UNDERSTANDING GST

GST is the biggest reform proposed in the Tax Regime of our country after Independence. It is something that each of us must understand as it is going to affect our lives in a very significant manner.

First we need to understand the present indirect tax system. There are endless taxes in the present system. Few of them have been levied by the Centre and rest levied by the States. Govt. draws the power to levy Tax from the constitution. There are many shortcomings in the Present Indirect Tax structure. We will be discussing them now:

Excise is levied on the manufacturing of products &its credit is not available against liability of VAT. VAT is charged on the value of Excise. Thus causing cascading effect i.e. Tax on Taxes.

There are multiple taxable events existing in our present system. As for excise it is manufacturing of Goods whereas for Sales Tax it is Sale of goods & Service Tax gets levied on the provision of Services.

Because of multiplicity of Taxes there is a high cost of compliance for both assesses as well as for the Govt.

Because of different legislations involved, there are different meanings assigned for the same term. All these shortcomings lead us to adapt a new system of Taxation for ease of doing the business and for the seamless flow of credit across the whole supply chain.

GST is going to be a destination based tax. It will be charged on the supply of Goods and Services. Since the word used is supply, hence the Branch transfer and Stock transfer will also be covered under the ambit of GST. Alcoholic liquor for human consumption is going to be kept outside the ambit of GST.

In keeping with the federal structure of India, it is proposed that GST be levied concurrently by the Centre (CGST) and the States (SGST). It is expected that the base and other essential design features would be common between CGST and SGST.

Both CGST and SGST would be levied on the basis of the destination principle. Thus, exports would be zero-rated, and imports would attract the tax in the same manner as domestic goods and services.

In case of intra state transaction CGST(Central GST) and SGST (State GST) will be levied.

Proposed Rate of CGST & SGST:

At present inter-State supply of goods attract Central Sales Tax. In GST Act inter-State supply of goods and/ or services will attract IGST(Integrated GST). IGST will be CGST plus SGST.

In addition to the Integrated GST (IGST), in respect of supply of goods, an additional tax of up to 1% has been proposed to be levied by the Centre. The revenue from this tax is to be assigned to the origin states. This tax is proposed to be levied for initial two years or such longer period as recommended by the GST Council.

At present on Import of Goods we pay Basic Custom Duty (BCD), Additional Custom Duty (ACD) and Special Additional Custom Duty (SACD). In case of service, Service Tax to be paid.

While in case of GST Basic Custom Duty (BCD) and IGST will be applicable on Import of Goods and on services only IGST will be applicable.

GST would replace most indirect taxes currently in place such as: