Indirect tax - India

There are two principal indirect taxes in India – Goods and Services Tax (GST) and Customs Duty.

Customs Duty

Customs duty, a central government levy, is leviable on import/ export of goods to and from India.

India follows the Harmonised System of Nomenclature (HSN) classification rules and the goods are classified under different chapter/tariff headings (based on eight-digit coding) primarily according to their description, components and use.

Presently, the effective standard rate of Customs duty that is applicable on the import of goods is approximately 30.98% (taking standard GST rate of 18%), subject to exemption/concessions as may be available/notified from time to time and free trade agreements entered into by India with other countries. However, at present, there is no export duty leviable on goods exported from India, except in public interest as notified.

Goods and Services Tax (GST)

GST, introduced on 1 July 2017, is a comprehensive tax that has replaced multiple indirect taxes from the previous regime, such as Excise Duty, Service Tax, VAT, Entry Tax, and Luxury Tax.

It is a destination-based consumption tax levied on supply of all goods and services except alcohol for human consumption and un-denatured extra neutral alcohol (ENA). It is also levied on import of goods and services into India.

Although GST is ultimately borne by the consumer by being included in the price paid, the responsibility for charging, collecting and paying it to the tax authority at each stage of the process rests with the supplier. However, in specific cases, the responsibility of payment of tax is shifted to the recipient.

A business registered for the tax will charge GST (output tax) on its supplies, and incur GST (input tax) on its purchases (including any GST paid on importation). Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

A transaction is within the scope of GST if the following conditions are met:

• it is a supply of goods or services. The term ‘supply’ has been given an inclusive definition under the legislation
• it is made for a consideration
• the place of supply is in India
• it is made in the course or furtherance of business carried on by the supplier.

The following types of taxes are levied under the GST regime:

• CGST and SGST/UTGST is levied on intra-state supplies of goods and services
• IGST is levied on inter-state supplies of goods and services.

Goods and services tax is broadly divided into five tax slabs for collection of tax:

• 0%, 5%, 12%, 18% and 28%.
• Further, there is a special rate of 0.25% on rough, precious and semi-precious stones and 3% on precious metals such as gold, silver and articles thereof.
• Petroleum products and alcoholic drinks are taxed separately by the individual state governments.
• Additionally, Compensation cess is also applicable on few items such as aerated drinks, cars, tobacco products, etc.

Businesses that make exempt supplies are unable to claim all of the input tax that they incur, so the GST paid to suppliers will be a ‘real’ cost.

Credit of input tax taken on purchases is refundable to exporters of goods or services, provided certain specified conditions of export are satisfied.

Customs Duty

Every person importing/exporting goods to/from India is required to obtain an import export code (IEC) irrespective of turnover.

Goods and Services Tax

Every supplier shall be liable to be registered under GST in the State from where he makes a taxable supply of goods or services, if his aggregate turnover in a financial year exceeds INR 2 million (INR 1 million in the case of special category states). However, a supplier making exclusive supply of goods is liable to obtain registration if his aggregate turnover in a financial year exceeds INR 4 million (INR 2 million in case of special category states).

A supplier can register on a voluntary basis even if the registration limit has not been exceeded.

However, there are certain cases in which registration is compulsory, irrespective of threshold, such as persons making any inter-state supply and persons who are required to pay tax under reverse charge (as a recipient) among few other cases.
It is important to note that a person making wholly exempt supplies is not liable to obtain registration.

A penalty of INR 10,000 or tax evaded, whichever is higher, may be imposed by the tax authority if a person, who is liable to be registered, fails to register at the correct time.

The term ‘non-established businesses’ is not defined either under Customs or under the GST laws. However, we understand that non-established businesses are foreign entities which are not incorporated as per Indian laws.

The same registration limits would apply to non-established businesses if they supply taxable goods or services from India.

However, in cases where the non-established businesses qualify as non-resident taxable person (NRTP) or an e-commerce operator (ECO) or supplier of online information and database access or retrieval services (OIDAR) or online money gaming from a place outside India to person in India, would be mandatorily required to be registered under GST irrespective of their aggregate turnover.

Under the GST provisions, the online information and database access or retrieval (OIDAR) services are those delivered through the internet or electronic networks, relying entirely on information technology for their supply.

In the case of supplies of electronically supplied/digital services (OIDAR services) by non-resident supplier to private consumers in India (unregistered), the liability to pay GST is on the non-resident supplier. For this purpose, he is required to take a single registration under GST as a supplier of online information and database access or retrieval services and undertake monthly GST compliance.

In case such non-resident supplier does not have a physical presence or any representative in India, then he may appoint a person in India for the payment of GST.

Generally, it is not mandatory to appoint a fiscal representative. However, if non-established person does not have a physical presence in India, then it would become necessary to appoint an authorised person in India for registration purposes. 

Customs duty

While there is no specific return that is required to be filed, however, every importer is required to file a bill of entry before the end of the next day following the day (excluding holidays) on which the aircraft/vessel/vehicle carrying the goods arrives at a customs station from which such goods are to be cleared for home consumption or warehousing.

