Impact of GST on Practising Chartered Accountants

Preamble

The most talked about change in the indirect tax laws i.e.
Goods & Services Tax (“GST”) is expected to be effective from 1^st
July 2017. We, chartered accountants, being service providers are also covered
under the ambit of GST. Currently, we are liable for payment of service tax
under the provisions of the Finance Act, 1994 (“Service Tax legislation”). This
legislation will be subsumed under the GST. 
We will be governed by the provisions of the GST Acts.

An effort has been made in this article to highlight
important provisions that would be applicable to practising chartered
accountants, its impact and the challenges we might face as GST assessees.

Migration

All practising chartered accountants registered under the
Service Tax legislation are required to compulsorily get themselves migrated to
GST. [Section 22(2) of Central Goods and Services Tax Act (CGST Act)] If they
do not expect the value of their aggregate turnover during the financial year
2017-18 to exceed Rs. 20 lakh (or Rs. 10 lakh in special category states), they
can surrender their GST registration [Rule 17(4) of Registration Rules].  Aggregate turnover includes exempt supplies
and zero rated supplies also. Usually, for a practising chartered accountant
most of his services would be taxable only. However, export of services,
services provided to SEZ units and also to SEZ developers will have to be
included while computing aggregate turnover even though they are zero rated
supplies.

Registration

Under Service Tax legislation, a practising chartered
accountant has the option of not getting himself registered if his aggregate
taxable turnover in a financial year does not cross Rs. 10 lakh.  If the aggregate turnover on pan India basis
exceeds Rs. 20 lakh (Rs. 10 lakh for special category states), one has to get
himself registered under GST. The aggregate turnover would include all taxable
supplies as well as exempt and zero rated supplies also. All chartered
accountants registered under the Service Tax legislation and having turnover
between Rs.10 lakh and Rs. 20 lakh (not from the special category states), have
the option of not getting themselves registered under the GST Laws. This may
save them from the hassles of the compliances under the GST Laws. However,
negative fallout would be that they would lose credit of all the GST paid on
their inputs, capital goods and input services. It would be a cost to them.

The chartered accountant making any inter-state supply has to
get himself registered irrespective of his turnover [Section 24(i) of CGST
Act]. Similarly, if the chartered accountant is liable to pay tax under reverse
charge, then also he has to get himself registered irrespective of his turnover
[Section 24(iii) of CGST Act].

The Certificate of Registration is required to be displayed
in a prominent location at all places of business. [Rule 11 of the Registration
Rules]

Branches

In service tax, service provider was having the option to go
either for centralised registration or standalone registration for its branch
offices. Unlike Service Tax legislation, there is no concept of centralised
registration under GST. A chartered accountant having offices in more than one
state will have to obtain separate registration under the GST Laws for offices
in each state.

Further when any service is provided by one branch to another
branch without any consideration, the same will be treated as a supply liable
to GST and invoice for the same will have to be raised. [Entry 2 Schedule I
read with section 7(1)(c) of the Central Goods & Services Act]. This was
not a case in service tax as self-service was not liable to service tax.

Place of Supply

This is one of the most important provisions of the GST Laws.
This determines the tax to be charged i.e. Central GST & State GST or
Integrated GST. The Service Tax legislation was a central law and a single tax
was charged irrespective of the Place of Supply of such services.

GST is a dual tax and hence a chartered accountant needs to
find out place of supply and raise invoice accordingly on client. Section 12(2)
of IGST Act determines the place of supply of services by a chartered
accountant where the location of the chartered accountant and the location of
the recipient of services are both in India. Place of supply in such case will
be the location of the service recipient where the address on record exists
otherwise the location of the supplier of services will be the place of supply.
Mostly in all cases, the address of the client (the service recipient) as well
as his GST number will be available with the chartered accountant. Hence such
address would be the place of supply.

The location of supplier (in the given case a chartered
accountancy firm) is a crucial factor for determining whether the provision of
service is intra-state supply or inter-state supply. It will be a challenge to
determine the location of the supplier in case of multi locational firm having
presence in various states providing services to same client from different
locations. 

