Introduction – Goods and Service Tax (GST)

India’s biggest tax reform is now a reality. A comprehensive dual Goods and Services Tax (GST) has replaced the complex multiple indirect tax structure from 1 July 2017.GST will subsume of taxes at the Centre and State level :-

At the Central level, the following taxes are being subsumed:

1. Central Excise Duty, https://arabmenhealth.com
2. Additional Excise Duty,
3. Service Tax,
4. Additional Customs Duty commonly known as Countervailing Duty, and
5. Special Additional Duty of Customs.

At the State level, the following taxes are being subsumed:

1. Subsuming of State Value Added Tax/Sales Tax,
2. Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States),
3. Octroi and Entry tax,
4. Purchase Tax,
5. Luxury tax, and
6. Taxes on lottery, betting and gambling.

In GST there will be only single tax and it will make dream true of One Nation, One Taxation. GST is 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. GST is a destination based tax which is levied only on value addition at each stage because credits of input taxes paid at procurement of inputs will be available. Thus, the final consumer will bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

Benefits of GST in India

• Wider tax base, necessary for lowering the tax rates and eliminating classification disputes
• Elimination of multiplicity of taxes and their cascading effects
• Rationalization of tax structure and simplification of compliance procedures
• Harmonization of center and State tax administrations, which would reduce duplication and compliance costs
• Automation of compliance procedures to reduce errors and increase efficiency
• Removal of cascading

Taxes levied under GST

Keeping in mind the federal structure of India, there will be two components of GST – Central GST (CGST) and State GST (SGST). Both Centre and States will simultaneously levy GST across the value chain. Tax will be levied on every supply of goods and services. Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output. No cross utilization of credit would be permitted.

However, there will be one more type of GST is Integrated GST (IGST). IGST will be levied on inter-state transactions,  the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services under Article 269A (1) of the Constitution. The IGST would be equal to CGST plus SGST. Since, there are chances that people will get confused in case of transactions between two persons of two different States and there will be difficulty setting off dues of taxes between two States, thus IGST will be levied by Centre. Now, Centre will apportion the State’s portion of GST from IGST to relevant State.

A diagrammatic representation of the working of the GST model is shown in below.