INTRODUCTION
There are two types of taxes in India
1. Direct Tax – Taxes which are paid directly by the person on
whom it is imposed. For example- Income Tax, Property Tax,
Wealth Tax, Gift Tax etc.
2. Indirect Tax – Tax whose Burden can be transferred to
others. For example- Sales Tax, Excise Duty, Service Tax etc.
GST stands for “Goods and Services Tax”/ It is a comprehensive
indirect tax. Its main objective is to consolidates all indirect tax
into a single tax - replacing multiple taxes, overcoming the
limitations of existing indirect tax structure, and creating
efficiencies in tax administration.
GST was also introduced to make tax simpler and to reduce the
tax liabilities of small-scale industries and small businessman.
It’s very much simpler to understand and pay - for both customer
and seller respectively.
A major change in administering GST will be that the tax
incidence is at the point of sale as against the present system of
point of origin.
GST is a tax on goods and services, which will be levied at each
point of sale, in which at the time of sale of goods the seller or
can claim the input credit of tax which he has paid while
purchasing the goods.
This is because they include GST in the price of the goods they
sell and can claim credits for the most GST included in the price
of goods they buy. The cost of GST is borne by the final
consumer, who can’t claim GST credits, i.e. input credit of the
tax paid.
Example: A product whose base price is ₹ 100 and after levying
excise duty @ 12%value of the product is ₹ 112. On sale of such
goods VAT is levied @ 12.5% and value to the ultimate
consumer is ₹ 126. In the proposed GST system on base price
of ₹ 100 CGST and SGST both will be charged, say @ 8% each,
and then the value to the ultimate consumer is ₹ 116. So, in such
a case the industry can better compete in global environment.
Therefore, GST is a broad based and a single comprehensive
tax levied on goods and services consumed in an economy.
GST – EXPLAINED IN DETAIL
What Taxes GST Will Replace
GST will replace the following indirect taxes as these will taxes
will be subsumed in the proposed GST
At Central level
Central Excise Duty
Service Tax
Additional Excise Duties
CVD (levied on imports in lieu of Excise duty)
SAD (levied on imports in lieu of VAT)
Surcharges and cesses
At State level
VAT/Sales tax
Entertainment tax (unless it is levied by the local bodies)
Luxury Tax
Taxes on lottery, betting and gambling
Entry tax not in lieu of Octroi
Cesses and Surcharges
ALL these taxes come to an end with only one indirect tax in the
country called GST. Now you only need to register your business
for GST as it is a collaboration of all taxes with a new name which
is replacing all indirect taxes with a new and single tax.
Tax Rates under GST
GST rates are divided into five categories which are 0% , 5%,
12%, 18%, 28%.
All the basic need requirement goods are pleased in 0%
category like food grains, bread, salt, books etc. Goods like
paneer, packed food, tea coffee etc are placed under 5%
category. Mobiles, sweets, medicine, are under 12%. All types
of services are under 18% category. All other remaining luxury
items are placed under the last head of 28%.
Petrol, gas, crude oil, diesel etc. are still out from the criteria of
GST.
Types of GST
There are three kinds of taxes under the GST.
SGST, CGST, and IGST
1. SGST
STATE GOODS AND SERVICE TAX is the part of tax diverted
to the state government which is credited to revenue department
of state government. This is generally equivalent to CGST. This
compensates the loss of existing VAT or Sales Tax revenue to
state government. In the case of local sales, 50% quantum of tax
amount under GST is diverted to SGST TAX.
2. CGST
CENTRAL GOODS AND SERVICE TAX is the share of GST
TAX diverted to revenue department of central government and
is also equivalent to SGST. This share of tax compensates the
loss of existing excise duty and service tax to the central
government. In the case of local sales, balance 50% quantum of
GST is transferred to CGST.
3. IGST
INTEGRATED GOODS AND SERVICES TAX is levied when
inter-state sales and purchase is made. One part of this tax
transferred to central government and another to state
government to whom goods and services belong. The IGST is
charged only in case of inter-state sales or when transactions
between two states involved.
Problems in Implementation of GST
Vat or sales tax is levied and collected by the state government.
Different state government charge different rate of taxes on
different kind of goods traded within their respective territorial
limits under the extreme power provided to the state. Whereas
CST central sales tax is levied by the central government and
collected by the state government EXCISE duty is levied and
collected by the central government.
No state government wants to losses the revenue source called
VAT or Sales tax. GST is the subject matter of union list and no
state agrees to bifurcate their income to the central government
but now as the same political party is in majority in most of the
states and central. All state government agreed to the proposal,
as a result, GST was Rollout.
Despite of the fact that GST was ideally thought to be proposed
as “one single indirect tax“ GST as one tax in India is not the
correct statement as GST has not replaced entire indirect taxes,
Custom Duty or Import Export Duty will remain continued to levy.
Benefits of GST
Boost to Make in India
Will help to create a unified common national market for
India, giving a boost to Foreign investment and “Make in
India” campaign
Will prevent cascading of taxes as Input Tax Credit will be
available across goods and services at every stage of
supply
Harmonization of laws, procedures and rates of tax
It will boost export and manufacturing activity, generate
more employment and thus increase GDP.
Uniform SGST and IGST rates will reduce the incentive for
evasion by eliminating rate arbitrage between neighboring
States and that between intra and inter-state sales
Lower tax will reduce prices and lower prices mean more
consumption, which in turn means more production thereby
helping in the growth of the industries . This will create India
as a ” Manufacturing hub”.
Ease of Doing Business
Reductions in the multiplicity of taxes leading to
simplification and uniformity
Reduction in compliance costs - No multiple record keeping
for a variety of taxes.
Simplified and automated procedures for various processes
such as registration, returns, refunds, tax payments
All interaction to be through the common GSTN portal- so
less public interface between the taxpayer and the tax
administration.
Will improve environment of compliance as all returns to be
filed online, input credits to be verified online.
Benefit to Consumers:
Final price of goods is expected to be lower due to
seamless flow of input tax credit between the manufacturer,
retailer and service supplier
Conclusion:
Implementation of GST is one of the best decisions taken by the
Indian government.
Transition to the GST regime in other countries was also not
easy. Confusions and complexities prevailed. Though the
structure might not be a perfect - but once in place, such a tax
structure will make India a better economy much favourable for
foreign investments.
Until now India was a union of 29 small tax economies and 7
union territories with different tax levies unique to each state.
GST is a much accepted and appreciated regime because it
does away with multiple tax rates by Centre and States. And if
you are doing any kind of business then you should register for
GST as it is not only going to help Indian government but will
help you also to track your business weekly as in GST you have
to make your business activity statement each week.
