Goods and Services Tax – GST – Overview, Scope & Benefits
WHAT IS GST?
GST – Goods and Services Tax is the new face of Indirect Taxes. it is an Indirect Tax which has replaced many Indirect Taxes in India. Since the day it came into force it remains to be a talk of the economy. As far as tax legislations in India, especially Indirect Taxation had several Acts, Laws, Rules and Tariffs separately for goods and services. In such a scenario of existence of multiple tax regimes, the levy and collection of was a tedious process.
In normal parlance, the concept of GST is single tax rate on the supply of goods and services, right from the manufacturer to the consumer. Introduction of GST was also on the same view to have a uniform tax system in place and to avoid the cascading effect of Taxes.
With this short introduction, let us get specific to the GST regime to India, i.e., GST Overview.
The history of GST roots back to last decade. It was part of the Union Budget 2006-07. The initial implementation date of GST was targeted on April 01, 2010. For this purpose, it duly constituted a Empowered Committee of State Finance Ministers to design the road map. The Empowered Committee submitted a report containing the broad recommendations about the structure and design of GST.
The report of Empowered Committee proposed the dual GST model. Under this model GST have two components viz. Central GST to be levied and collected by the Centre and the State GST to be levied and collected by the respective States.
Though, the bases were laid early the actual execution was became viable only in 2017. The GST Bill was passed in Lok Sabha on May 06, 2015 and in Rajya Sabha on August 03, 2016. After obtaining Presidents assent on April 12, 2017, GST became effective from July 01, 2017. Introduction of GST was undoubtedly a biggest reform in the history of Indian taxation.
SCOPE OF GST
Under the Indirect Taxes, GST is a destination based tax on consumption of goods and services. It is levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as setoff. In simple words, only value addition will be taxed and burden of tax is to be borne by the final consumer. The purpose and scope of GST was to bring an uniform tax regime that brought the following key elements in it-
- Dual Tax Structure
- Destination based and Consumption based tax
- Applicable on both goods and services
- Comprehensive and continuous chain of Input Tax Credit
- Tax based on Value added at each stage
LEGISLATIVE FRAMEWORK OF GST
In simple the legislative framework of GST is governed by the following acts broadly:
- The Central Goods and Services Tax Act (CGST)
- The Integrated Goods and Services Tax Act (IGST)
- State Goods and Services Tax Act (SGST)
- The Union Territory Goods and Services Tax Act (UTGST)
- The Goods and Services Tax (Compensation to States) Act (Compensation Cess)
Of the above Acts, CGST and IGST is administered by Central Government and SGST/UTGST is administered by the State Government.
The GST model works on a single principle that “taxes shall be levied as per the place of supply”. GST being a destination based tax, the goods/services will be taxed at the place where they are consumed and not at the origin. So, the place where they are consumed will have the right to collect GST. The concept of place of supply crucial under GST as all the provisions of GST revolves around it.
Place of supply of goods under GST defines whether the transaction will be counted as intra-state or inter-state, and accordingly levy of SGST, CGST & IGST will be determined. For simple understanding it can be narrowed down that-
- Intra-State or Supply within the State – CGST / SGST (UTGST, as the case may be)
- Inter-State or Supply outside the State – IGST
TAXES SUBSUMED UNDER GST
The most remarkable benefit that GST was praised for was the fact that it replaced a number of different taxes. It envisages grouping of all taxes related to supply of Good and services into one, which in turn benefitted the tax administration. The following are the major indirect taxes that went subsumed under GST-
Central Taxes such as
- Central Excise duty
- Additional Excise Duties
- Central Sales Tax (CST)
- Service Tax
- Additional Customs Duty (CVD)
- Special Additional Duty of Customs (SAD)
- Central Surcharges and Cesses relating to supply of goods and services
– State Taxes such as
- State VAT/ Sales Tax
- Octroi and Entry Tax
- Entertainment Tax (Other than those levied by local bodies)
- Purchase Tax
- Luxury Tax
- Tax on Lottery, Gambling & Betting
- State Surcharges and Cesses relating to supply of goods and services
BENEFITS OF GST
As pointed earlier then and there, GST came up with several advantages. Let look at those benefits in the view point of each beneficiary:
For Central & State Government
- Simple and easy administration of Taxes. The earlier indirect taxes regime which had multiple Central and State levels are being replaced by GST.
