At ProfitBooks, we are committed to make taxation simple for small business owners in India. Since GST is set to replace various indirect taxes, we have started this series on frequently asked questions on GST. This article is second in this series.

Earlier, we had covered overview of GST tax and common questions around it. Business owners are often confused about what is included in GST and what type of goods are exempt from GST. In this article, we have covered common questions regarding levy and exemptions under GST tax in India.

1) What is the taxable event under GST?

Supply of goods and/or services. CGST & SGST will be levied on intra-state supplies while IGST will be levied on inter-state supplies. The charging section is section 7 (1) of CGST/SGST Act and Section 4(1) of the IGST Act.

2) Is the reverse charge mechanism applicable only to services?

No, reverse charge applies to supplies of both goods and services.

3) What will be the implications in case of purchase of goods from unregistered dealers?

The receiver of goods will not be able to get ITC. Further, the recipients who are registered under composition schemes would be liable to pay tax under reverse charge.

4) In respect of exchange of goods, namely gold watch for restaurant services will the transaction be taxable as two different supplies or will it be taxable only in the hands of the main supplier?

No. In the above case the transaction of supply of watch from consumer to the restaurant will not be an independent supply as the same is not in the course of business. It is a consideration for a supply made by the restaurant to him. The same will be a taxable supply by the restaurant.

5) Whether supplies made without consideration will also come within the purview of Supply under GST?

Yes only those cases which are specified under Schedule I to the Model GST Law.

6) Who can notify a transaction to be supply of goods and/or services?

Central Government or State Government on the recommendation of the GST Council can notify a transaction to be the supply of goods and/or services.

7) Will a taxable person be eligible to opt for composition scheme only for one out of 3 business verticals?

No, composition scheme would become applicable for all the business verticals/registrations which are separately held by the person with same PAN.

8) Can composition scheme be availed if the taxable person effects inter-State supplies?

No, composition scheme is applicable subject to the condition that the taxable person does not affect interstate supplies.

9) Can the taxable person under composition scheme claim input tax credit?

No, taxable person under composition scheme is not eligible to claim input tax credit.

10) Can the customer who buys from a taxable person who is under the composition scheme claim composition tax as input tax credit?

No, customer who buys goods from taxable person who is under composition scheme is not eligible for composition input tax credit because a composition scheme supplier cannot issue a tax invoice.

11) Can composition tax be collected from customers?

No, the taxable person under composition scheme is restricted from collecting tax. It means that a composition scheme supplier cannot issue a tax invoice.

12) What is the threshold for opting to pay tax under the composition scheme?

The threshold for composition scheme is Rs. 50 Lakhs of aggregate turnover in financial year.

13) How to compute ‘aggregate turnover’ to determine eligibility for composition scheme?

The methodology to compute aggregate turnover is given in Section 2(6). Accordingly, ‘aggregate turnover’ means ‘Value of all supplies (taxable and non-taxable supplies + Exempt supplies + Exports) and it excludes Taxes levied under CGST Act, SGST Act and IGST Act, Value of inward supplies + Value of supplies taxable under reverse charge of a person having the same PAN.

14) What are the penal consequences if a taxable person violates the condition and is not eligible for payment of tax under the Composition scheme?

Taxable person who was not eligible for the composition scheme would be liable to pay tax, interest and in addition he shall also be liable to a penalty equivalent to the amount of tax payable. (Section 8 (3) of the MGL).

15) What is the minimum rate of tax prescribed for composition scheme?

Minimum rate has been prescribed as 1%.

16) When exemption from whole of tax collected on goods and/or services has been granted unconditionally, can taxable person pay tax?

No, the taxable person providing such goods or services shall not collect the tax on such goods or services.

17) What is remission of tax/duty?

It means relieving the tax payer from the obligation to pay tax on goods when they are lost or destroyed due to any natural causes. Remission is subject to conditions stipulated under the law and rules made thereunder.

18) Whether remission is allowed under GST law?

