CA Ameet Agrawal

GST will be a game changing reform for Indian economy by developing a “ONE NATION ONE TAX” Market and reducing the cascading effect of tax on the cost of goods and services. It will impact the Tax Structure, Tax Incidence, Tax Computation, Tax Payment, Compliance, Credit Utilization and Reporting leading to a complete overhaul of the current indirect tax system.

The Rajya Sabha clearance to the GST Bill, touted as the biggest tax reform since India’s Independence, lifted market mood on Thursday, but only briefly. The bill is set to improve the government’s revenue and help it achieve better transmission of prices.

It is expected that certain goods, such as capital goods, would become cheaper by 12-14 per cent, increasing demand for them, raising investment and, thus, economic growth.

However, the landmark legislation still need . to clear some more hurdles before the bill becomes a law, enforceable by the April 1, 2017 deadline. The bill will now be sent to the Lok Sabha, which has already passed the bill but will have to discuss and ratify the amendments made in the Rajya Sabha. The BJP has majority in the Lower House and thus a quick clearance is a given. In case the amendments are not cleared, the bill will go to parliamentary committee.

One the amendments are cleared, then the bill will go to state assemblies for clearance. This would be an important step, as at least 50 per cent of states (i.e. 15 states) must approve the legislation. Only Tamil Nadu looks tough at the moment, as the AIADMK MPs skipped the voting in the Upper House on Wednesday. The BJP is in power in 13 states as on date, while JDU – another strong backer of the GST legislation – is in power in Bihar. The Congress-ruled states too are likely to clear it.

The legislation will then go to the President, whose signature will turn it into a law ahead of its rollout by the intended deadline of April 1, 2017

The next step will be the formation of the GST Council. This council will have representatives from both the Centre and states. All this will be made within 60 days of the enactment of the bill. It will decide the revenue neutral rate (RNR), the rate at which there will be no loss in aggregate central and state tax revenue.

The RNR will then get converted into a three-slab GST rate structure, depending on exemptions. Essential commodities will be charged at low rates offset by higher ‘sin’ taxes on goods considered to be luxuries. A so-called standard or GST rate will be the middle slab and will apply to most goods and services. The single GST rate will be split between and central GST and state GST. The split shares will be decided by the GST Council.

Three more laws will need to be passed: laws on the Central GST (CGST), integrated GST (IGST) and 29 separate state GST legislations (SGST) . While the first two laws will be cleared by Parliament, the third law will be cleared by the respective state assemblies.

Question 1. What is GST? How does it work?

Answer: GST is one indirect tax for the whole nation, which will make India one unified common market.

GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

Question 2. What is the Objective of GST?

Answer GST objectives:-

1. Ensuring availability of input credit across the value chain

2. Minimising cascading effect of taxation

3. Simplification of tax administration and compliance

4. Harmonisation of tax base, laws, and administration procedures across the country

5. Minimising tax rate slabs to avoid classification issues

6. Prevention of unhealthy competition among states

7. Increasing the tax base and raising compliance.

Question 3. What are the benefits of GST?

Answer: The benefits of GST can be summarized as under:

For business and industry

Easy compliance: A robust and comprehensive IT system would be the foundation of the GST regime in India. Therefore, all tax payer services such as registrations, returns, payments, etc. would be available to the taxpayers online, which would make compliance easy and transparent.

Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are common across the country, thereby increasing certainty and ease of doing business. In other words, GST would make doing business in the country tax neutral, irrespective of the choice of place of doing business.

Removal of cascading: A system of seamless tax-credits throughout the value-chain, and across boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden costs of doing business.

Improved competitiveness: Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for the trade and industry.

Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.

Question 4. Which taxes at the Centre and State level are being subsumed into GST?

Answer: At the Central level, the following taxes are being subsumed:

a. Central Excise Duty,

b. Additional Excise Duty,

c. Service Tax,

d. Additional Customs Duty commonly known as Countervailing Duty, and

e. Special Additional Duty of Customs.

