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DIRECT TAX
The person paying the tax to the Government directly bears the
incidence of the tax.

Progressive in nature - high rate of taxes for people having higher

ability to pay.

INDIRECT TAX
The person paying the tax to the Government collects the same from
the ultimate consumer. Thus, incidnece of the tax is shifted to the
other person.

Regressive in nature - All the consumers equally bear the burden,

irrespective of their ability to pay.

Features of Indirect Taxes

 Payment and Tax Load - The service provider makes payment of
indirect taxes and this is transferred to a final consumer.
 Liability of Tax – Here the seller or service provider makes payment on
indirect taxes which are transferred to final consumer.
 Nature – Initially, indirect taxes used to have a regressive nature. Yet,
now with the coming of GST, they have become quite progressive.
 Evasion - Indirect taxes are hard to evade due to direct implementation
through goods and services.
 Investment and Saving - Most indirect taxes are largely growth-
oriented since they de-motivate the consumer and encourage savings.
 Social Coverage - The indirect tax has a much larger coverage since
their charge falls upon each individual buying products or services.

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The major taxes being presently levied in the supply

chain of goods and services by State/Central
Government
Following are the major taxes being levied in the supply chain of goods by the
State/Central Government:

S.No. Taxes Taxable Event Nature of Tax

1. State VAT Sale of Goods within the State Tax
State  
2. Excise Duty Manufacturing of Goods Central Tax
3. Central Sales tax Sale of Goods between State Tax
two States  
4. Additional Customs Import of Goods Central Tax
Duty  
5. Special Additional Import of Goods Central Tax
Duty
6. Entry Tax Entry of Goods in to State Tax
Local Area

 Following are the major taxes being levied in the supply chain of services
by State/Central Government:

S.No. Taxes Taxable Event Nature of Tax

1. Service Tax Provision of Service Central Tax
2. Entertainment Tax Provision of State Tax
Entertainment
3. Luxury Tax Provision of Luxury State Tax

Current Tax System

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Goods And Services Tax

GST (Goods and Services Tax) is the biggest indirect tax reform of India. GST is
a single tax on the supply of goods and services. It is a destination based tax.
GST will subsume Central Excise Law, Service Tax Law, VAT, Entry Tax, Octroi,
etc.

Need for GST in India:

Introduction of GST is considered to be a significant step in the reform of

indirect taxation in India. GST will bring in transparent and corruption-free tax
administration, removing the current shortcomings in indirect tax structure.
GST is business friendly as well as consumer friendly.GST in India is poised to
drastically improve the positions of each of these stakeholders. We need a
change in the taxation system which is better than earlier taxation. This need
for change leads us to ‘need for GST’.

1. Amalgamating of various Central and State taxes into a single tax

would help mitigate the double taxation,

2. a single tax would help mitigate cascading,

3. a single tax would help mitigate multiplicity of taxes,

4. a single tax would help mitigate classification issues,

5. It leads to create single taxable event, and etc.,

6. a single tax would help to create a common national market.

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7. VAT rates and regulations differ from state to state. On the other
hand, GST brings in uniform tax system across all the states.
Here, the taxes would be divided between the Central and State
government.

Overview on History of GST

 2006 - First announcement of GST was made by the Union Minister

during the 2006-2007 budget, that it would be introduced on April 1,
2010.
 2009 - Empowered Committee released the first Discussion Paper.
 2011 - 115th Amendment Bill was introduced and subsequently lapsed
 2014 - 122nd Amendment Bill was introduced in Lok Sabha
 August 2016 - One Hundred and First Amendment Act was enacted
 September 2016 - The first GST Council Meeting was conducted
 March 2017 - CGST, SGST, IGST, UTGST and Compensation Cess Act was
recommended by GST Council.
 April 2017 - CGST, SGST, IGST, UTGST and Compensation Cess Act were
passed
 1 July 2017 - GST laws, Goods and Services Tax was launched all over
India.
 7 July 2017 - Jammu and Kashmir state legislature passed its GST

The features of GST can be summarized as under:

1. Subsuming of near to 17 taxes at Central/States level.

2. Consumption Based Tax.

3. One Tax rate across the country.

4. Taxable event – “Supply of Goods or Services”

5. No differentiation in Goods or Services

6. Comprehensive tax on Goods & Services

7. No tax on tax.

8. Free flow of credit.

9. Value Addition Tax at each stage.

What are the benefits of GST?

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GST benefits in India will assist the Government as well as the consumers in
the long run in creating a win-win situation for both. Some of the advantages of
GST in India are enlisted as follows:

• Mitigation of Cascading effect : Under the GST administration, the final

tax would be paid by the consumer for the goods and services purchased.
However, there would be an input tax credit structure in place to ensure that
there is no slumping of taxes. GST is levied only on the value of the good or
service.

• Abolition of Multiple Layers of Taxation : One of the advantages of GST

is that it integrated different tax lines such as Central Excise, Service Tax, Sales
Tax, Luxury Tax, Special Additional Duty of Customs, etc. into one consolidated
tax. It prevents multiple tax layers imposed on goods and services.

