•  Skill set of India has improved over the years with 40% employable candidates. We have 1.5mn engineering pass outs in India every year

Related : Doing Business in India

How GST impact the wallet of the common man.

Since the passing of the GST Constitutional Bill by the Rajya Sabha in August last year, the country has been preparing itself for the new tax regime. The new GST law is India?s biggest tax reform initiative which is expected to improve compliance levels, increase government revenue in company registration in India and create a common playing field for businesses by amalgamating a host of central and local taxes.

On the face of it, GST seems to be a mixed bag with some of the necessities becoming cheaper, while the others might get more expensive. While in the longer run the Goods and Service Tax might have a favorable effect on most of the sectors of the economy, in the short run, as with the most of the reforms, the benefits seem to be limited. Based on the experience of GST implementation in other countries, India could observe an inflationary impact at the onset of the reform, which might fade away once the legislation sinks in.

The present rate of service tax is 15 percent and is applicable to most of the services, excluding essential ones like cultural activities, ambulance services, and certain pilgrimages and sports events. Under Goods and Service Tax, this rate would increase to 18 percent making the services more costly. For some goods like edible oil, textiles, etc. the excise duty is nil and the VAT in several states is 5 percent. Hence, the total cost of such goods is close to 8%-9%. With GST, the cost of such goods is likely to increase and this might put a hole in the budget of a common man to wholly owned subsidiary in India.

Doing Business in India

Doing business in India offers enormous opportunities for Foreign companies. However, India is a large and complex market. It should not be seen as one market, but a series of interconnected regional markets where the legislative and investment climate may change from one state to another.
It is wiser to be in India now…

• Fastest growing economy in the world
  (Current: 7% , by 2018: 7.8%)
• World’s third largest economy
  (Would double in size to US$ 4–5 trillion in a decade)
• Taxes on companies has been reduced to 25%
  (For companies with annual turnover less than 50 Crores)
• World’s second-largest telecommunication market
  (1058.86 million subscribers)
• By 2020, retail market is expected to grow to US$ 1.1 trillion
  (growing at a high rate of 20%-25% p.a.)
• World’s sixth largest pharmaceutical market by 2020
• By 2050, India will have added 300 million people
• Working age group will be more than 64% by 2021
  (15-59 years)
• Growing urban markets
  (23.1 Million people shifting from rural to urban areas in two decades)
• Low labour costs
  (Total labour force of nearly 530 million)
• Purchasing power parity, India’s economy is third largest in the world
  (Current-$ 8.7 trillion, by 2025-$ 20 trillion )

Foreign Direct Investment into India

Automatic Route

• All sectors other than sectors which are specifically prohibited or under approval route
• Should comply with sector based investment and other conditions (i.e. sectoral caps)

Approval Route

100% FDI through Government approval route

• Extraction of titanium
• Publishing of scientific & technical magazines/specialty journals/ facsimile
• Edition of foreign newspapers
• Satellites (establishment & operation)
• Pharmaceuticals (Brownfield)

100% FDI: Government approval required beyond 49%

• Telecom Services
• Broadcasting Carriage Services
• Single Brand product retail trading

100% FDI: Government approval required beyond 74%

• Existing projects of Airport

49% FDI : No Government approval required

• Infrastructure Company in the Securities Market
• Insurance
• Pension Sector
• Power Exchanges
• Defense
• Air Transport Services (Scheduled): 100% for NRI

49% FDI through Government approval route

•  Broadcasting Content Services (except Up-linking & Down-linking
  of Non-‘News & Current Affairs’ TV Channels)
•  Private Security Agencies

FDI limits less than 100%

•  Banking (Private Sector): 74% FDI is allowed. However,
  Government approval is required beyond 49%
•  Banking (Public Sector): 20% FDI is allowed with Government
  approval
•  Multi Brand product retail trading: 51% FDI is allowed with
  Government approval
•  Print Media: 26% FDI is allowed with Government approval

Reasons to set up a limited company

Setting up a limited company will mean more administration and more paperwork than if you are a sole trader but there are many advantages to being a limited company, not least eliminating and personal financial liability.
When a sole trading business fails then the owner is personally responsible for any debt, which can have a negative effect on your credit rating and ability to obtain personal loans in the future. You could risk becoming personally bankrupt if the debts are too high for your to pay off.
If you set your business up as a limited company you are protected from this risk.

What are the Benefits :
Whilst running a limited company does have its fair share of responsibility, and the administrative responsibilities are certainly greater than other ways of working, there are many advantages too.

• Limited liability – In simple terms, if you run a Limited Company you are protected should things go wrong. Assuming all rules have been followed, as a director you will not be personally liable for any financial losses made by the company.

• Separate entity – A Limited Company is a legal entity in its own right. This means that everything from the company bank account, to the ownership of assets relates to the business. They are totally separate from the interest of the directors and shareholders.

• Tax – As a director and shareholder of a limited company you could elect to take the majority of your income in the form of dividends, which enables you to manage your own tax liability and potentially save on National Insurance costs.

• Perception – If you plan to do business with larger companies, it can help if you are working via a Limited Company as it gives off a more professional image. In some industries, it may even be a mandatory requirement as they will not deal with sole traders or partnerships.

• Protection – As well as the limited liability protection mentioned above, once you have successfully registered your company, your company name is protected by law. Companies House has very stringent rules for the naming of companies so no one else can use the same name as you, or anything deemed too similar.

• Ownership and succession – As the sole shareholder in your business, you own the business. However, a Limited Company can easily transfer ownership of shares, or existing shareholders can sell a stake in the company to other parties at any time. If for example a shareholder wishes to retire, or bring a new director on board, it is far easier to transfer ownership, or part ownership, of a Limited Company than it is with a less formal business structure.

• Take home pay – It’s safe to say that this is the area where you can really reap the rewards of running your own Limited Company. The only person you need to pay as a Limited Company is yourself – combined with the tax efficiencies on offer, this means you can keep anything from 81 to 86 percent.

Accounts
Accounts must be prepared each year but most small companies are not required to have them audited so the process is relatively simple, especially now that the process can be done online.

Source :-http://www.ajsh.in/blog

Audits Under PCAOB Standards

A yearly audit is a key safeguard for your money and a planning tool for the year ahead. Think of it as a “year in review” for your finances.

The primary benefit of an annual audit under PCAOB standards  is the confidence it gives you and your members that the PTO’s financial house is in order. Basically, the audit verifies the numbers, ensures accuracy, and assesses procedures. A comprehensive audit also identifies internal controls that should be implemented to improve the integrity of your financial systems. Furthermore, the audit gives closure to the treasurer and sets a starting point for the new year’s activity. An audit is also the primary tool for uncovering financial mismanagement. Hopefully you won’t need to conduct an audit for this reason, but an annual audit can uncover problems before they become significantly more serious. Your PTO might also choose to include in your audit a review of how closely your group’s income and expenditures matched the year’s budget. This type of review can be a strong planning tool.

The audit is not within the jurisdiction of the PCAOB. This seems like a strange request.  Perhaps the client is a clearing agency or futures commission merchant registered with the Commodity Futures Trading Commission, which requires that entities registered with it have an audit performed in accordance with PCAOB standards. Maybe the client has entered into a contractual agreement that requires an audit conducted under PCAOB standards. Or maybe, for whatever reason, the client just wants an audit conducted under PCAOB standards.

The PCAOB determines which audits are within its jurisdiction, including audits of the financial statements of issuers and nonissuer brokers and dealers registered with the SEC. A regulator (other than the PCAOB) requiring that the audit be conducted in accordance with PCAOB standards does not make the audit fall within the jurisdiction of the PCAOB. Therefore, even though the regulator— for example, the CFTC— requires an audit to be conducted in accordance with PCAOB standards, that audit is required to also be conducted in accordance with GAAS.

The Auditor’s Report

The report from the auditor will mark the completion of the review. If you are using volunteers, you should clearly itemize what you expect back, so your auditors know when they have completed their job.

Ensure that your auditor has returned the files you provided, and file the original report in the PTOs permanent archives. At the first meeting of the new school year, you should present the auditors report and move that it be adopted. According to Robert’s Rules of Order, once the annual report of the auditor is adopted, it is no longer necessary to move to adopt each month’s treasurer’s report. The reports are presented and then simply filed for next year’s audit.

Related Things you should Know before Registering a Company in India