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GST (Goods and Service tax) in India

Present Indirect Tax Structure of India


Present Tax
Structure
[5 Important
Constituents]

Excise Service Sales Tax / Customs Entry Tax/


Duty Tax VAT/ CST Entertain
Duty
ment Tax
Entry No. Residuary Entry Entry No. 54 of
84, List I, No. 97, List I, List II (VAT) and Entry No. 83, Entry No. 52
Schedule Schedule VII 92A of List I List I, Schedule &62 List II,
VII Schedule VII
VII (CST)

Taxable Taxable
Taxable Event Taxable Event is Taxable Event is
Event is Event is Entertainment &
is Manufacture Import &
Provision Sale Entry of Goods
of Service Export
Proposed Indirect Tax Structure
Intra State Excise and Local VAT &
Service Tax will Other taxes will
Taxable be known as be known as
Supply CGST SGST

Inter State CST will be


Approx. Sum
replaced by
Taxable Integrated GST
Total of CGST
and SGST
Supply (IGST)

Import From In Place of CVD


Outside Custom Duty and SAD, IGST
will be charged
India
What is GST?
G Goods
S Services
T Tax
Goods and Service Tax (GST) is a comprehensive tax levy on
manufacture, sale and consumption of goods and service at a national
level.
GST is a tax on goods and services with value addition at each stage
having comprehensive and continuous chain of set-of benefits from
the producers/ service providers point up to the retailers level where
only the final consumer should bear the tax.
Subsuming of Central GST
Subsuming of State GST
GOODS AND SERVICES OUTSIDE THE
PURVIEW OF GST
Petroleum products (petroleum crude oil, High speed diesel, motor
Sprit, Natural Gas and Aviation turbine fuel etc.)
Tax on alcoholic liquor for human consumption
Tax on entertainment and amusement levied and collected by
Panchayat /Municipality/District Council (Local body of State)
Stamp duty
Customs duty
Taxes on consumption or sale of electricity.
Note: Petroleum products and natural gas are within the ambit
of GST but will be kept in abeyance until GST council decides.
Rationale for GST
The main advantage of GST is removal of multilevel taxation.
GST is a tax on goods and services with comprehensive and
continuous chain of set-off benefits from the producers point and
service providers point upto the retailers level.
It is essentially a tax only on value addition at each stage and a
supplier at each stage is permitted to set-off, through a tax credit
mechanism, the GST paid on the purchase of goods and services as
available for set-off on the GST to be paid on the supply of goods and
services.
The final consumer will thus bear only the GST charged by the last
dealer in the supply chain, with set-off benefits at all the previous
stages.
Road to GST- Milestones
2006
-FM proposed introduction of GST from 1, April, 2010.
2007
-Phasing out of CST began from April, 2007 with reduction
in CST rate from 4% to 3%.
-Empowered Committee of State Finance Ministers
constituted Joint working group in May 2007.
-Study paper on GST authored by Dr. Parthasarthy Some
was released.
Road to GST- Milestones
2008
-EC finalized its views on broad GST structure-consensus on Dual GST
( Central & State GST), separate legislation, levy and administration.
- CST rate was further reduced from 3% to 2%.
2009
-First discussion paper on GST was released by EC.
-The 13th Finance commission released its report on GST in December
2009.
2011
- Constitution Amendment bill to enable roll out of GST was tabled in
the parliament.
Road to GST- Milestones
2013
-Standing Committee on Finance tabled its report on GST Bill in August 2013.
-EC rejected Central Govts proposal to include petroleum products under GST in
November 2013.
2014
-Revised Constitution Amendment bill tabled in Parliament on 19th December
2014.
2015
- Passage of Constitutional Amendment bill on GST in Lok Sabha on 6th May
2015. Select Committee has presented its report to the Rajya Sabha.
- The Joint Committee constituted by Empowered Committee releases its
business process report on GST related to payment, Registration, Refund and
Return in public domain for comments in October 2015.
Road to GST- Milestones
2016
-Model Draft law released in public domain in June 2016.
- Passage of Constitutional Amendment bill on GST in Rajya Sabha on 3rd August 2016.

GST Road Map target date of 1 April 2017


-Ratification of the Constitution Amendment Bill by 16 states within 30 days.
-Presenting all legislative bills in the winter session of the Parliament and the State Assemblies.
-Constitution of GST Council within 60 days of enactment.
-Establish GST Network and States IT Back-end by November 2016.
-Testing of Software with live transactions by January 2017.
-Outreach programme as a part of change management to be completed by March 2017.

Key Challenges
- GST rate structure, Calculation of revenue base and the compensation, List of exemptions,
Consensus on GST Law, Consensus on Threshold limit, Administrative control over Scrutiny
cases by Centre and State.
Features of Proposed GST
Destination based Taxation

Apply to all stages of the value chain

Apply to all taxable supplies of goods or services (as against manufacture, sale or provision of service) made for a
consideration except
o Exempted goods or services common list for CGST & SGST
o Goods or services outside the purview of GST
o Transactions below threshold limits

Dual GST having two concurrent components


o Central GST levied and collected by the Centre
o State GST levied and collected by the States

CGST and SGST on intra-State supplies of goods or services in India.

IGST (Integrated GST) on inter-State supplies of goods or services in India levied and collected by the Centre.

IGST applicable to
o Import of goods and services
o Inter-state stock transfers of goods and services

Export of goods and services Zero rated.


Features of Proposed GST (Contd)
Cross utilization of ITC between the Central
GST and the State GST would not be allowed except in the case of
inter-State supply of goods.
For the payment of CGST, first input of CGST to be used then
input IGST to be used.
For the payment of SGST, first input of SGST to be used then input
IGST to be used.
For the payment of IGST, first input of IGST to be used
then input CGST and then input of SGST to be used.
Features of Proposed GST (Contd)
GST Rates to be based on RNR Four rates
Merit rate for essential goods and services
Standard rate for goods and services in general
Special rate for precious metals
NIL rate
Floor rate with a small band of rates for standard rated goods or services for SGST
This is similar to mandatory guidelines which will be issued by GST Council in
line with European Directive 12/2006
Optional Threshold exemption in both components of GST.
Optional Compounding scheme for taxpayers having taxable turnover up to a
certain threshold above the exemption.
HSN Code likely to be used for classification of goods.
Present Accounting codes likely to be used for Services.
Illustration Intra-State Sales-Present
Manufacturer (Same state) Wholesaler (Same state) Retailer (Same state)
Buying price 141
Buying price 128
Product Cost 100 Excise duty @12.5% -
Excise duty @12.5% 13 Excise duty @12.5% -
Input credit vat @ -17
Input credit vat @ -16 14%
Vat @ 14% of Rs. 113 16
14% Cost of Sales 124
Sale Price to 128 Cost of Sales 112
Wholesaler Add profit @ 10% 12
Add profit @ 10% 11
Total cost of sales 136
Double 2 Total cost of sales 123
taxation@14% of
Rs.13 Add Vat@ 14% 17 Add Vat@ 14% 19
Sale price to retailer 141
Sale price to retailer 155
Tax collected by the 29 Tax Collected by 1 Tax Collected by 2
Govt. Govt. Govt.
Illustration Intra-State Sales-GST
Manufacturer (Same state) Wholesaler (Same state) Retailer (Same state)

Product Cost 100 Buying price 120 Buying price 132

CGST@10% 10 Input credit CGST -10 Input credit CGST -11

SGST@ 10% 10 Input Credit SGST -10 Input Credit SGST -11
Cost of Sales 100 Cost of Sales 110
Sale Price to Wholesaler 120
Add profit @ 10% 10 Add profit @ 10% 11
Total cost of sales 110 Total cost of sales 121
Add CGST@10% 11 Add CGST@10% 12
Add SGST@ 10% 11
Add SGST@ 10% 12
Tax collected by the Govt. 20
Sale price to retailer 132 Sale price to retailer 145

