Goods & Services Tax
Major defects in the present structure of indirect taxes
• Movement of goods in European Union (EU) is free across all 28
countries without any incidence of tax
• However, in India, movement of goods from one State to other was
itself not tax free
• Moreover, India does not have a national market due to invisible
barriers of Central Sales Tax (CST), Entry Tax and State VAT
• Hence, this had its impact on Indian Exports
• Apart from this, the other major defects are:
• Credit of CST levied by Central Government (CG) was not available
• Taxes levied by CG were not available as set off against the taxes
levied by the State Governments (SGs)
• Certain taxes levied by the SGs were not allowed as set off for
payment of other taxes levied by the SGs
• If there was any difficulty, there is no authority to sort out the
problems of CST and find solutions
• Cascading effect of taxes cannot be avoided due to CST and
Entry Tax
• Millions of man-hours and truck-hours are lost at check posts
• Huge corruption was involved due to this
• CG cannot impose tax on goods beyond manufacturing level
[Though CST was levied by CG, it is collected and retained by the
SGs]
• SGs cannot impose Service Tax
• Over the years, distinction between goods and services has
become hazy, due to which there is overlapping of State VAT
and CST on transactions like
• Works contracts
• Food rates services (like restaurants, outdoor catering,
mandap services, etc.)
• Software
• IPR related services
• Lottery
• SIM cards
• Renting of movable property
• Etc.
These defects necessitated the introduction
of GST Act into the country
https://en.m.wikipedia.org/wiki/Goods_and_Services_Tax_(India)
• Introduction of GST required amendments in the Constitution
so as to enable the integration of
• The central excise duty including additional duties of customs
on imports
• Service tax
• State VAT
• Certain specific taxes
• The amendments in the Constitution also empowered the
Center and State to simultaneously levy and collect this tax
• GST was introduced in India after a 14 year long journey
• In 2003, the Kelkar Task Force on indirect tax had suggested a
comprehensive Goods and Services Tax based on VAT
principle
• The Bill was introduced in Lok Sabha on 19 Dec 2014 and was
passed on 6 May 2015
• The Goods and Services Tax Act was passed in the Parliament
on 29 Mar 2017
• The CGST Act came into force on 22 Jun 2017
• On 1 Jul 2017, GST Act came into effect across the whole of
India
• It subsumed many indirect taxes in India
• Central Taxes subsumed in GST
• Central Excise Duty
• Duties of Excise (Medicinal and Toilet Preparations)
• Additional Duties of Excise (Goods of Special Importance)
• Additional Duties of Excise (Textiles and Textile Products)
• Additional Duties of Customs (commonly known as CVD) &
Special Additional Duty of Customs (SAD)
• Service Tax
• Cesses and surcharges in so far as they relate to supply of
goods or services
• State Taxes subsumed in GST
• State VAT
• Sales Tax
• Entry Tax (all forms) and Purchase Tax
• Luxury Tax
• Entertainment Tax (except those levied by the local bodies)
• Taxes on advertisements
• Taxes on lotteries, betting and gambling
• State cesses and surcharges in so far as they relate to supply
of goods or services
• Taxes NOT subsumed in GST
• Basic Customs Duty (on imports)
• Export Duty
• Road and Passenger tax
• Toll Tax
• Property Tax
• Stamp Duty
• Electricity Duty
• Taxes collected by the local bodies
Rationale for GST
• Benefits for consumers
• Single and transparent tax proportionate to the value of goods
and services
• Relief in overall tax burden
• Reduction in prices of goods and services due to elimination
of cascading effect
• Benefits for business and industry
• Easy compliance
• Uniformity of tax rates and structures
• Removal of cascading effect
• Improved competitiveness
• Gain to manufacturers and exporters
Rationale for GST
• Benefits for the Government
• Simple and easy to administer
• Better controls on leakage
• Avoidance of corruption
• Higher revenue efficiency
• GST Council was constituted by the President of India within
60 days from the date of commencement of the amendment
• The council consists of the following members:
• Union Finance Minister (Chairperson)
• Union Minister of State in charge of Revenue or Finance
(Member)
• Minister in charge of Finance or Taxation or any other
Minister nominated by each State Government (Members)
• The members shall choose one amongst themselves to be the
Vice-Chairperson of the Council for such period as they may
decide
• At present there are 33 members in the GST Council
• The GST Council shall make recommendations to the Union
and States on:
• Taxes, cesses and surcharges levied by the Union, the States
and the local bodies which may be subsumed in the GST
• Goods and services that may be subjected to, or exempted
from the GST
