Goods and Services Tax is an Indirect Tax on Consumption levied in India.
GST is levied at every step in the production process. However, it is meant to be refunded to all the parties in the various stages of production, other than the final consumer.
GST is levied only on value- addition at each stage because the credit of input taxes paid at the procurement will be available.
The final consumer will bear only the GST charged by the last dealer in the supply chain with the set-off benefits at all the previous stages.
Implementation of GST shall be governed by :
GST is one Indirect Tax governing entire India.
Its main characteristics are:
GST encompasses transactions involving all goods and services except those which are still kept out of its ambit.
Supply chain involves multiple stages from manufacture to final sale to the consumer:
− Purchase of raw materials.
− Production or manufacture.
− Sale to wholesalers.
− Sale to retailers.
− Sale to end consumer.
GST is levied on all value additions at each of the multistages to achieve final sale to the end consumer.
Destination – Based
When Goods are manufactured in one State (Producing State, say, Haryana) and consumed in other State (Consuming State, say, Gujarat), the entire tax revenue shall accrue to the consuming state (i.e. Gujarat)
Creation of Common National Market
Uniform rate of GST levy on similar goods and services in States and Union Territories is aimed at creating a common national market.
Ease of Doing Business
Facilitating ease of doing business emanating from:
− Elimination of multiplicity of taxes of pre-GST regime.
− Introduction of registration and administration under single Indirect Tax of GST.
Elimination of Cascading Effect of Taxes
GST is levied on the difference between sale value and purchase value. Consequently, the cascading effect of taxes is eliminated. In other words, an old regime characteristic of “Tax on Tax” has been totally done away with.
Simplification of Indirect Tax Regime
Subsuming of Central and State level Taxes under GST is directed towards simplification of application and administration of taxes.
Uniform Taxes under GST are administered through an elaborate computer system. This will result in better tax management. It will help the control of tax collection and avoidance of tax evasion.
Goods Becoming Cheaper
GST paid (Input GST) is set off against GST collected (Output GST) and has no cascading effect leading to Goods and Services becoming cheaper.
Attracting Foreign Investment
Introduction of GST has replaced the multiplicity of Indirect Taxes as well as of authorities. This will attract the flow of Foreign Direct Investment (FDI) in India.
The structure of GST warrants levy of tax at every stage of the sale of goods and services. Business shall be conducted through the mechanism of recorded transactions. Slippages in collection shall, therefore, be plucked. Consequently, collection shall help acceleration in GDP growth.
Alcohol for Human Consumption
GST shall apply to Petroleum Products at a later date for :
− Crude Petroleum
− High-Speed Diesel
− Natural Gas
− Aviation Turbine Fuel
GST Act has withdrawn the power to tax entertainment and amusements from the States. However, the power to levy taxes on entertainment and amusement by Panchayat, Municipality, Regional Council and District Council has been retained.
Criteria for Subsuming Indirect Taxes
Taxes or levies should be in the nature of indirect taxes either on the supply of goods or services.
Taxes should be part of a transaction chain which commences with import/manufacture/production of goods; or provision of services at one end and consumption of goods at the other.
The subsumption should not result in the free flow of tax credit in Inter-State and Intra – State levels.
To ensure revenue fairness to both Union and individual States.
Need For Dual GST
India is a Federal nation. Both Centre and the States are assigned powers to levy and collect taxes through appropriate legislation. To retain the constitutionally prescribed character of fiscal federalism, India has adopted Dual GST Model.
Schedule of Indian Constitution demarcated three categories of
List of Powers
Category of List
Powers to Legislate
Both Central and State Governments
There are 4 Components of GST:
CGST – Central Goods and Services Tax.
SGST – State Goods and Services Tax.
IGST – Integrated Goods and Services Tax.
UTGST – Union Territory Goods and Services Tax.
(1) CGST CGST is levied by Central Government on any transaction of goods and services taking place within a State. CGST is one of the two taxes charged on every intra-state (within one state) transaction. The other is SGST or UGST.
(2) SGST SGST is one of the two taxes on every intra-state (within one state) transaction of goods and services. The other one is the CGST. SGST is levied by the State where goods and services are being sold.
