Now let us know the details of the Goods & Service Tax! GST or Goods & Services tax is touted to be the most revolutionary tax reform that has been undertaken by the government since our independence. In layperson terms, GST is the indirect tax that is levied on goods and services.
Background – GST in India
Under the chairmanship of Dr Vijay Kelkar in August 2012, the finance minister formed a committee to outline a roadmap for fiscal consolidation. The main objective of this committee was to give recommendations on midterm corrections for the fiscal year (2012-13) and reforms for medium-term fiscal consolidation.
This committee, which later popularly called as “The Kelkar Task Force”, pointed out that although the indirect tax policy in India was steadily progressing in the direction of VAT principle since 1986, the existing system of taxation of goods and services was facing many problems. In this context, the Kelkar Task Force suggested a comprehensive GST or Goods and Services Tax based on VAT principle.
Fundamentals of GST
By its virtue, GST does not have an impact on the direct taxes, which means that the income tax levied will remain the same.
GST will replace all the indirect taxes that are levied by the central and the state governments. The following table gives a list of indirect taxes that will be replaced by GST.
|Indirect Taxes Levied
By Central Government
|Indirect Taxes Levied
By State Government
|Excise Duty –
|VAT – on sale
within the state
|CST – On
|Luxury Tax – On Luxury
|Service Tax –
|Entertainment Tax –
|Customs Duty –
|Octroi/Entry Tax –
On transfer of goods
There are two types of GST – Central GST (CGST) and State GST (SGST). All central level indirect taxes except custom duty will be replaced by CGST. All State level indirect taxes will be replaced by SGST.
This should give you a clear understanding of GST. Now, let’s move on to the benefits of GST.
GST – Benefits
#1. Increase in GDP
According to prominent economists, GST can reap the benefits in the GDP (Gross Domestic Product) front. We can expect a growth of at least 2% in the GDP.
#2. No more Tax on Tax
In the past, we have seen several instances of ‘Tax on Tax’, which is also called as the Cascading effect in economics. A product on which excise duty has been charged can also be liable to VAT, which is generally levied on the end consumer. Such as cascading effect will no longer be there when there is GST.
#3. Black Money Flow Will be Restricted
- Black money refers to funds on which taxes have not been paid to the government.
- There are many people who don’t declare each and every transaction to the government, which gives rise to black money.
- Since GST is a single tax on supply of goods and services right from manufacturer to the consumer.
- Credits of input tax at each stage will be available in the subsequent stage of value addition.
- So, to get the credit of previously paid taxes every member of the supply chain will insist on getting the invoice for the transaction.
- GST will have a paper trail that will be accessed by the Income Tax Department of India.
- Users of PAN and AADHAR will be required to file GST returns.
- This will definitely help the Income Tax Department to track all transactions.
#4. One India – One Market
GST will facilitate the Make In India initiative. There are several taxes that prevent India from becoming a common market. Under GST, a single tax will be levied all over India on production, sales, services etc. This will transform India into a common market.
#5. Seamless flow of goods across India
On several occasions, you may have seen a long line of goods carriers off the state borders. This is due to the entry tax that these trucks have to pay. With GST, there is no question of entry tax hence, there is a seamless flow of goods across India.
Recent Updates on GST
Here are some key highlights from the 23rd GST Council Meet held on 10th November 2017:
- Composition scheme limit to be increased to Rs 1.5 crore (can be extended to Rs 2 crore later)
- 1 % GST rate for manufacturers & traders
- Composition Returns, GSTR-4 due date extended to 24th December
- All businesses to file GSTR-1 and GSTR-3B until March 2018.
- All service providers with turnover up to Rs 20 lakhs exempt from GST registration
- For restaurants, GST rate cut to 5% with no input tax credit
The tweaks made in the latest GST council meet will have to answer some very important questions. Firstly, will these revisions help in increasing demand? Secondly, will the implementation of GST overcome the shortcomings of the earlier tax system? Only time will tell the outcome and the consequences of GST in India.