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How the Service Industry will save 5% Costs through GST

A service provider will get credit of input taxes which it did not get during the VAT regime.

GST shall have impact on every business in the country. GST is expected to bring uniformity in taxation and reduce its cascading effect leading to cheaper goods and services. Currently, excise and value-added tax (VAT) cannot be offset, so they cascade. In addition, VAT credits cannot be carried across states. Both these characteristics would change under the GST regime. Impact of GST shall be as follows:

Impact analysis for service providers

Company A provides software solutions to various companies across India and is based in Banglore. Other facts are as follows.

1) The company has bought 4 desktops amounting to Rs 1 lakh.

2) It takes services from Amazon and Google worth Rs 1 lakh.

3) It has sales of Rs 5 Lakhs in Karntaka and 15 Lakhs in rest of India.

4) The company provides free food to its employees which costs company Rs1 lakh a year.

5) It takes 5 machines on rent for which it pays rent of Rs 2 lakhs per annum.

In GST Regime
In GST Regime
In the present Regime - Vat and ST  
In the present Regime - Vat and ST  

In the present Regime - Vat and ST

• Company pays VAT of Rs 12,500 on computers bought

• Company pays ST of Rs 15K on amazon and google services who are located in Mumbai.

• Company charges Rs 3Laks to its clients as service tax.

• For providing free food company does not pay any taxes

• For rental machines company pays Rs 25,000 as VAT

Total cost to Customers

Rs 20 lakh + Rs 3lakh(service tax) i.e 23 lakhs.

Input credit available to the company

1)Only the credit of Service tax paid is available to the company i.e ST paid to google and Amazon - Rs 15K

So the company only has a credit of Rs 15K In the VAT/CST regime

In GST Regime

• Company pays SGST and CGST of Rs 18K (9K each) on computers bought - Credit is available

• Company pays IGST of Rs 18K on amazon and google services who are located in Mumbai.

• Company charges Rs 90K SGST and CGST to its clients in Bangalore and Rs 2.7 Lakhs to its clients as IGST

• For providing free food company will have to Pay Rs 18k as CGST and IGST to the government.

• For rental machines company pays Rs 36K as CGST and SGST

Total cost to Customers

Rs 20 lakh + Rs 90K(45k Cgst and 45k Sgst)+ Rs 2.7L(Igst) i.e 23.6 lakhs

Input credit available to the company

1)SGST and CGST credit paid on computers i.e 18K.

2)IGST of 18K paid to Amazon and Google

3)SGST and CGST paid on rent of machinery i.e 36K

In GST the company benefits as it can now utilise the credit of Rs 72K.

The disadvantage that company has is that it has to pay GST on any free services provided to employees. In this case it will have to pay Rs 18K on the food provided to the employees.

Sysnopsis

The businesses will benefit from the GST regime. Cost of services will go up for the end user, but the government has made it mandatory for businesses to pass on the benefit incurred due to GST. Thus both the businesses and the consumers will benefit from the GST.

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Stories by Rohit Lohade