France was the earliest country to initiate Goods and Services Tax or GST. At present, around 160 countries have imposed GST/VAT in some form or another. Some countries have VAT as the substitution of GST. Still, concept-wise, it is a destination-based tax imposed on the consumption of goods & services.

GST  is a tax that replaced many indirect taxes in India. The Goods and Services Tax was implemented in India with effect from 1st July 2017.

Here in India, the maximum population is of the middle class and lower middle class where people either belong to the service class or they depend on agriculture for their living. In this scenario, the most important question is what is the impact of GST on a common man or a middle-class family.

For the general public, the actual impact of any economy is when the prices of their necessities become affected. For the public in large when prices become low for the day-to-day goods and services that are consumed, the economy is good else if the inflation rate is higher, then the public gets unsatisfied with the changes done by the government.

For any government policy, it is important that the satisfaction in public is must as without satisfaction the policy will not succeed in the same way in which the government had planned.

An Overview  Related to GST :

  • Indirect taxes such as VAT, Central Sales Tax, Purchase tax, Sales tax, Excise duty, CAD, SAD, Octree, Entry Tax, Luxury Tax, cases, etc., are replaced by one tax, i.e., Goods and Services Tax or GST.
  • There is a dual system {Central + State} of tax under GST, which means tax is collected by State and Central Government both.
  • Gaining sectors of GST involves Automobiles, Logistics, Cement, FMCG, Pharmaceutical, E-commerce, and Industry manufacturing sectors.
  • Losing sectors of GST include Media, Textiles, Banks, and the Telecom sector.
  • Alcohol for human consumption; Petroleum products such as petrol, high-speed diesel, petroleum crude, natural gas, and aviation turbine fuel; and electricity are outside the ambit of GST.
  • GST is a simplified tax regime applied at goods & services at a uniform rate throughout the entire nation.
  • It is the biggest reform of Indirect tax, that provides a uniform and straightforward way of Indirect tax in India.
  • The GST slabs are fixed at 0%, 5%, 12%, 18% and 28%.

Lets better understand the impact of GST on various sectors through examples:

1. Household Sector :

In GST, the food items are under (0-5) % tax rate  which will not directly impact on the food prices.

Cosmetic services like salon and beauty services are known to become expensive with an increased 3% GST rate upon them along with no benefit on input tax credit on such services.

Daily household items cost have enhanced due to the implementation of the Goods and Services Tax (GST) regime as the user being the end consumer cannot pass on the tax burden further, thus leading enhancement in the prices.

2. Automobile Sector :

  • With the inclusion of GST, some car prices got a healthy rate cut whereas some get costlier. many companies  revised the prices of the car models.
  • Now, 28% of the rate of GST will be attracted to the purchase of the car with an additional cess between 1% and 15%.
  • Cars with Diesel engines of less than 1,500 cc will attract 3% cess.
  • Small cars with petrol engines less than 1200 cc will attract 1% cess.
  • Big cars and SUVs with length over 4 meters will attract GST of 28% along with 15% cess.
  • On electric vehicles, 12% of GST will be imposed and cess shall not be levied.
  • No Cess shall be applied on vehicles used as Ambulances, three wheelers and motor cycles with engine capacity less than 350 cc .

 3. Real Estate :

  • If a customer buys under-construction property for INR 1 crore, there will be different cases.
  • Previously, it was around 5.5 percent VAT and service tax applicable, But under the GST, 12% tax rate applicable to the real estate makes it slightly expensive.
  • Well, there will be no changes in the ready to move Apartments with a completion certificate if handed over before possession and no money have been received as consideration in advance , giving it a character of sale of goods as they have been kept out of the GST scope as discussed in schedule III of Section 7 (Supply) of CGST Act 2017 .

4. Apparels and Footwear :

After GST the price of garments and made-up articles get decreased. Now the price of garments and made-up articles below the range of Rs 1,000 per piece will attract a 5% GST rate.

Whereas the garments and made-up articles priced above the range of Rs1, 000 per piece will attract a 12% GST rate.

