All you know about GST (Goods and Services Tax)

The goods and services tax, a radical step towards India's transformation into a common market, was launched on Friday night (July 1, 2017). PM Modi,at the launch event, said GST was not just about taxation reform that would help businesspersons by putting an end to tax terrorism, but is a measure that will help in the fight against corruption and black money.

All you know about GST

What is GST? How does it work?

GST is one indirect tax for the whole nation, which will make India one unified common market.

• GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. 
• Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. 
• The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages. 

Here's how GST will help the common man and economy

Benefits for trade and industry

• Easy compliance
• Uniformity of tax rates and structures
• Common procedures for registration, duty payment, return filing and refund of taxes
• Seamless flow of tax credit from manufacturer/supplier to user/retailer to eliminate cascading of taxes.
• More efficient neutralization of taxes to make our exports more competitive internationally.
• Benefit of exemption/composition scheme for a large segment of small scale suppliers to make their products cheaper.
• Improved competitiveness
• Gain to manufacturers and exporters

For Central and State Governments

• Simple and easy to administer
• Better controls on leakage
• Higher revenue efficiency

For the consumer

• Single and transparent tax proportionate to the value of goods and services
• Huge number of items are either tax exempt or in 5% tax bracket.
• Maximum benefits to the poor and the common man
• Will ensure that the poor get their due.
• Level playing field for small traders in any part of the country.

Benefits to economy

• To create a unified common National market.
• To make India a manufacturing hub.
• To boost investments and exports and Make in India Compaign.
• To generate more employment by increased economic activity.

Creating one economic India

• Freedom of movement of Goods and Services.
• Consumers to beneft by increased competition.
• Level-playing field for producers and consumers across the country.
• Strengthening the sense of nationhood and unity.

Which taxes at the Centre and State level are being subsumed into GST?

At the Central level, the following taxes are being subsumed:

• Central Excise Duty,
• Additional Excise Duty,
• Service Tax,
• Additional Customs Duty commonly known as Countervailing Duty, and
• Special Additional Duty of Customs. 

At the State level, the following taxes are being subsumed:

• Subsuming of State Value Added Tax/Sales Tax,
• Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States),
• Octroi and Entry tax,
• Purchase Tax,
• Luxury tax, and
• Taxes on lottery, betting and gambling.

Major chronological events that have led to the introduction of GST:

GST is being introduced in the country after a 13 year long journey since it was first discussed in the report of the Kelkar Task Force on indirect taxes.

A brief chronology outlining the major milestones on the proposal for introduction of GST in India is as follows:

• In 2003, the Kelkar Task Force on indirect tax had suggested a comprehensive Goods and Services Tax (GST) based on VAT principle.
• A proposal to introduce a National level Goods and Services Tax (GST) by April 1, 2010 was first mooted in the Budget Speech for the financial year 2006-07.
• Since the proposal involved reform/ restructuring of not only indirect taxes levied by the Centre but also the States, the responsibility of preparing a Design and Road Map for the implementation of GST was assigned to the Empowered Committee of State Finance Ministers (EC).
• Based on inputs from Govt of India and States, the EC released its First Discussion Paper on Goods and Services Tax in India in November, 2009.
• In order to take the GST related work further, a Joint Working Group consisting of officers from Central as well as State Government was constituted in September, 2009.
• In order to amend the Constitution to enable introduction of GST, the Constitution (115th Amendment) Bill was introduced in the Lok Sabha in March 2011. As per the prescribed procedure, the Bill was referred to the Standing Committee on Finance of the Parliament for examination and report.
• Meanwhile, in pursuance of the decision taken in a meeting between the Union Finance Minister and the Empowered Committee of State Finance Ministers on 8th November, 2012, a ‘Committee on GST Design’, consisting of the officials of the Government of India, State Governments and the Empowered Committee was constituted.
• This Committee did a detailed discussion on GST design including the Constitution (115th) Amendment Bill and submitted its report in January, 2013. Based on this Report, the EC recommended certain changes in the Constitution Amendment Bill in their meeting at Bhubaneswar in January 2013.

The Empowered Committee in the Bhubaneswar meeting also decided to constitute three committees of officers to discuss and report on various aspects of GST as follows:-

