A recent report by Finance Commission task force has clarified many issues related to implementation of GST in India. Though there are many new matters which were considered in this report, but there some variations were observed as of the matters which were recommended in first discussion paper on implementation of GST in India, issued by 13th Empowered Committee of Finance Ministers on 11th November 2009.

Hereby, I attempt to represent below some of the features in a comparative manner wherever possible:

S.No. Recommendations in First Discussion Papers Recommendations in Finance Commission Taskforce
1. No Rates Proposed Rates propsed 12% (5% CGST + 7% SGST)
2. Extended date of Implementation was not proposed. Date of implementation revised to October 2010
3. Two slab rate for taxes for both state GST and central SGT Four slabs including exempt category
The exemption list includes

  1. public services of Union,
  2. state and local governments,
  3. service transaction between an employer and employee,
  4. unprocessed food articles sold under the public distribution system,
  5. educational and health services provided by non-government schools, college and agencies.
4. Purchase tax was not finalized Purchase Tax subsumed in GST
5. Separate rates for Goods & Services “there should be no classification between goods and services in law so as to ensure that there is no classification dispute”
6. After the introduction of GST, the tax exemptions, remissions etc. related to industrial incentives should be converted, if at all needed, into cash refund schemes after collection of tax, so that the GST scheme on the basis of a continuous chain of set-offs is not disturbed.

Regarding Special Industrial Area Schemes, it is clarified that such exemptions, remissions etc. would continue up to legitimate expiry time both for the Centre and the States. Any new exemption, remission etc. or continuation of earlier exemption, remission etc. would not be allowed.

It has favoured doing away with area-based exemption and replacing with direct investment-linked cash subsidy
7. Alcohol, Petroleum Products, Octroi out of purview of GST ’sin’ goods comprising emission fuels, tobacco products and alcohol should be subject to a dual levy of GST and excise with no input credit for excise.

“However, industrial fuels should be subjected only to GST with the benefit of input credit like any other intermediate good,”

8. Rs 10 lakh as threshold for SGST and Rs 1.5 crore as threshold for CGST. Small dealers, service providers and manufactures with an annual turnover of less than Rs 10 lakh should be exempted from both CGST and SGST though they could voluntarily register themselves for GST in order to get the benefit of input credit
9. In particular, there would be a compounding cut-off at Rs. 50 lakh of gross annual turn over and a floor rate of 0.5% across the States. The scheme would also allow option for GST registration for dealers with turnover below the compounding cut-off. compounded levy of one per cent each for CGST and SGST for those with turnover of Rs 10 lakh to Rs 40 lakh with “no input credit allowed against compounded levy or purchases made from exempt dealers”
10. Central taxes proposed to be subsumed in GST are

v     Central Excise Duty, including additional excise duties

v     The Excise Duty levied under the Medicinal and Toiletries Preparation Act

v     Service Tax

v     Additional Customs Duty, commonly known as Countervailing Duty (CVD)

v     Special Additional Duty of Customs – 4% (SAD)

v     Surcharges, and Cesses.

Among state taxes that should be subsumed are

v     VAT / Sales tax

v     Entertainment tax (unless it is levied by the local bodies).

v     Luxury tax

v     Taxes on lottery, betting and gambling.

v     State Cesses and Surcharges in so far as they relate to supply of goods and services.

v     Entry tax not in lieu of Octroi.

Special Items covered

Tobacco products would be subjected to GST with ITC. Centre may be allowed to levy excise duty on tobacco products over and above GST without ITC.

Central taxes proposed to be subsumed in GST are
v     central excise duty, including additional excise duty,v     service tax,

v     additional customs duty,

v     all surcharges and cesses.
Among state taxes that should be subsumed are
v     value added tax,

v     purchase tax

v     central sales tax

v     entertainment tax, among others.

11. Exports would be zero-rated. Similar benefits may be given to Special Economic Zones (SEZs). It has proposed a zero rate for exports though it is not in favour of any special dispensation for the special economic zones (SEZs).

Authored by: CA Mithun Khatry, FCA

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