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Current Affairs

Goods and Services Tax Explained

July 1, 2017

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GST which is an acronym for Goods and Services Tax has been launched from today i.e July 1. Before the implementation of GST, a system of direct and indirect taxes was prevailing in India. GST will introduce a system of Input Tax Credit which will be easy on the consumers since the final liability will decrease. The sellers will have to claim the tax already paid. Goods and Services Tax is one indirect tax for the whole nation, which will make India one unified common market. Goods and Services tax is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. 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.

GST: Goods and Services Tax

The goods and services tax has been now successfully made effective in India. July 1st, 2017 is the historic date of its implementation.

GST: Strict & Effective Implementation

In order to devise an effective GST regime, the government has made sure it gets implemented in a methodical manner. Now that GST has entered the tax space, there will be 3 ways in which it will be effective –

CGST	Revenue will be collected by the central government.
SGST	Revenue will be collected by the state governments for intra-state sales
IGST	Revenue will be collected by the central government for inter-state sales

GST: Comparison with the Old Tax Regime

OLD TAX REGIME

VAT + Central Excise/Service tax (Sale within the state)
Central Sales Tax + Excise/Service Tax (Sale to another State)

NEW TAX REGIME UNDER GST

CGST + SGST (Sale within the state)
IGST (Sale to another State)

Which Taxes are being Merged into GST ?

CENTRAL LEVEL	STATE LEVEL
Central Excise Duty	Subsuming of State Value Added Tax/Sales Tax
Additional Excise Duty	Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States)
Service Tax	Octroi and Entry tax
Additional Customs Duty commonly known as Countervailing Duty	Purchase Tax
Special Additional Duty of Customs	Luxury tax and Taxes on lottery, betting and gambling

GST: Effect on Various Products

GOODS WITH 0% TAX

Unpacked foodgrains, fresh vegetables and fruits, unbranded atta, maida, besan, gur, milk, eggs, curd, lassi, unpacked paneer, unbranded natural honey, palmyra jaggery, salt, fresh meat, fish, chicken, butter milk, cereal grains hulled.

GOODS WITH 5% TAX

Sugar, tea, roasted coffee beans, edible oils, cream, skimmed milk powder, milk food for babies, packed paneer, frozen vegetables, cashew nuts, spices, pizza bread, rusk, sabudana, Raisin, fish fillet, packaged food items.

GOODS WITH 12% TAX

Butter, ghee, almonds, fruit juice, packed coconut water, preparations of vegetables, fruits, nuts or other parts of plants including pickle, murabba, chutney, jam, jelly, bhujia, namkeen, fruit juices, frozen meat products, dry fruits in packaged form, animal fat and sausage

GOODS WITH 18% TAX

Biscuits (all categories), flavoured refined sugar, pastries and cakes, preserved vegetables, soups, ice cream, instant food mixes, pasta, corn flakes, curry paste, mayonnaise and salad dressings, mixed condiments and mixed seasonings

GOODS WITH 28% TAX

Chewing gum, molasses, chocolate not containing cocoa, waffles and wafers coated with chocolate

GST: Effect on Various Services

0 per cent: Education services, health services, hotels and lodges with tariff below Rs 1,000, grandfathering service. Rough precious and semi-precious stones (0.25 per cent)

5 per cent: Transport services (Railways, air transport)

12 per cent: State-run lotteries, non-AC restaurants, business class air ticket, fertilizers, work contract

18 per cent: AC hotels that serve liquor, telecom services, IT services, financial services, room tariffs between Rs 2,500 and Rs 7,500, restaurants inside five-star hotels, movie tickets below Rs 100

28 per cent: Private-run lotteries authorized by the states, hotels with room tariffs above Rs 7,500, 5-star hotels, race club betting, movie tickets above Rs 100.

GST : Important Facts

FACT 1

France was the world’s first country to implement GST Law in the year 1954. Since then, 159 other countries have adopted the GST Law in some form or other.

FACT 2

In many countries, VAT is the substitute for Goods and Services, but unlike the Indian VAT system, these countries have a single VAT tax which fulfills the same purpose as Goods and Services Tax.

FACT 3

In India, the discussion on GST Law was flagged off in the year 2000, when the then Prime Minister Atal Bihari Vajpayee brought the issue to the table.

FACT 4

GST will help the country’s businesses gain a level playing field

FACT 5

GST will improve collection of taxes

How will GST Benefit India ?

1. Higher revenue efficiency

GST is expected to decrease the cost of collection of tax revenues of the Government, and will therefore, lead to higher revenue efficiency.

2. Easy compliance

A robust and comprehensive IT system would be the foundation of the GST regime in India. Therefore, all tax payer services such as registrations, returns, payments, etc. would be available to the taxpayers online, which would make compliance easy and transparent.

3. Uniformity of tax rates and structures

GST will ensure that indirect tax rates and structures are common across the country, thereby increasing certainty and ease of doing business. In other words, GST would make doing business in the country tax neutral, irrespective of the choice of place of doing business.

4. Removal of cascading

A system of seamless tax-credits throughout the value-chain, and across boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden costs of doing business.

5. Improved competitiveness

Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for the trade and industry.

6. Better controls on leakage

GST will result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of GST that would incentivize tax compliance by traders.

7. Gain to manufacturers and exporters

The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports.

8. Simple and easy to administer

Multiple indirect taxes at the Central and State levels are being replaced by GST. Backed with a robust end-to-end IT system, GST would be simpler and easier to administer than all other indirect taxes of the Centre and State levied so far.