GST - Goods and Service Tax in India

The Goods and Services Tax was implemented in July 2017 in an effort to subsume multiple indirect taxes. The new tax regime has been adopted quite well by business across the country since its implementation.

What is GST?

GST stands for Goods and Services Tax. It is a kind of tax imposed on sale, manufacturing and usage of goods and services. Goods and Services Tax is applied on services and goods at a national level with a purpose of achieving overall economic growth. GST is particularly designed to replace the indirect taxes imposed on goods and services by the Centre and States.

Goods and Services Tax Definition:

Goods and Services Tax can be defined as a kind of Value Added Tax imposed by on various goods and services by different countries. The tax charged on goods and services may differ from country to country. Goods and services tax is imposed to collect revenues for the government. This tax is paid by the consumers of goods and services and collected and forwarded to the government by the business entities.

Goods and Services Tax in India:

In India, the Goods and Services Tax Bill was officially introduced in 2014 as The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014. The GST Bill in India proposes the implementation of nationwide Value Added Tax on sale, manufacturing and the use of different goods and services. The Goods and Services Tax act is expected to be operative in India from April, 2016.

Goods & Services Tax

Arun Jaitley - the Finance Minister of India announced The Constitution (One Hundred and Twenty-second Amendment) Bill, 2014 or the Goods and Services Tax in Lok Sabha on 19 December 2014. The Parliament passed the bill on 6th May, 2015, after it received 352 votes for and 37 against it.

Current Taxation System:

GST is a kind of indirect tax. Currently, Indian consumers have to pay indirect tax on goods and services such as Value Added Tax, Service Tax, Excise Duty, Customs Duty, etc. Under the current system, each State has a right to levy their own tax on the goods coming into their dominion for sale and consumption, while the Centre levies taxes on manufacture of the goods. All these direct taxes levied on the traders are passed down to the consumer.

The taxes levied by the State and Central Governments is given in the table below:

Central Government State Government Local Administration
Income Tax Sales Tax Property Tax
Excise Duty or Central VAT Value Added Tax
Service Tax Entertainment Tax

Customs Duty

Road Toll
Central Sales Tax Professional Tax
Stamp Duty
Luxury Tax
Octroi Duty
Capital Gains Tax
Entry tax

Of these, excise duty/CENVAT, customs duty, service tax, central and state sales tax, VAT, octroy, entry tax, road toll, luxury tax and entertainment tax are applicable to goods and services.

Let us take an example of a dress manufactured in Surat, Gujarat. At the spot of manufacture, an excise duty/Cenvat has to be paid to the Central Government. If the dyes for the dress are bought from Madhya Pradesh, then the manufacturer has to pay the state taxes applicable for the dyes in Madhya Pradesh while buying it, and also pay Gujarat’s “import duty” on the product. Similarly, if the buttons for the dress are bought from Rajasthan, then another set of taxes are added to the manufacturing cost. At the end of this chain, when the product reaches the market for sale, VAT is added to it. So all the taxes paid for the production of the dress so far gets added to the cost of the dress, which rises considerably from its actual manufacturing cost.

The current system is burdened with multiple taxation on the same object with no way to offset the taxes already paid at each stage of production-retailing-consumption. If Cenvat and service tax are paid at the manufacturing level, these can be offset against future payments, but none of the other taxes paid at any stage can be reclaimed.

How GST Works:

GST proposes to abolish the varying levels of taxation between States, and consider the country as a single whole organism when it comes to taxes on goods and services instead of as a segmented creature. All the sundry taxes will be clubbed into just 2 levels – Central GST and State GST. What a trader will essentially be able to do is claim a refund on the taxes already paid at different stages of value addition. The consumer who buys the product will have to pay only the GST charged by the last dealer in the supply chain, as everyone else would have the opportunity to set-off the taxes paid at the previous stages. If we take the example above under the GST system, the Cenvat on manufacturing the dress and the taxes paid on dyes and buttons can be offset at each level, thereby considerably reducing the total taxes paid.

GST will also prevent the multiple taxation occurring on certain goods, and ensure transparency with regards to the rate of taxation and the total amount that goes to the government as taxes on a product. Currently, a consumer is not aware of the total amount of taxes s/he pays for a product, apart from VAT which is mentioned on the bill.

