28/06/2017

GST: Here’s all you need to know about India’s biggest tax reform ( Author - HIMANSHU TIWARI )

Full Form of GST : Goods & Services Tax

INTRODUCTION : The Goods and Services tax Act , touted to be india’s biggest tax reform , will simplify the current system of taxation . The bill will convert the country into a unified market by replacing all indirect taxes with one tax ( GST ) . The GST is a value added tax ( VAT ) is proposed to be a comprehensive indirect tax levy on manufacture , sale and consumption of goods as well as services at the national level . It will replace all indirect taxes levied on goods & services by the Indian and state governments .

“only a registered person can charge and collect  GST on the taxable supplies of goods and services made by him. GST is charged on the value or selling price of the products. The amount of GST  incurred on input (input tax) can be deducted from the amount of GST  charged (output tax) by the registered person;

What is GST ( Goods & Services Tax ) ?

GST ( Goods & Services Tax ) is a tax levied when a consumer buys a goods and / or services .

GST would subsume with a single comprehensive tax , bringing it all under  a single umbrella , eliminating the cascading effect of taxes on the production and distribution of goods and services .

What is the cascading effect of taxation ?

Cascading effect of taxes is caused due to levy of different charges by state and union separately . In the current multi – staged tax – structure , the following taxes are levied by the centre and state separately

For example : Taxes levied by centre include : Income tax ,

service tax , central sales tax , excise duty etc .

Taxes levied by state include : VAT/sales ,

octroi , state excise , property tax , entry tax .

This tax structure raises the tax – burden on Indian products , affecting their prices and as a result , sales in the international market . The new tax regime will therefore , help boosts exports .

What are the challenges in the implementation ?

India is adopting a dual GST , wherein the central GST will be called CGST and state SGST . The main road block is the coordination among states . Centre and states have to come to a consensus on uniform GST rates , inter – state transaction of goods and services , administrative efficiency and infrastructural preparedness to implement the new tax reform .

DUAL GST :  Means it will have a federal structure . The GST will basically have only three kinds of taxes – Central , state and another called integrated GST to tackle inter – state transactions .

Under the current GST tax reform , all forms of “supply “ of goods and services like transfer , sale , barter , exchange and rental will have a CGST ( central levy ) and SGST ( state levy ) .

Some of the benefits of GST to the Indian economy are the listed below :

1. Removing cascading effect

2. Higher threshold for registration

3. Composition scheme for small business

4. Defined treatment for e – commerce

5. From the customers point of view , would be in terms of a reduction in the overall tax burden on goods , which is currently estimated at 25 % – 30% .

Features of GST :

  • GST will have two components namely central GST levied by the centre and state GST  levied by the states .
  • Petroleum products , alcohol for human consumption and tobacco have been kept out of the purview of the GST .
  • The final consumer will have to bear only the GST charged by the last dealer in the supply chain .
  • The tax collected would be divided between the centre and the states in a manner that would be defined by the parliament , as per the recommendations of the GST council .

How it will help consumers ?

Today consumers have no idea about the extent of taxes they pay on goods . if you get a bill after buying merchandise which gives  the extent of VAT you have paid , it is an understatement of the actual tax you have paid . Remember , well before merchandise reached the retail outlet  , the central government has collected excise duty . The extent of excise duty is not mentioned in the bill.

Therefore , today it is reasonable to assume we pay well over 20% tax for most merchandise we buy .

In GST , consumers should benefits in two ways :

First , all taxes will be collected at the point of consumption. It means that if a shirt is taxed at 18% , it will include both central government  taxes and state government taxes .

Second , once barriers between states are removed , we as consumers will not end up paying “ Tax on tax “ which is what happens when goods across state borders .

 Turnover limit for registration of GST ?

The GST COUCIL had been constituted and a bunch of announcements have been made by the finance minister . these are :

  • GST will apply when turnover of the business exceeds Rs 20 lakhs ( limit is Rs 10 lakhs for the north eastern states ) .

About the author

HIMANSHU TIWARI

CHARTERED ACCOUNTANT
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