Goods and services tax

Currently, the following returns are required to be filed:

• GSTR-1: The return for outward supplies is required to be filed by the 11th of the following month (to be filed quarterly by taxpayers having a turnover up to INR 50 million and monthly for other taxpayers)
• GSTR-3B: The summarized return to be filed by the 20th of the following month along with payment of tax (to be filed quarterly by taxpayers having a turnover up to INR 50 million)
• GSTR-4: The return for taxpayers opting for composition levy to be filed on annual basis by 30th April of the following financial year (changed to 30th June from FY 2024-25)
• GSTR-5 & 5A: The return for non-resident taxable persons and OIDAR service providers to be filed by the 13th of the following month and 20th of the following month respectively.
• GSTR-6: The return for Input service distributors to be filed by the 13th of the following month
• GSTR-9: Annual return to be filed by the 31st December of the following financial year
• GSTR-9C: Annual reconciliation statement to be filed by 31st December of the following financial year.  (Only to be filed by taxpayers whose annual turnover exceeds INR 50 million)

Customs duty

Importer is liable to pay charges for late presentation of the bill of entry at the rate of INR 5,000 per day for the initial three days of default and at the rate of INR 10,000 for each day of default thereafter.

In case the importer has delayed in discharging the payment of tax, the said importer would be liable to an interest of 15% per annum.

Goods and services tax

A default late filing fee of INR 50 per day (subject to maximum of INR 10,000) shall be imposed by the tax authority if GST returns are not submitted on time. In case of Nil returns, late filing fee of INR 20 per day (subject to maximum of INR 10,000) shall be payable. If related tax is not paid by the due date, interest of 18% per annum is payable on the tax liability discharged via cash after netting off available ITC.

Also, the registered person may be liable to pay a penalty which may extend to INR 25,000. However, such penalty shall be imposed only after giving an opportunity of being heard.

Further, if returns are not submitted for a continuous tax period of 6 months, authority may cancel the registration after giving the person an opportunity of being heard.

Furthermore, from 2025 onwards (particular date yet to be notified), the taxpayers would not be permitted to file their GST returns after the expiry of 3 years from the due date.

There are prescribed declarations in the indirect tax law to be included on the invoices, documents, etc. for levy of tax/ availment of exemptions.

Further, specific declarations for import/export related documents are also required such as:

• declaration of ‘supply meant for export on payment of Integrated tax’ or ‘supply meant for export under Letter of Undertaking or Bond without payment of integrated tax’.

Yes. A range of penalties can be imposed where registered persons fail to comply with the provisions of the principal indirect tax laws.

Typically, penalties may be levied in case of non-payment of taxes, wrongful availment/utilisation of credits, non-filing of periodic returns, failure to maintain proper books of accounts and records, etc. which may range between 10% to 100% of the tax amount on case-to-case basis.

Further, in extreme circumstances, criminal proceedings (prosecution) are typically initiated under certain specified provisions of law.

No, the indirect taxes incurred by overseas business entities cannot be claimed if they are not registered in India.

Customs duty

Not applicable, as the importer typically accepts the commercial invoice issued by the seller along with the packing list.

Goods and services tax

In case of taxable supplies, tax invoice issued by the registered person shall contain the following particulars, namely:

• name, address and Goods and Services Tax Identification Number of the supplier
• a consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters such as hyphen or dash and slash symbolised as – and /respectively, and any combination thereof, unique for a financial year
• date of its issue
• name, address and Goods and Services Tax Identification Number or Unique Identity Number, if registered, of the recipient
• name and address of the recipient and the address of delivery, along with the name of the State and its code, if such recipient is un-registered and where the value of the taxable supply is INR 50,000 or more
• name and address of the recipient and the address of delivery, along with the name of the State and its code, if such recipient is un-registered and where the value of the taxable supply is less than INR 50,000 and the recipient requests that such details be recorded in the tax invoice
• Harmonised System of Nomenclature code for goods or services
• description of goods or services
• quantity in case of goods and unit or Unique Quantity Code thereof
• total value of supply of goods or services or both
• taxable value of the supply of goods or services or both considering discount or abatement, if any
• rate of tax (central tax, State tax, integrated tax, Union territory tax or cess)
• amount of tax charged in respect of taxable goods or services (central tax, state tax, integrated tax, Union territory tax or cess)
• place of supply along with the name of the State, in the case of a supply in the course of inter-State trade or commerce
• address of delivery where the same is different from the place of supply
• whether the tax is payable on reverse charge basis
• signature or digital signature of the supplier or his authorised representative.

In addition to above, in case of tax invoice issued in respect of export of goods or services, it shall include an endorsement ‘supply meant for export on payment of integrated tax’ or ‘supply meant for export under bond or letter of undertaking without payment of integrated tax’. Further, in lieu of point (e) it shall contain following details:

• name and address of the recipient
• address of delivery
• name of the country of destination.

Bill of Supply has to be issued in case of supply of exempted goods or services.

Further, a registered supplier is required to issue e-invoice for B2B supplies on GST network if his aggregate turnover in a financial year exceeds INR 50 million.

A registered supplier is also required to have a dynamic QR code displayed on his B2C invoices if his aggregate turnover in a financial year exceeds INR 5,000 million.

E-invoicing is an electronic system introduced under GST to standardize the generation and reporting of invoices. It mandates businesses to generate invoices in a specific format and report them to the Invoice Registration Portal (IRP). It is mandatory for businesses with aggregate turnover exceeding INR 50 million and applies to B2B, Exports, and SEZ supplies.