By Accommodation Times News Service
Recently the Indian Government made a landmark judgement by passing the Goods and Service Tax Bill 2015. It is said to be one of the biggest tax reform in the history. Economist says the GDP can increase to 2-3% in a year. It seems that everyone is interested in knowing the GST Bill, there are many questions in mind of people in terms of what it is, how it will benefit etc.
GST Bill i.e. Good & Service Tax Bill is officially known as the The Constitution (one hundred and twenty-second amendments) Bill 2014 proposes a national Value added Tax to be implemented in India form June 2016. It would be a comprehensive indirect tax on manufacture sale and consumption of goods and service throughout India, to replace taxes levied by the State & Central Governments. There are 3 components of GST-
a) Central GST (CGST) –it will be levied by centre
b) State GST (SGST)- it will be levied by state
c) Integrated GST ( IGST)- it will be levied by Central Government on Interstate supply of Good and services
All about Goods and Services Tax (GST)
How GST is different from other taxes
Currently there are many indirect taxes. We all know about Service Tax, Vat, Luxury tax etc. You can see these taxes whenever you check out from a hotel and whenever you pay the bill at restaurant. The bill they offer to you contains these taxes.
- Now, what GST does is that it combines all these taxes into one, i.e. subsumes all other indirect taxes. It is done for all the Central level and State level taxes.
- The nature of GST is that it taxes only the final customer. Hence the cascading of taxes is avoided and production costs are cut down.
Following is the list of the taxes that are subsumed by GST –
Central Level Taxes – Central Excise Duty, Additional Excise Duty, Service Tax, Countervailing Duty and special Additional Duty of Customs
State Level Taxes – State Value Added Tax or Sales Tax, Entertainment Tax, Octroi and Entry Tax, Purchase tax, Luxury Tax, Taxes on Lottery, Betting and Gambling
So, this means that GST clubs almost all indirect taxes together that are levied by central and State Governments.
GST timeline (India)
1. In 2000, the Vajpayee Government set up a committee headed by Asim Dasgupta to design a model for GST.
2. An announcement was made by P Chidambaram, the Union Finance Minister, during the central budget of 2006-07, that GST would be introduced from April 1, 2010.
3. On the basis of discussion and the written observations of the states, certain modifications were made, and a final version was prepared and was sent to the Government of India (April 30, 2008).
4. After several political and constitutional delays, draft of the Constitutional Amendment Bill has been prepared and has been sent to the EC for obtaining views of the States.
5. The Goods and Service Tax Bill or GST Bill, officially known as The Constitution (122nd Amendment) Bill, 2014, would be a Value added Tax (VAT) to be implemented in India, from April 2016.
Advantages of GST Bill –
Introduction of GST will bring following benefits –
- Multiple Taxation is removed
- Goods and Services are taxed at same rate
- Taxes on the Manufacturers are reduced
- It helps in the seamless flow of credit in the country
In single line we can say that GST will simplify administration, improve compliance, and remove distortions in production, trade and consumption. Although there are noticeable benefits of GST, it doesn’t mean that it is perfect. There are some disadvantages too, which can’t be ignored –
- The tax on services would go from 14 to 20% after the implementation of GST
- The Tax on retails will almost get doubled
- The tax on imported Goods will be around 6%
- There will be control on every system by the Central and State Governments
Exclusions in GST
Following products are excluded from GST –
- Petroleum Products
- Alcoholic Beverages
How it Works
1. Taxable goods and services are not distinguished from one another and are taxed at a single rate in a supply chain till the goods or services reach the consumer.
2. Goods and services tax would be levied and collected at each stage of sale or purchase of goods or services based on the input tax credit method.
3. Administrative responsibility would generally rest with a single authority to levy tax on goods and services. Exports would be zero-rated and imports would be levied the same taxes as domestic goods and services adhering to the destination principle
GST Difference in calculations
Lets us understand the difference in calculation and tax savings in respect of GST
Let’s take an example of Tooth Paste Manufacturer.
Assume there is a tooth paste manufacturer that procures raw materials at :-
- 1000 Lakhs per batch – 500 Lakh of raw material from the same state and 500 Lakh of raw material from the other state.
- The manufacturer keeps his operating profits at 200 Lakhs and encumbers a processing cost of 100 Lakhs. The flow would look something like this :-
|In present regime
|In GST regime
|Total tax paid on sale= 65 lakhs
|Total tax paid on sale= 65 lakhs
|Credit available= 25 lakhs
|Credit available=25 Lakhs(VAT)+10 Lakhs(CST)+5 Lakhs(entrytax)
|Net tax paid= 40 lakhs
|Net tax paid= 15 lakhs
|Savings= 25 lakhs
The producer in the present regime only has an input tax credit of 25 Lakhs. In GST regime the producer will get the credit of VAT, CST as well as Entry Tax. The GST hence, reduces the tax burden on producers.