Here’s a list of taxes that the GST will likely replace:

  • Service Tax
  • Cesses and surcharges related to supply of goods or services
  • Central Excise Duty
  • Excise Duties on medicinal and toilet preparations
  • Additional Excise Duties on textiles and textile products
  • Additional Excise Duties on goods of special importance
  • Additional Customs Duties (CVD)
  • Special Additional Duty of Customs (SAD)

These are the taxes that could be absorbed into the GST regime:

  • Central Sales Tax
  • State VAT
  • Entry Tax
  • Purchase Tax
  • Entertainment Tax (not levied by local bodies)
  • Luxury Tax
  • Taxes on advertisements
  • State cesses and surcharges
  • Taxes on lotteries, betting and gambling

The exact rates of GST have not been decided yet. This will be done only after repeated consultations on the reports made by the GST Council. The rates being discussed as of now hover around 18%, which may be higher than the current system for certain goods and services, and lower for the others.

Advantages of GST:

  • This is a federal law, which means that the states will no longer have the right to make new laws on taxation towards goods and services.
  • It simplifies the tax system and makes it easier to understand as well as cheaper to implement at various levels.
  • Tax evasion at various stages will be eliminated as tax offsets can be collected only if taxes have been paid originally. You will also be able to buy raw materials or constituent materials for production only from those who have paid taxes, in order to claim benefits.
  • It will be cheaper to buy input goods and services for production from other states.
  • The current supply and distribution chain may undergo a change with a change in taxation system that does away with excise and customs duties.
  • The consumer will get the end-product at cheaper rates because of elimination of multiple taxes and the tax cascade.
  • As of now, petroleum and petroleum products have been kept out of the GST regime until further notice.
  • Sale of newspapers and advertisements are also likely to fall under the GST regime, allowing the government to increase its revenue considerably.
  • While there will be central GST and state GST, the tax applicable on goods and services being exported and imported between states in India would fall under an Integrated GST (GST) system in order to avoid conflict of dominion.

Disadvantages of GST:

  • GST is not good news for all sectors, though. In the current system, many products are exempted from taxation. The GST proposes to have minimal exemption list. Currently, higher taxes are levied on fewer items, but with GST, lower taxes will be levied on almost all items.
  • GST is not applicable on liquor for human consumption. So alcohol rates will not get any advantage of GST.
  • Stamp duty will not fall under the GST regime and will continue to be imposed by states.

GST Bill Approval Process:

The Constitution Amendment Bill for Goods and Services Tax (GST) was cleared by the Rajya Sabha on August 3, 2016. This Bill sanctions a modification in the Constitution to allow both the Centre and the States to levy goods and services tax.

The Bill was first introduced in the Lok Sabha in March 2011 and reports were submitted around it regularly. However, in 2014, the Bill lapsed as the Lok Sabha’s ongoing term ended. The Bill was passed by the Lok Sabha on May 6, 2015, and further reports were commissioned and presented.

After Rajya Sabha’s clearance of the Bill, the Lok Sabha will ratify the Bill again. At least 15 other states also have to support the Bill to go forward with its implementation as an Act. Once the ratifications are received, the President will constitute a GST Council comprising the Finance Minister, Minister of State in charge of Revenue, Minister in charge of Finance/Taxation, and other ministers nominated by states. This Council will make recommendations on the taxes to be absorbed and done away with, exemptions to GST and their threshold, laws governing the GST levies, actual GST rates and discounts, etc. A draft of the Bill is already available in the public domain. Once the changes are made and the final draft it ready it will be put up in public again and comments sought.

Once the GST Bill is fleshed out in detail, and the President approves it, the Parliament will pass a legislation on central GST and integrated GST, and all the states and union territories will pass legislations on the state GST. Once all legislations have been passed as Acts, a synchronised implementation of the Acts will be negotiated among the states and centre, and Goods and Services Tax will be officially active.

Goods and Services Tax Bill:

The Goods and Services Tax Bill is officially known as The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014 which is formulated to create a pan-India tax system and end the number of multiple taxes charged by the Centre and the States on various goods and services. The key points of the GST bill are given below:

  • It is an indirect, uniform tax that is levied on the goods and services throughout a particular country. Several developed countries add tax on sale, manufacture and consumption using single comprehensive tax.

  • Surcharge on supply of goods, cesses, special ad-on duty of customs, add-on duties of customs and excise and central excise duty would be replaced by Central Taxes GST.

  • Entertainment tax, entry tax, purchase tax, central sales tax, VAT, etc. would be replaced by State Tax GST.

  • The primary objectives of GST is eliminating the excessive taxation.

  • The 2014 bill deleted the 2011 bill provision that imposed certain restrictions on the states on taxation of the products that are important for inter-state commerce and trade.

Goods and Services Tax Act:

Goods and Services Tax act is one of the most remarkable tax reforms that has taken place in India so far. The GST act, which is also known as The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, mainly focuses on changing the Constitution of India to simplify the process taxation on goods and services in India. The act bestows power on the Parliament and the State legislatures to make laws for imposing taxes on goods and services at the national level.

