GOODS AND

SERVICES TAX
(GST) IN INDIA
 Concept of GST
 GST is a tax on goods and services with comprehensive and continuous chain of setoff
benefits from the Producer’s point and Service provider’s point up to the retailer level.
 GST is expected be levied only at the destination point, and not at various points (from
manufacturing to retail outlets). It is essentially a tax only on value addition at each stage and
a supplier at each stage is permitted to setoff through a tax credit mechanism which would
eliminate the burden of all cascading effects, including the burden of CENVAT and service
tax.

 Under GST structure, all different stages of production and distribution can be interpreted as
a mere tax pass through and the tax essentially sticks on final consumption within the taxing
jurisdiction.

 Currently, a manufacturer needs to pay tax when a finished product moves out from the
factory, and it is again taxed at the retail outlet when sold. The taxes are levied at the
multiple stages such as CENVAT, Central sales tax, State Sales Tax, Octroi, etc. will be
replaced by GST to be introduced at Central and State level.

Continued…….
 Concept of GST
 All goods and services, barring a few exceptions, will be brought into the GST base. There
will be no distinction between goods and services.

 Under GST, the taxation burden will be divided equitably between manufacturing and
services, through a lower tax rate by increasing the tax base and minimizing exemptions.

 However, the basic features of law such as chargeability, definition of taxable event and
taxable person, measure of levy including valuation provisions, basis of classification etc.
would be uniform across these statutes as far as practicable.

 The existing CST will be discontinued. Instead, a new statute known as IGST will come into
place on the inter-state transfer of the Goods and Services.

 By removing the cascading effect of taxes (CST, additional customs duty, surcharges, luxury
Tax, Entertainment Tax, etc. ),CGST & SGST will be charged on same price .
 Existing Tax structure in India

Tax Structure

Direct Tax Indirect Tax

Income Tax Wealth Tax Central Tax State Tax

Entry Tax,
luxury tax,
Excise Service Tax Custome VAT
Lottery Tax,
etc.
Proposed Tax Structure in
India
Tax Structure

Indirect Tax =
Direct Tax GST (Except
customs)

Income Tax
Wealth Tax Intra- state Inter State

CGST
SGST (State) IGST (Central)
(Central)
Subsuming of Existing Taxes
• Central Excise
Additional duties of Custom (CVD)
CGST
•
• Service Tax
• Surcharges and all cesses

• VAT/sales tax
• Entertainment Tax
• Luxury Tax
• Lottery Tax
• Entry Tax

SGST •
•
Purchase Tax
Stamp Duty
• Goods and passenger Tax
• Tax on vehicle
• Electricity, banking, Real state

IGST • CST
 Model of GST
 SGST and CGST for intrastate transaction : In the GST system, both Central and State taxes will
be collected at the point of sale. Both components (the Central and State GST) will be charged on
the manufacturing cost. This will benefit individuals as prices are likely to come down. Lower prices
will lead to more consumption, thereby helping companies.

 IGST for Interstate transaction: ‘IGST Model’ will be in place for taxation of inter State
transaction of Goods and Services. The scope of IGST Model is that center would levy IGST which
would be CGST plus SGST on all inter State transactions of taxable goods and services with
appropriate provision for consignment or stock transfer of goods and services.

 The GST paid on the purchase of goods and services, to be paid on the supply of goods and
services.

 There should be no distinction between raw materials and capital goods in allowing input tax credit.
The tax base should comprehensively extend over all goods and services up to final consumption
point on value addition.

 Assessable value for all the taxes will be same.

Stakeholder in Business Chain

1.
Manufacturer

5.Government
2. Wholesaler
and Banks
Goods
+
Services

4.Consumer 3.Retailer
 GST Set off Chain

• Input Credit of Goods+ services

• After taking set off of Input credit, pay the Output Liability on
Manufacturer
Manufacturer value addition

• Input Credit of Goods+ services from manufacturer

• After taking set off of Input credit, pay the Output Liability on
Wholesaler
Wholesaler value addition

• Input Credit of Goods+ services from wholesaler

• After taking set off of Input credit, pay the Output Liability on
Retailer
Retailer value addition

Consumer • Ultimate Output Liability recovered from consumer

Consumer
 Set-off methodology

 Since the Central GST and State GST are to be treated

separately, in general, taxes paid against the Central GST
shall be allowed to be taken as input tax credit (ITC) for the
Central GST and could be utilized only against the payment
of Central GST. The same principle will be applicable for the
State GST.

