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Basic of GST in India

Deepak Sethi 
on 30 June 2015


GST (Goods and Service Tax)

GST means Goods and Service Tax. It is an indirect tax levied on sale of goods and services. The reformists believe that GST is one of the most awaited law which upon introduced will boost the economic growth in the country. This law if passed by the parliament may come into force from April 2016. As everyone is talking about it now, let’s get into the basics of the proposed law in this article.

Present system – This can be better explained through an example. Suppose you buy soap for Rs.50 per piece, it includes Excise Duty, VAT or CST, Customs duty on the imported raw materials, etc. So, currently you will have to pay multiple taxes on the same product. Let’s take another example; the food you buy at hotels will have VAT as well as Service Tax.

Complexities in the present system – The taxes are levied by central government as well as state governments. So, the businessman has to maintain accounts which will comply with all the applicable laws. It is perceived to be a complex system. Hence, worldwide over 150 countries have adopted GST, a simple tax system. Though it is late, India is catching up with the global trends.

Is it easy to implement in India? Not really. Today states have autonomy in collecting state taxes. They have the feeling of losing their rights! They want liquor, fuel to be out of GST tax system. They are also worried about Central government sharing GST revenue with the states. If India becomes one common market, then the states will have to share their powers of taxing with the union government. (Which means states can’t increase the taxes as and when, as much as they want)

If the GST bill is passed; will it come into effect immediately? NO. The earliest day we can see GST in India will be in April 2016. Again implementation depends upon the initiative and involvement of state governments. Some of the states may act quickly and some of them may take time to implement. GST Rate- Today, one pays Excise Duty of 12%, VAT of 14% on goods (totaling to 26%). 14% service tax on services. So, the rates may be anywhere between 12% and 26%. The average worldwide GST rate is around 18%.

FEATURES OF AN IDEAL GST

The main features of GST are as under: -

(a) GST is based on the principle of value added tax and either “input tax method” or “subtraction” method, with emphasis on voluntary compliance and accounts based system.

(b) It is a comprehensive levy and collection on both goods and services at the same rate with benefit of input tax credit or subtraction of value of penultimate transaction value.

(c) Minimum number of floor rates of tax, generally, not exceeding two rates.

(d) No scope for levy of cess, re-sale tax, additional tax, special tax, turnover tax etc.

(e) No scope for multiple levy of tax on goods and services, such as, sales tax, entry tax, octroi, entertainment tax, luxury tax, etc.

(f) Zero rating of exports and inter State sales of goods and supply of services.

(g) Taxing of capital goods and inputs whether goods or services relatable to manufacture at lower rate, so as to reduce inventory carrying cost and cost of production.

(h) A common law and procedures throughout the country under a single administration.

(i) GST is a destination based tax and levied at single point at the time of consumption of goods or services by the ultimate consumer.

MODELS OF GST

There are three prime models of GST:

GST at Central (Union) Government Level only

GST at State Government Level only

GST at both, Union and State Government Levels

EXPECTED MODEL OF GST IN INDIA- DUAL GST

In India, the GST model will be “dual GST” having both Central and State GST component levied on the same base. All goods and services barring a few exceptions will be brought into the GST base. Importantly, there will be no distinction between goods and services for the purpose of the tax with common legislations applicable to both.

For Example, if a product have levy at a base price of Rs. 100 and rate of CGST and SGST are 8% then in such case both CGST and SGST will be charged on Rs 100 i.e. CGST will be Rs 8 and SGST will be Rs.8.


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