What Transformation will GST bring on the Indian Wholesale Market?

India is a country where consumer is treated as a king. Roughly 14 million retail points serve the end consumer in both rural as well as urban markets. Undoubtedly, it’s an enormous task for manufacturers, particularly for those of consumer durables and FMCG to cater to the increasing demand. Further, as 92% of the retail sector is unorganized which makes it all the more difficult or one can say practically impossible for a manufacturer to cater to the end consumer, just relying on distributing channels. Then what’s the solution for this, inevitably, the wholesale market.

With GST about to be launched in few days, it will boost the Indian economy as GDP is estimated to grow 2 to 3%, with a great spur in consumption and export is expected.  Further, the new tax system will also lead to a rise in the amount of tax revenue as the number of tax payers will rise and evasion will be reduced. In addition GST will certainly eliminate all compliance issues. Let’s discuss how GST will transform the wholesale market in India and what impact it will have on it.

GST Impact on Indian Wholesale Market  

The current tax regime doesn’t cover the wholesale business, however, with the GST regime; this will not be the case as it will bring a large section of the wholesale business under the tax system. Today, most of the transactions in the sector are done in black, i.e. the buyer doesn’t get any invoice and ultimately no entry is posted in the books for such sales. These taxpayers generally influence the tax liability dodged and to gain in volume, weaken the entire market. Also, their margin of profit remains as low as 1%.  After the GST gets launched, retailers and wholesalers won’t be able to escape paying taxes as here every invoice related to taxable supply must be uploaded on the common portal of GSTN and must be accepted by the buyer. Tax evasion would have been possible if the entire supply chain would have been outside the tax network and won’t file a return under the law of GST, however, with GST coming into effect shortly, it’s quite unlikely.

Wholesale Sector will benefit from GST

The transformation under the Tally GST for businesses working with Tally ERP 9 will happen from manufacture, sale or provision of services to supply of services and goods. This will lead into branch transfers being constituted as supply and will come under the tax bracket, but entitled for full credit. The wholesalers along with the distributors will be indirectly benefitted as the entry tax and octroy will be removed. Further, under the GST regime, payments, refunds and tax returns would enjoy common formats. Traders from different geographical locations across the country will find it quite easy to abide by this new unified tax structure.

To conclude, GST will certainly transform the wholesale market in India. While there is a possibility that it could hit them initially, the benefits of this tax system are immense.
 

What is Input Service Distributor in GST?

Input service distributor refers to an office of the supplier of goods and/or services that gets tax invoices issued towards receipt of input services and issues tax notice and other such documents as suggested for the purposes of distributing the credit of CGST and/or IGST. This article highlights the same.

These days, businesses having a distributed system of service rendering units as well as manufacturing units across the country are quite common. In other words, businesses with Head and Branch Offices spread across the country could be located in the same or different state. Under this system, for having a better operational control and efficacy, businesses prefer centralized billing for gaining common services at the HO. As a result of this situation, there’s an accretion of input tax credit paid on common inward supplies used by the branch units.

So, for avoiding the above mentioned situation, the notion of Input Service Distributor (ISD) got introduced in CENVAT credit rules, with the help of which the HO can easily distribute the input tax credit to entitled units which are responsible for manufacturing or rendering of services that are taxed.

Businesses having Tally ERP 9 integrated with GST would prefer input tax distributor as it helps ensure a smooth functioning of business. Under the GST model, Input Service Distributor includes:

The office of the supplier of goods which gets tax invoices issued under section 28 towards receipt of input services and issues a suggested document for the purposes of distributing the credit of CGST and/or IGST paid on the services to the supplier.

Registration along with Returns filing under GST

• Businesses need to apply afresh for registration as migration of prevailing registration won’t apply to ISD. Thus for a tax payer, it’s worth to take a note that he/she could apply as a ‘Supplier of Service’ as well as an ‘Input Service Distributor’ concurrently unlike the current scenario. Distinct registration number would be given for this application.
• If the business is registered as an ISD then it requires to file the return by 13th day of the following month while if the business is registered as ‘Supplier of Service’ then return needs to be filled by 20th day of the succeeding month.

What are the conditions for Credit Distribution?

• The required documents need to be issued to the receipts of credit comprising the suggested details
• The amount of credit distributed should not surpass the distribution amount
• Credit of tax paid on input services accredited to a credit’s recipient would be given only to that recipient
• Turnover in such recipient’s state during the pertinent period, to the turnover’s aggregate of all such receivers to whom such input service is accredited and that are operative in the prevailing year, during the said applicable period

The provisions under the prevailing tax laws have been kept affiliated under this GST model law so that all the benefits continue that are available to Input Service distributor with solidity.