 Cross utilization of ITC between the Central GST and the

State GST would, in general, be allowed.

 ADC paid on Import of goods and service would fall under the
IGST and this duty would be allowed for setoff of SGST and
CGST.
 Set off Heads

IGST CGST SGST

Input Input Input
IGST IGST IGST
Outpu Outpu Outpu
t t t
CGST CGST SGST
Outpu Outpu Outpu
t t t
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 Functioning of GST
The illustration shown below indicates, in terms of a hypothetical example with a manufacturer, one
wholesaler and one retailer, how GST will work.

 Manufacturer : Let us suppose that CGST rate is 10% and SGST rate is 5% , with the manufacturer
making value addition of Rs.30 on his purchases worth Rs.100 of input of goods CGST paid @10%)
and services used in the manufacturing process. The manufacturer will then pay net CGST of Rs. 3
after setting-off Rs. 10 as CGST paid on his inputs (i.e. Input Tax Credit) from gross CGST of Rs. 13
and Rs, 6.5 as SGST.
Gross Value:130 on that CGST 13/- and SGST 6.5/-
Input Credit: CGST 10-/ and SGST NIL/-
Net Liability: Rs. 3 + 6.5 = 9.5/-

 Wholesaler: The manufacturer sells the goods to the wholesaler. When the wholesaler sells the
same goods after making value addition of (say), Rs. 20, he pays net CGST of only Rs. 2, after
setting-off of Input Tax Credit of Rs. 13, from the gross CGST of Rs. 15 and net SGST of only Rs. 1,
after setting-off of Input Tax Credit of Rs. 6.5, from the gross SGST of Rs. 7.5 to the manufacturer.
Gross Value:150 on that CGST 15/- and SGST 7.5/-
Input Credit: CGST 13-/ and SGST 6.5/-
Net Liability: Rs. 2 + 1 = 3/-
Continued…….
 Functioning of GST
 Retailer: Similarly, when a retailer sells the same goods after a value
addition of (say) Rs. 10, he pays net CGST of only Re.1, after setting-off Rs.15
from his gross GST of Rs. 16 and net SGST of only Rs. 0.5, after setting-off of
Input Tax Credit of Rs. 7.5, from the gross SGST of Rs. 8/- paid to wholesaler.
Gross Value:160 on that CGST 16/- and SGST 8/-
Input Credit: CGST 15-/ and SGST 7.5/-
Net Liability: Rs. 1 + 0.5 = 1.5/-

 Total Liability: Thus, the manufacturer, wholesaler and retailer have to pay
only Rs. 6 (= Rs. 3+Rs. 2+Rs. 1) as CGST Rs. 8 (= Rs. 6.5+Rs. 1+Rs. 0.5) as
SGST and on the value addition along the entire value chain from the
producer to the retailer, after setting-off GST paid at the earlier stages. This
is shown in the table in next slide. The same illustration will hold in the case
of final service provider as well.
Continued…….
CGST & SGST Tax Liability working
Value at Net
Which Inpu Net SGST=
Purc
Stage Supply CGST t Input CGST=C SGST
hase Valu Rate
of  Goods Rate CGST on  Tax  Tax  GST on on
Valu e  of
Suppl and of on  Outp Cred Credi output- output
e  Addi SGST
y Services SGST Output ut it on t on Input -Input
Of tion
Chain Made to CGS SGST Tax Tax
Input
Next T Credit Credit
Stage
Manu
13–10 = 6.5-0=
factu 100 30 130 10% 5% 13 6.5 10 0
3 6.5
rer
Whol
15–13 = 7.5-
e 130 20 150 10% 5% 15 7.5 13 6.5
2 6.5=1
Seller
8-
Retai 16–15 =
150 10 160 10% 5% 16 8 15 7.5 7.5=0.
ler 1
5
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 Mechanism of Dual Taxation
After introduction of GST, all the traders including manufacturer will be paying both the types of taxes
i.e. CGST and SGST. The Central GST and the State GST would be levied simultaneously on every
transaction of supply of goods and services except the exempted goods and services, goods which are
outside the purview of GST and the transactions which are below the prescribed threshold limits.
Further, both would be levied on the same price or value unlike State VAT which is levied on the value
of the goods inclusive of CENVAT, i.e CGST & SGST will be charged on same price
 Supply of Goods: Suppose the rate of CGST is 10% and that of SGST is 10%. When a wholesale
dealer of steel in Uttar Pradesh supplies steel bars and rods to a construction company, which is also
located within the same State for , say Rs. 100, the dealer would charge CGST of Rs. 10 and SGST of
Rs. 10 in addition to the basic price of the goods.
 Supply of Services : Suppose, that the rate of CGST is 10% and that of SGST is 10%. When an
advertising company located in Mumbai supplies advertising services, to a company manufacturing
soap which is also located within the State of Maharashtra for, Rs. 100, then the ad company would
charge CGST of Rs. 10 as well as SGST of Rs. 10 to the basic value of the service.

