All About GST 2
All About GST 2
All About GST 2
THE GOODS AND SERVICES TAX ACT, 2017 (CENTRAL & STATE)
Goods & Services Tax GST (India) What is GST? Indirect Tax Law Explained
1. What is GST?
GST is an Indirect Tax which has replaced many Indirect Taxes in India. The Goods
and Service Tax Act was passed in the Parliament on 29th March 2017. The Act
came into effect on 1st July 2017; Goods & Services Tax Law in India is
a comprehensive, multi-stage, destination-based tax that is levied on
every value addition.
In simple words, Goods and Service Tax (GST) is an indirect tax levied on the supply
of goods and services. This law has replaced many indirect tax laws that previously
existed in India.
GST is one indirect tax for the entire country.
So, before Goods and Service Tax, the pattern of tax levy was as follows:
Under the GST regime, the tax is levied at every point of sale. In the case of intra-
state sales, Central GST and State GST are charged. Inter-state sales are
chargeable to Integrated GST.
Now let us try to understand the definition of Goods and Service Tax – “GST is
a comprehensive, multi-stage, destination-based tax that is levied on every value
addition.”
Multi-stage
There are multiple change-of-hands an item goes through along its supply chain:
from manufacture to final sale to the consumer.
Let us consider the following case:
Purchase of raw materials
Production or manufacture
Warehousing of finished goods
Sale to wholesaler
Sale of the product to the retailer
Sale to the end consumer
Goods and Services Tax is levied on each of these stages which makes it a multi-
stage tax.
Value Addition
The manufacturer who makes biscuits buys flour, sugar and other material. The
value of the inputs increases when the sugar and flour are mixed and baked into
biscuits.
The manufacturer then sells the biscuits to the warehousing agent who packs large
quantities of biscuits and labels it. That is another addition of value after which the
warehouse sells it to the retailer.
The retailer packages the biscuits in smaller quantities and invests in the marketing
of the biscuits thus increasing its value.
GST is levied on these value additions i.e. the monetary value added at each stage
to achieve the final sale to the end customer.
Destination-Based
Consider goods manufactured in Maharashtra and are sold to the final consumer in
Karnataka. Since Goods & Service Tax is levied at the point of consumption. So, the
entire tax revenue will go to Karnataka and not Maharashtra.
3. Advantages Of GST
GST has mainly removed the Cascading effect on the sale of goods and services.
Removal of cascading effect has impacted the cost of goods. Since the GST regime
eliminates the tax on tax, the cost of goods decreases.
GST is also mainly technologically driven. All activities like registration, return filing,
application for refund and response to notice needs to be done online on the GST
Portal; this accelerates the processes.
In most cases, the tax structure under the new regime will be as follows:
Sale within CGST + VAT + Central Revenue will be shared equally between the
the State SGST Excise/Service tax Centre and the State
Sale to IGST Central Sales Tax + There will only be one type of tax (central)
another State Excise/Service Tax in case of inter-state sales. The Centre will
then share the IGST revenue based on the
destination of goods.
Illustration:
Let us assume that a dealer in Gujarat had sold the goods to a dealer
in Punjab worth Rs. 50,000. The tax rate is 18% comprising of only IGST.
In such case, the dealer has to charge Rs. 9,000 as IGST. This revenue will go to
the Central Government.
The same dealer sells goods to a consumer in Gujarat worth Rs. 50,000. The
GST rate on the good is 12%. This rate comprises of CGST at 6% and SGST
at 6%.
The dealer has to collect Rs. 6,000 as Goods and Service Tax. Rs. 3,000 will go to
the Central Government and Rs. 3,000 will go to the Gujarat government as the sale
is within the state.
CGST, SGST, and IGST has replaced all the above taxes.
However, the chargeability of CST for Inter-state purchase at a concessional rate of
2%, by issue and utilisation of c-Form is still prevalent for certain Non-GST goods
such as:
i. Petroleum crude;
ii. High-speed diesel
iii. Motor spirit (commonly known as petrol);
iv. Natural gas;
v. Aviation turbine fuel; and
vi. Alcoholic liquor for human consumption.
Illustration:
Based on the above example of biscuit manufacturer along with some numbers, let’s
see what happens to the cost of goods and the taxes in the earlier and GST regimes.
Tax calculations in earlier regime:
Along the way, the tax liability was passed on at every stage of the transaction and
the final liability comes to rest with the customer. This is called the Cascading Effect
of Taxes where a tax is paid on tax and the value of the item keeps increasing every
time this happens.
Tax calculations in current regime:
In the case of Goods and Services Tax, there is a way to claim credit for tax paid in
acquiring input. What happens in this case is, the individual who has paid a tax
already can claim credit for this tax when he submits his taxes.
In the end, every time an individual is able to claim the input tax credit, the sale price
is reduced and the cost price for the buyer is reduced because of lower tax liability.
The final value of the biscuits is therefore reduced from Rs. 2,244 to Rs. 1,980, thus
reducing the tax burden on the final customer.
GST regime also brought a centralised system of waybills by the introduction of “E-
way bills”. This system was launched on 1st April 2018 for Inter-state movement of
goods and on 15th April 2018 for intra-state movement of goods in a staggered
manner. Under the e-way bill system, manufacturers, traders & transporters are now
able to generate e-way bills for the goods transported from the place of its origin to
its destination on a common portal with ease. Tax authorities are also benefitted as
this system has reduced time at check -posts and help reduce tax evasion.