Goods and Service Tax (GST) in India
What is meant by GST? How does it work?
From the inception of Modi Government, India is Experiencing remarkable changes and one of such change is ahead to be launched in the history of the Indirect tax system in India, that historical change is GST is one indirect tax for the whole nation, which will make India one unified common market. GST 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.
Benefits of GST?
- -For business and industry
- Easy compliance: A robust and comprehensive IT system would be the foundation of the GST regime in India. Therefore, all taxpayer services such as registrations, returns, payments, etc. would be available to the taxpayers online, which would make compliance easy and transparent.
- Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are common across the country, thereby increasing certainty and make doing business in the country tax neutral, irrespective of the choice of place of doing business.
- Removal of cascading: A system of seamless tax credits throughout the value-chain, and across boundaries of States, would ensure that there is minimum cascading of taxes. This would reduce hidden costs of doing business.
- Improved competitiveness: Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for the trade and industry.
- -For Central and State Governments :
- 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.
- 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 the mechanism in the design of GST that would incentivize tax compliance by traders.
- 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.
- -For the consumer:
- Single and transparent tax proportionate to the value of goods and services: Due to multiple indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at progressive stages of value addition, the cost of most goods and services in the country today are laden with many hidden taxes. Under GST, there would be only one tax from the manufacturer to the consumer, leading to a transparency of taxes paid to the final consumer.
- Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit consumers.
Which taxes are subsumed/Merged under GST?
At the Central level, the following taxes are being subsumed:
- Central Excise Duty
- Additional Excise Duty
- Service Tax
- Additional Customs Duty is commonly known as Counter vailing Duty and
- Special Additional Duty of Customs.
At the State level, the following taxes are being subsumed:
- Subsuming of State Value Added Tax/Sales Tax.
- Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States).
- Octroi and Entry tax.
- Purchase Tax, Luxury Tax and
- Taxes on lottery, betting and gambling
Major events that have led to the introduction of GST in India?
GST is being introduced in the country after a 13-year long journey since it was first discussed in the report of the Kelkar Task Force on indirect taxes. A brief chronology outlining the major milestones on the proposal for introduction of GST in India is as follows:
- In 2003, the Kelkar Task Force on indirect tax had suggested a comprehensive Goods and Services Tax based on VAT principle.
- A proposal to introduce National level Goods and Services Tax (GST) by April 1, 2010, was first mooted in the Budget Speech for the financial year 2006-07.
- Since the proposal involved reform/ restructuring of not only indirect taxes levied by the Centre but also the States, the responsibility of preparing a Design and Road Map for the implementation of GST was assigned to the Empowered Committee of State Finance Ministers (EC).
- Based on inputs from Govt of India and States, the EC released its First Discussion Paper on Goods and Services Tax in India in November 2009.
- In order to take the GST related work further, a Joint Working group consisting of officers from Central as well as State Government was constituted in September 2009.
- In order to amend the Constitution to enable the introduction of GST, the Constitution (115th Amendment) Bill was introduced in the Lok Sabha in March 2011. As per the prescribed procedure, the Bill was referred to the Standing Committee on Finance of the Parliament for examination and report.
- Meanwhile, in pursuance of the decision taken in a meeting between the Union Finance Minister and the Empowered Committee of State Finance Ministers on 8th November 2012, a ‘Committee on GST Design’, consisting of the officials of the Government of India, State Governments and the Empowered Committee was constituted.
- This Committee did a detailed discussion on GST design including the Constitution (115th) Amendment Bill and submitted its report in January 2013. Based on this Report, the EC recommended certain changes in the Constitution Amendment Bill in their meeting at Bhubaneswar in January 2013.
- The Empowered Committee in the Bhubaneswar meeting also decided to constitute three committees of officers to discuss and report on various aspects of GST as follows:-
- (a) Committee on Place of Supply Rules and Revenue Neutral Rates;
(b) Committee on dual control, threshold and exemptions;
(c) Committee on IGST and GST on imports.
- The Parliamentary Standing Committee submitted its Report in August 2013 to the Lok Sabha. The recommendations of the Empowered Committee and the recommendations of the Parliamentary Standing Committee were examined in the Ministry in consultation with the Legislative Department. Most of the recommendations made by the Empowered Committee and the Parliamentary Standing Committee were accepted and the draft Amendment Bill was suitably revised.
- The final draft Constitutional Amendment Bill incorporating the above-stated changes were sent to the Empowered Committee for consideration in September 2013.
- The EC once again made certain recommendations on the Bill after its meeting in Shillong in November 2013. Certain recommendations of the Empowered Committee were incorporated in the draft Constitution (115th Amendment) Bill. The revised draft was sent for consideration of the Empowered Committee in March 2014.
- The 115th Constitutional (Amendment) Bill, 2011, for the introduction of GST introduced in the Lok Sabha in March 2011 lapsed with the dissolution of the 15th Lok Sabha.
- In June 2014, the draft Constitution Amendment Bill was sent to the Empowered Committee after approval of the new Government.
- Based on a broad consensus reached with the Empowered Committee on the contours of the Bill, the Cabinet on 17.12.2014 approved the proposal for introduction of a Bill in the Parliament for amending the Constitution of India to facilitate the introduction of Goods and Services Tax in the country. The Bill was introduced in the Lok Sabha on 19.12.2014, and was passed by the Lok Sabha on 06.05.2015. It was then referred to the Select Committee of Rajya Sabha, which submitted its report on 22.07.2015.
How would GST be administered in India?
Keeping in mind the federal structure of India, there will be two components of Goods and Services Tax – Central GST (CGST) and State GST (SGST). Both Centre and States will simultaneously levy across the value chain. The tax will be levied on every supply of goods and services. Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output. No cross utilisation of credit would be permitted.
Other Salient Features of GST:
- Cross utilisation of credits between goods and services be allowed under GST regime.
- Inter-State Transactions of Goods and Services be taxed under GST in terms of IGST method.
- IT be used for the implementation of GST.
- imports to be taxed under Goods and Service Tax.
- Conferring simultaneous power upon Parliament and the State Legislatures to make laws governing goods and services tax.
- GST to be levied on all goods and services, except alcoholic liquor for human consumption. Petroleum and petroleum products shall be subject to the levy of GST on a later date notified on the recommendation of the Goods and Services Tax Council;
- Compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period of five years.
- The concept of Deemed Approval for Registration Under GST.
- Electronic payment process- no generation of paper at any stage.
- Under GST There are following turnover limits for Compulsory/Mandatory Registration:-
a) 20 Lakh Rupees in a year for across India except for the North East State.
b) 10 Lakh Rupees in a year for North East State.(Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand)
- GST is applicable across India except in the state of Jammu and Kashmir.