In both the cases, he would be required to deposit the CGST component into a Central Government
account and the SGST portion into concerned State Government account. He need not actually pay duty
in cash, as he would be entitled to set-off this liability against the CGST or SGST paid on his purchases
(say, inputs). But for paying CGST he would be allowed to use only the credit of CGST & SGST paid on
his purchases respectively. In other words, CGST credit cannot, in general, be used for payment of SGST.
Nor can SGST credit be used for payment of CGST.
 GST on Import of Goods and services

 With Constitutional Amendments, both CGST and SGST will be levied on import
of goods and services into the country.
 The incidence of tax will follow the destination principle(Place of supply rules).
 Tax revenue in case of SGST will accrue to the State where the imported goods
and services are consumed.
 Full and complete set-off will be available on the GST paid on import on goods
and services.
 Thus, import of goods will attract BCD and IGST. It may be noted that import of
services, as against service tax at present, in GST regime, will attract IGST.
 Basic Custom Duty will continue to there under GST system. However, the
additional custom duty in lieu of CVD /Excise and the Special Additional Duty
(SAD) in lieu of sales tax/VAT will be subsumed in the import GST.
 The import of services will be subject to Central GST and State GST on a reverse
charge mechanism. In other words, the GST will be payable by the Importer on a
self declaration basis.
 Taxable Person

 It will cover all types of person carrying on business activities,

i.e. manufacturer, job-worker, trader, importer, exporter, all
types of service providers, etc.
 If a company is having four branches in four different states, all
the four branches will be considered as TP (Taxable person)
under each jurisdiction of SGs.
 A dealer must get registered under CGST as it will make him
entitle to claim ITC of CGST thereby attracting buyers under
B2B (Business to Business) transactions.
 Importers have to register under both CGST and SGST as well.
 GST on Export of Goods
and Services
 GST on export would be zero rated.
 Similar benefits may be given to Special
Economic Zones (in processing zones only).
 No benefit to the sales from an SEZ to
Domestic Tariff Area (DTA).
 GST paid by Exporter on the procurement
of goods and services will be refunded.
 Registration under GST

 Each taxpayer would be allotted a PAN linked

taxpayer identification number with a total of 13/15
digits.

 This would bring the GST PAN-linked system in line

with the prevailing PAN-based system for Income tax
facilitating data exchange and taxpayer compliance.

 The exact design would be worked out in

consultation with the Income-Tax Department.
 Returns under GST

 The taxpayer would need to submit periodical returns to both

the Central GST authority and to the concerned State GST
authorities.
 ITC credit can also be verified on the basis of the returns filed
and revenues reconciled against Challan data from banks.
 Common standardized return for all taxes (with different
account heads for CGST, SGST, IGST) can come into picture.
 Common standardized Challan for all taxes (with different
account heads for CGST, SGST, IGST) can come into picture.

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 Taxable Event

Existing Practice GST

Taxable event is “Supply “ of Goods &

Excise Duty-Manufacturing, service

The location of the supplier and the

recipient within the country is immaterial
Sales Tax/VAT- Sale of Goods for the purpose of CGST.

SGST would be chargeable only when the

Service Tax- Realization of Service supplier and the recipient are both located
within the State. 

Inter state Supply of goods and services will

attract IGST.
 GST Invoice

 The Task Force on GST said the computation of CGST and

SGST liability should be based on the Invoice credit method.
i.e., allow credit for tax paid on all intermediate goods and
services on the basis of invoices issued by the supplier.
 Invoice level detail is necessary for the reconciliation of tax
deposits, and the end-to-end reconciliation of ITC. An effective
IGST implementation may also require invoice-level details.
 A number of states are capturing invoice details even in the
existing VAT systems. It is proposed to follow a two-pronged
approach with Dealer level granularity of returns in the first
phase followed by invoice level in the next phase.
 Rate of Tax

 The combined GST rate is being discussed by government.