Services Accounting Code

All invoices raised need to mention the Services Accounting
Code (SAC). This was not a requirement under the Service Tax legislation and
also there was only one category of service i.e. Chartered Accountancy
Services. At the time of making the invoice, one will have to keep in mind the
nature of services provided and its corresponding service classification. The
most common classification of services which would cover the regular services
provided by practising chartered accountants is listed hereunder:

GSTIN of Clients

One of the mandatory requirements for preparing an invoice
under the GST Laws is that if the service recipient is registered, the invoice
has to contain his GST registration number i.e. GSTIN. All chartered
accountants need to collect their clients’ GSTIN. It should be readily
available in their database and they need to ensure that the same is printed on
the invoice issued to client.

Issue of Invoice

Section 31(2) of the CGST Act read with Rule 2 of GST Invoice
Rules makes it mandatory for service provider (including Chartered Accountants)
to issue invoice within 30 days from the date of supply of service. In case of
statutory audit, the chartered accountant will have to raise invoice within 30
days of attesting financial statements. For other services, one may determine
the date of supply of services on the basis of contractual arrangement with the
client.

Invoices are required to be prepared in duplicate the
original copy being marked “Original for Recipient” and the duplicate copy
being marked “Duplicate for Supplier” [Rule 3(2) of the Tax Invoice, Credit
& Debit Note Rules].

For all advances received, a Receipt Voucher will have to be
issued containing the prescribed particulars [Section 31(3)(d) of the CGST
Act].

Time of Supply of Service

Under the service tax provisions, the chartered accountant
had the option of paying tax on receipt basis where the value of taxable
services provided in a financial year was less than Rs. 50 lakh. Most of the
chartered accountants maintain their books of account on cash method. It was
very convenient for them to compute their tax liability on cash basis of
accounting. However, under the GST there is no such option. Everyone has to
discharge their tax liability as per the time of supply which is earlier of
date of invoice or date of receipt of payment or the date of provision of
service, where the invoice is not raised within 30 days of provision of
service. This would now involve regular reconciliation and may require
maintaining additional set of records.

Applicability of Reverse Charge

Any taxable goods or services procured by a registered person
from an unregistered supplier, the registered person procuring such supply will
have to pay tax under reverse charge [Section 9(4) of the CGST Act]. A
practising chartered accountant would be incurring many expenses such as
purchase of stationery, tea & snacks for office staff, repairs &
maintenance, etc. which are mostly supplied by unregistered persons.
Registered chartered accountants will have to pay tax under reverse charge on
all such procurements and also generate an invoice and a payment voucher
[Section 31(3)(f) of the CGST Act] for the same. However, vide Notification No.
8/2017 dated 28^th June, 2017, the Government has exempted intra
state supplies of goods or services received from an unregistered supplier from
the applicability of the provisions of reverse charge where the aggregate of
such supplies from any or all the suppliers do not exceed Rs. 5,000/- in a day.
This would bring a major relief to all the tax payers. In addition to this,
section 9(3) of CGST Act prescribes for payment of tax under RCM on notified
services even if it is procured from registered vendor.

Relevant Transitional Provisions

Section 142(11)(b) of CGST Act provides that GST is not
payable on those services where service tax was leviable under the Finance Act,
1994. In other words, GST will not be payable on advances received or invoices
raised before the effective date.

What happens in case where chartered accountant (liable to
discharge service tax liability on realisation basis) has provided services and
issued the invoice in pre GST regime and realises the consideration in post GST
regime? It seems such chartered accountant will be liable to pay service tax
and not GST on such consideration as the point of taxation in respect of such
services has already arisen in pre-GST regime.

Section 140(1) of the CGST Act entitles a registered person
(chartered accountant) to carry forward the Cenvat credit balance reflected in
the service tax return filed for the period immediately preceding the effective
date of GST.  He has to file form GST
TRAN-1 within 90 days of the appointed day specifying the amount of Cenvat
credit to be carried forward [Rule 1(1) of Transitional Rules].