• Model GST laws, principles of levy, apportionment of GST
levied on supplies in the course of inter-state trade or
commerce and the principles that govern the place of supply
• Threshold limit of turnover below which goods and services
may be exempted from GST
• Rates including floor rates with bands of GST
• Any special rate or rates for a specified period, to raise
additional resources during any natural calamity or disaster
• Special provision with respect to the Special Category States
(SCS), i.e. Arunachal Pradesh, Assam, Manipur, Meghalaya,
Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, J&K
and Uttarakhand
• Any other matter relating to the GST, as the Council may
decide
• GST Council shall recommend the date on which the GST will
be levied on
• Alcoholic liquor for personal consumption
• Petroleum crude
• High speed diesel
• Motor spirit (commonly known as petrol)
• Natural gas
• Aviation turbine fuel
• The GST Council shall be guided by the need for a harmonized
structure of GST and for the development of a harmonized
national market for goods and services
GST
• It means any tax on the supply of goods, or services or both
except taxes on the supply of liquor for human consumption
• Meaning of “Goods” is given in an inclusive manner to
include all materials, commodities and articles
• “Services” means anything other than goods
• The unique feature of GST is integration of taxes on goods and
services in India
• It subsumed (absorbed) many indirect taxes that existed in
pre-GST era
• It is a single tax on the supply of goods and services, right
from the manufacturer to the consumer
• Credits of input taxes paid at each stage will be available in
the subsequent stage of value addition, which makes GST
essentially a tax only on the value addition at each stage
• The final consumer will thus bear only the GST charged by the
last dealer in the supply chain, with set-off benefits at all the
previous stages
• GST is applicable on “supply” of goods or services
• GST is based on the principle of destination based
consumption taxation
• The GST network software to be used for the implementation
of GST across the country was developed by an Indian MNC
“Infosys” for a contract price of INR 1380 Crores
• GST came into effect from 1 July 2017 across India and 8 July
2017 in State of Jammu & Kashmir
• India includes
• The territory (land on the whole of India) (+)
• Territorial waters (area upto 200 nautical miles inside sea)
including seabed, subsoil underlying such waters (+)
• The air space above the territory and the territorial waters
• For each State / UT
• The territory (land on the State / UT) (+)
• Territorial waters (area upto 12 nautical miles inside sea) (+)
• The air space above the territory and the territorial waters
• GST is levied simultaneously by both the Center (Central GST)
and the States including the UTs with legislatures (State GST)
on a common base
• The UTs without legislature levy UT GST
• An Integrated GST is levied on inter-state supply (including
stock transfers) of goods or services (This is collected by the
Center)
• Import of goods is treated as inter-state supply and is
subjected to IGST in addition to customs duty
• Import of services is treated as inter-state supply and is
subjected to IGST
• CGST, SGST / UTGST and IGST would be levied at the rates
recommended by GST Council
• There are 4 types of taxes in GST
• when transaction is between 2 States / UTs (Inter-State Supply)
• Integrated Tax (IGST) levied under IGST Act, 2017
• when transaction is within same State / UT (Intra-State Supply)
• Central Tax (CGST) levied under CGST Act, 2017
• State Tax (SGST) levied under SGST Act, 2017 (within same state)
• Union Territory Tax (UTGST) levied under UTGST Act, 2017 (within
same UT)
• There are 28 States and 9 UTs in India
• All the 28 States and 3 UTs (Delhi, J&K and Puducherry) have their own
State legislatures through which the SGST Act, 2017 has been passed
• These are all governed by the respective SGST Acts
• The remaining 6 UTs (Andaman & Nicobar Islands, Chandigarh, Dadra
& Nagar Haveli, Daman & Diu, Ladakh, and Lakshadweep) are all
governed by the UTGST Act
• The rates of GST specified are for inter-state supplies
• If the same has to be made applicable to intra-state supplies,
then 50% of the tax will go to the Center and the balance 50%
will go to the respective State / UT
• For supply of goods:
• Nil; 0.25%; 3%; 5%; 12%; 18% and 28%
• 0% is applicable for most essential goods like rice
• For supply of tobacco products, pan masala, motor cars,
aerated waters, and coal, compensation cess is also charged
• For supply of services:
• Most of the services are charged at 18%; few cases at 5%;
12%; 28% and few services are exempt from GST
• GST is payable on the date which is earlier of the following:
• Date of supply of goods / services
• Date of receipt of payment
• Current month’s GST is payable maximum by 20th of next
month
• