Goods and Services Tax (GST): Objectives and main provisions; Benefits of GST; Implementation mechanism; Working of dual GST

GST – One Nation, One Tax, One Market

India is a federal country. Both the Centre and the States has the powers to levy and collect taxes. Both the levels of Government have distinct responsibilities to perform for which they need to raise resources.

Existing Indirect Tax Structure in India

Central Taxes

  • Central Excise duty
  • Additional duties of excise
  • Excise duty levied under Medicinal & Toilet Preparation Act
  • Additional duties of customs (CVD & SAD)
  • Service Tax
  • Surcharges & Cesses

State Taxes

  • State VAT / Sales Tax
  • Central Sales Tax
  • Purchase Tax
  • Entertainment Tax (other than those levied by local bodies)
  • Luxury Tax
  • Entry Tax (All forms)
  • Taxes on lottery, betting & gambling
  • Surcharges & Cesses

Constitution amended to provide concurrent powers to both Centre & States to levy GST (Centre to tax sale of goods and States to tax provision of services)

Understanding CGST, SGST, UTGST & IGST

Central government will charge Central GST or CGST

State government will charge State GST or SGST

Central government on the inter-state supply of various goods and services will charge Integrated GST or IGST

Features of Constitution Amendment Act

Alcohol for human consumption – Power to tax remains with the State

Five petroleum products – crude oil , diesel, petrol, natural gas and ATF – GST Council to decide the date from which GST will be applicable

Tobacco – Part of GST but power to levy additional excise duty with Central Government

Entertainment tax levied by local bodies – Power to tax remains with the State

GST Council – Constitution

  • Chairperson – Union FM
  • Vice Chairperson will be amongst the Ministers of State Government
  • Members – MOS (Finance) and all Ministers of Finance / Taxation of each State
  • Quorum is 50% of total members
  • States – 2/3 weightage and Centre – 1/3 weightage
  • Decision by 75% majority
  • Council to make recommendations on everything related to GST including laws, rules and rates etc.

Main Features of the GST Act

  • All transactions and processes only through electronic mode – Non-intrusive administration
  • PAN Based Registration
  • Registration only if turnover more than Rs. 20 lac
  • Option of Voluntary Registration
  • Deemed Registration in three working days
  • Input Tax Credit available on taxes paid on all procurements (except few specified items)
  • Set of auto-populated Monthly returns and Annual Return
  • Composition taxpayers to file Quarterly returns
  • Automatic generation of returns
  • GST Practitioners for assisting filing of returns
  • GSTN and GST Suvidha Providers (GSPs) to provide technology based assistance
  • Methods of tax payment – internet banking, NEFT / RTGS, Debit/ credit card and over the counter
  • Concept of TDS for certain specified categories
  • Concept of TCS for E-Commerce Companies
  • within 60 days Refund shallbe credited into bank account
  • Provisional release of 90% refund to exporters within 7 days
  • Interest payable if refund not sanctioned in time
  • Comprehensive transitional provisions for smooth transition of existing tax payers to GST regime
  • Special procedures for job work
  • System of GST Compliance Rating
  • Anti-Profiteering provision

Benefits of GST

  • Decrease in Inflation
  • Ease of Doing Business
  • Decrease in “Black” Transactions
  • More informed consumer
  • Poorer States to Gain
  • Make in India

Reduction in Cascading of Taxes

Overall Reduction in Prices

Common National Market

Benefits to Small Taxpayers

Self-Regulating Tax System

Non-Intrusive Electronic Tax System

Simplified Tax Regime

Reduction in Multiplicity of Taxes

Consumption Based Tax

Abolition of CST

Zero Rated exports

Protection of Domestic Industry – IGST

Important Terms

TAXABLE PERSON

Taxable person is a person who carries on any business at any place in India and who is registered or required to be registered under GST Act. The person who engages in economic activity including trade and commerce is treated as taxable person.

CASUAL TAXABLE PERSON

A person who occasionally supplies goods and/or services in a territory where GST is applicable, but s/he does not have a fixed place of business.

NON-RESIDENT TAXABLE PERSON

A person does not have a place of business in India, but occasionally supplies goods/services in a territory where GST applies.

SUPPLY

The term ‘supply’ is wide in its import and includes all forms of supply of goods and / or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. It also includes import of service. The model GST law also provides for including certain transactions made without consideration within the scope of supply.

Composite Supply

A composite supply is an organic combination of two or more individual supplies of goods and services or any other natural arrangement of goods or services made by a GST payer for a single price.

A composite supply is of two parts:

  • Principal Supply: The major and the foremost element in the Composite Supply of goods or services.
  • Dependent Supply: This is the depending element and rests on the Principal Supply.

A composite supply could be a breakfast coupled with the stay package in a hotel, which would be seen as a natural blend. In this case, stay package is the Principal Supply and the breakfast is a Composite Supply.

REVERSE CHARGE

The supplier is liable to pay the tax on supply in general. In certain cases, the liability is passed on to the receiver to pay the tax, which means the chargeability gets reversed. In GST regime, reverse charge is applicable to goods as well as services.

GSTN

Goods and Services Tax Network is a non-profit, public-private partnership company. Its main purpose is to provide IT infrastructure and services to Central and State Governments, tax payers and other stakeholders to facilitate the implementation of GST.

SUPPLIER

A supplier is a person supplying goods and/or services and shall include an agent acting as such on behalf of such supplier in relation to the goods and/or services supplied.

TAXABLE SERVICE

It means any service provided or to be provided to a client by any person in relation to business auxiliary service.

COMPOSITION SCHEME

Composition scheme under GST contains an option for a registered taxable person having turnover less than the limit to pay tax at a lower rate respect to certain specified conditions. When opting for the composite scheme, a taxpayer will be required to file summarized returns on a quarterly basis, instead of three monthly returns. A trader registered under the composition scheme shall not collect tax from the consumer.

COMPOUNDED DEALER

A registered tax payer, who is registered under the composition scheme, is a compounded dealer. A compounded dealer is neither allowed to avail Input Tax Credit of GST paid to the supplier nor to collect tax from the final consumer.

A taxable supply means a supply of goods and / or services which is chargeable to good and services tax under the GST Act.

GOODS

In GST ‘goods’ may refer to every kind of movable property other than money and securities but included actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

Place of supply is the registered place of business of the recipient. Place of supply is important in GST as it is a destination based tax on consumption. The place of supply determines intra-state or interstate. It will define the type of tax to be levied such as CGST, SGST and IGST.

SPECIAL ECONOMIC ZONE (SEZ)

Special Economic Zone is a dedicated zone wherein businesses enjoy simpler tax and legal compliance. SEZs are located within a country’s national borders; however, they are treated as a foreign territory from taxability perspective. As per the legal definition, a SEZ is a geographically bound zone where the economic laws relating to export and import are more liberal as compared to other parts of the country. Supply of goods or services to a Special Economic Zone is considered as a zero rated supply.

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