Valuation

Section 15 of the CGST Act provides that the value of supply
shall be the transaction value which shall include all incidental expenses
charged by the service provider to the service recipient. Hence, all
reimbursement of expenses (other than incurred as pure agent) will be liable to
GST. Moreover, any expenses which the supplier is liable to pay in relation to
such supply but which is paid by the recipient will have to be included in
value of supply. Even interest or late fees received by chartered accountants
for delayed payment will also be liable to GST.

GST Rate

There is no specific entry for the services provided by
chartered accountants in the schedule of GST Rates released by the GST Council.
It falls in the residual entry No. 36 wherein the rate of GST is 18 %. So all
services provided by practising chartered accountants will be liable to GST @
18 %. If the supply is intra-state, then 9 % CGST and 9% SGST will have to be
charged and if the supply is inter-state, then 18% IGST.

Input Tax Credit

Under the Service Tax legislation, a service provider was
entitled to credit of service tax paid on input services and also excise duty
paid on inputs and capital goods. He was not entitled to credit of VAT paid on
inputs and capital goods. It was a cost to the service provider.

Under the GST, a registered chartered accountant will be
entitled to input tax credit of both i.e. GST paid on goods as well as
services. To this extent, there would be a reduction in the cost.

However, the credit would be available only if the goods and
services are received; invoice for the same is received and contains the
recipient’s GSTIN and the supplier has paid the applicable GST on the same and
also filed his GST return. Unless all the above is not done input tax credit
would not be available [Section 16(2) of the CGST Act].

Where payment to the vendor is not made within 180 days from
the date of issue of the invoice, the corresponding input tax credit will have
to be reversed. The same shall be available on making payment for the same
[Section 16(2) of the CGST Act]. Under the Service Tax legislation, this period
is 3 months.

Section 16(4) of the CGST Act provides for the time limit to
avail input tax credit. It can be claimed on the basis of invoice or tax paid
document before earlier of:

–   Due date of filing of return for the month of
September following the end of the financial year to which such invoice or tax
paid document pertains; or

–   Date of filing of annual return .

Tax deducted at Source

GST law provides for
deducting tax at source from the payment made to vendor by persons or such
category of persons as notified by government where total value of such supply
under a contract exceeds Rs. 2,50,000. Rate of TDS is 2% [1% CGST and 1% SGST
or 2% IGST].

There are chances that chartered accountant firms having
turnover above a certain limit might be covered under TDS. If covered, the
chartered accountancy firm will be obliged to deduct TDS on payments made to
its vendors, issue TDS certificate and file TDS returns [Section 51(1) of the
CGST Act].

The Chartered Accountancy firm would also be tax deductee.
This will add to the administrative burden of reconciling GST TDS and the
revenue declared in the GST returns.

Return Filings and Tax Payments

Currently, service tax is required to be paid on quarterly
basis and the returns are required to be filed every half year. Under the GST Laws, the payment of tax has to be made on monthly
basis on or before 20^th of succeeding month.

All registered persons need to file returns as under:

This will increase the compliance burden substantially.

Similar to Service Tax provisions, Nil returns are also
required to be filed under the GST Laws [Section 39(8) of the CGST Act].

Under the Service Tax regime, only the consolidated value of
services rendered in a quarter was required to be filed. In the GST returns,
details of each individual invoices (unless issued in favour of an unregistered
person) has to be uploaded. This again will increase compliance.

Any Return filed without payment of self-assessed tax, will
be treated as an invalid return. Returns for any tax period will not be allowed
to be furnished, if the return for any of the previous tax period has not been
filed [Section 39(10) of the CGST Act].

Audit

There is no provision under service tax legislation for
compulsory audit of accounts by a chartered accountant or a cost
accountant.  However, under the GST
regime, all assessees having turnover exceeding Rs. 200 lakh will be required
to get their accounts audited by a chartered accountant or a cost accountant
[Section 35(5) of the CGST Act read with Rule 21(3) of the Returns Rules].

Electronic Back-Up of Records

Proper electronic back-up of records will have to be
maintained so that in the event of destruction of such records due to accident
or natural causes, the information can be restored within a reasonable period
of time [Rule 2 of Accounts & Records Rules].

Conclusion