The rate is expected around 16 per cent. After the total GST
rate is arrived at, the States and the Centre will decide on the
CGST and SGST rates. Currently, services are taxed at 12 per
cent and the combined charge indirect taxes on most goods are
around 20 per cent.

 Today the Rate of GST in some countries are Australia10%,

France19.60%, Canada5%, Germany19%, Japan5%,
Singapore7%, Sweden25%, New Zealand15% & Pakistan17%
 Exemption of Goods and Services
Alcohol, tobacco, petroleum products are likely to be out of the GST regime.

Tax on items containing Alcohol: Alcoholic beverages would be kept out of the purview of GST. Sales
Tax/VAT could be continued to be levied on alcoholic beverages as per the existing practice. In case it
has been made VA table by some States, there is no objection to that. Excise Duty, which is presently
levied by the States may not also be affected.

Tax on Petroleum Products:  Petroleum and petroleum products have also been constitutionally
brought under the GST. However, it has also been provided that petroleum and petroleum products shall
not be subject to the levy of GST till notified at a future date on the recommendation of the GST
Council.

Tax on Tobacco products: Tobacco products would be subjected to GST with ITC. Centre may be
allowed to levy excise duty on tobacco products over and above GST with ITC.

Taxation of Services: As indicated earlier, both the Centre and the States will have concurrent power to
levy tax on goods and services. In the case of States, the principle for taxation of intra-State and inter46
State has already been formulated by the Working Group of Principal Secretaries /Secretaries of
Finance / Taxation and Commissioners of Trade Taxes with senior representatives of Department of
Revenue, Government of India. For inter-State transactions an innovative model of Integrated GST will
be adopted by appropriately aligning and integrating CGST and IGST.
 Composition scheme

A Composition/Compounding Scheme will be an important feature of

GST, to protect the interests of small traders and small scale
industries. The Composition/Compounding scheme for the purpose of
GST should have an upper ceiling on gross annual turnover and a floor
tax rate with respect to gross annual turnover.
In particular there will be a compounding cut-off at Rs. 50 lakhs of the
gross annual turnover and the floor rate of 0.5% across the States. The
scheme would allow option for GST registration for dealers with
turnover below the compounding cut-off.
 GST and Information Technology (IT)
Interface

 Based on the legal provisions and procedure for GST,

the content of work-flow software such as ACES
(Automated Central Excise & Service Tax) would require
review.
 On the IT front, there has been consensus that there
will be a common portal providing three core services
(registration, returns and payments).
Information Flow and Associated Entities

Send Challan
Taxpayer Banks and RBI

File Returns Upload Challan

Details

CBEC
State 1Portal
(Central
Portal)
State 2 Portal
Common GST
CGST and Portal
(Reconciliation SGST and
IGST Returns system) IGST Return State N Portal

MCA CBDT
NSDL
Increased Assessee Base

 Under the CGST model proposed, with threshold of

annual turnover of Rs.10 lakhs, the present Assessee
base of Excise and Service Tax of about 10 lakhs will
increase to about 50 lakhs as every manufacturer and
Trader above the specified threshold will be liable to
CGST.
 Tax reconciliation between
 The Central
Exporting State and State
will transfer to the Govt.
Centre the credit of SGST used in
payment of IGST.
 The Importing dealer will claim credit of IGST while discharging his output
tax liability in his own State,
 The Centre will transfer to the importing State the credit of IGST used in
payment of SGST,
 The relevant information will also be submitted to the Central Agency
which will act as a clearing house mechanism.

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 Flaws of GST Model

 Major flaw of this model is ,Local Dealers have to pay

CGST in addition to SGST.
 In Addition to this, CGST mainly represents the
Excise/service tax and SGST mainly represents the VAT
portion but, because of ‘No differentiation between Goods
and Services’ service supply within the state would attract
SGST as GST is levied at each stage in the supply chain
and Assessee have to Pay CGST as well SGST.
 The issue which still needs to be resolved are, the revenue
sharing between States and Centre, and a framework for
exemption, thresholds and composition.