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  • GST - Goods and Service Tax in India

    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

    • 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

    • Govt Looking To Levy GST On All Rental Income?

      The government is giving itself the authority to levy GST (goods and services tax) on all rental income but source claim it is not likely to do so for individuals renting out their homes.

      At present, a service tax is levied on rental income earned from commercial property, but there is no tax on income earned through rents on residential property.

      The Central GST (CGST) Bill states that any lease or letting out of a building, be it commercial, industrial or residential for business or commerce, either partly or wholly, is considered a service. As a result, letting out of residential homes also comes under the purview of the bill.

      However, sources say the government is unlikely to include residential rental income from the tax. A detailed set of rules regarding the interpretation of the GST Bill is due to be released soon, which will include exemptions and exceptions.

      As GST is only applicable on incomes above Rs.20 lakh, it is unlikely that many homeowners who rent out property will have to pay tax, since there are few properties which would fetch such large sums as rent.

      29 March 2017

    • Logistics Industry to Benefit from New GST

      Studies have shown that India’s average logistics cost is approximately 13-14% of the GDP, which is significantly high in comparison with developed countries whose average logistics cost is usually 8-9% of their GDP. Despite the fact that there have been numerous issues contributing to the same, the indirect taxes structure in the country is one of the factors that are primarily responsible. At the moment, the states as well as the Centre charge a number of taxes on goods. Moreover, the Centre charges such taxes as Central Sales Tax, Customs Tax and Excise Duty, the state charges taxes like Entry Tax, Sales Tax/VAT, Luxury Tax and Octroi Tax. Furthermore, both states as well as the Centre may charge other cesses, duties and surcharges in addition to the aforementioned taxes.

      The GST has come as a welcome relief for the logistics sector, thereby making the country a seamless unified market that will see no difference between intra- and inter-state sales, thereby putting to an end the existing problems and helping out in the structural re-engineering of the logistics network.

      22 March 2017

    • Compensation to States Along with Three Other GST Supplementary Bills Cleared by The Cabinet

      The Cabinet made an announcement earlier this week, revealing that four legislations concerned with the implementation of GST were approved. The tax reform is expected to be rolled out by the 1st of July this year.

      The GST Council had previously approved four-tier tax slabs of 5%, 12%, 18% and 28% in addition to an extra cess on demerit goods such as tobacco products, aerated drinks and luxury cars. The official statement said, "The Union Cabinet chaired by Prime Minister Narendra Modi has approved the four GST related bills -- The Central Goods and Services Tax Bill 2017 (The CGST Bill), The Integrated Goods and Services Tax Bill 2017 (The IGST Bill), The Union Territory Goods and Services Tax Bill 2017 (The UTGST Bill) and The Goods and Services Tax (Compensation to the States) Bill 2017 (The Compensation Bill)."

      22 March 2017

    • GST Draft Laws Approved, Set For July Rollout

      The Cabinet has approved 4 GST draft laws in an effort to ensure rollout of the bill by July 2017. The bills will be introduced in Parliament in the upcoming week, where Central GST, Integrated GST, Compensation Rule and the Union Territories GST (UT-GST).

      The CGST Bill allows for the taxation of goods and services that are supplied intra-state, while the IGST Bill allows for the levying of taxes on inter-state supply of goods and services.

      The UTGST Bill allows for the levying of taxes on intra-Union Territory supply of goods and services.

      The Compensation Bill provides for compensation to states for loss of revenue arising out the removal of various state levies and taxes on account of them being subsumed under GST. The Bill makes provision for state compensation for a period of 5 years.

      21 March 2017

    • Taxes Under Goods and Services Tax to Rise Marginally According to CBEC Chairman

      Although there is no clarity on the effective rate of indirect taxes under GST owing to the fact that revisions to tax slabs are still ongoing, CBEC (the Central Board of Excise and Customs) has revealed that taxes could rise marginally from their present level. Najib Shah, the CBEC Chairman revealed to IANS that it’s the belief of the organisation that the present level of taxation shall remain the same for the first five years at least, after which it is likely to increase marginally. He also revealed that the fitment of GST in the four tax slabs, which are currently 5%, 12%, 18% and 28% is still under progress. The tax rates aside, there is also expected to be an additional cess that could form a corpus to ensure that states that lose revenue during the first five years after the GST is implemented are compensated.

      15 March 2017

    • Central excise duty and service taxpayers to migrate to new GST portal

      The Central Board of Excise and Customs has initiated the migration of its existing excise duty and service taxpayers to the new Goods and Services Tax regime. By the end of this month, central excise and service taxpayers have to migrate to the new GST portal. Taxpayers can visit the CBEC’s website to get their login ID and password provided by the Goods and Services Tax Network. Those who have begun the migration process to GST as a VAT assessee under the state commercial tax department need not re-register. PAN is required for the registration process with the GST portal. CBEC has organized 24/7 Help Desks to help registered assessee with the migration process.

      17 January 2017

    • Commerce and Industry Ministry wants GST exemption for exports

      The Ministry of Commerce and Industry has asked the GST Council to grant ab-initio tax exemption to exporters from Goods and Services Tax. The process of obtaining tax refunds takes a toll on the exporter’s working capital. Nirmala Sitharaman, the Commerce and Industry Minister said that the refund of GST usually takes about 6 to 8 months which can affect the working capital of an export business. She has asked the council to consider exempting the exporters from having to pay taxes upfront. She also emphasized on the need for encouraging export businesses in labour-intensive sectors like leather, cement, and plantation crops by offering complete tax exemption or reducing the taxation rate.

      In the case of the leather industry, the ministry has asked for complete tax exemption or less than 5% tax in order to increase employment in this sector. In the case of the cement industry, the ministry has asked the council to reduce the existing high taxation rate of 25-30%. With regards to the plantation industry, the ministry expects complete tax exemption or the lowest taxation rate possible. The ministry has also pushed for tax exemption for transfer of goods between SEZs in different states.

      16 January 2017

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