by Goods and Services Tax (GST) is a comprehensive indirect tax that was introduced in India on 1 July 2017. It is a destination-based tax that is levied on the supply of goods and services at each stage of the supply chain, from the manufacturer to the consumer. The GST is administered by the GST Council, which is a constitutional body comprising the Union Finance Minister and the Finance Ministers of all the states in India.
Assessment of GST
Assessment is the process of determining the amount of tax payable by a registered person under the GST regime. The assessment of GST is done in three ways, namely self-assessment, provisional assessment, and assessment by the tax authorities.
Self-assessment
Under the self-assessment system, a registered person is required to self-assess the amount of tax payable for a given tax period and file a return accordingly. The return must be filed electronically on the GST portal within the prescribed due date, which is generally the 20th of the month following the tax period.
The self-assessment of tax liability is done by adjusting the input tax credit (ITC) available against the output tax liability. Input tax credit is the tax paid on purchases made by a registered person, which can be set off against the tax payable on sales made by the same person. A registered person can claim ITC only if the purchases are used for business purposes and are eligible for ITC as per the provisions of the GST law.
Provisional assessment
Provisional assessment is done when a registered person is unable to determine the amount of tax payable for a given tax period. In such cases, the person can apply to the tax authorities for provisional assessment of tax liability. The tax authorities will then make a provisional assessment of the tax liability and allow the person to pay tax on a provisional basis. Once the final assessment is completed, any excess tax paid or short paid will be adjusted accordingly.
Assessment by the tax authorities
The tax authorities may initiate an assessment of the tax liability of a registered person in the following situations:
- When the registered person fails to file a return within the prescribed due date
- When the registered person files a return but the tax authorities are not satisfied with the correctness or completeness of the information provided in the return
- When the tax authorities have reasons to believe that the registered person has underpaid tax or availed ITC wrongly
The tax authorities will issue a notice to the registered person and conduct an assessment by examining the books of accounts, documents, and other relevant records. Based on the assessment, the tax authorities may either accept the tax liability as declared by the registered person or make a reassessment and demand payment of additional tax, interest, and penalty.
Assessment of GST example
Goods and Services Tax (GST) is a tax levied on the supply of goods and services in India. GST has been implemented with the aim of simplifying the indirect tax system in India by replacing multiple indirect taxes like excise duty, VAT, and service tax with a single tax. Here’s an example to understand how GST works:
Let’s say a manufacturer produces a product and sells it to a wholesaler for Rs. 100. The GST rate on the product is 10%. So, the manufacturer charges the wholesaler Rs. 110 (Rs. 100 + 10% of Rs. 100) for the product.
Now, the wholesaler sells the product to a retailer for Rs. 150. Again, the GST rate on the product is 10%. So, the wholesaler charges the retailer Rs. 165 (Rs. 150 + 10% of Rs. 150) for the product.
Finally, the retailer sells the product to the end consumer for Rs. 200. The GST rate on the product is 10%. So, the retailer charges the end consumer Rs. 220 (Rs. 200 + 10% of Rs. 200) for the product.
At each stage of the supply chain, the GST paid by the previous buyer can be claimed as input tax credit (ITC) by the next buyer. For example, the wholesaler can claim the Rs. 10 paid as GST to the manufacturer as ITC, and the retailer can claim the Rs. 15 paid as GST to the wholesaler as ITC.
The GST collected by the government is the difference between the output GST (i.e., the GST charged on the final price of the product) and the input GST (i.e., the GST paid as ITC by the previous buyers). In this example, the GST collected by the government is Rs. 20 (Rs. 22o – Rs. 200).
