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Introduction of GST

GST purposes to bring uniform indirect tax regime in the country by subsuming central and state indirect taxes into single indirect tax.

The following central taxes which are currently levied and collected will be subsumed under the GST regime :-

1) Central Excise duty
2) Duties of Excise (Medicinal and Toilet Preparations)
3) Additional Duties of Excise (Goods of Special Importance)
4) Additional Duties of Excise (Textiles and Textile Products)
5) Additional Duties of Customs (commonly known as CVD)
6) Special Additional Duty of Customs (SAD)
7) Service Tax
8) Cess and surcharges insofar as far as they relate to supply of goods or services

The following state taxes which are currently levied and collected will be subsumed under the GST regime :-

1) State VAT
2) Central Sales Tax
3) Purchase Tax
4) Luxury Tax
5) Entry Tax(Entry tax will be subsumed however entry tax levied by municipal bodies on goods entering into local area will not be subsumed)
6) Entertainment Tax (Entertainment tax levied by Panchayat /municipality or district council will not be subsumed )
7) Taxes on advertisements
8) Taxes on lotteries, betting and gambling
9) State cess and surcharges insofar as far as they relate to supply of goods or services.

There are few other indirect taxes that will not be subsumed under the GST regime:

1) Stamp Duty
2) Vehicle Tax
3) Electricity Duty
4) Custom Duty

Following products are out of GST regime :-

1) Petroleum products
2) Alcoholic products

Comparative Illustration between Existing Tax System & GST Tax System

Particular Existing Taxes GST
Manufacturer to Wholesaler
Cost Of Production 100,000 100,000
Add: Profit 10,000 10,000
Manufacturer Price 110,000 110,000
Add: Excise Duty @ 12% 13,200
Total Value 123,200 110,000
Add: State VAT @12 % 14,784
Add: SGST @12 % 13,200
Add: CGST @12 % 13,200
INVOICE VALUE 137,984 136,400
 
Wholesaler to Retailer ( Note 1)
Cost for Wholesaler 123,200 110,000
Add: Profit @10% 12,320 11,000
Total Value 135,520 121,000
Add: State VAT @12 % 16,262
Add: SGST @12 % 14,520
Add: CGST @12 % 14,520
INVOICE VALUE 151,782 150,040
 
Retailer to consumer (Note 2)
Cost for Retailer 135,520 121,000
Add: Profit @10% 13,552 12,100
Total Value 149,072 133,100
Add: State VAT @12 % 17,889
Add: SGST @12 % 15,972
Add: CGST @12 % 15,972
INVOICE VALUE Note 3 166,961 165,044

Note 1 – Input Tax Credit is available in the hand of Wholesaler is Rs. 14,784 and Rs. 26,400 in case of existing Tax System and GST respectively.

Note 2– Input Tax Credit is available in the hand of Retailer is Rs. 16,262 and Rs. 29,040 in case of existing Tax System and GST respectively.

Note 3 – Net Saving in the Hand of Consumer is Rs.1,917/-

With the Help of this illustration, it is clear that GST is beneficial for all i.e. Wholesaler, Retailer & Consumer.

Concept of IGST/CGST/SGST

1. In India, GST will be levied both by the Centre and the states. CGST(Central GST) is to be levied by central and SGST (State GST) is to be charged by State. Further IGST will be levied in case of inter-state supply of goods and services.

2. Cross utilization of CGST and SGST will not be permitted i.e. for the payment of SGST, input of CGST is not available and vice-a-versa.

3. For the payment of CGST, first input of CGST to be used then input IGST to be used.

4. For the payment of SGST, first input of SGST to be used then input IGST to be used.

5. For the payment of IGST, first input of IGST to be used then input CGST and then input of SGST to be used.

6. For Example :- if an assesses is having IGST input credit of Rs. 10000, CGST input credit of Rs. 5000 and SGST input credit of Rs. 2,000 then

Illustration 1:- Output IGST liability of Rs. 20,000 then input credit of Rs. 10,000 , Rs. 5000 and Rs. 2,000 can be utilized in the account of IGST, CGST and SGST respectively and the final IGST liability is Rs. 3,000 ( 20,000- 10,000-5,000-2000).

Illustration 2:- Output IGST liability of Rs. 13,000 then input credit of Rs. 10,000 and Rs. 3,000 can be utilized in the account of IGST and CGST respectively and the final IGST liability is nil (13000-10000-3000) and balance CGST input credit of Rs. 2000 and SGST input credit of Rs. 2,000.

Illustration 3:- Output CGST liability of Rs. 12,000 then input credit of Rs. 5,000 and Rs. 7,000 can be utilized in the account of CGST and IGST respectively and the final CGST liability is nil (12,000-5,000-7,000) and balance IGST input credit of Rs. 3,000 and SGST input credit of Rs. 2,000.

Illustration 4:– Output SGST liability of Rs. 9,000 then input credit of Rs. 2,000 and Rs. 7,000 can be utilized in the account of SGST and IGST respectively and the final SGST liability is nil (9,000-2,000-7,000) and balance IGST input credit of Rs. 3,000 and CGST input credit of Rs. 5,000.

7. Finally we understand about the IGST input credit Utilization mechanism :-‘

  • On the inter-state sale, Seller will collect IGST from purchaser.
  • For depositing IGST, seller will take input credit of CGST & SGST then selling state will transfer the amount of input credit of SGST utilized by seller against the IGST to Centre.
  • The buyer of other state will take credit IGST against his liability of IGST / CGST/ SGST.

In the 2014 bill, it is very popular provision that an additional tax of up to 1% on the supply of goods will be levied by centre in the course of inter-state trade or commerce. However in 2016 amendment bill, such provision has been deleted.

In 2014 Bill, Parliament may, by law, provide for compensation to states for any loss of revenues, for a period which may extend to five years. This would be based on the recommendations of the GST Council. This implies that Parliament may decide (i) whether it wants to provide compensation; (ii) the time period for which it can provide such compensation, up to five years. However in 2016 amendments, Parliament shall, by law, provide for compensation to states for any loss of revenues, for a period of five years. This would be based on the recommendations of the GST Council. This implies that compensation must be provided for a full five-year period.


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Category GST, Other Articles by - CA Rishi Goyal 



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