Mr A:- Hello sir, Good day to you. How are you?

CA:- I am doing fine Mr. A, how about you?

Mr A:- I am fine and wanted to know about what actually GST is which everyone is talking about?

CA:- Sure, Mr. A, GST means Goods and Service tax and it is the new indirect taxation system which is being adopted in India.

Currently there are various types of indirect taxes like VAT, CST, Excise, Service tax, Entertainment tax, Entry tax etc which not only increase the compliance burden on a person, it also leads to double taxation, various hurdles in free flow of goods, set-off is not allowed for one tax with another i.e. you cannot take input of Service tax paid against your output VAT liability.

Hence, GST is being adopted to streamline the indirect taxation picture by eliminating various taxes and providing path for one tax in all over India.

Mr A:- Oh, that’s great. But how the process will work in GST?

CA:- Under GST, there will be 3 type of taxes i.e.

i) CGST which will be collected by Central Government,

ii) SGST or UTGST which will be collected by State or Union Territory government respectively and

iii) IGST which will be levied on interstate transactions and it is managed by Central Government.

Mr A:- Ohkey, but can you please provide more information that how the tax will be charged on invoices?

CA:- Sure.. Let us say you are selling your goods for transactional value of 100 within state. Assume the CGST rate is 9% and the SGST rate is also 9% then tax of Rs 9 (9% of Rs 100) for CGST and Rs 9 (9% of Rs 100) for SGST will be levied on your sale. You need to show CGST and SGST separately on the invoice and hence the invoice total comes to 100 + 9 + 9 = 118 Rs.

Mr A:-Ok, and what about in case of interstate sale?

CA:- In that case only IGST will be levied on your bill.

Mr A:- Ok, but in CGST, central government takes the tax and in SGST, state government takes the tax. So who will take the tax in case of IGST?

CA:- That’s a very good question.

Mr A. GST is a destination based tax and hence the state part of tax belongs to the state where the goods or services are lastly consumed or provided.

IGST would be broadly CGST plus SGST and shall be levied on all inter-State taxable supplies.
The inter-State seller will pay IGST after adjusting available credit of IGST, CGST, and SGST on his purchases. 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 in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST. This is how the tax will be ultimately transferred to importing state.

To understand this concept, please refer an example where Mr. X (Trader in Kerala) sold goods to Mr. Y (Trader in Kerala) and then Mr. Y sold goods Mr. Z (Trader in Gujarat) and lastly Mr. Z sold goods to Mr. A (Trader in Gujarat):

TXN Particulars Amount OUTPUT
Kerala Gujarat Centre
SGST SGST CGST IGST
1 X to Y 100000 9000 9000
INPUT 0 0
Net [A] 9000 9000
2 Y to Z 120000 21600
INPUT 18000
(9000+9000)
Net [B] 3600
3 Z to A 150000 13500 13500
INPUT 8100
(21600-13500)
13500
NET [C] 5400 0
Adjustment [D] -9000 8100 900
(Will go to Center for  credit utilized in txn 2) (Will come from Center for credit utilised for txn 3) (Residual of receipt from Kerala after adjusting 8100 for Gujarat)
Net Receipts [A+B+C+D]    0 13500 9000 4500

Here, we can find that the tax paid in Kerala will eventually migrate to Gujarat (Place of final consumption/destination).

Mr A:- Oh, I understand. So IGST credit can be utilized against CGST and SGST liability?

CA:- Cool, I understand on what benefit your thinking as a businessman. The answer is yes and below is the summary of utilization of credit:

i) CGST input tax paid shall first be utilized for payment of CGST output liability and any amount remaining can be utilized towards payment of IGST.

ii) SGST input tax paid shall first be utilized for payment of SGST and any amount remaining can be utilized towards payment of IGST.

iii) IGST input tax paid shall first be utilized for payment of IGST and any amount remaining shall then be utilized first for CGST and then for SGST in that order.

Input Credit of Can be Utilised for Output
First Second Third
CGST CGST IGST
SGST SGST IGST
IGST IGST CGST SGST

Mr A:- Amazing, so GST will streamline various taxes into one and therefore will allow setting off of the input tax paid even on interstate supplies. This can really lead to margin expansion. Cool, Many thanks Mr. A and I may take a leave now but I will be back tomorrow for my GSTbyte No. 2.

CA:- Sure Mr. A.

(MJL & Co, Jaipur, Chartered Accountants, Email- MJLco.Jaipur@gmail.com, Phone No. – 0141-4915113)

Author Bio

Qualification: CA in Practice
Company: M J L & Co
Location: Jaipur, Rajasthan, IN
Member Since: 24 Jun 2017 | Total Posts: 11
M J L & CO is a chartered accountancy firm registered with Institute of Chartered Accountants of India (ICAI) having its head office at Jaipur. We are the team of young and energetic partners having positive attitude to provide expert and professional services with due care of professional ethic View Full Profile

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6 responses to “Goods & Services Tax: Meaning and Scope”

  1. MOHINDER RANA says:

    My Dear,
    Thank you for your article but my only one question where I am not satisfied. You have done your calculation as per VAT.

    What did you charge GST on Rs 1,20,000 instead of Rs. 1,00,000/- and why did you charge GST on 150000/- instead of Rs. 120000. since this is main benefits of GST.

    Please reply on my email since i am not CA but working in a very small company but would love to seek your reply on my email
    9711187327

    • mjlcojaipur says:

      Sir,

      Rs. 120000 and 150000 are price inclusive of profit margin.

      Let me know your email id if you still have any doubts.

  2. GANDHI MOHAN BHARATI says:

    Kindly explain as to how the cost of an item manufactured and sold in Kerala itself will be affected for a consumer and also Kerala to Gujarat.
    How will it affect consumers; kindly take in profit at each level also

    • mjlcojaipur says:

      Cost to consumer will remain same for a prduct whether comsumer is in Kerela or Guajrat.
      For example, cost of product is Rs. 80 and profit margin is Rs. 20. So sale value is Rs 100
      Assume Rate is 18%
      If sold within state, CGST (9%) + SGST (9%) will be applicable, So cost to consumer will be Rs 100+9+9 = Rs 118
      If sold out of state, IGST (18%) will be applicable, so cost to consumer will be Rs 100+18 = Rs 118

  3. Ramesh says:

    Very nice post. it’s Really helpful

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