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GST Overview

Understanding How Indirect Taxes Worked in Old Regime

India launched VAT or Value Added Tax system way back in Indirect Taxes in India
2005. Excise Duty
However several local taxes and levies continued to exist. Service Tax
VAT is state level multi point tax levied on value addition on CST / State VAT
goods & is collected at different stages of SALE .
Entertainment Tax
CST is levied on inter state movement of goods.
Entry Tax/ Octroi
Excise Duty is levied on manufacturing.
Luxury Tax
Services are subject to Service Tax.
Countervailing Duty
Movie tickets are subject to Entertainment Tax, besides Service (CVD)
Tax.
GST Overview

Understanding How VAT Worked (Example: Buying Toothpaste)

VAT on final product Rs 25. VAT paid on


PURCHASES can be claimed as credit = Rs
10+5+2 = Rs 17. So net VAT
payable by the manufacturer of toothpaste is =
Rs 25-17=Rs 8. This mechanism is called INPUT
CREDIT.

* Under the old regime, the input credit of CST


(Central Sales Tax) levied on inter-state supplies
could not be availed. The net VAT payable would have
to be calculated accordingly.
GST Overview

Problems with the Previous Indirect Tax Regime

While input credit was available on VAT, no input credit was available on CST, Octroi and several other local
levies.
These taxes were added to the cost of goods.
A trader cannot claim the ITC of service tax in input services or excise duty in inputs. Similarly a service
provider cannot claim ITC of vat in inputs.
Many laws meant many compliances. Returns under VAT, Excise etc had to be submitted. One had to maintain
separate records for each of these and comply with separate state laws.
There was no way for the government to make sure, your supplier has deposited VAT he collected from you.
And there was rampant VAT chori. Disputes on how much credit should be allowed. Leading to corruption at
various levels in VAT administration.
Several new businesses emerged like e-commerce, aggregators, bundled services. There wasnt enough clarity
on how these should be taxed. States took undue advantage of this and slapped notices on many startups.
States prepared new laws of levy on e-commerce companies were prepared and contested in courts.
GST Overview

The GST (Goods and Service Tax) Structure


GST Overview

Simple Basics of GST

GST is a tax on both Goods and Services except for some of the goods like alcohol for human
consumption)
GST is levied at the time of supply
GST will make sure input credit is available for taxes paid on all purchases & input services.
Input credit shall only be allowed when your supplier has deposited the GST he collected from you.
There shall be a common law, return procedures and governance for all.
GST Overview

How to Utilize Input Credit Under GST Will GST Increase Tax Collection?

Total tax collection in India (direct & indirect),


currently stands at Rs 14.6 lakh crore, of
which almost 34 per cent comprises indirect
taxes, with Rs 2.8 lakh crore coming from
excise and Rs 2.1 lakh crore from service tax
After GST, the percentage of indirect tax is
expected to increase in India. In developing
countries, indirect taxes comprise a higher
share of total taxes;
For example in Australia, indirect tax
contributes just 13 per cent of total tax
collection.
GST Overview

Key Business Impacts? Not Just Change in Tax Regime, But Business Transformation

Inter-State procurement could prove viable


Sourcing
Opportunities to consolidate suppliers/vendors

Changes in both procurement and distribution arrangements


Current arrangements for distribution of finished goods may no longer be optimal with the
Distribution
removal of the concept of excise duty on manufacturing
Current network structure and product flows may need review and possible alteration

Changes in both procurement and distribution arrangements

Pricing and Current arrangements for distribution of finished goods may no longer be optimal with the
profitability? removal of the concept of excise duty on manufacturing
Current network structure and product flows may need review and possible alteration
GST Overview

Removal of the concept of excise duty on manufacturing can result in improvement in cash
Cash flow
flow and inventory costs as GST would now be paid at the time of sale/supply rather than at
Impact?
the time or removal of goods from the factory.

Potential changes to accounting and IT systems in areas of master data, supply chain
transactions, system design
Existing open transactions and balances as on the cut-off date need to be migrated out to
System
ensure smooth transition to GST
changes and
transaction Changes to supply chain reports (e.g., purchase register, sales register, services register),
management other tax reports and forms (e.g., invoices, purchase orders) need review
Training of employees, compliance under GST, customer education, and tracking of inventory
credit are needed to ensure smooth transition to the GST regime
GST Overview

Tax Compliance Obligations Earlier, a service provider with operations, say in 20 states, can
obtain a single centralized service tax registration, whereas
under GST, separate registrations may have to be obtained in
each of the 20 states. A service provider who would currently
be filing only 2 service tax returns a year would have to file
three or four returns per state per month, which amounts to
about 60 to 80 returns per month, after the transition to GST.

A manufacturer with two factories and operations in 20 states


would have 23 registrations currently (two excise, 20 value-
added tax, or VAT, and one service tax) whereas under GST
the number of registrations would go down to 20 (1 for each of
the 20 states). But the number of returns would increase from
22 on a monthly basis (two excise returns and 20 VAT returns)
and a service tax return on a half-yearly basis to about 60 to
80 returns per month after the switch to GST (three to four
returns per month per registration).
GST Overview

Will GST Cause Inflation? How ClearTax Can Help

Under GST, effective tax rate on goods We simplify the preparation and filing of GST returns
(comprising around 70-75 per cent of the through our cloud-based software. We also have a FREE
CPI basket) will decline. Why? Because Bill Book which can be used to create GST-compliant
In the GST system, each business in the invoices and bills online.
supply chain can claim an input tax credit by Become a knowledge centre on GST law.
showing evidence of a prior tax paid in the If upward and downward chain of suppliers and customers
value chain. file with us we help make sure your input credit has been
At present, service-oriented components duly deposited.
constitute 30-25 per cent of the CPI basket
We provide easy means to maintain & view records of
input credit balances IGST, SGST, CGST
We help our registered Freelancers & small businesses
check whether they need to register for GST and help them
prepare and file returns.
GST Overview

How GSTN handles IT support


GST Overview

Monthly GST Return Filing Process (Simplified)


GST Overview

Considerations & Implications

Every invoice raised will be in a standard format, contain some unique identifications
Every invoice details needs to be uploaded to GST network except for interstate supply to unregistered
dealer having invoice value less than or equal to Rs.2,50,000 or Nil rated or Non GST supply. In the later cases,
consolidated invoice is allowed.
Mandatory to provide address of consumer for high value transactions
Fully paper-less process, everything will be API-enabled
For more details on GST, please visit cleartax.com/gst

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