What is advance ruling?
Advance ruling under GST, also known as Advance Ruling for Supply of Goods or Services or Determination of Place of Supply, is a mechanism in India that allows businesses to seek clarity on their Goods and Services Tax (GST) liabilities from a designated authority before undertaking a transaction. Here’s a breakdown of the concept:
Benefits of Advance Ruling:
- Clarity on Tax Treatment: An advance ruling provides a clear understanding of how a particular transaction will be treated under GST (taxable supply, exempt supply, place of supply etc.). This helps businesses make informed decisions and avoid potential disputes with tax authorities later.
- Reduced Litigation: By obtaining an advance ruling, businesses can minimize the risk of future disagreements or litigation related to GST on specific transactions.
- Planning Business Activities: Knowing the GST implications beforehand allows businesses to plan their activities and pricing strategies more effectively.
What can be covered in an Advance Ruling Application:
- Classification of goods or services (determining the applicable GST rate)
- Applicability of a notification issued under the GST Act (e.g., exemption for certain supplies)
- Determination of the time and value of supply
- Admissibility of input tax credit (ITC) on taxes paid on purchases
- Determination of the place of supply (crucial for deciding which state’s GST law applies)
