Understanding of GST & Benefits of GST implementation

CA Neelesh Jain

What is GST?

GST stands for “Goods & Service Tax” and is proposed to be a comprehensive indirect tax levy on manufacture , sale and consumptionofgoods as well as services at the national level. GST is basically a tax on final consumption.

Main objective of GST is to consolidates all indirect tax levies into a single tax except customs (excluding SAD),replacing multiple tax levies overcoming the limitations of existing indirect tax structure and creating efficiencies in tax administration.

One of the reasons to go the GST way is to facilitate seamless credit across the entire supply chain and across all states under a common tax base.

Therefore, GST is a broad based and a single comprehensive tax levied on goods and services consumed in an economy. GST is levied at every stage of the production­ distribution chain with applicable set offs in respect of the tax remitted at previous stages.

GST may define as a tax on goods & services , which is leviable at each point of sale or provision of service, in which at the time of sale of goods or providing the services, the seller or service provider may claim the input credit of tax which he has paid while purchasing the goods or procuring the service.

Advantage of GST

1. GST will reduces compliance cost and increase voluntary compliances.

2. GST will removes cascading effect of taxation and also distortion in the economy.

3. GST would result in abolition of multiple types of taxes on goods and services.

4. GST will reduce effective rates of tax to one or two floor rates.

5. It will reduces litigation and corruption.

6. It will be helpful to reduces administrative cost for the Government.

Goods & Services On Which, GST Will Be Apply?

GST will be apply on All goods and services. But some exceptions are provided, these are given as follows:

A) Alcoholic liquor for human consumption

B) Tobacco

C) Petroleum & Petroleum Products shall not be subject to levy of GST.

Structural Changes On Applicability Of GST

The basic principal governing behind GST is to have single Taxation System for Goods and Services across the country. Currently Indian economy has various taxes on Goods and services such as VAT, Service Tax, Excise, Entertainment Tax, Luxury Tax Etc. now in the new Proposal of GST; we will be having only two taxes on all goods and Services as follows:

a. State Level GST(SGST)

b. Central Level GST (CGST)

Following indirect taxes on supplies of goods and services shall be subsumed under GST:­

a. Central Taxes Subsumed Under GST(CGST):

• Central Excise Duties (CENVAT)
• Additional Excise Duties including those levied
• Additional Custom Duties in the nature of countervailing duties i.e. CVD ,SAD and other domestic taxes.
• Cesses levied by the Union viz.Cess on rubber ,tea ,coffee etc
• Service Tax
• Central Sales Tax – to be completely phased out
• Surcharges levied by the Union viz Education Cess, Special Additional duties of excise on motor –spirit and high speed diesel (HSD)

b. State Taxes Subsumed Under GST(SGST)

• Value Added Tax (VAT)
• ctroi and Entry Tax
• Purchase Tax
• Luxury Tax
• Taxes on Lottery, Betting & Gambling
• State Cess and Surcharge
• Entertainment Tax (unless it is levied by the local bodies)

Indirect Taxes Which Not Be Subsumed Under GST

Following Taxes/Duties shall not be subsumed under GST:­

a. In Central GST:­

• Basic Customs Duty
• Excise Duty on Tobacco product
• Export Duty
• Specific Cess
• Specific Central Cess like Education and Oil cess.

b. In State GST:­

• Taxes on liquors
• Toll tax
• Environment tax
• Road tax
• Property tax
• Tax on consumption or sale of Electricity
• Stamp Duty

NOTE: Basic Custom Duty will continue to be charged even after introduction of GST. Other Indirect taxes such as Stamp Duties etc. shall also be continue.

Input Credit of GST

Current framework allows limited inter­levy credits between CENVAT (Tax on manufacture) and Service Tax. However, no cross credits are available across these taxes and the sales tax/Vat paid (on input) or payable (on Output).

1. Input Tax Credit (ITC): Taxes Paid against CGST allowed as ITC against CGST. Taxes paid against SGST allowed as ITC against SGST.

2. Cross utilization of ITC between the Central GST and State GST would not be allowed.

Exception: Inter State Supply of goods and services.

Input Credit Combination	Input Credit Allowed or Not (ITC)
CGST against CGST	ITC Allowed
SGST against SGST	ITC Allowed
CGST against SGST or vise versa	ITC Not Allowed

IGST Model and ITC:

I. Center would levy IGST levy (CGST + SGST)

II. The ITC will be allowed in this transaction will be SGST, IGST, CGST as applicable.

III. Appropriate provision will be provided for consignment or Stock transfer.

GST Rate Structure:

I. Two Rate Structure

II. A lower rate for necessary items and goods of basic importance

III. Standard rate for goods in General

IV. Special Rate

Other Notable Features Of The GST

1. There will be a single registration or Taxpayer Identification Number based on the Permanent Account Number (PAN) for direct taxation.

2. Procedures for collection of Central and State GST would be uniform. Moreover, Tax payment challan might contain some additional information, e.g. amount of CGST paid on SGST challan . Payment of tax might be only online through net banking.

3. There will be a common tax return for both taxes, with one copy given to the Central authority and the other to the relevant State authority electronically. Moreover, most likely, GST returns will be required to be filed online.

4. The Small Taxpayer: The small taxpayers whose gross annual turnover is less than 1.5 Cr. are exempted from CGST and SGST.

5. Other indirect taxes levied by the Centre , States or local authorities at any point in the supply chain will be subsumed under the Central or the State GST.

Finalized GST Rate Schedule for Goods