The Goods and Services Tax (GST) has been passed by Rajya Sabha and Lok Sabha. The new tax bill will bring enhanced efficiency and transparency. Moreover, the whole country will have a uniform tax structure, which will benefit not only manufacturers but also consumers. In this series of article, we present to you frequently asked questions about the Goods and Services Tax.
What is GST?
GST is the only 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. According to government sources, the new GST bill will bring transparency.
How does GST work?
In GST, credits of input taxes paid at each stage will be available in the subsequent stage of value addition. This makes GST essentially a tax only on value addition at each stage. The final consumer will have to bear only the GST charged by the last dealer in the supply chain, with set off benefits at all the previous stages.
What are the benefits of GST?
The GST will bring in several benefits for business and industry, Central and State Governments and the consumer. If you are part of business and industry, the GST will offer easy compliance via online. This means all tax payer services such as registrations, returns, and payments would be available to the taxpayers online.
The GST will ensure that indirect tax rates and structures are common across the country. This simplifies the ease of doing business in India. The GST will provide seamless tax credits throughout the value chain, and across the state boundaries. The new tax system will improve competition and provides advantages to manufacturers and exporters.
As far as central and state governments are concerned, the GST will be easy to administer than the current complex tax. They can control leakages and prevent tax evasion. It will also bring higher revenue efficiency by decreasing the total cost of collection of tax revenues of the government.
On the consumer front, the new Goods and Services Tax (GST) enable consumers to pay only one tax based on the total value of goods and services. The new tax system will enhance efficiency and prevents leakages. Moreover, the overall tax burden on several products will decrease, which will ultimately benefit consumers.
Which taxes at the Center and State level are being subsumed into GST?
The Central Excise Duty, Additional Excise Duty, Service Tax, Countervailing Duty, Special Additional Duty of Customs are merged into one at the central government level. As far as state government is concerned, the State Value Added Tax/Sales Tax, Entertainment Tax, Octroi, Entry tax, Purchase Tax, Luxury tax and taxes on lottery, betting and gambling are combined into one single tax. For online purchases, IGST will be created.
What are the 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. It was a tough challenge for the government to pass the GST bill. It was P. Chidambaram who proposed the idea of levying GST. However, the opposition parties at that time were opposed to it. Moreover, in coalition politics, things are not smooth. The GST got huge attention in 2014 after the NDA government assumed office.
- Kelkar Task Force – 2013
- Budget Speech for the financial year 2006 – 2007 (implementation by April 1, 2010)
- Design and Road Map for the implementation of GST was assigned to the Empowered Committee (EC)of State Finance Ministers
- First Discussion Paper on Goods and Services Tax in India released in November, 2009
- Joint Working Group was constituted in September 2009
- Constitution (115th Amendment) Bill was introduced in the Lok Sabha in March 2011, referred to standing committee on Finance
- Committee on GST Design formed
- Report submitted by GST Design in in January 2013
- Three committees formed in Bhubaneswar meeting
- Parliamentary Standing Committee submitted its Report in August 2013 to the Lok Sabha
- Final draft Constitutional Amendment Bill sent to the Empowered Committee for consideration in September 2013.
- More recommendations in Shillong in November 2013
- 115th Constitutional (Amendment) Bill 2011 lapsed following the dissolution of the 15th Lok Sabha
- Draft Constitution Amendment Bill was sent to the Empowered Committee in June 2014
- Introduced in the Lok Sabha on December 19, 2014
- Passed by the Lok Sabha on May 6, 2015
- Kerala Finance Minister KM. Mani resigned as GST Council chairman on November 2015
- Referred to the Select Committee of Rajya Sabha, which submitted its report on 22.07.2015
How would GST be administered in India?
Basically, there are two components of GST such as the Central GST (CGST) and State GST (SGST). Both central government and the respective state governments will levy GST across the value chain at the same time. You should note that the tax will be levied on each and every supply of goods and services.
While the centre would levy and collect Central Goods and Services Tax (CGST), the state governments would also levy and collect the State Goods and Services Tax (SGST) on all transactions within a State.
Moreover, the input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. In the same way, the SGST credit paid on inputs would be allowed for paying the SGST on output. In the Goods and Services Tax, no cross utilization of credit would be permitted.
How would a particular transaction of goods and services be taxed simultaneously under CGST and 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. You will not be charged any GST if the relevant goods are outside the purview of GST and the transaction which are below the prescribed threshold limits.
Furthermore, both would be levied on the same value unlike State VAT which is levied on the value of the goods inclusive of Central Excise. The central government has created a diagrammatic representation of the working of the Dual GST model within a State.
Will cross utilization of credits between goods and services be allowed under GST regime?
The Goods and Services Tax will allow cross utilization of CGST and SGST credit between goods and services. However, this will not be allowed in the case of interstate supply of goods and services under the IGST model.
How will Information Technology be used for the implementation of GST?
The central and state government have jointly registered Goods and Services Tax Network (GSTN) as a non-profit government company, which will provide shared IT infrastructure and service to both central and state governments including tax payers and other stakeholders.
The main objective of GSTN is to provide a standard and uniform interface to the taxpayers in addition to shared infrastructure and services to Central and State/UT governments.
In the meantime, the GSTN is currently working on the development of a state of the art comprehensive IT infrastructure. This includes the common GST portal, which provides the following functions.
- Frontend services of registration
- Returns and payments to all taxpayers
- Processing of returns, registrations, audits, assessments and appeals
Meanwhile, all states, accounting bodies, RBI and banks are also working to prepare IT infrastructure for the administration of GST.
You need not have to manually file returns. You will be provided with a detailed portal for the payment of taxes online. You need not have to worry about mismatched returns since it would be auto generated without any manual intervention.
How will be interstate Transactions of Goods and Services be taxed under GST in terms of IGST method?
In case of interstate transactions, the Centre would charge and collect the Integrated Goods and Services Tax (IGST) on all interstate supplies of goods and services under Article 269A(1) of the Constitution. The IGST would roughly be equal to CGST plus SGST. This tax is applicable to online purchases made through Flipkart, Amazon, Snapdeal and others.
The IGST has been designed and structured in such a way to ensure seamless flow of input tax credit from one State to another. The interstate seller would pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST and SGST on the purchases.
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.
How will imports be taxed under GST?
In case of imports from foreign countries, the Additional Duty of Excise or CVD and the Special Additional Duty or SAD presently being levied will be integrated into the GST. As per Article 269A (1), IGST will be applicable on all imports into the Indian territory. The stated where imported goods are consumed will now gain their share from this IGST paid on imported goods.