III BBA

GST NOTES

Chapter-1 Tax – Meaning and Types, Differences between Direct and Indirect Taxation

Brief History of Indirect Taxation in India, Structure of Indian Taxation.

Chapter-2 Goods and Services Tax –Framework and Definitions

Introduction to Goods and Services Tax, Orientation to CGST, SGST and IGST

Meaning and Scope of Supply, Types of Supply. Exemptions from GST.

Module 1
Indian Tax System
BACKGROUND:
In any welfare state, it is the prime responsibility of the government to fulfil the increasing
developmental needs of the country and its people by way of public expenditure. India,
being a developing economy, has been striving to fulfil the obligations of a welfare state
with its limited resources; the primary source of revenue being the levy of taxes. Though the
collection of tax is to augment as much revenue as possible to the government to provide
the public services, over the years it has been used as an instrument of fiscal policy to
stimulate economic growth. Thus, taxes are collected to fulfil the socio-economic objectives
of the government.

HISTORY:
 It has now been more than a decade since the idea of national Goods and Services
Tax (GST) was mooted by Kelkar Task Force in 2004. The Task Force strongly
recommended fully integrated ‘GST’ on national basis.
 Subsequently, the then Union Finance Minister, Shri P. Chidambaram, while
presenting the Central Budget (2006-2007), announced that GST would be
introduced from April 1, 2010. Since then, GST missed several deadlines and
continued to be shrouded by the clouds of uncertainty.
 The talks of ushering in GST, however, gained momentum in the year 2014 when the
NDA Government tabled the Constitution (122nd Amendment) Bill, 2014 on GST in
the Parliament on 19th December, 2014. The Lok Sabha passed the Bill on 6th May,
2015 and Rajya Sabha on 3rd August, 2016. Subsequent to ratification of the Bill by
more than 50% of the States, Constitution (122nd Amendment) Bill, 2014 received
the assent of the President on 8th September, 2016 and became Constitution (101st
Amendment) Act, 2016, which paved the way for introduction of GST in India.
 In the following year, on 27th March, 2017, the Central GST legislations – Central
Goods and Services Tax Bill, 2017, Integrated Goods and Services Tax Bill, 2017,
Union Territory Goods and Services Tax Bill, 2017 and Goods and Services Tax
(Compensation to States) Bill, 2017 were introduced in Lok Sabha. Lok Sabha passed
these bills on 29th March, 2017 and with the receipt of the President’s assent on
 12th April, 2017, the Bills were enacted. The enactment of the Central Acts was
followed by the enactment of the State GST laws by various State Legislatures.
Telangana, Rajasthan, Chhattisgarh, Punjab, Goa and Bihar were among the first
ones to pass their respective State GST laws.
 With effect from 1st July 2017, the historic indirect reform- GST was introduced.
 GST law was extended to jammu and Kashmir on 8th july 2017.
 GST is a path breaking indirect tax reform which will create a common national
market. GST has subsumed multiple indirect taxes like excise duty, service tax, VAT,
CST, luxury tax, entertainment tax, entry tax, etc.
 France was the first country to implement GST in the year 1954. Within 62 years of
its advent, about 160 countries across the world have adopted GST because this tax
has the capacity to raise revenue in the most transparent and neutral manner.

CONSTITUTIONAL PROVISION FOR INDIAN TAX SYSTEM:

The Constitution divides taxation powers between the Union and the States in a way that
gives the Union government the power to levy taxes on a wider range of items than the
States. This is because the Union government has a wider range of responsibilities, such as
national defence and foreign affairs. The States, on the other hand, have a more limited
range of responsibilities, such as education and healthcare.
The Constitution also places some restrictions on the taxation powers of both the Union and
the States. For example, the Constitution prohibits the Union government from taxing
agricultural income and it prohibits the States from taxing inter-State trade and commerce.
These restrictions are designed to protect the interests of taxpayers and to ensure that the
taxation system is fair.
The constitutional provisions relating to taxation are complex and have been interpreted by
the courts in a number of cases. However, the basic principles underlying these provisions
are clear: to ensure that both the Union and the States have the resources they need to
function effectively, while also protecting the interests of taxpayers.
The Constitution of India is the supreme law of the land and all laws in India must be
consistent with its provisions. The constitutional provisions relating to taxation in India are
contained in Articles 265 to 289 of the Constitution of India. These articles outline the
powers of the Union and the States to levy taxes, as well as the procedures for assessing and
collecting taxes.

Some of the key constitutional provisions relating to taxation include:

Article 265: This article states that no tax can be levied or collected except by the authority
of law. This means that all taxes must be imposed by a valid law and that no tax can be
levied or collected without the authority of law.

Articles 268 to 270: These articles deal with the levy of duties of customs, excise and other
taxes on goods imported into or exported out of India. These taxes are levied by the Union
government and the proceeds are shared between the Union and the States.
Article 286: This article restricts the power of the States to levy taxes on goods and services
that are imported into or exported out of India. This is to prevent States from taxing goods
that are in transit between different States.

