As per the provisions of the GST Act, a registered person is required to get himself registered in the state from where outward supply is made. However, a person registered under a state may avail the services from other states where he is not registered. And there may also be the cases where the services are consumed in the state where he is not registered like, accommodation in hotels.
Factors which determine IGST or SGST to be levied
As per the provisions of the GST Act, the type of the tax to be charged is based upon the two factors:
- Location of Supplier
- Place of Supply
The above two factors determine the nature and type of the tax to be charged on the supply.
Further, from the Input Tax credit point, a person registered under one state is not eligible to take the credit of other state where the Place of supply is not in the state where he is registered.
A registered person is eligible to take ITC of the Inward supplies in cases where the Place of Supply falls within the state in which he is registered. And if he has availed services on which the Place of Supply is another state, ITC is not available to the said registered person.
XYZ Ltd. suppose has a registration in Haryana and they avail accommodation services of a hotel in Udaipur (Rajasthan). Now if the accommodation charges are Rs. 45,000, the “CGST+ SGST” of Rajasthan would be 9% each of Rs. 4050 each. The services are consumed in the Rajasthan itself and XYZ ltd being registered in Haryana is not eligible to take the ITC of the CGST & SGST of Rajasthan.
The Hotel is required to charge CGST & SGST only, he simply cannot charge IGST on services provided to XYZ Ltd registered in Haryana.
Now, the same will be the cost for the XYZ ltd.
There would be no issue to the XYZ Ltd if the frequency of such service is less. However, if it was a case where a huge amount of ITC becomes a cost to XYZ Ltd and frequency of such services are higher, then in that scenario, XYZ Ltd may voluntarily takes the registration in that state where such ITC is blocked.
Merely taking registration is not the solution, XYZ ltd is required to provide Outward Supply from that state in order to take the benefit of such ITC.
Further, a registered person engaged in providing services can take the registration in different states in order to avail the benefit of ITC.
It is pertinent to note that a argument may be made that if ITC is not taken then the same may be claimed as an expense under the Income Tax in the year in which such expense incurred. But the important part is that the benefit of taking ITC is available immediately on availing the services and it can be used immediately for paying the output tax liability which results in lesser cash outflow of the registered person.
So, it is better to take registration in order to solve cashflow issues too with the minimal compliance.
Solution: Virtual Office for GST Registration
But If you want to avail the blocked Input Tax Credit, you can take GST Registration of that state, and avail Input tax credit on all purchases and expenses done in that state by the business.
To avail GST Registration in that state, a business must have an office address to register for GST as a proof of address of that state. If you already have an office space in that state, you can easily register on that address, but if you don’t, then you will have to own/rent a, office space.
This is where Virtual Office for GST Registration Plan can help you in getting cost effective solution for just INR 1000/month, which provides solution in professional business centres & Coworking Spaces.
The documents provided for GST Registration are Owner NOC, Rent Agreement, and Electricity Bill.