Key Features of Goods and Services Tax:

Listed below are the main features of the Goods and Services tax in India:

  • The Goods and Services Tax will include Central Indirect taxes such as Excise Duty, Service Tax, Special Additional Duty of Customs, Countervailing Duty , Central Surcharges and Cesses as long as they are related to the supply and consumption of goods and services.
  • It will also include State Value Added Tax or Sales Tax, Entertainment Tax, (excluding the tax charged by the local bodies), Entry and Octroi tax, Central Sales Tax (taxed by the Centre and collected by the State Government) , Purchase Tax, Luxury tax, Taxes on betting, lottery and State cesses and surcharges involved in the supply and consumption of services and goods.
  • Inclusion of the concept of ‘declared goods of special importance’ as per the Indian Constitution.
  • Will levy integrated Goods and Services Tax on inter-State transactions of goods and services.
  • Will levy additional tax of 1% on supply of goods in inter-State trade which will be collected by the Government of India for a period of two years and will be allocated to the states from where the supply comes.
  • Petroleum and petroleum products and alcohol have been kept out of the reach of GST.
  • The act will have two constituents - Central GST charged by the Centre and State GST charged by the states. But, in case of inter-state trade or commerce, only the Centre will levy tax and collect Goods and Services Tax, and the tax collected would be divided between the Centre and the State as per the provision made in the parliament.
  • Also an additional tax of 1% on inter-state trade in goods and services will be imposed and collected by the Centre and provided to the states for two years to compensate the loss ( of any) faced by the states for implementing the GST.
  • A Goods and Services Tax Council will be created to address the issues relating to goods and services tax and give recommendations to the Union and the States on areas such as rates, exemption list and threshold limits. The GST Council will constitute of the Union Finance Minister as chairman followed by the Minister –in-charge of Finance or Taxation or any other Minister nominated by each State Government. The GST Council will function under the Chairmanship of the Union Finance Minister and it will be a joint forum of the Centre and the States.

The Impact:

It is expected that the creation of the Goods and Services Tax act and its implementation will have a great impact on various aspects of business in India by changing the traditional pattern of pricing the products and services.

The Goods and Services Act will also have a great impact on the tax system in India by reducing the unfavorable effect of tax on the cost of goods and services. GST is expected to change the whole indirect tax system by impacting the tax structure, tax computation, credit utilization and tax frequency. It will also help in supply chain optimization.

As per the government notification, the Goods and Services Tax will be effective in India from April, 2016. The originators of the Goods and Services Tax believe that the implementation of this act would make the tax procedure more transparent, fair and efficient.

Thus, the introduction of Goods and Services Tax or The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014 is a significant move taken the Indian Government to reform taxation in India. It will help in creating a single national market by merging several Central and State taxes under a one single tax procedure. No doubt, the implementation of GST will take time, but it is likely to create more employment opportunities and economic inclusion.

GST rate cuts on 21 July 2018; only 35 goods remaining in highest tax category

Over the last 1 year, the GST Council has decided to reduce the rate of taxation on 191 goods that fell in the highest tax bracket. Hence, the 28% tax slab only has 35 items left. This includes the following:

  • Automobiles
  • Digital cameras
  • Dishwashing machines
  • Aircrafts
  • Tyres
  • Video recorders
  • Cement
  • Automobile equipments and parts
  • Placing bets and items such as cigarette, pan masala, tobacco, etc.
  • Motor vehicles
  • Aerated drinks
  • Yachts
  • AC

Initially there were 226 goods in the highest tax bracket. Experts are of the opinion that the GST Council may consider reducing the tax rates on more products that fall in the 28% tax slab. This will eventually leave only sin goods and super luxury products in that slab.

News About Goods & Services Tax

  • Companies in a Fix Following AAR Stance on GST on Inter-State Office Services

    Companies across the country are in a fix following the stance taken by the Authority of Advance Ruling. The authority said that activities such as accounting, IT maintenance, and human resources at head offices will be considered as the corporate office supplying services to other units located in different states, thereby attracting the Goods and Services Tax. Concerns have been raised due to the ruling, with many companies wondering how they will deal with the wages of stewardship functions like audit head, chief executive, legal head, chief financial officer, and the marketing teams. Based on the ruling of the Authority of Advance Ruling, the salaries paid to these employees will have to be cross-charged and Goods and Services Tax will have to be paid.

