Goods & Service TAX (GST)-Important points to know

Goods and Service Tax IndiaGST or Goods and Service Tax is the One Indirect Tax for the entire India. This is helpful is removing the difference of prices due to varied taxes across different states. It took almost 13 years of wait and debate to finally start the implementation of the same. In this article, we have tried to explain about GST, its implications, its process and working along with the benefits for Businesses or manufacturers as well as consumers.

What is GST

GST will be a single tax on the supply of goods and services across the commercial establishments be it manufacturer or trader or service provider. GST will provide the credit of taxes paid while buying and thus will only add tax on the value added of goods or services. This in turn will bring down the tax burden on the final consumer of goods or services.

Benefit of GST

GST is said to be the biggest reform in Indirect taxation since independence. It brings along various benefits for the businesses and industry like ease of compliance, uniformity of tax structure, removal of cascading of taxes. All these will make India a better and simpler place to do business. For consumers also, with taxes paid on the final purchase will be lesser due to reduction of taxes on the already paid taxes. GST will remove various types of taxes from the system.

The list of taxes removed from the system at central level are

  1. Central Excise Duty
  2. Additional Excise Duty
  3. Service Tax
  4. Additional Custom Duty or countervailing duty
  5. Special Additional duty of Customs

Apart from central, it will also replace various state level taxes which are

  1. Sales VAT or Sales tax
  2. Entertainment Tax (other than tax levied by local bodies)
  3. Central Sales tax that is levied by center and collected by states
  4. Octroi and entry tax
  5. Purchase tax
  6. Luxury tax
  7. Taxes on lottery, betting and gambling.

How it works

Their will be two types of GST i.e

Center GST also termed as CGST which will be levied and collected by Central Government

State GST also termed as SGST which will be levied and collected by State Government

Both CGST and SGST will be levied simultaneously on all the transactions of supply of goods and services. There are still certain services which are exempt from or outside purview of GST. Other than that it will be levied on the value of goods and services.

Let us look at an example to understand this better. Say a producer of Raw Material or Raw Material Supplier sells the raw material to a factory at Rs. 100. Assuming the rate of CGST and SGST @10% just to make it easy. This Raw material producer has to give Rs. 10 to Central Govt. and Rs. 10 to State Govt towards CGST and SGST. Thus, the factory owner, who is the manufacturer of finished goods, gets the same in his hands ate Rs. 120 (Rs.100 + Rs. 10 + Rs.10). The raw material gets processed at a cost of Rs. 100 thus taking the value of finished goods at Rs. 200. Now when he will pay CGST and SGST to central and state Government, he can claim the credit of Rs. 10 paid earlier. Thus he is required to pay just additional Rs. 10 each towards CGST and SGST after claiming Rs. 10 each earlier paid. Similarly, the credit of GST will be claimed by the Wholesaler and Retailer as you may see in the below table. Finally the consumer receives the finished goods in their hands and pay the taxes making it sure that they are paying the same only one time on the purchased goods.

Please look at the below table for better understanding

Assuming the rate of CGST and SGST @10%
Cost of Material Cost of Processing CGST to be paid to Center SGST to be paid to State Credit of GST from Center Credit of GST from State Final GST Paid to center & State Final value incl GST
Production of Raw material 100 0 10 10 0 0 20 120
Production of Finished Goods 100 100 20 20 10 10 20 220
Whole sale of Finished Goods 200 50 25 25 20 20 10 310
Retail sales 250 20 27 27 25 25 4 324
Final Cost to Consumer 324              
Actual Value of Goods incl processing cost 270
Taxes Paid 54

As you may see that it removes the cascading effect of taxes, where taxes were recovered even on taxes. Like Sales tax were collected on the value of finished goods after levy of excise duty.

With introduction of GST, all the existing Service tax or Sales Tax dealers do not need to apply for fresh registration, also new dealer may apply with a single form for registration of GST.

See the link for frequently asked question about GST

Rates of GST

While rates of GST are yet not decided. The implementation of GST still have to wait for couple of months, when this will become the law. As on August 03, 2016, Rajya Sabha cleared the bill in parliament. The rates of GST will be decided by the GST council in days to come.

How it impacts

GST not only brings ease but also transparency into the system as GST will be linked to PAN. The counter credits will be available for both CGST and SGST. The filing of the returns will be online with 8 different types of forms. The payments can be made through online transfer like NEFT or RTGS. This will make it very simple to adhere to compliance structure for any business. Above all, the black money transactions at various level in supply chain will be majorly impacted and bring in a lot of legitimate revenue for Government.

For Consumers, the prices of several commodities or products may change due to change in tax structure. The prices may drop for some and may rise for some of the commodities but with transparency and similar tax structure, differential pricing may go away across India.

I feel, it is a major step in making India a better place and should act as a driver of growth in years to come.

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