How Goods and services tax plays a major role in Indian Economy?

In this blog, we have discussed about the goods and services tax impacts on Indian economy and
benefits of GST registration.

Chiefly, goods and service tax is a transformation designed to create an ecosystem where free and fair
competition can flourish. The state and Centre in agreement decided to pool in their resource and
sovereignty to create this economic consolidation for the common goal of economic prosperity. India’s
first federal institution, the GST reforms does several multiple arbitrary tax schemes, making it easier
to administer taxes while making revenue collection more efficient.

When state and Centre have independence to charge taxes based on their preferences, the entire
system goes unfair and the movement of goods also becomes difficult. The Goods and Services Tax is
another such undertaking that is expected to provide the needed stimulant for economic growth in
India by transforming the existing base of indirect taxation towards the movement of goods and
services.

GST is also expected to eliminate the effect of taxes. India planned to play an important role in the
world economy. The hope of GST introduced is high not only within the country, but also within
neighbouring countries and developed economies of the world.

Goods and services tax

The introduction of Goods and Services Tax in India is on high. The Constitution Amendment Bill is
likely to replace existing multiple indirect taxes. Lok Sabha has already passed this Bill. The current
indirect tax system is a major weakness in India’s economic growth and competitiveness. Tax barriers
in the form of CST, entry tax and restricted input tax credit have uneven Indian market.
Removal of tax barriers on introduction of uniform GST across the country with seamless transaction,
will make India a common market leading to economy of scale in production and efficiency in supply
chain. It will expand trade and commerce.

Moreover, GST will have positive impact on organised logistic industry and modernised
warehousing. GST provides the ease of doing business in India. Integration of existing multiple taxes
into single GST will significantly reduce cost of tax compliance and transaction cost.

Benefits of GST to the Indian Economy

 Removal of indirect taxes such as VAT, Service tax, CST, CAD, SAD, and Excise.
 An easy tax policy compared to current tax structure.
 Removal of cascading effect of taxes i.e. removes taxes on tax.
 Reduction of manufacturing costs will lower burden of taxes on the manufacturing sector.
Hence prices of consumer goods will be lesser.
 Moreover, GST will Lower the burden of taxes on the common people i.e. public will spend
less money to buy the same products that were costly earlier.
 In essence, increased demand and consumption of goods.
 Increased demand will lead to increase supply. Hence, this will ultimately rise the production
of goods.
 Controls the circulation of the black money.
 Boosts the Indian economy in the long run process.
 Consequently, these things are possible only if the actual benefit of GST are passed on to the final
consumers. There are several other factors such as the seller’s profit margin, which determines
the final price of goods. Moreover, GST alone will not determine the final price of goods.

How will GST impact the Indian Economy?

 Tax burden on producers will be reduced and fosters growth through more production.
The current taxation structure prevents manufacturers from producing to their optimum
capacity and retards growth. However, GST will provide solution to this problem by providing
tax credit to the manufacturers.
 There are different tax barriers such as check posts and toll plazas, lead to the wastage of
unpreserved items being transported. The taxes will be higher in the case of buffer stock and
warehousing costs. A single taxation system will eliminate this roadblock.
 Transparency in the system will helps the customers know exactly how much taxes are being
charged and on what base.
 In addition, GST will add government revenues by extending the tax base.
 GST will provide acknowledgment for the taxes paid by producers in terms of goods or
services. This is expected to encourage producers to buy raw material from different
registered dealers and bring more vendors and suppliers under the view of taxation.
 GST will remove the value- added tax applicable on exports. Hence, great demand for Indian
products in foreign markets will increase on account of lower costs of transaction.

What will get costlier according to the GST rule?

The following will costlier as per the GST rule:

 Accommodation in hotels will be 28% GST where the room tariff will be more than Rs.7, 500
per unit per day
 Air-conditioned restaurants serving or not serving liquor will charge GST at the rate of 18%.
 Renting of a motor car will charge GST at the rate of 18%
 Under-construction immovable property being flats, commercial buildings, etc., will attract
GST at the rate of 18% after allowing deduction of land value to the extent of one-third of the
total amount of immovable property
 Commercial renting of immovable property will be charge GST at the rate of 18%

As per the former Service tax regime, the taxes was 15%, GST on commission or fees paid to
facilitating agents or banks will be taxed at 18% at present.

The rate of GST on other goods

The rate of GST is 18% for soaps and 28% on washing detergents.18% GST for movie tickets that cost
less than Rs. 100 and 28% GST on tickets costing more than Rs.100 and 28% on commercial and private
vehicle and 5% GST on readymade clothes. The rate on under-construction property booking is 12%.

Some industries and products were excused from paying taxes. They are dairy products, fresh
vegetables & fruits, meat products, products of milling industries, and other groceries and necessities.
Check posts across the country were stopped to ensure free and fast movement of goods.

Goods kept outside the GST

 Alcohol for human consumption, not for commercial use.

  Petrol and petroleum products (GST will apply at a later date), i.e., petroleum crude, high-
speed diesel, motor spirit, natural gas, aviation turbine fuel, etc.

What is GST Return?

GST return is a document that is filed by the experts, who are registered under GST Act. A GST
Return includes the details such as:

 Sales made by the registered dealer

 Purchase made by the registered dealer
 GST output on sales of goods and services
 Input Tax Credit or ITC on purchase of goods and services

Scenario before the implementation of GST

Before implementation of GST separate accounts are required to be maintained for excise, VAT, CST
and service tax. Apart from accounts like sales, purchases, and stock, the following accounts are
separately required to be maintained:

 Excise Payable (for the manufacturer)

 CENVAT Credit (for the manufacturer)
 Output Vat A/c
 Input Vat A/c
 Output Service Tax
 Input Service Tax
 CST A/c for interstate purchases and sales
 Service Tax A/c

Scenario after implementation of GST

Under GST all the above taxes are subsumed into one tax. Thus following accounts are required to
maintain in addition to purchases, sales, and stock:

 Input CGST a/c

 Output CGST a/c
 Input SGST a/c
 Output SGST a/c
 Input IGST a/c
 Output IGST a/c
 Electronic Cash Ledger should be maintained on Government GST portal to pay GST.

While the number of accounts to be maintained are more but through accounting and record keeping
you will find it easier to maintain the books of accounts and comply with GST provisions.

Conclusion

Thus, the introduction of the Goods and Services Tax will be a very notable step in the field of indirect
tax reforms in India. By unifying large number of Central and State taxes into a single tax, GST is
expected to double taxation and make taxation overall easy for the industries. The most beneficial will
be in terms of reduction in the overall tax burden on goods and services for the end customers.
Moreover, introduction of GST will also make Indian products competitive in the domestic and
international markets. The GST will be easier to administer because of its transparent character. Once
the proposed taxation system is implemented, this greatly promises in terms of sustaining growth for
the Indian economy.

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