    11 September 2018

  • GST unit cracks down on 3 private banks and 1 payment bank for crore tax evasion of Rs.100

    There have been allegations on 3 private banks and a payment bank for evasion of Goods and Services Tax (GST) worth Rs.100 crore. All these banks are based out of Mumbai and are being probed by the GST unit for allegedly evading the taxes and flouting the guidelines of the Reserve Bank of India (RBI) on money transfer. The banks have been suspected to have evaded the Goods and Services Tax (GST) by under-reporting the value of the funds that were transferred for customers.

    Customers are provided money transfer services by banks through an entity dubbed corporate business correspondent (BC). In order to promote financial inclusion, the Reserve Bank of India (RBI) norms permit the banks to engage companies as business correspondents (BC). However, this excludes BNFCs that are registered under the Indian Companies Act, 1956. As per the rules and regulations, the banks that provide the money transfer services are permitted to levy a ‘reasonable charge’ to a customer in a transparent manner and that its agreement with business correspondents should prohibit the entity to charge any fee from the customers specifically.

    3 September 2018

  • Goods and Services Tax (GST) on more items to be slashed if the revenue increase: Piyush Goyal

    The Union Minister Piyush Goyal recently said that the capacity to cut down the rates of Goods and Services Tax (GST) that is applicable on different products will rise further as the revenues collected from the newly implemented indirect tax regime rises and the economy stabilises. Goyal spoke in the Lok Sabha after the movement of 4 bills seeking to amend the Goods and Services Tax (GST) laws for consideration and passage. The 4 bills are Central GST (Amendment) Bill, Integrated GST (Amendment) Bill, GST (Compensation to States) Amendment Bill, and Union Territory GST (Amendment) Bill.

    Goyal also said that the GST Council has reduced the rates on many items and services in the last round. The sole purpose of the Council taking this decision was to reduce the burden of indirect tax on the consumers. The GST Council has reduced the tax rates on 384 items and 68 services in the last one year. 186 items and 99 services were exempted from the Goods and Services Tax (GST). Goyal also mentioned that sanitary pads have been exempted from the GST. He also pointed out the fact that the government has been able to collect Goods and Services Tax (GST) as per the country’s fiscal deficit target. Referring to the latest growth forecast for India by the IMF, Goyal said that he is expecting a growth in India’s economy which will better than the forecast given by the IMF.

    31 August 2018

  • Pressure on GST collections constantly increasing and its fallout

    There has been a constant improvement in the monthly revenue collections from the Goods and Services Tax (GST). However, the adjustments for returns are not very satisfying. The concessions given recently are highly likely to exert more pressure on the tax collections. This, in turn, will push the fiscal deficit higher. Recently, the GST Council has cleared a proposal which incentivises the digital transactions on a pilot basis through Rupay cards, BHIM app, and the UPI system. Customers who make payments using these payment platforms will be eligible to get a cashback of 20% of the total GST amount. However, the cashback will be subject to a maximum of Rs.100.

    Experts are of the opinion that while the aim behind this step is to promote a cashless economy, the timing might be wrong. The biggest drawback might possibly be the factor that the collections from the Goods and Services Tax (GST) are still lesser than the required rate which has been anticipated at Rs.1 trillion. As per the decision taken by the council consisting of the group of ministers headed by the Deputy Chief Minister of Bihar Sushil Modi, the government will be witnessing a revenue loss of around Rs.1,000 crore annually because of this move. Although the compliance rate has improved to a great extent since the inception of the new indirect tax system, the tax collections have not increased as per expectations.

    24 August 2018

  • New draft GST return form seeks to provide relief to exporters

    The government has made a proposal to simplify the new process of filing returns as the export community has constantly faced issues with the Goods and Services Tax (GST) regime. With only one monthly return for taxpayers, the complete process of return filing is likely to undergo a change. Return filing dates will also be delayed based on the turnover of the taxpayers which will be computed as per the turnover reported by them in the last year, i.e. 2017-18. This will be annualised for a full year. The taxpayers will be able to check on the common portal if he/she falls under the category of small taxpayers. A newly registered taxpayer, on the other hand, will be classified on the basis of self-declaration of the estimated turnover. The due date filing the returns by large-scale taxpayers should be set at the 20th of the next month.

    In the case of the export community, a few changes have been proposed specifically. The table for export of goods in return would contain details of the Shipping Bill (S/B) as well. The person registered under the system can choose to fill up the information at the time of filing the return or may do the same after the return has been filed.`However, the filing of details of the Shipping Bill (S/B) in the return at a later date would not be considered as filing of an amendment return. A facility will be provided separately for uploading shipping bill details at a later date which will be provided by the exporters.