5. Taxi/Cab Services : 

If a customer takes a taxi service in which the ride costs 100 rupees, then there will be a substantial change in the tax as previously there was around 6% of service tax while in the GST it is now levied at 5% which will be a marginal saving for the customer.

6. Air Travels :

In case, a customer books flight tickets Indian in a domestic economy class of INR 1000, then the tax rate is varied in both the cases.

Previously there was around 6% of service tax applicable in domestic economy class, while in the GST, the economic class is taxable at 5%, which will result in slight savings.

While talking about the business class, the tax rate in GST has been increased from 9% to 12%, resulting in an expensive business-class tax case.

7. Jewellery :

After the GST, the tax rate is increased by 1% thus reached from 2% to 3%.

Investment in gold becomes expensive because now the buyer has to pay 3% GST on gold and 5% on the making charges.

8. Mobile Bills :

GST has increased the burden of mobile phone users.

Both the pre-paid and post-paid users have to pay more bills due to an increase in the tax rate by 3% ( 15% to 18%).

9. Restaurants :

If in case, a customer orders a meal for INR 1000, then there will be substantial savings on the restaurant bill.

In the earlier tax scheme, there was VAT at the rate of 12.5% and service tax @ 6% totaling at around 18.5%.

While under the GST, all standalone restaurants ( whether AC or Non AC )  taxed @ 5 % without the benefit of ITC thereby leading to cost reduction in the restaurant Bill.

 Positive Impacts of GST on common man :

  • GST was introduced as an integrated tax system, which extracts a bundle of indirect taxes such as CST, VAT, service tax, SAD, CAD, excise, etc.
  • Introduction of Goods and Services tax eliminated the cascading effect of taxes i.e. tax on tax.
  • GST reduced the burden of taxes from the manufacturing area, thus manufacturing costs will be reduced. Therefore, the prices of consumer goods are also likely to decrease.
  • Because of the lower manufacturing cost some products like cars, FMCG, etc. will be a bit cheaper.
  • This will help reduce the burden on the common man, who will have to spend less money to buy the same goods/ services which were more expensive earlier.
  • Low prices will directly or indirectly increase demand/consumption of goods.
  • Increased demand will ultimately enhance supply. Therefore, this will eventually increase the production of goods.
  • Boost in production, in the long run, will increase job opportunities. However, this can only happen when consumers actually get goods at cheaper costs.
  • This will curb the circulation of black money. It will only be possible when the kaccha  or Invalid Bill system, normally followed by traders and shopkeepers will be checked.

Negative Impacts of GST on common man : 

  • For better compliance, proper invoicing and accounting are necessary. However, there are various companies that are developing GST accounting software.
  • If the actual benefits are not passed on to the consumer and the seller increases his profit margin, then the prices of the goods may also increase.
  • The rise in inflation can be observed initially, however, it may also come down gradually.
  • The activities of profiteering will have to be strictly checked so that the end consumer can enjoy the real benefits of GST.
  • Compliance burden  businessmen have to submit GST and file the return on time.
  • Filing GST returns is not as easy as it sounds. businessmen must appoint a tax professional to manage it.
  • The government is taking steps to make return filing easier and to keep it simple. But, even then, it will take time to actually smoothen the entire process from start to end.
  • Large businesses with enough employees can handle the entire process easily But for small traders/merchants/service providers or individuals who have just started their business or service, it is still complex.

Conclusion :

As discussed above we have seen that GST has both pros and cons for the common man in some sectors it leads to curtailment in final prices while on the other hand an extravagant increase in final prices were seen. One benefit which it has passed to all is elimination of cascading effect ( Tax on Tax) which leads to lowering of prices of the end product.

For a middle-class family, the main issues are Roti, Kapda, and Makaan. Initially, the country is troubling with the new tax regime due to the four slab rate structure under GST. For the long term, the country will be benefited with the new Goods and Service Tax (GST) Regime as it had made a clear and partial way of understanding the personal finances.

Every effort has been taken to provide an insight about this topic and to cover all important areas of it , any suggestions and improvements will be welcomed and highly appreciated.

Compiled and Written by : Vaibhav Singh | GST Practitioner

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Qualification: Student - CA/CS/CMA
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Location: lucknow, Uttar Pradesh, India
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