The introduction of Goods and Services Tax (GST) is a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax, it has mitigated cascading or double taxation in a major way and paved the way for a common national market. From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods or services, which was estimated to be around 25%-30%. Introduction of GST would also make Indian products competitive in the domestic and international markets. Studies show that this would have a boosting impact on economic growth. Because of its transparent and self- policing character, GST would be easier to administer.

Concept of GST

Before we proceed with the finer nuances of Indian GST, let us first understand the basic concept of GST.

  • GST is a value added tax levied on manufacture, sale and consumption of goods and services.
  • GST offers comprehensive and continuous chain of tax credits from the producer's point/service provider's point upto the retailer's level/consumer’s level thereby taxing only the value added at each stage of supply chain.
  • The supplier at each stage is permitted to avail credit of GST paid on the purchase of goods and/or services and can set off this credit against the GST payable on the supply of goods and services to be made by him. Thus, only the final consumer bears the GST charged by the last supplier in the supply chain, with set-off benefits at all the previous stages.
  • Since, only the value added at each stage is taxed under GST, there is no tax on tax or cascading of taxes under GST system. GST does not differentiate between goods and services and thus, the two are taxed at a single rate.

Goods and Service Tax - Key Concepts

Goods and Services Tax (GST) is a comprehensive tax on supply of goods or services or both. It eliminates the cascading effect of taxes, as GST is imposed at every stage of supply chain and the input credit is available in across the supply chain. The uninterrupted credit in the supply chain ensures that the end consumer purchases goods and services at a lower price and to ensure this the government has introduced the Anti-pro teering clause based on the experience in Malaysia where GST was implemented from 1st April 2015. Under GST, taxes are paid at all stages in the supply chain i.e. from manufacturing to the end sale to the consumer. Taxes are levied at all the stages and input tax credit is available to the extent of the tax paid during the purchase. The end consumer will not pay taxes directly to GST authorities; the retailer pays the taxes on behalf of the end consumer. The overall idea of having GST in India is to increase the tax base over a period, and this will result in lower tax rates over a period. Various scholars estimate that the GDP is expected to go any number between 0.5% to 2%. And it is also anticipated that it will promote the ease of doing business in India. Another significant shift in the taxes under GST is the introduction of destination-based consumption taxation in place of origin-based taxation. That means GST will be the tax revenue for the state where ultimately the goods or services are consumed. GST moves with the movement of goods and services and there is seamless movement of input tax credit also along with goods and services in the entire value chain, except the cases where the credit chain breaks.

Framework of GST in India

I. Dual GST: India has adopted a dual GST which is imposed concurrently by the Centre and States, i.e. Centre and States simultaneously tax goods and services. Centre has the power to tax intra-State sales & States are empowered to tax services. GST extends to whole of India including the State of Jammu and Kashmir. II. CGST/SGST/UTGST/IGST: GST is a destination based tax applicable on all transactions involving supply of goods and services for a consideration subject to exceptions thereof. GST in India comprises of Central Goods and Service Tax (CGST) - levied and collected by Central Government, State Goods and Service Tax (SGST) - levied and collected by State Governments/Union Territories with State Legislatures and Union Territory Goods and Service Tax (UTGST) - levied and collected by Union Territories without State Legislatures, on intra-State supplies of taxable goods and/or services. Inter-State supplies of taxable goods and/or services are subject to Integrated Goods and Service Tax (IGST). IGST is approximately the sum total of CGST and SGST/UTGST and is levied by Centre on all inter-State supplies.

List of Taxes Included in GST

In the GST regime, the major indirect taxes have been subsumed in the ambit of GST. The erstwhile concepts of manufacture or sale of goods or rendering of services are no longer applicable since the tax is now levied on “Supply of Goods and/or services”. Following taxes will be subsumed in Goods & Services Tax as mentioned above 

State taxes which will be subsumed in SGST

  • VAT/Sales tax
  • Entertainment tax (unless it is levied by local bodies)
  • Luxury tax
  • Taxes on lottery, betting and gambling
  • State cess and surcharges to the extent related to supply of goods and services.
  • Entry tax not on in lieu of octroi
  • Electricity Duty

Central taxes which will be subsumed in CGST:

  1. Central Excise : Central Excise Act, 1944 except as respects goods included in entry 84 (Alcohol for human consumption)of the Union List of the Seventh Schedule to the Constitution and Central Excise on Petroleum Products
  2. Services Tax under Finance Act, 1994
  3. Central Sales Tax – CST
  4. Value Added Tax – VAT
  5. Additional duty of customs -CVD Additional duty of customs equal to the, excise duty leviable on like goods produced or manufactured in India. This is levied under Section 3 of Customs Tariff Act, 1975
  6. Special Additional duty – SAD Imported goods are also liable to a Special additional duty at a rate specified in Section 3A of the Customs Tariff Act, 1975.
  7. Education Cess under Finance Act – EC
  8. Higher Secondary education Cess under Finance Act – SHEC
  9. Swachha Bharat Cess – SBC
  10. Krishi Kalyan Cess – KKC
  11. Cess collected by Central Govt under various heads like Automobile Cess, Tractor Cess, Textile Cessetc
  12. Medicinal Excise
  13. Entry Tax on Goods Under Entry of Goods into Local Areas Act
  14. Entry Tax on Motor Vehicles Under Entry Tax of Motor Vehicles into Local Areas Act
  15. Purchase Tax
  16. Taxes on Lottery Betting gambling Under Betting Tax Act of respective State
  17. Luxury Tax Under Luxuries Act of respective States
  18. Entertainment Tax Under Entertainment tax Act of respective States
  19. State Cess / surchages
  20. LBT – Local Body Tax
  21. Octroi
  22. Tax on sale of Forest Produce by Government or Forest Development Corporation.

Goods and Service Tax Network

Goods and Services Tax Network (GSTN) has been set up by the Government as a private company under erstwhile Section 25 of the Companies Act, 1956. GSTN would provide three front end services to the taxpayers namely registration, payment and return. Besides providing these services to the taxpayers, GSTN would be developing back-end IT modules for 27 States who have opted for the same. GSTN has selected 34 IT, ITeS and nancial technology companies, to be called GST Suvidha Providers (GSPs). GSPs would develop applications to be used by taxpayers for interacting with the GSTN.

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