GST is an Indirect Tax which has replaced many Indirect Taxes in India. The Goods and Service Tax Act was passed in the Parliament on 29th March 2017. The Act came into effect on 1st July 2017; Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.
In simple words, Goods and Service Tax (GST) is an indirect tax levied on the supply of goods and services. This law has replaced many indirect tax laws that previously existed in India.
GST is one indirect tax for the entire country.
Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales, Central GST and State GST are charged. Inter-state sales are chargeable to Integrated GST.
There are 3 taxes applicable under this system: CGST, SGST & IGST.
CGST: Collected by the Central Government on an intra-state sale. (Eg: transaction happening within Madhya Pradesh)
SGST: Collected by the State Government on an intra-state sale. (Eg: transaction happening within Madhya Pradesh)
IGST: Collected by the Central Government for inter-state sale. (Eg: transaction happening between Madhya Pradesh and Delhi)
Now let us try to understand the definition of Goods and Service Tax – “GST is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.”
GST is a comprehensiveindirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. It will replace all indirect taxes levied on goods and services by states and Central. There are around 160 countries in the world that have GST in place.
There are multiple change-of-hands an item goes through along its supply chain: from manufacture to final sale to the consumer.
Let us consider the following case:
·Purchase of raw materials
·Production or manufacture
·Warehousing of finished goods
·Sale to wholesaler
·Sale of the product to the retailer
·Sale to the end consumer
Consider goods manufactured in Madhya Pradesh and are sold to the final consumer in Bihar. Since Goods & Service Tax is levied at the point of consumption. So, the entire tax revenue will go to Bihar and not Madhya Pradesh.
2.What Is The Difference Between Direct Tax And Indirect Tax
Taxes are broadly classified into direct tax and indirect tax. A direct tax is imposed directly on the taxpayer. It is paid directly to the Government by the person on whom it is imposed. It cannot be transferred or shifted to another person. For Instance, income-tax is direct tax. An individual pays income-tax on his income directly to the Government. The burden of income tax falls flatly on the individual who earns his taxable income and income tax cannot be shifted to others. Direct Tax is generally progressive in nature (For Instance, rate of income-tax Is higher For taxpayers having higher ability to pay tax ).
Indirect tax, on the Other hand, is a tax which can be shifted to another Person. In the Case of indirect tax, the person who collects tax on sale / supply of commodity is just a conduct. Tax incidence is passed on at every stage till the commodity finally reaches the consumer. In the case of indirect tax, it is generally regressive in nature (Person consuming goods will have to bear equal burden regardless of their capacity to bear tax).
3.Tax Laws before GST
In Pre-GST regime, goods were taxed by the Central Government and State Government. Services were taxed by the Central Government. Goods And Services Tax (GST) is a single tax levied on both goods and services.
The followings taxes (of Pre-GST regime) are merged into GST-
vTaxes by Central Government– GST has Subsumed the Following taxes which were imposed and collected by the Central Government –
ØCentral excise duty
ØDuties of excise (medicinal and toilet preparations)
ØAdditional duties of excise (goods of special importance)
ØAdditional duties of excise (textiles and textile products)
ØAdditional duties of customs (CVD)
ØSpecial additional duties of customs (SAD)
ØCentral surcharges and cesses so far as they related to supply of goods and services
vTaxes by State Government– GST has subsumed the following taxes which were collected by State Government–
ØState Vat / Sales tax
ØCentral Sales tax (it was levied by Central Government but collected by States)
ØOctroi and entry tax (all Forms)
ØEntertainment and amusement tax (excluding tax levied by the local bodies)
ØTaxes on advertisements
ØTaxes on lotteries, betting and gambling
ØState Surcharges / additional taxes and cesses so far they related to supply of goods and service
In the pre-GST regime, every purchaser including the final consumer paid tax on tax. This tax on tax is called Cascading Effect of Taxes.
GST has removed this cascading effect as the tax is calculated only on the value-addition at each stage of the transfer of ownership.
4.Advantages of GST
GST has mainly removed the Cascading effect on the sale of goods and services. Removal of cascading effect has impacted the cost of goods. Since the GST regime eliminates the tax on tax, the cost of goods decreases.
GST is also mainly technologically driven. All activities like registration, return filing, application for refund and response to notice needs to be done online on the GST Portal; this accelerates the processes.
5.Benefits of GST Implementation
Key benefits of the GST announcement are detailed below:
Ø The GST system will create a common national market that boosts foreign investment.
Ø There will be uniformity in laws, rates of tax, and procedures across states.
Ø The GST regime is expected to boost manufacturing activities and exports. This would, in turn, generate more employment and lead to the growth of the economy.
Ø Indian products would be more competitive in the international markets.
Ø The GST system is likely to improve the overall investment climate in India.
Ø Uniformity in the rates of SGST and IGST will reduce tax evasion to a large extent.
Ø The average sales burden experienced by companies is expected to come down, thereby increasing consumption and boosting subsequent production of goods.
Ø GST is a simpler system of taxation with smaller number of exemptions.
Ø There are automated and simplified methods for processes such as registration, refunds, returns, tax payments, etc.
Ø All interactions will be handled by the common GSTN website.
Ø The input tax credit process will be more accurate and transparent, as electronic matching will be performed.
Ø The final price of most goods will be lower when taxation is at the new GST rates. There will also be a seamless input tax credit flow between the manufacturer, retailer, and supplier of service.
Ø A huge segment of small-scale retailers may be either exempt from tax or may benefit from low tax rates based on the compounding scheme. Consumers will further benefit if purchases are made from these small retailers.