Government is bringing the long pending and the most crucial Goods and Services Tax bill to Rajya Sabha for approval and seems quite confident of passing of this bill.The monsoon session of the Parliament ends on 12th August 2016,so the government is keen in presenting the bill at the earliest.
With all eyes set on the GST Bill, the government is quite sure this time to get the bill passed in the Parliament.
But,as and when a new bill is passed or any new tax is introduced,it brings with it new challenges and implications.
We have probably heard a lot in the previous years on GST or Goods and Services tax. GST or Goods and Services tax will subsume all the central and state indirect taxes like VAT,Sales tax,Central Sales tax,Service tax,Excise duty,Octroi,Entry tax,Purchase tax etc.
The Goods and Services tax shall be the biggest indirect tax reform providing a uniform and simplified way of Indirect taxation in India.Once,GST is introduced,it becomes necessary for the common man to understand what GST is and how will it work in India.
Through this blog we will try to cover the major aspects related to the much anticipated Goods and Services Tax and its impact in India.
What is GST or Goods and Services tax ?
GST is an Indirect tax to be levied on all goods and services at a uniform rate in India(apart from the ones specifically exempted under the GST Law).The main motive of GST is to remove the cascading affect of taxes wherein consumers will have to pay taxes at the final level of transactions and not at different levels. GST is a destination based tax. So,it will be levied on buyers of goods i.e.where goods are consumed and where services are provided.
How Indirect taxes are levied right now ?
Presently,the following system of Indirect taxation is followed in India :
|1||State VAT||Applicable for sales done within the state.|
|2||Central Sales Tax||Applicable for Interstate sales.|
|3||Service Tax||Applicable on Services.|
|4||Central Excise Duty||Applicable on manufacture.|
|5||CVD or Countervailing Duty||Additional Import Duty(excise).|
|6||SAD or Special Additional Duty||Additional Import Duty(Sales Tax).|
*We have considered the broad and major categories in the above table.
So,basically in the present scenario,goods and services are taxed separately at different rates in different states and also managed by different authorities at the Centre and State level.With the introduction of GST,these multiple taxes shall be removed and goods and services shall be charged to tax at the same rates.
What is Dual Model of GST or Goods and Services Tax :
Dual Model of GST means that GST will be administered both by the Central and the State Government.
- SGST or State GST to be collected by the State Government.
- CGST or Central GST to be collected by the Central Government.
- IGST or Integrated GST to be collected by the Central Government.
Let me explain this in simple words…
A sale transaction within the State will have 2 taxes :
- SGST or State GST – This will go to State Government.
- CGST or Central GST – This will go to Central Government.
A sale transaction outside the state i.e.sales from one state to another will have a single tax :
- IGST or Integrated GST – This will go to Central Government.
Hence,GST shall supersede the existing taxes levied like State VAT,Sales tax,CST,Purchase tax,luxury tax,entry tax Central Excise, Additional Excise duty,Service tax,Special Additional Duty,Excise etc.
**Important note : On 3rd November,2016 a four tier GST rate structure has been passed, the final slab rates being agreed upon are 5%,12%,18% and 28%.
Final GST Slab rates are :
- Zero rated items : Foodgrains used by common people.
- 5% Rate : Items of mass consumption including essential commodities will have low tax incidence.
- 12% and 18 % Rate : Two standard rates have been finalised as 12% and 18%.
- 28% Rate : White goods that were taxed at 30-31% shall be now taxed at 28%.
An additional cess on some luxury goods shall also be imposed.
The tax rate on Gold is yet to be decided.
The final classification of goods in each of the above category shall be released very soon by the GST Council.
Advantages of GST are :
1. GST will bring a single unified Indirect taxation system into force.
2. It shall remove multiplicity of taxes i.e. GST will replace a number of other taxes like VAT,CST,Excise,Service tax,CAD,SAD etc.
3. It shall convert India into a single big market with a unified taxation system.
4. It shall reduce the manufacturing costs that will lead in reduction of prices of goods.
5. The compliance procedure will be simplified as compared to earlier ones wherein you used to pay different taxes and submit various tax returns.
6. We might get to see a less complex tax system consisting of uniform procedure to be followed.
You must also checkout : GST : Impact of GST on Indian economy !
GST carries a few disadvantages as well, that might be a hindrance in its successful implementation.
Disadvantages of GST are :
1. It is a destination based indirect tax,so the place where goods are consumed or services are provided needs to be clearly identified.
2. Initially,it might overburden the common man with GST being introduced at a high rate. e.g.Service tax rate is currently 15% and if GST on services is at say 18%,you can well imagine how hard it will hit our pockets.
To get more details on Service tax refer : New Service Tax rate wef 1st June,2016.
3. GST is new to India,so a lot of awareness needs to be created among people.Tax Professionals need to take utmost care in solving the queries of various sections of society.
4. Dual control by State and Centre can lead to complications to be dealt with and resolved in an efficient manner.
On the face of it,GST seems to be a pure and simple tax system to help India develop into a single emerging market.But,the actual implications can be felt after its introduction only.
The states may lose some of their revenues after introduction of GST. However,the Government has assured to compensate the states against the revenue losses for a period of 5 years.
Moreover,it is a long term strategy planned by the Government to encourage tax compliance and help in increasing GDP of India and boost the Indian economy.
What will be the Impact of GST on Indian Stock Market ?
This is another important question to be dealt in detail. Just giving a brief summary about the sectors that are likely to gain from the GST Bill.
As the much awaited Goods and Services Tax (GST) inches closer to becoming a reality, market analysts and investors are closely watching its impact on the Indian stock markets.As and when a new Reform or Bill comes into force,it surely leaves its impact especially on the stock markets that drive the stock prices in the upward or the downward direction.
Here is a list of few sectors that are most likely to get the maximum benefit from the GST Bill :
- House Building Materials.
- Industrial Manufacturing.
But,we can actually understand how much beneficial or not GST proves to be for the companies,the consumers,the tax payers or the investors, only after its successful implementation.
To have a deeper insight about the Impact of GST go through our blog : GST – What is the impact of GST on the common man ?
Feel free to give your opinions on this major Indirect tax reform – GST in our comment section below !
What do you think,will it bring a positive impact on India or otherwise ?
Your valuable feedback on the same might be helpful to someone in understanding this topic.So,if you have some additional points to share, go ahead and let others know about it…
Also,go through our most popular blog posts on Direct taxes and Investments to help you in your tax planning : Tax Deductions U/s 80 C – What are the 15 eligible Investments? and 7 Best Long term Investments in India !
4 thoughts on “What is GST or Goods and Services Tax in India – An Overview !”
A very informative article you shared thanks for sharing with us. Under GST, supply includes all forms of goods or services like sale, transfer, exchange, license, lease or disposal made or agreed to be made for a consideration by a person in the furtherance of business.
GST is new for all.It will surely take some time to get used to it.
GST is a destination based tax,so the place where goods are consumed or services are provided needs to be clearly identified.
In the present system excise is on manufacture,VAT/CST on sales,but GST shall be levied on supply of goods i.e.where the goods are delivered and consumed and where services have been provided.
It has to be clearly determined where the goods are going.In case of services also it is not so easy to identify where a service is provided.
Moreover,a massive Software is being built for bringing things online and tracking the transactions.But,it is all based upon how successfully GST can be implemented in the country.
Hope this clarifies !
Please clarify disadvantage’s point no 1