As a student, one must be curious to know and understand about taxation system and laws regarding same. So, here is my effort to describe GST.
India follows dual taxation system where some of the taxes are levied by Central government and some others are levied by State Government. Few small taxes are also collected by local service bodies like Municipal Corporation but that is not included when we talk about major taxes. Government has authority to induce new taxes (for exp. Swatchh Bharat Tax), convert form of a tax from one to other (For exp. Wealth Tax was revoked in common budget 2016-17 and additional surcharge of 2 percent was put on people having taxable income more than 1 Cr annually) and it also holds authority to demolish the unnecessary ones (For exp. Gift Tax). The Major reason for discussing all this fuss is because of its contribution in our Economy. The revenue generated through central taxes in 2015-16 was INR ₹14.60 trillion (US$220 billion).
Need of GST
Currently we pay many different indirect taxes to state and central government at different rates and also these numbers varies from state to state. This entire stuff makes business complicated and creates many loopholes which ultimately results in revenue loss for government. The current taxation structure can be understood through below structure. Thus GST will combine all these taxes and will simplify the entire structure of Indian taxation system.
Structure of GST
Goods and Service Tax, commonly known as GST has majorly two parts and that is why it is also known as dual GST. Parts of GST as listed.
- CGST (Central GST)
- SGST (State GST)
- IGST ( Integrated GST) [IGST = CGST+SGST]
All the previous taxes will be included in three above mentioned segments. All the center levied taxes will be collected through CGST and state levied taxes through SGST. Now, when inter-state business takes place, the amount will be paid through IGTS and this amount will be given to receiving state. Earlier, this amount was collected by manufacturing state but now it will be collected by central government and then it will be credited to consuming state. This makes GST a consumption based tax and due to that many high manufacturing states were not ready to go on board with GST. They agreed on condition that center will provide the amount of loss to these states for first 6 Years. Another important thing is authority of assessment and audit. IN GST, 90% authority of assessment and audit for business below turnover 1.5 Cr will stay with respective states and rest 10% will be hold by center. For amount greater than 1.5 Cr, this authority will be distributed 50-50 among center and state. Tax slabs of GST will be 0%, 5%, 12%, 18% and 28%.
Under 0% tax rate, commodities such as food grains, rice, wheat etc. are included.
The first slab is 5% tax, under which products of mass consumption are included such as spices, tea and mustard oil.
Second slab is 12% under which processed food items has been included.
Third slab is 18% tax, under which items such as soaps, oil, toothpaste, refrigerator, and smartphones have been included. Right now, these products are taxed more than 25% tax rates, which would go down after GST is implemented.
Fourth slab is 28%, but there are two tiers under that: Under 28% slab, white goods and cars are included. Currently, whatever products are included in the 27-31% would be included in this tax bracket.
Meanwhile for 28% plus cess, sin products such as luxury cars, tobacco products, pan masala and aerated drinks are included. This cess would be applied by Centre, in a manner which allows higher tax which is currently charged. Hence, if some tobacco products attract 32% tax currently, then GST regime, Centre will apply a cess charge of 4% besides 28%.
Structure of GST also includes norms to make it anti-profiteering. This says that whatever price reduction occurs due to implementation of GST must go to end users. Thus companies need to reduce the cost of product with respective effect rather than increasing profit margin. GST also brought concept of Composite Supply, mixed supply and zero rated supply.
Supply of two or more goods or services which are naturally bounded and supplied in the conjunction with each other in the ordinary course of business, one of which being principle supply, Tax liability is determined on basis of Principle supply. For example, Plastic spoons with Ice-cream boxes. Here Ice-cream being principle supply, Tax liability will be decided on it.
Supply of goods or service in conjunction with each other for a single price where such supply does not constitute a composite supply, Tax liability will be determined on basis of supply which attracts higher rate of tax. For example, if you are selling free pencil with a pen, then here they both are not naturally bounded together, but for attracting customers you are doing so. In these case, tax will be applicable to the supply with higher tax rate.
Zero rated Supply:
Zero-rated supply refers to items that are taxable, but the rate of tax is nil on their input supplies. For example Supply made to SEZs.
Processing of GST will be done by non-profitable organization named as GSTN (GST Network). It is a nonprofit organization formed to create a platform for all the concerned parties i.e. stakeholders, government, taxpayers to collaborate on a single portal. The portal will be accessible to the central government which will track down every transaction on its end while the taxpayers will be having a vast service to return file their taxes and maintain the details. The IT network will be developed by private firms which are being in tie up with the central government and will be having stakes accordingly.
All the existing taxpayers registered under VAT, Service Tax, and Excise are required to furnish the details at GST Common portal for the purpose of migrating themselves into GST regime. The IT department associated with GST will fill up this details and allocate a separate id to each one. There is no need to register for state and central separately.
All businesses must put details of Outwards supply on GST portal and on other hand receiver will upload details of inward supply. This details will be used simultaneously to auto populate the final monthly return and then subsequent steps follow quarterly and annual return and final return.
Benefits of GST
For business and industry
- Easy compliance
- Uniformity of tax rates and structures
- Removal of cascading
- Improved competitiveness
- Gain to manufacturers and exporters
For Central and State Governments
- Simple and easy to administer
- Better controls on leakage
- Higher revenue efficiency
For the consumer
- Single and transparent tax proportionate to the value of goods and services
- Relief in overall tax burden
Case Study of Price Counting Under GST
Thank you !