India GST Update: Tax Rates Drafted, July 1 Remains Implementation Target

  • May 26, 2017

The India GST Council released a draft tax rate schedule for more than 1,200 products and services that still may be subject to change until approved by the government. In early June, the GST Council will reconvene to hash out tax rates for more items. The rates that the GST recently shared “do not indicate a major deviation from the present tax rates, while also ensuring that GST should not pinch the consumer’s pocket,” according to The Economic Times. “Most of the essential and basic commodities have been classified under zero or five percent tax categories.”

In light of this progress, the India government remains committed to a July 1 the launch date for the country’s long awaited goods and services tax (GST). Others, however, would prefer to wait until September for the new tax system to take effect.

Critics of the July 1 implementation date maintain that more time is needed to adjust to the new tax rates and to test the new online tax returns submission portal, the GST Network (GSTN) among other new compliance challenges. Given that the GSTN portal will process billions of transactions on a monthly basis, some wonder if the network possesses the bandwidth needed to manage that load.

Tax professionals whose companies conduct business in India will have their own challenges and activities to address regardless of when the GST implementation occurs. Some common steps to consider taking now include:

  • Reviewing supply chains and logistics to understand and then optimize tax impacts under the new GST rates;
  • Establishing a mechanism to ensure the smooth flow of credit for both inter and intra-state transactions;
  • Conducting a review of an organization’s information systems to ensure that they align with time/place of supply rules and other GST compliance requirements;
  • Identifying any potential working capital management risks given the fact that any lags between actual payment and adjustment of corresponding credit might limit access to capital (since GST is a tax on supply, tax needs to be paid on the movement of a company’s own goods);
  • Being prepared to quickly understand and integrate the final GST tax rates on all products and services (which may be released by the government only two weeks prior to July 1);
  • Identifying any transitional provisions, such as accumulated credit from the current tax regime, that may need to be addressed.

We’ll continue to keep you posted as updates unfold.

Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.

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Tricia Schafer-Petrecz manages Vertex's public relations and social media functions. Tricia has over 20 years of experience managing public relations, corporate communications and generating thought leadership for the financial services and technology industries. Tricia has a B.A. in english, a B.A. in communications and a Master's degree in Communications from La Salle University.

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