CA Vijay Bansal

CA Vijay BansalIntroduction:

Goods and Services Tax would be 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 would mitigate cascading or double taxation in a major way and pave 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, which is currently estimated at 25%-30%.

Concept of GST and how it will operate:

GST would be applicable on supply of goods or services as against the present concept of tax on the manufacture of goods or on sale of goods or on provision of services. It would be a destination based tax as against the present concept of origin based tax.

GST would be a dual GST with the Centre and the States simultaneously levying it on a common base. The GST to be levied by the Centre would be called Central GST (CGST) and that to be levied by the States would be called State GST (SGST).

Eg:

X ltd.       Y ltd.

Sales Rs.  100

Then the invoice will be: Sales Rs.100

CGST Rs. 10 (to be collected by Central govt.)

SGST Rs. 10 (to be collected by State Govt.)

Total: 120

* Assumed GST rate @ 10 %

However, an Integrated GST (IGST) would be levied on inter-State supply (including stock transfers) of goods or services. This would be collected by the Centre so that the credit chain is not disrupted. Import of goods or services would be treated as inter-State supplies and would be subject to IGST in addition to the applicable customs duties.

CGST, SGST & IGST would be levied at rates to be mutually agreed upon by the Centre and the States under the aegis of the GSTC. GST would apply to all goods and services except Alcohol for human consumption, Electricity and Real Estate. GST on petroleum products would be applicable from a date to be recommended by the Goods & Services Tax Council (GSTC). Tobacco and tobacco products would be subject to GST. In addition, the Centre would continue to levy Central Excise duty.

A common threshold exemption would apply to both CGST and SGST. Taxpayers with a turnover below it would be exempt from GST. A compounding option (i.e.to pay tax at a flat rate without credits) would be available to small taxpayers below a certain threshold. The threshold exemption and compounding scheme would be optional. The list of exempted goods and services would be kept to a minimum and it would be harmonized for the Centre and the States as far as possible. Exports would be zero-rated.

Credit of GST Paid:

Credit of CGST paid on inputs may be used only for paying CGST on the output and the credit of SGST paid on inputs may be used only for paying SGST. In other words, the two streams of input tax credit (ITC) cannot be cross utilised, except in specified circumstances of inter-State supplies, for payment of IGST. The credit would be permitted to be utilised in the following manner:

  • ITC of CGST allowed for payment of CGST
  • ITC of SGST allowed for payment of SGST
  • ITC of CGST allowed for payment of CGST & IGST in that order
  • ITC of SGST allowed for payment of SGST & IGST in that order
  • ITC of IGST allowed for payment of IGST, CGST & SGST in that order

Accounts would be settled periodically between the Centre and the State to ensure that the credit of SGST used for payment of IGST is transferred by the Exporting State to the Centre. Similarly the IGST used for payment of SGST would be transferred by the Centre to the Importing State

The laws, regulations and procedures for levy and collection of CGST and SGST would be harmonized to the extent possible.

Taxes that will get replaced once GST will Roll Out:

GST would replace the following Central Govt. taxes:

a) Central Excise duty

b) Duties of Excise (Medicinal and Toilet Preparations)

c) Additional Duties of Excise (Goods of Special Importance)

d) Additional Duties of Excise (Textiles and Textile Products)

e) Additional Duties of Customs (commonly known as CVD)

f) Special Additional Duty of Customs (SAD)

g) Service Tax h) Cesses and surcharges insofar as far as they relate to supply of goods or services

State taxes that would be subsumed within the GST are:

a) State VAT

b) Central Sales Tax

c) Purchase Tax

d) Luxury Tax

e) Entry Tax (All forms)

f) Entertainment Tax (not levied by the local bodies)

g) Taxes on advertisements

h) Taxes on lotteries, betting and gambling

i) State cesses and surcharges insofar as far as they relate to supply of goods or services

Hope the above clarifies the basic concept of GST and how it will work.

Author may be reached at vijaybansal8320@gmail.com or +91 9820149229.

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