GOODS & SERVICES TAX

GOODS AND SERVICES TAX (GST)

• GST or "Goods and Services Tax" is a comprehensive Indirect Tax, which has replaced many Indirect Taxes in India.
• The Goods and Service Tax Act was passed in Parliament on 29 March 2017. The Act came into effect on 1st July 2017.
• It is a comprehensive, multi-stage, destination-based tax that is levied on every value addition. GST has been identified as one of the most important tax reforms post-independence.

• Tax apart from being a source of revenue for growth also plays a key role in making the State accountable to its taxpayers. Effective taxation ensures that public funds are effectively employed in fulfilling social objectives for sustainable development.
• Among other benefits, GST is expected to improve the ease of doing business in tam compliance, reduce the tax burden by eliminating tax-on-tax, improve tax administration mitigate tax evasion, broaden the organized segment of the economy and boost tax revenues
• GST has replaced 17 indirect taxes (like Value Added Tax, Service Tax, Excise Duty, Sales Tax, etc.) and 23 cesses of the Centre and the States, thereby eliminating the need for filing multiple returns and assessments. It has rationalized the tax treatment of goods and services along the supply chain from producers to consumers.
• GST is charged at each stage of value addition and the supplier offsets the levy on inputs in the previous stages of value chain through the tax credit mechanism.
• The last dealer in the supply chain passes on the added GST to the consumer, making GST a destination-based consumption tax.
• The provision of availing input credit at each stage of value chain helps in avoiding the cascading effect (tax on tax) under GST, which is expected to reduce prices of commodities and benefit the consumers.

Types of Taxes under GST

The types of taxes levied under GST are:

• Central Goods and Services Tax (CGST): It is the GST levied on the 'Intra-State' supply of goods or services by the Centre.
• State Goods and Services Tax (SGST): It is the GST levied on the ‘Intra-State' supply of goods or services by the State (including Union Territories with legislature).
• Integrated Goods and Services Tax (IGST): It is the GST levied on the 'Inter-State supply of goods or services and is collected by the Centre. IGST is equivalent to the sum total of CGST and SGST.

Some Facts about GST

• Single Tax Structure: GST aims to subsume multiple taxes into one single tax across the country and make goods uniformly priced across India. However, in this process, some goods become costly and some become cheaper.
• Effect on Prices: With the implementation of GST, luxury goods have become costlier, while items of mass consumption have become cheaper.
• Consumption-Based Tax: GST is a 'Consumption-Based Tax', i.e. the tax is received by the state in which the goods or services are consumed and not by the state in which such goods are manufactured. For example, if a product is manufactured in Tamil Nadu and travels through the country before it reaches Delhi, where the buyer or consumer pays tax for it. Both the Centre and the State have their share of this tax.
• Invoice Matching: The Indian GST will have a mechanism for matching invoices. Input Tax Credit of purchased services and goods will be available only when the inward supply details filed in by the buyer match the outward supplies details filed in by the supplier. GST network is a self-regulating mechanism, which not only checks tax frauds and tax evasion but also brings in more and more businesses into the formal economy.
• Anti-Profiteering Measure: It is one of the key features of the recently implemented GST law. These measures prevent entities from making excessive profits. As per the Anti-Profiteering rules, the benefit of reduced GST tax rates and increased input tax credit should be passed on to the consumer in the form of reduced price. A National Anti-Profiteering Auth (NAA) has been constituted for the efficient administration of these provisions.
• Registration under GST: A business whose aggregate turnover in a financial year exceeds * 20 lakhs has to compulsorily register under Goods and Services Tax. This limit is at Rs.10 lakhs for North Eastern and hilly states flagged as special category states.

Input Tax Credit under GST

Definition:  Input Tax Credit means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax.

The supplier at each stage is permitted to avail credit of GST paid on the purchase of goods and services and can set off this credit against the GST payable on the supply of goods and services to be made by him. Thus, the final consumer bears the GST charged by the last supplier in this supply chain, with set-off benefits at all the previous stages. Hence, the tax will be levied on the value-added, which results in avoiding double taxation.

For example, if the tax payable by a manufacturer on the output, i.e. final product is 450 and he has already paid tax of 300 on input, i.e. purchases, then he can claim 'Input Credit of 30 and he needs to deposit only 150 in taxes

Benefits of GST

• Reduction in overall tax burden.
• No hidden taxes.
• Development of a harmonized national market for goods and services.
• Higher disposable income in hand, education and essential needs.
• Customers have a wider choice.
• Increased economic activity.
• More employment opportunities.

Key Features of GST

• Applicability of GST: The territorial spread of GST is the whole country, including Jammu and Kashmir.
• Applicable on Supply of Goods and Services: GST is applicable to the supply of goods or services as against the earlier concept of tax on the manufacture or sale of goods or on the provision of services.
• Consumption-Based Tax: It is based on the principle of destination-based consumption tax against the earlier principle of origin-based taxation.
• GST on Imports: Import of goods and services is treated as inter-State supplies and would be subject to IGST in addition to the applicable customs duties.
• GST Rates: CGST, SGST and IGST are levied at rates mutually agreed upon by the Centre and the States under the aegis of the GST Council. There are four tax slabs namely 5%, 12%, 18% and 28% for all goods or services. Exports and supplies to SEZ are zero-rated.
• Payment of GST: There are various modes of payment of tax available to the taxpayer, including Internet banking, debit/credit card and National Electronic Funds Transfer (NEFT)/Real Time Gross Settlement (RTGS).

GST Council

Definition: Goods and Services Tax Council is a constitutional body for making recommendations to the Union and State Government on issues related to Goods and Service Tax.

1. Constitution: As per Article 279A of the amended Constitution, the GST Council which will be a joint forum of the Centre and the States, shall consist of the following members:
   • Chairperson: Finance Minister.
   • Vice Chairperson: Chosen amongst the Ministers of State Government.
   • Members: MoS (Finance) and all Ministers of Finance / Taxation of each State.
2. Quorum: 50% of the total number of Members of the Goods and Services Tax Council shall constitute the quorum at its meetings.
3. Majority required for taking Decisions: Every decision of the GST Council shall be taken at a meeting, by a majority of not less than 75% of the weighted votes of the members present and voting, in accordance with the following principles, namely:
   • Vote of the Central Government shall have a weightage of one-third of the total votes cast, and
   • Votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast, in that meeting.