All about GST: Goods and Service Tax: An Immediate tax saving
Goods and Service Tax (“GST”) is a tax on manufacture, sale and consumption of goods and services, that will absorb most of the indirect taxes levied by Central and State Government. Currently the GST is adopted in over 150 countries. GST Bill is the biggest tax reform by the Indian government since inception of the Indian constitution which is going to be implemented by April, 2017.
GST will be a game changing reform for the Indian economy by creating a common Indian market and reducing the cascading effect of tax . It will impact the tax structure, tax incidence, tax computation, tax payment, compliance, credit utilization and reporting, leading to a complete overhaul of the current indirect tax system.
How Will GST Work?
• In India, GST would work on dual model which will include – C-GST collected by Central Government + S-GST collected by State Government on intra-state sales. GST reform would also feature an Integrated GST (IGST) collected by Central government on inter-state sales, which is to-be divided between Central and States Government in a manner decided by the Parliament on recommendations by GST Council.
• By doing away with several Central and State Taxes, GST would diminish the cascading effect of tax (or double taxation, whereby the same product is taxed at the stage of manufacturing as excise, then as VAT/ sales tax on sale and so on..), which is prevalent in the current tax framework. Being a consumption-destination-based tax, GST would be levied and collected at each stage of sale or purchase of goods or services based on the existing input tax credit method. Current tax structure works on production-origin-based system i.e. goods and services are taxed differently on each stage of production.
• Various sectors would be largely benefitted under this tax regimen and thus will drive market sentiment.
GST would replace most indirect taxes currently in place such as:
Central Taxes
• Central Excise Duty [including additional excise duties, excise duty under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955]
• Service tax
• Additional Customs Duty (CVD)
• Special Additional Duty of Customs (SAD)
• Central Sales Tax ( levied by the Centre and collected by the States)
• Central surcharges and cesses ( relating to supply of goods and services)
State Taxes
• Value-added tax
• Octroi and Entry tax
• Purchase tax
• Luxury tax
• Taxes on lottery, betting and gambling
• State cesses and surcharges
• Entertainment tax (other than the tax levied by the local bodies)
• Central Sales tax ( levied by the Centre and collected by states)
IMPACT OF GST AND ITS IMPLICATIONS
1. Dual Goods and Service Tax : CGST and SGST
2. 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.
3. 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.
4. Computation of GST on the basis of invoice credit method: The liability under the GST will be invoice credit method i.e. cenvat credit will be allowed on the basis of invoice issued by the suppliers.
5. Payment of GST: The CGST and SGST are to be paid to the accounts of the central and states respectively.
6. 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.
7. INPUT TAX CREDIT (ITC) SET OFF : ITC for CGST & SGST will be taken for taxes allowed against central and state respectively.
8. GST on Imports : Centre will levy IGST on inter-State supply of goods and services.Import of goods will be subject to basic customs duty and IGST.
9. Maintenance of Records : A taxpayer or exporter would have to maintain separate details in books of account for availment, utilization or refund of Input Tax Credit of CGST, SGST and IGST.
10. Administration of GST : Administration of GST will be the responsibility of the GST Council , which will be the apex policy making body of the GST. Members of GST Council comprised of the Central and State ministers in charge of the finance portfolio.
Goods and Service Tax Council: The GST Council will be a joint forum of the Centre and the States. The Council will make recommendations to the Union and the States on important issues like tax rates, exemption list, threshold limits, etc. One-half of the total number of Members of the Council will constitute the quorum of GST council.
Hence citizens are quite hopping towards key feature of GST that is avoidance of double taxation. Hope it a new era regime in terms of taxation in India.
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