(3) IGST IGST is applicable on: − Inter-state (between 2 states) transactions of goods and services. − Imports. − IGST will be collected by the Central Government and distributed among the respective states. − IGST is charged when goods or services are moved from one state to another. − IGST ensures that the State has to deal only with the Union Government and not separately with each other to settle the inter-state tax revenue.
(4) UTGST UTGST is applicable to goods and services supply that takes place in any of the five Union Territories: − Andaman & Nicobar Islands. − Dadra & Nagar Haveli. − Chandigarh. − Lakshadweep. − Daman & Diu.
Levy of GST
− The Centre will levy Central GST (CGST) and the States will levy State GST (SGST) on the supply of goods and services within a State.
− The Centre will levy IGST in the following cases :
1. Inter-state supply of goods and services.
2. Imports and exports.
3. Supplies to and from Special Economic Zones (SEZs).
Exemptions from GST
Based on the recommendations of the GST Council, the Centre exempts certain goods and services from the purview of GST through a notification.
− GST is applied when the turnover of business exceeds Rs. 20 lakhs per year.
− Turnover limit for North – Eastern States is Rs. 10 lakhs.
− Traders who wish to get input tax credit should make voluntary registration even if their sales are below Rs. 20 lakhs per year.
− Traders supplying goods to other states have to register under GST, even if their sales are less than Rs. 20 lakhs.
− There is a Composition Scheme for a selected group of taxpayers whose turnover is up to Rs. 150 lakhs per year.
Destination – Based Consumption Tax
Being destination-based tax, all SGST collected will ordinarily accrue to the State where the consumer of the goods and services resides.
Tier Rate Structure
(1) GST has provided for 4 – tier rate structure :
‒ Certain items have been exempted from the above structure and are as follows :
‒ 0% tax on essentials - items of essential mass consumption are placed in 0% category
‒ 3% tax on Gold
(2) Further, Centre has imposed an additional cess on “demerit” luxury goods and “sin goods” like tobacco and pan masala under 28% taxes category.
(3) GST rates structure for the goods and services is fixed by considering various factors such as luxury and necessity nature of goods.
Appropriation of Tax Revenue
The Centre and States shall share GST revenues in 50:50 ratios. This will not be applicable to CGST. For example, if the service is taxed at 18%, the Centre will receive 9% and the state the residual 9%.
Input Tax Credit
Every taxpayer, while paying taxes on output may take credit for taxespaid earlier on supplies of inputs.
Notable exceptions to this provision are:
(1) Motor vehicles used for personal consumption.
(2) Supply of food, health services used to make a supply.
GST is levied on the supply of goods and services. Such value will include:
(1) The price paid on the supply.
(2) Taxes and duties levied under other tax laws.
(3) Interest, late fee, penalties, delayed payments.
Apportionment of IGST Revenue
IGST collected will be apportioned between the Centre and the State where goods and services are consumed. The revenue will be apportioned to the Centre at CGST rate. The residual amount will be apportioned to the consuming State.
Comparison of GST based on Invoice Credit Method
The liability under GST will involve invoice credit method. It implies that CENVAT credit will be allowed on the basis of the invoice issued by the suppliers.
GST on Imports
Centre will levy IGST on inter-state supply of goods and services. Import of goods will be subject to basic customs duty and IGST.
Exemptions from Taxes to Small Taxpayers
Taxpayers with an annual turnover of Rs. 20 lakhs (Rs. 10 lakhs for special category states) shall be exempted from GST.
The utilisation of Input Tax Credit (ITC)
Input credit would be utilised as under:
(1) ITC of CGST – for payment of IGST and CGST
(2) ITC of SGST – for payment of IGST and SGST
(3) ITC of IGST – for payment of IGST, CGST and SGST In that order.
Refunds and Welfare Fund
Any taxpayer may apply for a refund of taxes, inter-alia for:
(1) Payment of excess taxes.
(2) Unutilised input tax credit.
Such Refund may be credited to the taxpayer. Alternatively, such refund may be credited to Consumer Welfare Fund in certain circumstances. Refund of tax to be sought by taxpayers, who have borne the incidence of tax, within 2 years from the relevant date.
Filing of Returns
Every taxpayer should make self-assessment of tax liability and file Returns on a monthly basis by submission of:
(1) Details of supplies provided.
(2) Details of supplies received.
(3) Payment of taxes.
In addition, an Annual Return will have to be filed by each taxpayer.
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