Working of GST

GST stands for “Goods and Services Tax”, and is proposed to be a comprehensive
indirect tax levy on manufacture, sale and consumption of goods as well as services
at the national level. Its main objective is to consolidates all indirect tax levies into a
single tax, except customs (excluding SAD) replacing multiple tax levies,
overcoming the limitations of existing indirect tax structure, and creating efficiencies
in tax administration.

Simply put, goods and services tax is a tax levied on goods and services imposed at
each point of sale or rendering of service. Such GST could be on entire goods and
services or there could be some exempted class of goods or services or a negative
list of goods and services on which GST is not levied. GST is an indirect tax in lieu
of tax on goods (excise) and tax on service (service tax). The GST is just like State
level VAT which is levied as tax on sale of goods. GST will be a national level value
added tax applicable on goods and services.

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. According to the Task Force
under the 13th Finance Commission, GST, as a well designed value added tax on
all goods and services, is the most elegant method to eliminate distortions and to tax
consumption.

One of the reasons to go the GST way is to facilitate seamless credit across the
entire supply chain and across all States under a common tax base. It is a tax on
goods and services, which will be levied at each point of sale or provision of service,
in which at the time of sale of goods or providing the services the seller or service
provider can claim the input credit of tax which he has paid while purchasing the
goods or procuring the service. This is because they include GST in the price of the
goods and services they sell and can claim credits for the most GST included in the
price of goods and services 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.

Submitted by: Krishna Kumar Pandey

Roll no.:- MBA/40077/19
Uses of GST at Centre and State

In particular, it would replace the following indirect taxes as these 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)
 Excise Duty levied on Medicinal and Toiletries preparations,
 Surcharges and cesses
 Central Sales Tax

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

Advantages of GST

1. GST eliminates the cascading effect of tax

2. Higher threshold for registration
3. Composition scheme for small businesses
4. Simple and easy online procedure
5. The number of compliances is lesser
6. Defined treatment for E-commerce operators
7. Improved efficiency of logistics
8. Unorganized sector is regulated under GST
1. GST eliminates the cascading effect of tax
GST is a comprehensive indirect tax that was designed to bring the indirect taxation
under one umbrella. More importantly, it is going to eliminate the cascading effect of
tax that was evident earlier.
Cascading tax effect can be best described as ‘Tax on Tax’. Let us take this
example to understand what is Tax on Tax:
Before GST regime:
A consultant offering services for say, Rs 50,000 and charged a service tax of 15%
(Rs 50,000 * 15% = Rs 7,500).
Then say, he would buy office supplies for Rs. 20,000 paying 5% as VAT (Rs 20,000
*5% = Rs 1,000).
He had to pay Rs 7,500 output service tax without getting any deduction of Rs 1,000
VAT already paid on stationery.
His total outflow is Rs 8,500.

2. Higher threshold for registration

Earlier, in the VAT structure, any business with a turnover of more than Rs 5 lakh (in
most states) was liable to pay VAT. Please note that this limit differed state-wise.
Also, service tax was exempted for service providers with a turnover of less than Rs
10 lakh.
Under GST regime, however, this threshold has been increased to Rs 20 lakh,
which exempts many small traders and service providers.
Let us look at this table below:

3. Composition scheme for small businesses

Under GST, small businesses (with a turnover of Rs 20 to 75 lakh) can benefit as it
gives an option to lower taxes by utilizing the Composition scheme. This move has
brought down the tax and compliance burden on many small businesses.

4. Simple and easy online procedure

The entire process of GST (from registration to filing returns) is made online, and it
is super simple. This has been beneficial for start-ups especially, as they do not
have to run from pillar to post to get different registrations such as VAT, excise, and
service tax.
Our ClearTax GST software is already on a roll filing GST returns
5. The number of compliances is lesser
Earlier, there was VAT and service tax, each of which had their own returns and
compliances. Below table shows the same:
Under GST, however, there is just one, unified return to be filed. Therefore, the
number of returns to be filed has come down. There are about 11 returns under
GST, out of which 4 are basic returns which apply to all taxable persons under GST.
The main GSTR-1 is manually populated and GSTR-2 and GSTR-3 will be auto-
populated.

6. Defined treatment for E-commerce operators

Earlier to GST regime, supplying goods through e-commerce sector was not
defined. It had variable VAT laws. Let us look at this example:
Online websites (like Flipkart and Amazon) delivering to Uttar Pradesh had to file a
VAT declaration and mention the registration number of the delivery truck. Tax
authorities could sometimes seize goods if the documents were not produced.
Again, these e-commerce brands were treated as facilitators or mediators by states
like Kerala, Rajasthan, and West Bengal which did not require them to register for
VAT.
All these differential treatments and confusing compliances have been removed
under GST. For the first time, GST has clearly mapped out the provisions applicable
to the e-commerce sector and since these are applicable all over India, there should
be no complication regarding the inter-state movement of goods anymore.
Read a more detailed analysis of the impact of GST on e-commerce.