    23 August 2018

  • Only 35 goods left in the highest tax bracket of GST

    Ever since the Goods and Services Tax (GST) was rolled out in the month of July last month, the GST Council has slashed the tax rates of 191 goods. This has left just 35 items in the highest tax bracket of 28% under the Goods and Services Tax (GST) regime now. Items belonging to the highest tax slab at this moment consists of air conditioners, digital cameras, dishwashing machines, video recorders, automobiles and so on. At the time of inception of the new indirect tax regime, 226 items were put under the 28% tax slab.

    The GST Council, chaired by Union Finance Minister and comprising state ministers, has slashed the rates in 191 items in the last one year. Other items on which the 28% tax slab has been implemented are cement, tyres, equipment related to automobiles, motor vehicles, yachts, aerated drinks, and demerit and betting items such as tobacco, pan masala, and cigarettes. The newly revised rates have been implemented from the 27th of July. Experts are of the opinion that in the future the Council might further rationalise the 28% tax slab and restrict it to super luxury and sin goods only. However, that can be realised only when the revenues stabilise.

    20 August 2018

  • V-Mart Records 145% Return Over Just One Year

    The implementation of the Goods and Services Tax in July last year caused a lot of unrest amongst businesses in the country, but V-Mart has done exceptionally well so far. The company zoomed 108% between January and July this year alone. The CFO of V-Mart Retail, Anand Agarwal, said that 85% of the company’s revenues come from products that are priced under Rs.1,000 and are therefore charged under the 5% GST slab. He added that the company has always believed in offering value for money and the low tax rate of just 5% has made customers who fall in the middle- and low-income groups get their money’s worth and derive value from the products they purchase from the retailer. Sales over FY 2017-18 increased by 22% from Rs.1,0001 crore to Rs.1,222 crore. The profits recorded in the last quarter of the previous financial year stood at Rs.15.91 crore, which was more than double in comparison with the Rs.6.44% crore recorded between January and March 2017. The company was also aggressive in its expansion bit, adding 33 stores and closing just one in FY 2017-18.

    16 August 2018

  • Frequent changes in GST may jumble the tax system

    It is highly likely that tweaking the Goods and Services Tax (GST) laws too much will lead to a jumbled up state of the law. The tweaks include the provisions of letting employers claim credit for taxes paid on food, insurance, and transport provided to employees under any law, allowing the registration of only the e-commerce operators who are required to collect taxes under the Goods and Services Tax (GST), allowing the taxpayers to amend their returns, and the addition of more taxpayers under the ‘composition scheme’.

    All the tweaks that are mentioned above are meant to ease the compliance burden of the taxpayers. However, it should be kept in mind that frequent changes introduced to the tax system are likely to muddle the tax system. The basic idea behind the implementation of the Goods and Services Tax (GST) was to curtail the cascading effect of multiple taxes. GST subsumed over a dozen local taxes and levies. It allows the producers to claim credit for all the taxes paid on inputs across the value chain. The whole point is to make the production more efficient and create trails of an audit to cut down the chances of tax evasion. Eventually, it will also help to bring down the costs of output. Producers are required to pass on this benefit of lower production cost to the consumers or the end users.

    8 August 2018

  • Tax rates of goods and services to be fixed by GST council’s sub panel

    The GST council’s rate fitment committee will deliberate to align all services and goods to various slabs and also choose to bring more items into the unified tax net which are currently indirectly taxed at state and central levels. It is said that the alignment of tax rates will be more or less confirmed at the earliest.

    The idea currently being followed is to place all services and goods into slabs that would align with the closest effective tax rate currently. Tax may be applied on services at two slabs which are 12% and 18% and goods are taxed at five varying rates which are 5%, 12%, 18%, 28% along with cess. Gems and jewellery may attract a separate rate outside other slabs which could vary between 2% and 5%.

    3 May 2017

  • Lok Sabha Passes All GST Bills

    The Lok Sabha passed all 4 GST bills in the house on Wednesday, 29th March, 2017, ushering in a new era in taxation in the country. The approval of the bills, crucial for the implementation of GST in the country, will ensure a uniform taxation regime that will unify the country economically.

    The central GST bill, the integrated GST bill, the union territory GST bill and the GST (compensation to states) bill were all passed with no amendments.

    Since the bills were introduced as money bills, the Rajya Sabha could not reject them but merely make recommendations on the proposals.

    Following the approval of both houses, the states will have to vote on the state GST bill to ensure rollout of the new taxation structure by July 1st, 2017.

    While the bills were passed in the lower house, the Centre was forced to negotiate on a number of issues to ensure all states agreed on the new structure, since both will be giving up revenue from indirect taxes, which formed the bulk of their revenue.

    Among the taxes being subsumed under GST are excise duty, service tax, luxury tax, entertainment tax and value added tax (VAT).

    30 March 2017

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