- Uniform SGST and IGST rates to reduce the incentive for tax evasion.
- GST tends to decrease the cost of collection of tax revenues of the Government and will therefore, lead to higher revenue efficiency.
For Business & Industry
- GST envisages simpler tax regime-fewer rates and exemptions. It ensures that indirect tax rates and structures are common and uniform across the country.
- Enable a system of seamless tax-credits throughout the value-chain, and across boundaries of States. This address the issue of mitigation of cascading effect/double taxation.
- As GST subsumes major Central and State taxes, the comprehensive set-off of input goods and services reduce the cost of locally manufactured goods and services. This increases the competitiveness of Indian goods and services in the international market and boosts Indian exports. The uniformity in tax rates and procedures helps reducing the compliance cost.
- Transparency in taxation system as there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer.
- Reduction in prices of goods and services due to elimination of cascading effect (i.e. no tax on tax) benefit the consumer with competitive price and quality advantage
- Simpler tax system with uniform tax proportionate to the value of goods and services:
OTHER IMPORTANT TERMS UNDER GST
For the overview, there are few other concepts that GST has brought along with its model. They are –
REVERSE CHARGE MECHANISM (RCM)
In indirect taxation the ultimate burden of tax is on recipient of supply of goods or services. This concept we would have known commonly as shifting of incidence. The supplier tends to collect the indirect taxes for the respective supply of Good and services. However, the tax portion paid by the intermediaries is shifted to the ultimate consumer.
Similarly the liability to pay GST on the supply falls on the supplier, while in case of reverse charge the liability to pay GST is on recipient of goods or services. Under the Reverse Charge Mechanism also the burden is on the recipient but the compliance burden is on the registered person. This was mainly for the following purposes-
- To avoid tax evasion in case of transactions between registered dealer and unregistered dealer
- To make unregistered person free from tax compliances.
Applicability of RCM: The Reverse Charge Mechanism becomes applicable in the following situations, viz.
- a Registered Dealer takes supply from Unregistered Dealer.
- Supply of Certain Goods and Services Specified by CBEC.
A Composition scheme under the GST gives an option to small businesses under which they can opt to pay a fixed percentage of turnover as TAX in lieu of Normal Tax. This scheme will relieve them from the detailed compliance of the GST law.
The scheme is based on a simple and easy computation under which a taxpayer is required to pay GST at a fixed rate of turnover of the preceding Financial Year. Now arises the question to what amount to be turnover referred in here.
Section 2(6) of CGST Act, 2017 defines the term “aggregate turnover”. The granulated for the definition stands that, the Aggregate turnover means the aggregate value of all taxable supplies-
– which includes:
- The value of exported goods/services
- Exempted goods/services or both which attracts nil rate of tax or wholly exempt from tax and includes non- taxable supply.
- Inter-state supplies between distinct persons having same PAN
- Supply on own account and on behalf of principal.
– but excludes:
- Inward supplies on which the recipient is required to pay tax under Reverse Charge Mechanism (RCM).
- Following taxes and Cess
- Central tax (CGST)
- State tax (SGST)
- Union territory tax (UTGST)
- Integrated tax (IGST)
- Compensation Cess
EXEMPTION FROM GST
Exempt supply means supply of any goods or services or both, that-
- Attracts nil rate of tax
- Wholly exempt from tax
- Non-taxable supply
The CGST Act provides for the “exempted supply” under Section 2(47) of CGST Act, 2017. Apart from nil rate and non-taxable supply, the following supplies are wholly exempt from tax vide the respective provisions, viz.
- Exemption in case of intra-state supply – Section 11 of CGST Act,2017
- Exemption in case of inter-state supply – Section 6of IGST Act, 2017
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