GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
(i) GST would be a destination based tax as against the present concept of origin based tax and would be applicable on supply of goods or services as against the present concept of tax on the manufacture of goods or on sale of goods or on provision of services.
(ii) It would be a dual GST with the Centre and the States simultaneously levying it on a common base. The GST to be levied by the Centre would be called Central GST (CGST) and that to be levied by the States would be called State GST (SGST). An Integrated GST (IGST) would be levied on inter-State supply (including stock transfers) of goods or services. This would be collected by the Centre so that the credit chain is not disrupted.
(iii) Import of goods or services would be treated as inter-State supplies and would be subject to IGST in addition to the applicable customs duties.
(v) GST would replace the following taxes currently levied and collected by the Centre:
- Central Excise duty
- Duties of Excise (Medicinal and Toilet Preparations)
- Additional Duties of Excise (Goods of Special Importance)
- Additional Duties of Excise (Textiles and Textile Products)
- Additional Duties of Customs (commonly known as CVD)
- Special Additional Duty of Customs (SAD)
- Service Tax
- Cesses and surcharges insofar as far as they relate to supply of goods or services
(vi) State taxes that would be subsumed within the GST are:
- State VAT
- Central Sales Tax
- Purchase Tax
- Luxury Tax
- Entry Tax (All forms)
- Entertainment Tax (not levied by the local bodies)
- Taxes on advertisements
- Taxes on lotteries, betting and gambling
- State cesses and surcharges insofar as far as they relate to supply of goods or services
(vii) GST would apply to all goods and services except Alcohol for human consumption, Electricity and Real Estate. On petroleum products it would be applicable from a date to be recommended by the GSTC. Tobacco and tobacco products would be subject to GST. In addition, the Centre would continue to levy Central Excise duty.
(viii) A common threshold exemption would apply to both CGST and SGST. Taxpayers with a turnover below it would be exempt from GST. A compounding option (i.e.to pay tax at a flat rate without credits) would be available to small taxpayers below a certain threshold. The threshold exemption and compounding scheme would be optional.
(ix) Credit of CGST paid on inputs may be used only for paying CGST on the output and the credit of SGST paid on inputs may be used only for paying SGST. In other words, the two streams of input tax credit (ITC) cannot be cross utilized, except in specified circumstances of inter-State supplies, for payment of IGST. The credit would be permitted to be utilized in the following manner:
- ITC of CGST allowed for payment of CGST;
- ITC of SGST allowed for payment of SGST;
- ITC of CGST allowed for payment of CGST & IGST in that order;
- ITC of SGST allowed for payment of SGST & IGST in that order;
- ITC of IGST allowed for payment of IGST, CGST & SGST in that order.
(x) Accounts would be settled periodically between the Centre and the State to ensure that the credit of SGST used for payment of IGST is transferred by the Exporting State to the Centre. Similarly, the IGST used for payment of SGST would be transferred by the Centre to the Importing State.