Tax Collected by Govt. 2 Tax Collected by 2


Govt.
Illustration Inter-State Sales-Present
Manufacturer (Same state) Wholesaler (Different state) Retailer (Different state)
Buying price 129
Buying price 115
Product Cost 100 Input credit excise -
Excise duty @12.5% 13 Input credit excise -
Input credit CST 2% -
Input credit CST 2% -
CST@2% 2
Cost of Sales 129
Sale Price to 115 Cost of Sales 115
Wholesaler Add profit @ 10% 13
Add profit @ 10% 11
Total cost of sales 142
Total cost of sales 126
Add CST @ 2% 3 Add Vat@ 12.5% 18
Sale price to retailer 129
Sale price to retailer 159
Tax collected by the 15 Tax Collected by 3 Tax Collected by 18
Govt. Govt. Govt.
Illustration Inter-State Sales-GST
Manufacturer (Same state) Wholesaler (Same state) Retailer (Same state)

Product Cost 100 Buying price 120 Buying price 132

CGST@10% 10 Input credit CGST -10 Input credit CGST -11

SGST@ 10% 10 Input Credit SGST -10 Input Credit SGST -11
Cost of Sales 100 Cost of Sales 110
Sale Price to Wholesaler 120
Add profit @ 10% 10 Add profit @ 10% 11
Total cost of sales 110 Total cost of sales 121
Add CGST@10% 11 Add CGST@10% 12
Add SGST@ 10% 11
Add SGST@ 10% 12
Tax collected by the Govt. 20
Sale price to retailer 132 Sale price to retailer 145

Tax Collected by Govt. 2 Tax Collected by 2


Govt.
Benefits to Assessee
Make India a common market, leading to expansion of trade and
commerce, which will accelerate economic growth.
Remove cascading effect of taxes.
Lead to integration of multiple taxes.
Facilitate ease of doing business.
Provide encouragement to local and foreign investment.
Lead to moderate tax rate with wider tax base
Abolition of tax barriers like CST, entry taxes, etc., will result in free
flow of goods across the country, leading to supply chain efficiency, cost
cutting and economies of scale and improvement in turnover.
Electronic processing of tax returns, refunds and payments by GSTNET
without human intervention, will reduce corruption and tax evasion.
Benefits to Exchequer/Govt.

Simpler Tax system.


Broadening of Tax base.
Improved compliance & revenue collections (tax
booster).
Efficient use of resources.
Accelerate GDP Growth
Registration of Dealers
Registration is required when a dealers aggregate turnover in a F.Y. exceeds
Rs.9 lakh. However, if a dealer is stationed in North Eastern States, including
Sikkim, the limit gets reduced to Rs.4 lakh. The dealer has to get registered in
the State from where taxable goods and services are supplied. A person,
though not registerable in terms of Schedule-III, may still get himself
registered voluntarily and in that, all the provisions of the Act, as are
applicable to a registered taxable person, shall apply to him.

Registration has to be done in the State from where taxable goods or services
are supplied.

A person, desirous of registration, shall have to give details of his (Income-tax)


PAN or some other evidence of his identity, as may be prescribed, if he is a
non-resident and has no PAN.
Liability to tax
The liability to tax will arise if the aggregate
turnover exceeds Rs.10 lakh. For N.E. States
(including Sikkim), this limit is above Rs.5 lakh.

Taxable event
The taxable event under GST regime will be
supply of goods or services.
Meaning of Supply
Section 3 of the Goods and Services Tax, 2016 Act says
that supply shall include-
(1)(a):all forms of supply of goods and/or services such as
sale, transfer, barter, exchange, license, rental, lease or
disposal made or agreed to be made for a consideration by
a person in the course or furtherance of business;
importation of service, whether or not for a
consideration and whether or not in the course of
furtherance of business, and
a supply specified in Schedule -I made or agreed to be
made without consideration.
Point of taxation
Central & State GST will be payable on the happening of
the following events:-
[i] Where the goods are movable, the date on which the
goods are removed for supply to the recipient;
[ii] In the case of immovable properties, it will be the date on
which the goods are made available to the concerned person;
[iii] Date of issue of invoice by the supplier;
[iv] When payment is given to the supplier;
[vi] Date when the receipt of goods is acknowledged by book
entries by the recipient.
TCS online sale of goods of services
Every e-commerce operator engaged in
facilitating the supply of any goods and/or
services (like Amazon, Flipkart, etc.) shall
collect tax at source at the time of credit or at
the time of payment, whichever is earlier.