Goods and Services Tax– What you must know

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Finally, GST (Goods and Services Tax) bill is passed in Lok Sabha and Rajya Sabha and we reached closer to implementation of the new tax reform from 1st July 2017. It is being called a revolutionary bill that will benefit all means a win-win situation for the entire country. On the one side it will lower the cost of goods and service, give a boost to the economy and make the products and services globally competitive.

GST aims to make India a common market with common tax rates and procedures and shall remove the economic barriers. It will bring more transparency to indirect tax laws since the whole supply chain will be taxed at every stage with credit of taxes paid at the previous stage being available for set off at the next stage of supply, the economics and tax value of supplies will be easily distinguishable. This will help the industry to take credit and the government to verify the correctness of taxes paid and the consumer to know the exact amount of taxes payable or paid.

By subsuming most of the Central and State taxes into a single tax and by allowing a set-off of prior-stage taxes for the transactions across the entire value chain, it would mitigate the ill effects of the current taxation system. Like VAT, GST is a destination based tax follows a multi-stage collection mechanism means tax is collected at every stage and the credit of taxes paid at the previous stage is available as a set off at the next stage of transaction. Simply say, the Goods and Services Tax would put all taxes levied by state and Central government in one basket and merge them into a single-tax system, thus doing away with multiple taxation and promoting the concept of a common market for all. Once the GST Bill is implemented, it will allow the Centre and the states to levy indirect tax on manufacture, sale and consumption of goods and services across the country.

Under the GST regime, All imported goods shall be charged with integrated tax, i.e., tax equivalent to CGST+SGST. This will bring equality to imported goods with local products as far as taxation is concerned. And exports will be zero-rated in entirety unlike the present system where refund of some taxes may not take place due to fragmented nature of indirect taxes between the Centre and the States. This will boost Indian exports in the international market making prices more competitive. In GST, exporters with clean track record will be rewarded by getting immediate refund of 90% of their claims arising on account of exports, within seven days.

The taxpayers would not be required to maintain separate records for indirect tax laws of the Central Government and the State Governments like Central Excise, Service Tax, VAT, Central Sales Tax, Octroi, Entry Tax, Luxury Tax, Entertainment Tax, etc. Now, they all need to comply a single taxation system for state, interstate and international transactions.

The salient features of GST are as under:

  1. The GST will be applicable on the supply of goods or services. It would be dual taxation where in the Centre and State simultaneously levy tax. This means that tax would accrue to the State or the Union Territory where the consumption takes place.
  2. With the Goods and Services Tax coming in, the Centre-level taxes like Central Excise Duty and additional duties of excise (which includes medicinal and toilet preparations, goods of specific importance, textiles and textile products, SAD, CVD), Service tax and various central surcharges and cesses and state-level taxes like State Value-added Tax (VAT), Central Sales Tax, Entertainment Tax, Entry Tax, Purchase Tax, and Luxury Tax will be subsumed.
  3. GST shall be technology driven taxation system which will reduce the human interface and would lead to speedy decision.
  4. The GST Council has approved a four-tier uniform tax slab of 5, 12, 18 and 28 per cent on goods and services, plus an additional cess on demerit goods such as luxury cars, aerated drinks and tobacco products.
  5. Food items will not attract any tax and have been kept in the zero-per cent slab. The GST would not apply to alcoholic liquor for human consumption and five petroleum products, viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel. It would apply to all services barring a few to be specified.
  6. An Integrated tax (IGST) would be levied and collected by the Centre on inter-State supply of goods and services. Accounts would be settled periodically between the Centre and the States to ensure that the SGST/UTGST portion of IGST is transferred to the destination State where the goods or services are eventually consumed.
  7. All taxpayer will allowed to take credit of taxes paid on inputs (input tax credit), as self-assessed, in his return. Likewise VAT taxpayer can take credit of taxes paid on all goods and services purchased of used, except the entries in the negative list, and utilize the same for payment of output tax. Credit of taxes paid on inputs can be taken where the inputs are used for business purposes or for making taxable supplies. 100% input tax credit shall be allowed on capital goods on its receipt as against the current practice of staggering the credit in more than one installment by many states. Unutilized input tax credit can be carried forward or the facility of distribution of ITR for services amongst group companies has also been provided for.
  8. Valuation of goods shall be done on the basis of transaction value i.e. the invoice price, as per the current practice under the Central Excise and Customs Laws. Though, taxpayers are allowed to issue supplementary or revised invoice in respect of a supply made earlier.
  9. Tax payments facility shall be available through all credit and debit cards, National Electronic Fund Transfer (NEFT), Real Time Gross Settlement (RTGS) and Online payment method.
  10. Keeping in view of the growth of e-commerce business, taxation on all E-Commerce companies are also well taken care of. All e-commerce companies are required to collect tax at source in relation to any supplies made through their online platforms, at the rate notified by the Government under the GST.
  11. Another flaw in the current taxation system where in benefits of reduction in tax rates is being kept by the suppliers. An anti-profiteering measure has been incorporated in the GST law to ensure that any reduction in tax rates results in commensurate reduction in prices of such goods/services.

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