Yes, proposed section 11 of Model GST law permits remission of tax on supply of goods.

19) Whether remission is allowed for goods lost or destroyed before supply?

Remission of tax will apply only when tax is payable as per law i.e. taxable event should have happened and tax is required to be paid as per law. Under GST Law, levy is applicable upon supply of goods. Where goods are lost or destroyed before supply, taxable event does not occur in order to pay tax. Accordingly, question of remission of tax does not rise.

20) Whether remission is allowed on goods lost or destroyed for all reasons?

No, on plain reading of the language of proposed Section 11, remission is allowed only for those cases where supply of goods is found to be deficient in quantity due to natural causes.

21) Does the model GST Law empower the competent government to exempt supplies from the levy of GST?

Yes. Under Section 10 of the Model GST Law, the Central or the State Government, on the recommendation of the GST council can exempt the supplies from the levy of GST either generally or subject to conditions.

Is Your Business Ready For GST?

If you are running your business in india, its important for your to become GST compliant. At ProfitBooks, our aim is to simply GST for business owners. That’s why we’ve built a super simple accounting software to create GST compliant invoices, record expenses, track inventory and finally automatically prepare GST-ready tax returns.

We’ve a network of chartered accountants who can help you with your tax questions for free. Over 10,000 business use ProfitBooks daily to manage their finances. Signing up takes just 2 minutes.

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It is important to keep track of the principle and interest amount, and record them respectively in books for correct accounting. Classification is vital as ‘interest’ paid on loan is an expense incurred to avail the loan, whereas principle repayment is nothing but repayment of the amount borrowed.

Going by the golden rule of accounting for personal accounts, you should debit the receiver, and credit the giver. The same can be done by passing a journal entry.

There will be two aspects as far as the accounting is concerned.

1. Recording the loan/borrowing in the books, And

2. Recording the repayment of the same in the books,

Before recording transactions, you will have to create the following A/c Heads:

1) ‘Secured/Unsecured Loan’  under A/c Group – ‘Current/Non Current Liability’  (Depending on the nature of the loan)

2) Similarly, also create ‘Interest on Loan’ Under A/c Group – ‘Finance Expenses’

Let’s discuss these aspects in detail now.

1) Recording loan transaction.

Make a journal entry debiting the Bank A/c as we have received the money, while crediting the say, ‘Unsecured Loan A/c’ created earlier.

2) Recording repayment of the same i.e. installments

• First step is to bifurcate the principle and interest amount.
• Now, since we are making the payment, go to Expenses–> Make payment.
• Select the bank from which you are making the payment of installment, in the ‘Pay From’ field.
• Under Pay to, select ‘Unsecured Loan’ and enter the principle amount. This will ensure that the loan is reduced by the amount you have repaid.

3) Then repeat the process and pass another entry, this time select ‘Interest on Unsecured Loan’ A/c and enter the amount of interest paid.

One must always keep in mind that the crux of Accounting is to record the transactions as they happen in a way that reflects the true and fair financial position of the company.

Also read :
How to record credit card transactions in ProfitBooks.
How to account for owner’s contribution in business.

The post How to record Loan Transaction? appeared first on ProfitBooks.net.

Recording capital investments of your own money or your business partner’s money is important for keeping company accounts accurate and up to date.

Lets assume that the business owner has transferred some funds into company’s account from his personal account. According to one of the 3 golden rules of accounting, you’ll have to debit the receiver and credit the giver.. You can do this by passing a journal entry.

How to record owner contribution in ProfitBooks.

1. Login to your ProfitBooks account.

2. Go to Accounting and open Chart Of Accounts

3. Create an account for Owner’s Contribution under ‘Capital Accounts’ head

   
   

4. Similarly create a bank account

    

    

   

5. Go to Accounting and open Journal Entry

6. Click on Add New Record button.

7. Select the bank account and enter the amount in Debit column

8. Select the capital account and enter the amount in Credit column

    

   

9. Thats it! Save the record.

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