10 Key facts about Goods and Service Tax (GST)

By | November 24, 2015

ArticleGST (Goods and Service Tax) the most awaited act in India. The long-pending GST Bill was approved by Lok Sabha. GST, which was first introduced in 2006, is expected to rationalize the Indian Taxation System and cut down multiplicity of compliance and cascading effect of taxes. GST or Goods and Services Tax is considered as major Tax reform policy in India. Therefore, the GST will replace various taxes viz. central indirect taxes including the central excise duty, countervailing duty, service tax, etc. It also replaces state value added tax, octroi and entry tax, luxury tax, etc.

10 Key facts about Goods and Service Tax (GST)

  • Dual GST: Both Centre and States will simultaneously levy GST across the value chain. Tax will be levied on each and every supply of goods and services. Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output. No cross utilization of credit would be permitted.
  • Inter-State Transactions and the IGST Mechanism: The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supply of goods and services. The IGST mechanism has been designed to ensure seamless flow of input tax credit from one State to another. The inter-State seller would pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST and SGST on his purchases (in that order). The exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The importing dealer will claim credit of IGST while discharging his output tax liability (both CGST and SGST) in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST.
  • Destination-Based Consumption Tax: GST will be a destination-based tax. This implies that all SGST collected will ordinarily accrue to the State where the consumer of the goods or services sold resides.
  • Central Taxes to be subsumed:
  1. Central Excise Duty
  2. Additional Excise Duty
  3. The Excise Duty levied under the Medicinal and Toiletries Preparation Act
  4. Service Tax
  5. Additional Customs Duty, commonly known as Countervailing Duty (CVD)
  6. Special Additional Duty of Customs-4% (SAD)
  7. Cesses and surcharges in so far as they relate to supply of goods and services.
  • State Taxes to be subsumed:
  1. VAT/Sales Tax
  2. Central Sales Tax (levied by the Centre and collected by the States)
  3. Entertainment Tax
  4. Octroi and Entry Tax (all forms)
  5. Purchase Tax
  6. Luxury Tax
  7. Taxes on lottery, betting and gambling
  8. State cesses and surcharges in so far as they relate to supply of goods and services.
  • All goods and services, except alcoholic liquor for human consumption, will be brought under the purview of GST.
  1. Petroleum and petroleum products have been constitutionally included as ‘goods’ under GST. However, it has also been provided that petroleum and petroleum products shall not be subject to the levy of GST till notified at a future date on the recommendation of the GST Council. The present taxes levied by the States and the Centre on petroleum and petroleum products, viz. Sales Tax/VAT and CST by the States, and excise duty the Centre, will continue to be levied in the interim period.
  2. Taxes on tobacco and tobacco products imposed by the Centre shall continue to be levied over and above GST.
  3. In case of alcoholic liquor for human consumption, States would continue to levy the taxes presently being levied, i.e., State Excise Duty and Sales Tax/VAT.
  • GST Council: In the GST management, a Goods and Services Tax Council is being created under the Constitution. The GST Council will be a joint forum of the Centre and the States. This Council would function under the Chairmanship of the Union Finance Minister and will have Minister in charge of Finance/Taxation or Minister nominated by each of the States & UTs with Legislatures, as members. The Council will make recommendations to the Union and the States on important issues like tax rates, exemption list, threshold limits, etc. The recommendations made by this Council will act as benchmark or guidance to Union as well as State Governments. One-half of the total number of Members of the Council will constitute the quorum of GST council. Every decision of the Council shall be taken by a majority of not less than three-fourths of the weighted votes of the members present and voting in accordance with the following principles:-
  1. The vote of the Central Government shall have a weight-age of one-third of the total votes cast, and
  2. The votes of all the State Governments taken together shall have a weight-age of two-thirds of the total votes cast in that meeting..

This is to protect the interests of each State and the Centre when the Council takes a decision and is in the spirit of co-operative federalism.

  • Floor rates of GST with band: GST rates will be uniform across the country. However, to give fiscal autonomy to the States and the Centre, there will a provision of a tax band over and above the rate of the floor rates of CGST, SGST and IGST. Initially, the rates of CGST, SGST and IGST are expected to be closely aligned to the Revenue Neutral Rates (RNR) of the Centre and the States.
  • Goods and Services Tax Network (GSTN): A not-for-profit, Non-Government Company called Goods and Services Tax Network (GSTN), jointly set up by the Central and State Governments will provide shared IT infrastructure and services to the Central and State Governments, tax payers and other stakeholders.
  • GST Compensation: As a part of transition from origin based to destination based indirect tax structure, some States might face slight drop in their revenue in the initial years. To help the States in this transition phase, the Centre has committed to compensate all their losses for a period of 5 years. Accordingly, clause 19 has been inserted in the Constitution (122nd) Amendment Bill, 2014 to provide for compensation to States by law, on the recommendation of the Goods and Services Tax Council, for loss of revenue arising on account of implementation of the goods and services tax for a period of five years.

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