Goods and Services Tax
Introduction of Goods and Services Tax (GST) in India
Goods and Services Tax (GST) is considered as “One Nation, One Tax” for the whole nation. It is a single tax that is imposed on the supply of the goods and services, right from the manufacturer to the customer.
Under the GST regime, the final consumers will bear only the tax charged by the last dealer in the supply chain with the set of benefits that are at all the previous stages.
GST would be levied on the basis of the destination principle which means that the tax is paid at the place of supply.
The government has implemented GST from July 1, 2017 and it has adopted the Dual GST model in which both States and Central levies tax on Goods or Services or both.
It is an Indirect Tax which has replaced many Indirect Taxes in India and levied on goods and services by the central government and state government.
Salient Features of GST:
- The power to make laws in respect of supplies in the course of inter-state trade or commerce will remain with the central government.
- The administration of GST will be the responsibility of the GST Council, which will be the apex policy-making body for GST.
- GST is based on the principle of destination-based consumption taxation as against the present principle of origin-based taxation.
- GST is applicable on ‘supply’ of goods or services as against the present concept on the manufacture of goods or on sale of goods or on provision of services.
- Import of goods or services would be treated as inter-state supplies and would be subject to IGST in addition to the applicable customs duties.
- GST on five specified petroleum products (Crude, Petrol, Diesel, ATF & Natural Gas) is yet to be applicable.
- GST would apply on all goods and services except Alcohol for human consumption.
- Tobacco and tobacco products would be subject to GST. In addition, the Centre would have the power to levy Central Excise duty on these products.
Tax Law before GST
Pre GST, there were many indirect taxes levied by both state and centre government. States mainly collected taxes in the form of Value Added Tax (VAT) while following different set of rules and regulations.CST (Central State Tax) was applicable in case of interstate sale of goods.
Along with the above state taxes many indirect taxes like entertainment tax, octroi and local tax was also levied by state and centre.
Earlier tax regime led to a lot of overlapping of taxes levied by both state and centre, which is also known as cascading effect of taxes.
Cascading effect can be understood with the help of an example i.e. when goods were manufactured and sold, excise duty was charged by the centre. Over and above Excise Duty, VAT was also charged by the State.
Existing indirect taxes subsumed under GST are as follows:
|Central Taxes that are subsumed within GST||State Taxes that are subsumed within GST|
|a) Central Excise Duty||a) State VAT|
|b) Duties of Excise||b) Central Sates Tax|
|c) Additional Duties of Excise (Goods of Special Importance)||c) Purchase Tax|
|d) Additional Duties of Excise (Textiles and Textile Products)||d) Luxury Tax|
|e) Additional Duties of Customs (commonly known as CVD)||e) Entry Tax (All forms)|
|f) Special Additional Duty of Customs (SAD)||f) Entertainment Tax and Amusement Tax (except those levied by the local bodies)|
|g) Service Tax||g) Taxes on advertisements, lotteries, betting and gambling|
|h) Cesses and surcharges (as relate to supply of goods and services).||h) State cesses and surcharges (as relate to supply of goods and services)|
Benefit of GST
|To trade||To Consumers|
|Reduction in multiplicity of taxes||Simpler Tax system
|Elimination of cascading/ double taxation
|Reduction in prices of goods & services due to elimination of cascading|
|More efficient neutralization of taxes especially for exports||Uniform prices throughout the country|
|Development of common national market||Transparency in taxation system|
|Simpler tax regime||Increase in employment opportunities|
GST Components – Types of GST
There are three types of taxes to be levied under GST:
CGST and SGST:
If the supply of the goods and the services are made within the state (Intra State Sales), then the two types of taxes which are applicable are, the Central Goods and Services Tax (CGST) and the State Goods and Services Tax (SGST).
Note: CGST will be collected by the Central Government and SGST will be collected by the State Government
If the supply is made across the state (Inter-state sales), then Integrated Goods and Services Tax (IGST) is applicable
Note: IGST will be collected by Central Government.
Besides the above three taxes, Cess will be chargeable on the Value of Supply for 5 years on the taxes on certain specified goods and services.
How GST operates on the basis of State and Central Government taxes?
- Case 1: Sale in one state, resale in the same state
When goods are sold from Mumbai to Pune, it is a sale within a state. Hence, CGST and SGST will be levied. The collection goes to the Central Government and the State Government.
Then the goods are resold from Pune to Nagpur. This is again a sale within a state, so CGST and SGST will be levied. The sale price increases and so does the tax liability. In case of resale, the credit of input CGST and input SGST will be claimed and the remaining taxes go to the respective governments.
- Case 2: Sale in one state, resale in another state
In this case, goods are sold from Indore to Bhopal, it is a sale within a state. Hence, CGST and SGST will be levied. The collection goes to the Central Government and the State Government.
Later the goods are resold from Bhopal to Lucknow (outside the state). Therefore, IGST will be levied ands goes to the central government.
Against IGST, both the input taxes are taken as credit. But we see that although SGST never went to the central government, the credit is still claimed. Since this amounts to a revenue loss to the Central Government, the state government will compensate it by transferring the credit to Central Government.
- Case 3: Sale outside the state, resale in that state
In this case, goods are sold from Delhi to Jaipur, it is an interstate sale. Hence, IGST will be levied. The collection goes to the Central Government.
Later the goods are resold from Jaipur to Jodhpur (within the state). Therefore, CGST and SGST will be levied.
Against CGST and SGST, IGST will be taken as a credit. But we see that although IGST never went to the state government, the credit is still claimed against SGST. Since this amounts to a loss to the state government, the Central Government compensates the state government by transferring the credit to the state government.
GST has removed this cascading effect as the tax is calculated only on the value-addition at each stage of the transfer of ownership.
This indirect tax system under GST has improved the collection of taxes as well as boosted the development of Indian economy by removing the indirect tax barriers between states and integrating the country through a uniform tax rate.