What is GST?
- GST is a unified indirect tax across the country on products and services.
- It is a destination based consumption tax, which operates on the premise that only value addition shall be taxed with full set-off for taxes paid earlier in the economic supply chain.
- GST will subsume host of indirect taxes currently levied at various stages of economic supply chain both by central and state government.
What are the Taxes replaced by GST?
At Central level
- Central Excise Duty
- Additional Excise Duty
- Service Tax
- Additional Customs Duty (CVD)
- Special Additional Duty of Customs (SAD)
State Value Added Tax / Sales Tax
- Entertainment Tax (Other than tax levied by local bodies)
- Central Sales Tax (Levied by Central and collected by State)
- Octroi and Entry tax
- Purchase Tax
- Luxury tax and
- Taxes on lottery, betting and gambling
- Fat tax imposed in Kerala for pizzas & burgers
What are the products and Taxes outside the GST purview?
- Basic Custom Duty (BCD)
- Taxes and Duties on electricity
- Stamp Duty
- Taxes and Duties on alcohols for human consumption
- Petrol and diesel
What are the Tax Components of GST?
- For Intra State transactions, there will be two components of GST. Central GST (CGST) and State GST (SGST) being levied on the value of goods and services.
- Both the Centre and States will simultaneously levy GST across the value chain.
- In case of inter-state transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST). The IGST would roughly be equal to CGST plus SGST.
- Import of goods and services will be subject to IGST, which will be levied and collected by Centre.
How will Input Credit be utilised in GST?
- GST confers claiming of full Input tax credit of goods and services at each stage of supply chain.
- CGST shall be utilised first towards payment of CGST and the remaining amount, if any, can be utilised towards payment of IGST.
- SGST shall be utilised first towards payment of SGST and the remaining amount, if any, can be utilised towards payment of IGST.
- IGST shall be utilised first towards payment of IGST and the remaining amount, if any, can be utilised towards payment of CGST and SGST, in that order.
- There is no cross credit utilization permitted between CGST and SGST.
How to register under GST and get GST number?
- A person is required to take registration, if his aggregate turnover in a financial year exceeds Rs.9 lakhs.
- However, tax liability shall arise only once the aggregate turnover in a financial year exceeds Rs.10 lakhs
- On 1st Sep it was proposed to increase the threshold exemption limit to Rs.25 Lakhs from Rs.10 lakhs as stated in the Model GST Law. It is likely that Centre and States shall arrive at consensus on the same.
- For NE and special category states the aforesaid limit is likely to be
- Taxpayers will be required to take separate CGST and SGST registrations in each State from where supply of goods and services are being carried out.
- The registration would be linked to the Permanent Account Number (PAN) of the business allotted as per the Income-Tax Act 1961.
- There is no concept of centralised registration envisaged under the proposed GST regime.
Existing Tax payers
- Existing tax payers under Central Excise, VAT and Service tax would be migrated to GST common portal
- They will be issued a certificate of registration on a provisional basis in a prescribed form and the same will be valid for six months
- Within 6 months, the existing dealers would be required to produce additional information / documentation as required by the authorities to get final registration certificate
How to pay GST?
- Electronic payment process – no generation of paper at any stages
- Payment can be made through online banking, credit card/debit card, NEFT/RTGS and through cheque / cash at bank
- Use of single challan for all the payment of taxes
- Common accounting codes
How to file GST Returns?
- All returns are to be filed on-line
- Common returns for both centre and state government would suffice
- 8 forms of returns had been prescribed under the proposed rules
- Most average tax payers would be using only four forms for filing their returns.
- Small tax payers opting for composition scheme shall have to file their returns on quarterly basis
- Kinds of various returns, due date for filing and penalty for non filing are tabulated.
What is composite levy under GST?
- A registered taxable person, whose aggregate turnover in a financial year does not exceed Rs.50 lakhs, may opt to pay tax at a composition rate of 1% of turnover.
- Benefit of composition will apply only for intra-state supply transactions and shall not be available to a person effecting inter-state supplies.
- Composition benefit once opted, has to be applied to all registered taxable persons having the same PAN.
- Person opting for composition is prohibited from availing input tax credit.
- Also, the person is prohibited from collecting tax on supply of goods and / or services from its customers.
How to move the current input tax credit from VAT/ Excise etc to GST?
- Model GST law provides for transfer of unutilised CENVAT credit and VAT Input tax credit (ITC) availed under the existing laws subject to following:
- Amount is reflected as carry forward in the return
- Such credit is admissible under the earlier Law as well as the proposed GST Law.
- Unavailed CENVAT credit on capital goods, not carried forward in a return, will be allowed in certain situations.
How will GST affect imports?
- Supply of goods or services in the course of import into the territory of India shall be deemed to be a supply of goods or services in the course of inter-state trade or commerce.
- Accordingly IGST is to be paid to central government on the goods or services imported into the territory of India.
What is the tax rate for GST?
- The expected GST rate is not yet finalised, however based on Chief Economic Advisor’s suggestion the standard rate can be in the range of 18% to 20%.
- Standard rate will apply to all goods and services except goods of essential nature and demerit goods.
- A lower rate is applicable to goods and services of essential nature. Which is speculated at 12%
- Demerit goods like cigarettes may be taxed at an peak rate, which could be as high as 40% and yet to be finalized.
- The discussion is going on between the Centre and State for firming up the rate.
What are the benefits of GST?
- Easy compliances – Online registrations, return filing and payment of taxes.
- Uniformity in tax rates & structure – leading to ease of doing business. Doing business anywhere in the country is tax neutral.
- Removal of cascading of taxes – seam less tax credit through out the economic value chain minimizes the cascading effect of taxes.
- Improved competitiveness – Subsuming of various indirect taxes levied by central and sales government leads to no hidden taxes and reduction in transaction cost of doing business. This goes a long way in improving the competitiveness of Indian goods and services in international market, thereby boosting exports and manufacturing.
- Simple and easy administration – Multiple indirect taxes are being replaced by GST. Backed by a robust IT system, GST would be simpler and easy to administer taxes.
- Better controls on leakage – Robust IT infrastructure and seamless transfer of input tax credit on each stage of value chain provides an in-built mechanism to incentivise tax compliance by traders.
- Higher revenue efficiency – GST is expected to decrease the cost of collection of tax revenues and will therefore lead to higher revenue efficiency.
- Single and transparent tax – Multiple indirect taxes levied by Central and State Government, with incomplete or no input tax credits available at progressive stages of value addition, leads to most of the products in the country laden with hidden taxes. Under GST there is one tax from manufacturer to consumers, leading to transparency of taxes paid by the final consumers
- Reduction in prices – Higher revenue collection efficiency with minimal cascading effect of indirect taxes will bring down the price of commodities and services to consumers.
Elements which are yet to be finalised in GST
- Consensus need to be achieved on Revenue Neutral Rate (RNR). It is an economic rate at which Centre and State would collect the same amount in taxes as is collected currently. This is the basis for finalizing the GST rates.
- Classification of goods and services and corresponding GST rates
- Alignment of existing foreign trade policy benefits to GST regime
- Implementation of GST Network (GSTN)
- Treatment of supplies to SEZ / STP, transition of Central / State Government incentives in GST regime.
Appropriate institutional framework to be set up to engage with the industry for developing the law which aligns with the primary objective of implementing GST i.e. having a unified market, removal of cascading effect of taxes with an eye on ‘Make in India’ for both goods & service, ease of doing business by ensuring rationalisation of tax compliances and providing adequate certainty.
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