7. Improved efficiency of logistics

Earlier, the logistics industry in India had to maintain multiple warehouses across
states to avoid the current CST and state entry taxes on inter-state movement.
These warehouses were forced to operate below their capacity, giving room to
increased operating costs.
Under GST, however, these restrictions on inter-state movement of goods have
been lessened.
As an outcome of GST, warehouse operators and e-commerce aggregators players
have shown interest in setting up their warehouses at strategic locations such as
Nagpur (which is the zero-mile city of India), instead of every other city on their
delivery route.
Reduction in unnecessary logistics costs is already increasing profits for businesses
involved in the supply of goods through transportation.
Visit here to read more about the impact of GST on logistics.

8. Unorganized sector is regulated under GST

In the pre-GST era, it was often seen that certain industries in India like construction
and textile were largely unregulated and unorganized.
Under GST, however, there are provisions for online compliances and payments,
and for availing of input credit only when the supplier has accepted the amount. This
has brought in accountability and regulation to these industries.
 IMPACT OF GST ON THE INDIAN
ECONOMY

Increase in exports
Simplification of the tax structure
IT Companies
Automobiles
Logistics
Banking & Financial services
Buying a car
Entertainment
FMCG Industry
Online Shopping
Consumer durables
Education & Medical Facilities
Buying a Property

RAHUL BALLAV- MBA/40080/19

 Increase in exports

 GST has reduced the customs duty on exporting goods.

 The cost of production in the local markets has decreased due to
GST.
 Increase in rate of exports in the country.
 It has helped to remove the cascading effect of multiple taxes.
 The burden of taxes has reduced for companies and customers.

Simplification of the tax structure

 Calculating taxes at the multiple stages of the supply chain has

become easier.
 Both customers and manufacturers get a clear idea of the amount
of tax they are charged and its basis.

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 IT Companies

 GST allows more implementation of digital systems and services.

 Increase in rate of tax from 15% to 18%.
 It increases the cost of electronic products like mobile phones,
laptops, etc.

Automobiles

 It provides reduction on, on-road price of vehicles to max by 8%.

 Lower prices in various automobile companies.
 Boost up volumes and sales and have tremendous opportunities for
expansion in India.

Logistics

 Boost demand for high tonnage trucks.

 Overall reduction in transportation costs.
 Improving growth opportunities for the organized players.

 Facilitate smooth inter-state flow of Goods.

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 Banking & Financial services

 Under GST , effective tax rate is expected to increase to 18- 20% as

14% earlier.
 Moderate increase in the cost of financial services like loan
processing fees, debit/credit charges, insurance premium etc.

Buying a car

 Cars has become slightly cheaper, except for the hybrid cars.
 The GST rate is 28% tax on all the vehicles irrespective of their
make, engine capacity or model.

Entertainment

 Tax rate has gone down to 2 - 4%.

 The rate of tax of cinema has increased.
 It has comprehend with demands and had bring best for boosting
up the film industry’s business.
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 FMCG Industry

 Some food items are exempted under GST like grains and cereals,
meat, fish, fruits and vegetables etc.
 The rate of return is 17-19% leading to strong impact in production
and consumption.

Online Shopping

 Various Ecommerce companies will face much burden of work in

rate of filling taxes and cost will be increased.

Consumer durables

 Reduction of the Price gap between organized & unorganized

sector.
 Warehouse/logistics costs will be curtailed.
 Improve the operational profitability by almost 300-400 bps.

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 Education & Medical Facilities

 It means a consumer will not pay any tax for the money you spent
on these services.
 But due to increase in the rate of taxes for certain goods & services
as procured by these organization, they had pass on the additional
tax burden to the consumers.

Buying a Property

 The GST rate for an under-construction property is 18% but the

effective rate on this kind of property will be around 12% due to
input tax credits the builder will avail of.

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 CONCLUSION

 GST being a dynamic & comprehensive legislation

which shall replace most of the Indirect Taxes of our
Country.
 Primarily, the concept of GST was introduced and
proposed in India a few years back, but
implementation has been done by the current BJP
government under the able leadership of Prime
Minister Shri Narendra Modi on July 1, 2017.
 The new government was in strong favor for the
implementation of GST in India by seeing many
positive implications as discussed earlier.
 GST being a dynamic and comprehensive legislation
which shall replace most of the indirect taxes of our
country.

RAHUL BALLAV- MBA/40080/19