• Resourceful Administration by Government :

Previously, the management of indirect taxes was a complicated task for the
Government. However, under the GST establishment, the integrated tax rate,
simple input of tax credit mechanism and a merged GST Network, where
information is available, and administration of resources are well-organised and
straightforward for the Government.

• Enhanced Productivity of Logistics: the restriction on inter statement

movement of goods has reduced. Earlier logistic companies had to maintain
multiple warehouses across the country to avoid state entry taxed on interstate
movements.

• Creation of a Common National Market: GST gave a boost to India’s tax

to Gross Domestic Product ratio that aids in promoting economic efficiency and
sustainable long – term growth. It led to a uniform tax law among different
sectors concerning indirect taxes. It facilitates in eliminating economic
distortion and forms a common national market.

• Ease of Doing Business: with the implementation of GST, the difficulties in

indirect tax compliance have been reduced. Earlier companies faced significant
problems concerning registration of VAT, excise customs, dealing with tax
authorities, etc. The benefits of GST has aided companies to carry out their
business with ease.

• Regulation of the Unorganized Sector under GST: it has created

provisions to bring unregulated and unorganised sectors such as the textile and
construction industries to name a few under regulation with continuous
accountability.

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• Reduction of Litigation: GST aids in reducing litigation as it establishes

clarity towards the jurisdiction of taxation between the Central and State
Governments.GST provides a smooth assessment of tax.

• Tackling Corruption and Tax Leakages: with the GST online network

portal, the taxpayer can directly register, file returns and make payments of the
taxes without having to interact with tax authorities. A mechanism has been
devised to match the invoices of the supplier and buyer. This will not only keep
a check on tax frauds and evasion but also bring in more businesses into the
formal economy.

There are various benefits of GST in India as listed above. However, a tax
reform of such magnitude comes with its teething problems.

Disadvantages of GST :
• IT Infrastructure: since GST is an IT-driven law, it cannot be sure whether
all the states in India are currently equipped with infrastructure and workforce
availability to embrace this law. Only a few states have implemented this E-
Governance model. Even today some states use the manual VAT returns
system.

• Higher Tax Burden of SME’s: earlier the small and medium enterprises had
to pay excise duty only on a turnover that exceeded Rs. 1.5 crore every
financial year. However, under the GST administration, businesses whose
turnover exceeds Rs 40 lacs are liable to pay GST.

• Increase Burden of Compliance: The GST administration states that

companies are required to register in all the states they operate in. This
increases the burden on the business for excessive paperwork and compliance.

• Petroleum Products don’t fall under the GST Slab: petrol and petroleum
products have not been included in the scope of GST until now. States levy
their taxes on this sector. Tax credit for inputs will not be available to these
industries or those related industries.

• Coaching of Tax Officers: there is inadequate training that is provided to

the Government officers for practical usage and implementation of such
systems since the GST administration heavily banks on information technology.

GST in India was a sweeping reform and benefits of GST and has changed the
way businesses are conducted. Businesses are being included in the formal
economy through GST implementation. GST and its benefits have provided long
term returns for the Indian economy on a large scale which have been
welcomed as a new change by all the stakeholders.

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Benefits of GST:

To trade To Consumers  To Society

·        Reduction in
multiplicity of taxes
·        Mitigation of
cascading/ double
taxation
 
·        More efficient
neutralization of taxes
especially for exports
·        Development of
common national market
·        Simpler tax regime
·        Fewer rates and
exemptions
·        Distinction
between Goods &
Services no longer
required
·        Simpler Tax ·        Create unified
system common national market for
  India, giving a boost to
Foreign investment and
“Make in India” campaign
·        Reduction in ·        Boost export and
prices of goods & manufacturing activity and
services due to leading to substantive
elimination of economic growth
cascading
·        Uniform prices ·        Help in poverty
throughout the country eradication by generating
more employment
·        Transparency in ·        Uniform SGST and
taxation system IGST rates to reduce the
incentive for tax evasion
Increase in  
employment
opportunities
   
   

Other Benefits of Goods And Services Tax:

·      Will prevent cascading of taxes as Input Tax Credit will be available across
goods and services at every stage of supply.

·     Harmonization of laws, procedures and rates of tax.

 ·     More efficient neutralization of taxes especially for exports thereby making
our products more competitive in the international market and give boost to
Indian Exports.

 ·     Improve the overall investment climate in the country which will naturally
benefit  the development in the states.

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 ·    Average tax burden on companies is likely to come down which is expected

to  reduce prices and lower prices mean more consumption, which in turn
means more  production thereby helping in the growth of the industries . This
will create India as  a “Manufacturing hub”.

 ·     Will improve environment of compliance as all returns to be filed online,

input credits to be verified online, encouraging more paper trail of transactions.

 ·     Common procedures for registration of taxpayers, refund of taxes, uniform

formats  of tax return, common tax base, common system of classification of
goods and  services will lend greater certainty to taxation system.