Articles 276 and 277: These articles deal with taxes that can be levied by the States for the
benefit of the State or for the benefit of a municipality, district board or other local
authority. These taxes are known as “cess” taxes and they can be levied on a variety of
subjects, such as professions, trades, callings and employment.

Articles 271 and 279: These articles deal with taxes that can be levied by the Union and the
States concurrently. This means that both the Union and the States can levy taxes on the
same subject, but the Union government has the power to override any State law that
conflicts with a Union law.

Articles 273, 275, 274 and 282: These articles deal with grants-in-aid that can be given by
the Union government to the States. These grants are given to help the States meet their
financial needs and they can be used for a variety of purposes, such as education, health
and infrastructure development.

The constitutional provisions relating to taxation are complex and have been interpreted by
the courts in a number of cases. However, these provisions provide the basic framework for
the taxation system in India.

STRUCTURE OF INDIAN TAX SYSTEM:

Taxes are an important and largest source of income for the government. The government
uses the money collected from taxes for various projects for the development of the nation.
The Indian tax system is well structured and has a three-tier federal structure.
The tax structure consists of the central government, state governments, and local
municipal bodies. When it comes to taxes, there are two types of taxes in India - Direct and
Indirect tax. The direct tax includes income tax, gift tax, capital gain tax, etc while indirect
tax includes value-added tax, service tax, goods and services tax, customs duty, etc.

Types of Taxes in India

Taxation in India is majorly divided into Central and State Govt taxes with two types of
taxes:
 Direct Taxes
 Indirect Taxes
What are the Different Types of Direct Tax?

Direct taxes are imposed on corporate entities and individuals. These taxes cannot be
transferred to others. For individual taxpayers like you, the most important type of Direct
tax is the income tax. This tax is levied during each assessment year (1st April to 31st
March). As per the Income Tax Act, 1961, it is mandatory for you to make income tax
payments if your annual income is above the minimum exemption limit. You can get tax
benefits under various sections of the Act.

Direct taxes account for almost 50% of the government’s revenue in India. However, income
tax is not the only direct tax. Here are the types of direct taxes applicable in India:
 Income Tax
 Capital Gains Tax
 Corporate Tax
Income tax applies to any income of an Individual and HUF except capital gains and profits
from business and profession. Income tax is calculated as per the applicable slab rates for
the Assessment Year.
The central government announces the slab rates in the annual budget.
You also have the provision to reduce your taxable income using the tax-saving investments
and expenses under section 80C.
Capital gains tax apply to the profits from the sale of a capital asset only. The rate of tax on
capital gains depends on the type of capital gain. Income Tax Act, 1961 divides the capital
gains tax into the following two types:
Short-Term Capital Gains Tax
Long-Term Capital Gains Tax

The corporate tax applies to the businesses and entities filing their returns as a company.
This is also a slab rate depending on the turnover of the firm.
* Surcharge of 10% if income exceeds Rs 1 crore
# Health & Education Cess of 4% as of FY 2020-21

What are the Different Types of Indirect Taxes in India?

Indirect taxes in India have been the most consistent and largest revenue source for the
government. The Indian tax system has had multiple indirect taxes, some of these are still
operational:

 Service Tax
 Indian Excise Duty
 Value Added Tax (VAT)
 Customs Duty
 Securities Transaction Tax (STT)
 Stamp Duty
 Entertainment Tax

Service tax, value-added tax and excise duty have been removed for a large number of
goods and services. These taxes have been replaced by a single Goods and Services Tax.

Customs duty tax applies to the goods being imported into India from other countries, and
in a few cases on the goods being exported from India.

Securities Transaction Tax or STT applies to the transactions involving an exchange of

financial securities. For example, equity stocks, mutual fund units, future and options
contracts. This tax is necessarily applied to securities exchange transactions. However, you
can also pay Stamp duty and STT on securities changing hands outside the exchange or over
the counter.
STT allows the buyers and sellers of securities to benefit from lower short and long-term
capital gains taxes on the exchange.

Stamp duty is a State Government levy on the transfer of assets within their territory. It acts
as legal proof of ownership of the asset or security.

Entertainment tax in India is also a state subject and applies to the transactions involving
the entertainment business in the country. Such businesses and activities will include movie
releases, sporting events, concerts, amusement parks, theatres, etc.
What is Goods and Services Tax?
Goods and Services Tax or GST has been a consolidation of a complex web of indirect taxes
in India. Taxation in India can have three layers of levies – Centre, State and Local Authority
or Municipalities.
Before GST introduction in the Indian taxation system, the following indirect taxes could
apply to the goods and services in India:
 Excise Duty
 Entertainment Tax
 Value Added Tax (VAT, State)
 Octroi
 Service Tax
 Central Sales Tax (collected by State)
 Purchase Tax
 Entry Tax (State)
 Luxury Tax (State)
These interconnecting and often overlapping taxes posed many disadvantages and conflicts
for suppliers and manufacturers along with the government bodies.