Overview of Goods & Service Tax (GST)

In the present tax structure in India, there is a multiplicity of taxes of Goods & Services.

Excise Duty on Manufacture , Customs Duty on Imports/Exports, and Service Tax on Services are levied by Central Government while Sales Tax (State Vat), Entry Tax/Octroi and duty on liquor are levied by State Government.

Such multiplicity of taxes mistates the tax structure and increases complexities and reforms in taxes are course of continuous process.

GST ( Goods and Service Tax) is a logical consequence of State Vat.


Why GST?

These are certain shortcomings in the structure of VAT both at the Central and at the State level.

• Non-inclusion of several Central taxes in the overall framework of CENVAT such as additional customs duty, surcharges.
• No step has yet been taken to capture the value-added chain in the distribution trade below the manufacturing level.
• Luxury tax, entertainment tax, etc., and yet not subsumed in the VAT.
• CENVAT load on the goods remains included in the value of goods to be taxed under State VAT, and contributing to that extent a cascading effect.

Introduction of GST at the Central level

• Include comprehensively more indirect Central taxes and integrate goods and service taxes for the purpose of set-off relief, but may also lead to revenue gain for the Centre through widening of the dealer base by capturing value addition in the distributive trade and increased compliance.

Introduction of GST at the State level

• Both the cascading effects of CENVAT and service tax are removed with set-off, and a continuous chain of set-off from the original producer’s point and service provider’s point upto the retailer’s level is established which reduces the burden of all cascading effects.

 General Outline:-

• Harmonious structure of rates.
• GST will be on supply of Goods & Services - Concept of Sale of Goods , Manufature & Provission of Services will Disappear.
• Consumption based tax is retained in GST.
• There wil be no distinction between Goods & Sevices.
• There will be a DUAL Model :-
• SGST - State GST.
• CGST - Central GST.
• The Central GST and State GST are to be paid to the accounts of the Centre and the States separately.
• Input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST. No Cross utilization between State & Centre and Excess Credit is not Refunded.
• Administration of the Central GST to theCentre and for State GST to the States would be given.
• SGST Thresh hold Limit = gross annual turnover of Rs.10 lakh both for goods and services for all the States and Union Territories.
• CGST Thresh hold Limit = Rs.1.5 crore
• Following will be paying only SGST; its an option for them to pay IGST to remail in value chain. CGST will be EXEMPT.
• Small Manufactures = Rs.1.5Cr.
• Small Traders =  Rs.50L.
• Small Service Providers = Rs.(30-40L) Not decided

Note:- {It may be mentioned that even now there is a separate threshold of services (Rs. 10 lakh) and goods (Rs. 1.5 crore) in the Service Tax and CENVAT}.

• Compensation for the States where lower threshold had prevailed in the VAT regime.
  
• In case of Inter- State Sale /Stock Transfer - IGST will Prevail.
• Destination Principle as in VAT will continue to prevail in GST also.
• Exports wouls be Zero Rated.
• Both CGST & SGST will be levied on Imports.
• The taxpayer would need to submit periodical returns.
• Each taxpayer would be allotted a PAN-linked taxpayer identification number with a total of 13/15 digits.
• GST will be on all Goods & Services excluding some exemptions and exclusions.
  

Taxes which are SUBSUMED
Following Central Taxes should be subsumed under the Goods and Services Tax:

• Central Excise Duty.
• Additional Excise Duties.
• The Excise Duty levied under the Medicinal and Toiletries Preparation Act.
• Service Tax.
• Additional Customs Duty, commonly known as Countervailing Duty (CVD).
• Special Additional Duty of Customs - 4% (SAD).
• Surcharges and Cesses.

 Following State taxes and levies would be subsumed under GST:

• VAT / Sales tax
• Entertainment tax (unless it is levied by the local bodies).
• Luxury tax
• Taxes on lottery, betting and gambling.
• State Cesses and Surcharges in so far as they relate to supply of goods and services.
• Entry tax not in lieu of Octroi.

Some EXEMPTIONS / EXCLUSIONS:-

• PURCHASE TAX will be allowed on some goods in some states which are producing states of specified commodities like agricultural products , minerals.
• ALCOHALIC BEVERAGES would be kept out of the purview of GST.
• TOBACCO would be subjected to GST with ITC. Centre may be allowed to levy excise duty on tobacco products over and above GST without ITC.
• Basket of PETROLIUM PRODUCTS such as crude, motor spirit (including 21 ATF) and HSD would be kept outside GST as is the prevailing practice in India. Sales Tax could continue to be levied by the States .
• Natural Gas is kept outside GST

Inter-State Transactions of Goods and Services

IGST Model is that Centre would levy IGST which would be CGST plus SGST on all inter-State transactions or stock transfer of goods and services.

The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases in the same order. The Exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State. The Central will act as an CLEARING HOUSE AGENT.

• Small & Medium Enterprises can route their Inter State Transactions though Inter-State Trading Houses.
• IGST can be Charged / credit of IGST can be taken only if they are Registered Dealers.
• Credit of IGST Paid can be Utilised to Pay ---> (in same sequence)
• IGST
• CGST
• SGST
• Credit Of SGST can be utilised to pay --->  (in same sequence)
• SGST
• IGST
• Credit Of CGST can be utilised to pay --->  (in same sequence)
• SGST
• IGST