 ·     Timelines to be provided for important activities like obtaining registration,

refunds,  etc.

 ·     GST will be beneficial with more transparency, efficient compliance, ramp

up in  GDP growth to the Centre, states, industrialists, manufacturers, the
common man  and the country at large.

FRAMEWORK OF GST AS INTRODUCED IN INDIA

1. GST – A tax on goods and services

GST is levied on all goods and services, except alcoholic liquor for human
consumption and petroleum crude, diesel, petrol, ATF and natural gas.

2. Dual GST

India has adopted a Dual GST model in view of the federal structure of the
country. Consequently, Centre and States simultaneously levy GST on taxable
supply of goods or services or both, which takes place within a State or Union
Territory. Thus, tax is imposed concurrently by the Centre and States, i.e.
Centre and States simultaneously tax goods and services. Now, the Centre also
has the power to tax intra-State sales & States are also empowered to tax
services. GST extends to whole of India including the State of Jammu and
Kashmir.

3. CGST/SGST/UTGST/IGST

4. LAGISLATIVE FRAMEWORK

2017 - for levying CGST. Similarly, Union Territories without Legislatures

[Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli, Daman
and Diu and Chandigarh] are governed by UTGST Act, 2017 for levying UTGST.
States and Union territories with their own legislatures [Delhi and Puducherry]
have their own GST legislation for levying SGST.

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5. Classification of goods and services

HSN (Harmonised System of Nomenclature) is used for classifying the goods

under the GST. Chapters referred in the Rate Schedules for goods are the
Chapters of the First Schedule to the Customs Tariff Act, 1975. A new Scheme
of Classification of Services has been devised wherein the services of various
descriptions have been classified under various sections, headings and groups.
Each group consists of various Service Codes (Tariff).

6. Composition Scheme

For providing relief to small businesses, primarily manufacturers, suppliers of

food articles, traders, etc., making intra-State supplies, a simpler method of
paying taxes is prescribed, known as Composition Levy. Further, for small
service providers also, a scheme prescribing concessional rate of tax has been
formulated.

7. Registration

Every supplier of goods and/ or services is required to obtain registration in the

State/UT from where he makes the taxable supply if his aggregate turnover
exceeds the threshold limit during a FY.

8. Exemptions

Apart from providing relief to small-scale business, the law also contains provisions for
granting exemption from payment of tax on essential goods and/or services.

9. Seamless flow of credit

The inter-State supplier in the exporting State is allowed to set off the available
credit of IGST, CGST and SGST/UTGST (in that order) against the IGST payable
on inter-State supply made by him.

10. GST Common Portal

Common GST Electronic Portal – www.gst.gov.in – a website managed by

Goods and Services Network (GSTN) [a company incorporated under the
provisions of section 8 of the Companies Act, 2013] is set by the Government
to establish a uniform interface for the tax payer and a common and shared IT
infrastructure between the Centre and States.

11. Taxes merged in GST

Central Indirect Taxes: State Indirect Taxes:

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Following Central Indirect
Taxes and Levies would be
subsumed in GST:
Central Excise Duty Following State Indirect Taxes and
Additional Excise Duties Levies would be subsumed in GST:

·         Excise Duty levied under the ·         State Value Added Tax/Sales

Medicinal and Toilet Preparations Tax
(Excise Duties) Act, 1955 ·         Entertainment Tax (other than
Service Tax the tax levied by the local bodies)

Additional Customs Duty ·         Central Sales Tax (levied by

commonly known as the Centre and collected by the
Countervailing Duty States)

·         Special Additional Duty of ·         Octroi and Entry Tax

Customs ·         Purchase Tax
·         Central Surcharges and Cess, ·         Luxury Tax
so far as they relate to the supply
of goods and services. ·         Taxes on lottery
·         Betting and gambling
·         State cess and surcharges
insofar as they relate to supply of
goods and services.

Challenges of GST in Indian Context:

The GST is a very good type of tax, the successful implementation of the same,
there are few challenges which have to face to implement GST In India.
Following are some of the determinants that must be kept in mind about GST

The understanding of GST by regarding its provisions and its impact on their
business is still at emerging stage, and still many are findings the locations and
places they need to be registered in.

Various provisions of GST are still ambiguous.

Classification of goods and services in various cases is still not clear.

Provisions for anti-profiteering, as well as the now deferred e-way bill, which
tracks consignments across states, are unclear.

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Various businesses are not yet map the accounting software and IT systems in
concern with the new tax provisions, to create a invoices of GST , and abstract
required reports

Staff with perfect required skill with efficient GST knowledge and their training
subject are not easily available.

This has located that an Businesses will requires to file manifold returns, a
minimum of 37 in most cases for assesses, and this can increase multifold with
business models.

 Conclusion

GST will allow India to better negotiate its terms in the international trade
forums.GST aimed at increasing the taxpayer base by bringing SMEs and the
unorganized sector under its compliance. This will make the Indian market
more stable than before and Indian companies can compete wit

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CA Sagar Thorat (M.com, FCA, DISA - ICAI,SET, NET)