At the State level, the following taxes are being subsumed:

a. Subsuming of State Value Added Tax/Sales Tax,

b. Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States),

c. Octroi and Entry tax,

d. Purchase Tax,

e. Luxury tax, and

f. Taxes on lottery, betting and gambling.

Question 5. How would GST be administered in India?

Answer: Keeping in mind the federal structure of India, there will be two components of GST – Central GST (CGST) and State GST (SGST). Both Centre and States will simultaneously levy GST across the value chain. Tax will be levied on every supply of goods and services. Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output. No cross utilization of credit would be permitted. The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except on exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, both would be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of Central Excise.

IN GST REGIMEIN EXCISE AND VAT REGIME
Stage 1- Manufacturer selling to Trader

Sale price of Cement/MT= Rs.20,00.00

CSGT@10% = Rs.200.00

SGST@10% = Rs.200.00

Total = Rs. 2,400.00

Stage 1- Manufacturer selling to Trader

Sale price of Cement = Rs.2,000.00

Excise Duty@12.5% = Rs.250.00

VAT@14.5% (on Basic +Excise) = Rs.326.00

En.Tax @1%(on Basic+Excise+VAT) = Rs.26

Total = Rs.2,602.00

Stage 2- Trader selling to End User

Sale price of Cement/MT = Rs.2,200.00

CSGT@10% = Rs.220.00

SGST@10% = Rs.220.00

Total = Rs.2,640.00

Stage 2- Trader selling to End User

Sale price of Cement = Rs.2,476.00

VAT@14.5% = Rs.359.00

Total = Rs.2,835.00

NET TAX PAYABLE BY DEALER

CGST Payable on Sale = Rs.220.00

Input Credit of CGST = Rs.200.00

Net CGST Payable = Rs.20.00

 SGST Payable on Sale = Rs.220.00

Input Credit of SGST = Rs.200.00

 Net SGST Payable = Rs.20.00

 (It is assumed that Trader keeps Rs.200/MT (It is assumed that Trader keeps Rs.2000/MT profit) profit)

Note :

1. In GST Regime a trader is eligible for cenvat of CGST unlike of Excise and En try Tax. Hence the cost of goods to end user is less as compared to present tax regime.

2. In GST regime, concept of 1st dealer registration will be abolished as the Trader can pass CSGT to subsequent seller and can take cenvat of CGST. The dealer is not required to take registration under Excise. The margin of the dealer will not get disclose to buyer and the trader can compete with manufacturer.

NET TAX PAYABLE BY DEALER

VAT Payable on Sale = Rs.359.00

Input Credit of VAT = Rs.326.00

Net VAT Payable = Rs.33.00

Question 6. Will cross utilization of credits between goods and services be allowed under GST regime?

Answer: Cross utilization of credit of CGST between goods and services would be allowed. Similarly, the facility of cross utilization of credit will be available in case of SGST. However, the cross utilization of CGST and SGST would not be allowed except in the case of inter-State supply of goods and services under the IGST model which is explained in answer to the next question.

Question 7. How will be Inter-State Transactions of Goods and Services be taxed under GST in terms of IGST method?

Answer: In case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services under Article 269A (1) of the Constitution. The IGST would roughly be equal to CGST plus SGST. The IGST mechanism has been designed to ensure seamless flow of input tax credit from one State to another. The inter-State seller would pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST and SGST on his purchases (in that order). The exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The importing dealer will claim credit of IGST while discharging his output tax liability (both CGST and SGST) in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST.Since GST is a destination-based tax, all SGST on the final product will ordinarily accrue to the consuming State.

IMPACT OF GST O DIFFERENT SECTORS

IMPACT OF GST O DIFFERENT SECTORS

(Disclaimer: The views express here in above are based on author’s interpretation of law, which may differ from case to case and person to person. Views expressed above are neither intended nor liable to be used as professional advice or a legal opinion in any manner. The author or publisher is not responsible for the result of any action taken on the basis of this work or for any error or omission to any person.)

(Author can be reached at ca.ameetagrawal@gmail.com)

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