The new Goods and Services Tax will now be applicable to employees on contract and retainers as well; mid-day breaks down what this means for you
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If you thought that GST only applied to businesses and not salaried employees, guess again. From this month on, contractual employees or those working on retainerships will also fall under the ambit of the new Goods and Services Tax (GST). This means that apart from the income tax you currently pay, the government will now demand 18% GST as well.
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This is a major change from the earlier service tax regime, under which any payment below R10 lakh was exempt. Now, no matter what the salary amount is, the government will demand 18% GST.
Also read: Will GST play spoilsport for property tax concession?
A state GST official said, "As per the latest notification dated June 28, all contractual workers and retainers come under the ambit of GST, wherein they have given the percentage of GST to be deducted by Centre (9%). A notification dated June 30 by the state government stated GST percentage of 9%, making it a total of 18 %."
What it means for you
The real question is, how will it affect your income? For all payments under R20 lakh, the burden of the tax will fall on the employer. On the other hand, contractual workers and retainers who annually earn R20 lakh or more, will have to apply for a GST number (similar to PAN or Permanent Account Number). These employees will then have to make submit 18% tax under this GST ID.
This will affect several sectors that employ contractual workers, such as the entertainment industry.
Also read - GST effect on eating out in Mumbai: What your bill will look like
The only professionals who are exempt are doctors and teachers, except for those who teach at coaching classes.
Manish Gadia, a charted accountant and GST consultant from Andheri, said, "Unlike service tax, which was not applicable for less than Rs 10 lakh, GST is applicable for any sum. The company/contractor is obliged to make reverse GST payment to the Centre and state government at 18% over and above the bill amount, and the company/contractor will avail the input tax credit accordingly under Section 16 of the GST Act. Vis a vis the employees who earn over Rs 20 lakh per annum, they will levy 18% on the invoice sent to the company and will deposit the same towards GST. He may also avail certain tax benefits to some extent."
Looming deadline
What’s crucial, right now, is that contractual employees above the Rs 20 lakh pay grade immediately apply for the GST number, for which the deadline has been set on July 30.
A senior GST official added, "Those individuals who are on contract and have not availed the GST number by July 30 will not be entitled for the credit benefit and a minimal penalty will be levied for the delay in getting the number."
When asked about any penal provisions against defaulters, the officer clarified that the government expects the public to come forward voluntarily. "We are expecting many first-timers to come under the ambit of GST, and our department is playing the role of facilitators by clearing all doubts and assisting them through seva kendras, officials websites and by interacting with the public."
Challenges ahead
There is still some confusion among companies over the tax format. A human resources official from a private business news channel said, "We have already informed those who are on contract/retainership, seeking submission of their GST number, as the same will be required to process their retainership allowance from July 2017 onwards. Also, clarity has been sought from the internal accounts department on whether GST has to be deducted from the existing retainership charges or if it is over and above the amount for those who are drawing less than Rs 10 lakh and the company has to deposit the same to the government. The entire GST implementation has only increased our workload."
According to Gadia, the government is still in the process of coming up with the software to accept online GST submissions.
In the meanwhile, traders have been asked to submit summary return report for July by August 20, and for the month of August by September 20 through the existing online system. The entire process should be streamlined from mid-September onwards.
When asked about the online process for submission of returns, which starts from the 10th to 20th of every month, Gadia said, "The government is confident that their system will be able to take such heavy loads of data, but we will have to wait and see. With voluminous data being uploaded from all over the country, the system is at risk of crashing or working very slowly, which could result in traders being penalised for delayed submissions."
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