The GST law in India will have profound impact on the functioning of businesses in India. The service industry is also impacted by the new bill. Forone,there are serious repercussions on Consultancy and IT industry.
Taxes on Services
The service tax law currently lords over consultancy businesses. They have come under the purview of GST Law since July 2017.
Apart from other issues, the GST law prescribes nature of tax which will be levied on the services provided. The guidelines for place of supply are relevant. If the supply of services happens within boundaries of a state, the service provider has to charge Central GST (CGST)as well as State GST (SGST), in a simultaneous fashion.
In case services are supplied outside the state, Integrated GST (IGST) will be levied on the value of supply. This is a substantial shift from existing mode of levying Service tax, which is a single tax levied over complete India. But, in the GST times, service provider has to pay three types of taxes, based on location of customer.
Better access to input credit
GST improves ability to take input credit on taxes paid for inputs, which are utilized in ‘the furtherance of business.’ This implies that service provider will be able to take input credit of taxes paid on goods which are used to offer output service.
In spite of restrictions placed by GST law, businesses will be in a far superior position to benefit from taxes paid, to garner inputs as per current indirect tax laws. This is particularly relevant with respect to I.T. companies that invest substantial money in tangible infrastructure of technologythat are covered under Central Sales Tax (CST) and Value Added Tax (VAT).
The application of CST/ VAT results in increased costs and has adverse impact on businesses. GST has gone around this anomaly by absorbing CST/ VAT and Service Tax under a single levy. This change is welcomed by IT companies.
Effect on Financial and Accounting Systems
GST also impacts the way in which business records are maintained. IT companies that have an edge in modern technology have a better prowess to meet such challenges. As per the GST law, business transactions must be recorded, especially to track input and output taxes. Also, there are particular restrictions for utilizing tax credits, and these have to be thought about while setting up finance systems. The companies can take the help of gst system software.
In addition, the govt. has released rules governing invoicing guidelines. Most service companies have done automation of the invoice generation system. Such systems need to be revised to adhere to GST law.
Impact on Exports
Currently, exports are zero-rated. This implies that service provider does not have to charge and pay tax on the value of exports. But the service provider can make a claim for refunding of taxes, which are paid on services that are consumed as inputs. This facility is given by govt., to encourage exports.
GST brings good news with this regard- exports continue to be zero-rated, and there has been simplification of the process to claim refunds of input GST. The refund application can be processed online, automatically.
These are all some aspects about how GST impacts the service industry- particularly the IT and consultancy industry.