GST Tax Planning: key points will help to minimise the Tax liability

GST Tax Planning: Goods and Service Tax (GST) changed all indirect taxes levied on products and services by the Government, both Central and States. GST is among the most significant Tax Reforms in India because its self-reliance. One of the Key benefits of GST is removal of the cascading tax result.

What is Tax Planning?

Tax Planning is the organized process of lowering the tax liability by using various provisions under the Law. The main function behind Tax Planning is not just Reduction of Tax Liability but likewise to the Minimization of Litigation.In other words, Tax Planning means to reduce the tax liability by taking maximum benefits of the provisions under the law.

In GST, We can reduce Tax Liability through Effective Procurement Planning.

Why works Procurement Planning needed?

Raw material cost is the major cost component of the overall cost of a product of a manufacturing Organisation.Average raw material cost is to the tune of 60 to 65 % of the total expense. By conserving 1% cost through effecting procurement planning has good impact on product margins and eventually bottom line of the company. Following bottom lines will help to reduce the Tax liability and cost of efficient procurement:

i) Registered Dealer: Maximizes Procurement from registered dealer will get complete credit of input tax and net landed cost of product will not increase. Major advantage is -100% input tax credit can be availed and eventually the tax liability out go can be reduced. Compliance is very much simpler and smoother as compared to buying from unregistered dealer. Another benefit is that rate comparison is easier in case of purchases from the signed up dealer.

ii) Composite Dealer: Input tax credit is not offered on the purchases from Dealer who opted under Composition Scheme. Taxes are inclusive in the prices and obviously landed expense of product is greater than procurement from the registered dealership. Procurement planning ought to be in such a way that there must be minimal purchases or set a target of Zero buy from composite dealership.

iii) Inter-State or Intra-State Purchases: Inter-State purchases brings in IGST while Intra-State brings in SGST & CGST. From Cash outflow perspective, IGST input tax credit can be used to set off tax liabilities from IGST, CGST and SGST whereas CGST & SGST input credit tax can be used to setoff for respective liabilities only.In case, inter-state sales and intra-state purchases are greater, cash out circulation is heavily impacted and accumulation of input credit increases the pressure on working capital. Cost & Benefit analysis is to be required for decision making about inter-state v/s intrastate procurement in the province of GST arrangements.

iv) Unregistered Dealer: Always try to prevent purchasing from unregistered dealer generally due to non-availability of input credit and second of all, since price benchmarking is extremely difficult.The opportunities of fluctuations in rates are more and it might result in increase in the product cost. Compliance issues might be emerged and tax requirements to be paid under Reverse Charge for the purchases from Unregistered Dealer.

v) Major Procurement: Analyse the effect of GST on business of major suppliers and find out likely saving avenues and negotiate the rate with the supplier. It would lead to excellent conserving in procurement cost & taxes.Further, it will favorably impact the bottom line of the Company.

Conclusion: Procurement expense can be conserved through analysing & effective applications of GST provisions.Tax preparation assists to minimise the tax lability and optimize Compliance.In other words, Tax planning is an essential part of reliable procurement. I think “A RUPEE SAVED IS A RUPEE EARNED”.

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