1.     Committee on Place of Supply Rules and Revenue Neutral Rates;

2.     Committee on dual control, threshold and exemptions;

3.     Committee on IGST and GST on imports.

• The Parliamentary Standing Committee submitted its Report in August, 2013 to the Lok Sabha. 
• The recommendations of the Empowered Committee and the recommendations of the Parliamentary Standing Committee were examined in the Ministry in consultation with the Legislative Department. Most of the recommendations made by the Empowered Committee and the Parliamentary Standing Committee were accepted and the draft Amendment Bill was suitably revised.
• The final draft Constitutional Amendment Bill incorporating the above stated changes was sent to the Empowered Committee for consideration in September 2013.
• The EC once again made certain recommendations on the Bill after its meeting in Shillong in November 2013. Certain recommendations of the Empowered Committee were incorporated in the draft Constitution (115th Amendment) Bill. The revised draft was sent for consideration of the Empowered Committee in March, 2014.
• The 115th Constitutional (Amendment) Bill, 2011, for the introduction of GST introduced in the Lok Sabha in March 2011 lapsed with the dissolution of the 15th Lok Sabha.
• In June 2014, the draft Constitution Amendment Bill was sent to the Empowered Committee after approval of the new Government.
• Based on a broad consensus reached with the Empowered Committee on the contours of the Bill, the Cabinet on 17.12.2014 approved the proposal for introduction of a Bill in the Parliament for amending the Constitution of India to facilitate the introduction of Goods and Services Tax (GST) in the country.  
• The Bill was introduced in the Lok Sabha on 19.12.2014, and was passed by the Lok Sabha on 06.05.2015. It was then referred to the Select Committee of Rajya Sabha, which submitted its report on 22.07.2015.

How would GST be administered in India?

Keeping in mind the federal structure of India, there will be two components of GST – Central GST (CGST) and State GST (SGST). Both Centre and States will simultaneously levy GST across the value chain. Tax will be levied on every supply of goods and services.

• Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State.
• The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output.
• No cross utilization of credit would be permitted.

How would a particular transaction of goods and services be taxed simultaneously under Central GST (CGST) and State GST (SGST)?

The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except on exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, both would be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of Central Excise.

A diagrammatic representation of the working of the Dual GST model within a State is shown in Figure 1 below.

Figure 1: GST within State

Will cross utilization of credits between goods and services be allowed under GST regime?

Cross utilization of credit of CGST between goods and services would be allowed. Similarly, the facility of cross utilization of credit will be available in case of SGST. However, the cross utilization of CGST and SGST would not be allowed except in the case of inter-State supply of goods and services under the IGST model which is explained in answer to the next question.

How will be Inter-State Transactions of Goods and Services be taxed under GST in terms of IGST method?

In case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services under Article 269A (1) of the Constitution.

• The IGST would roughly be equal to CGST plus SGST. The IGST mechanism has been designed to ensure seamless flow of input tax credit from one State to another.
• The inter-State seller would pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST and SGST on his purchases (in that order).
• 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 (both CGST and SGST) in his own State.
• The Centre will transfer to the importing State the credit of IGST used in payment of SGST. Since GST is a destination-based tax, all SGST on the final product will ordinarily accrue to the consuming State.

A diagrammatic representation of the working of the IGST model for inter-State transactions is shown in Figure 2 below.

Figure 2

How will IT be used for the implementation of GST?

For the implementation of GST in the country, the Central and State Governments have jointly registered Goods and Services Tax Network (GSTN) as a not-for-profit, non-Government Company to provide shared IT infrastructure and services to Central and State Governments, tax payers and other stakeholders.

• The key objectives of GSTN are to provide a standard and uniform interface to the taxpayers, and shared infrastructure and services to Central and State/UT governments.
• GSTN is working on developing a state-of-the-art comprehensive IT infrastructure including the common GST portal providing frontend services of registration, returns and payments to all taxpayers, as well as the backend IT modules for certain States that include processing of returns, registrations, audits, assessments, appeals, etc. All States, accounting authorities, RBI and banks, are also preparing their IT infrastructure for the administration of GST.
• There would no manual filing of returns. All taxes can also be paid online. All mis-matched returns would be auto-generated, and there would be no need for manual interventions. Most returns would be self-assessed.

  

How will imports be taxed under GST?

The Additional Duty of Excise or CVD and the Special Additional Duty or SAD presently being levied on imports will be subsumed under GST. As per explanation to clause (1) of article 269A of the Constitution, IGST will be levied on all imports into the territory of India. Unlike in the present regime, the States where imported goods are consumed will now gain their share from this IGST paid on imported goods.

Features of the Constitution (122^nd Amendment) Bill, 2014?

The salient features of the Bill are as follows:

• Conferring simultaneous power upon Parliament and the State Legislatures to make laws governing goods and services tax;
• Subsuming of various Central indirect taxes and levies such as Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, and Special Additional Duty of Customs;
• Subsuming of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, and Taxes on lottery, betting and gambling;
• Dispensing with the concept of ‘declared goods of special importance’ under the Constitution;
• Levy of Integrated Goods and Services Tax on inter-State transactions of goods and services;
• GST to be levied on all goods and services, except alcoholic liquor for human consumption. Petroleum and petroleum products shall be subject to the levy of GST on a later date notified on the recommendation of the Goods and Services Tax Council;
• Compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period of five years;
• Creation of Goods and Services Tax Council to examine issues relating to goods and services tax and make recommendations to the Union and the States on parameters like rates, taxes, cesses and surcharges to be subsumed, exemption list and threshold limits, Model GST laws, etc. The Council shall function under the Chairmanship of the Union Finance Minister and will have all the State Governments as Members.

 Rates under GST

Note: Only rates of select goods and services have been mentioned here 

GST rate on pearls, precious or semi-precious stones, diamonds (other than rough diamonds), precious metals (like gold and silver), imitation jewellery, coins – 3% 

GST rate on rough diamonds – 0.25% 

Soource: gstindia