GST (Goods & Services Tax) is the talk of the town these days. No matter who you are, whether you are a businessman, salaried person or even a homemaker, GST is going to affect your life in some way or the other. So, let us understand how GST is going to change our lives.
What exactly is GST?
GST refers to Goods & Services Tax which has been brought in with an intention to replace the current tax structure which includes Excise Duty, Service Tax, Countervailing Duty (CVD), Special Additional Duty of Customs, Central Charges & cesses and local sales tax i.e. Value Added Tax (VAT), Central Sales Tax (CST), Octroi, Entry Tax, Purchase Tax, Luxury Tax, Taxes on Lottery, betting and gambling. Simply put, GST is the tax in place of all other numerous indirect taxes!
So, to cut things short, GST is a Consumption/ Destination based tax on supply of goods or services which excludes supply of alcoholic liquor for human consumption but includes stock transfers, branch transfers and also goods given as free samples. This means Stock transfers or branch transfers which were not taxed in the State Laws earlier will now be taxed under GST (credit will of course be available on such tax paid.)
Sorry, but what’s Consumption or Destination based tax?
Destination Based Taxation, as the name suggests is the taxation based on destination or consumption of the goods or services.
For example: If ABC Ltd in Maharashtra produces the goods and sells the goods to XYZ Ltd in Gujarat, then in such case the tax should be levied and collected and should accrue on the goods in the State of Gujarat and not in the State of Maharashtra. The revenue in the case of destination based taxation belongs to the place where the goods are finally consumed and not to the State where the goods are produced.
What is the definition of the term Goods & Services?
The definition of goods and services has always been a contentious issue in the erstwhile indirect tax laws. Thankfully, this definition has been largely simplified in the GST Act.
Section 2(52)of the GST Act defines the term goods as, “Goods means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.”
So, the crux of the definition is that anything which is movable and used in the course of business falls under the definition of goods. Actionable claim is a recent addition to the definition of goods.
Section 2(102) of the GST Act defines the term Service as, “Service means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.”
So, if you have noticed the definition of service is all encompassing. It is more like a residuary definition and covers everything which is not covered under the definition of goods.
The question people keep asking me is about “One Nation One Tax”. Will there be a single tax structure or a single rate?
Please make a note that Nothing in the GST Act is one, other than the slogan, be it the Act, which is as of now CGST (Central GST), SGST (State GST), IGST (Integrated GST), UTGST (Union Territory GST) or the rates which were earlier proposed to be 0%, 5%, 12%, 18%, 28% but are now 0%, 0.25%, 3%, 5%, 12%, 18%, 28%.
Will GST increase or decrease the price of goods or services?
There is no straight-jacket answer to this question as the price of some goods may increase and some may decrease but the price of most of the services will surely increase, thus, increasing the burden on the consumer.
What will be the tax structure regime in GST?
In case of an Intra-State Sale / Sale Within the same State - The dealer has to charge CGST + SGST (Percentage of which is yet to be declared)
If there is an Inter State Sale/ Sale to another State - The dealer has to charge IGST or UTGST (If made to a union territory)
Can credit of GST paid on the purchase of goods be adjusted against GST collected on the supply of service?
Yes, credit of GST paid either on purchase of goods or for services availed can be adjusted against GST collected on sale of Goods or supply of services. There is no distinction between credit on goods or services. But like every other law, this is subject to certain conditions and limitations.
At what rate will my goods or services be taxed?
All services will be taxed at a flat rate of 18%. However, the rate of tax for goods is still being notified by the Government and the Government has even changed the rates of certain goods after notifying them! The rates are still being finalized and currently representations are being made before the GST Council to change rates of many products.
What you’ve read today is only the overview of the new law, a tip of the iceberg. We will be covering the various nuances of the Act in our next article.
The Author is a Chartered Accountant and can also be reached for at email@example.com
This article is the first part in a series of articles on GST written by the author.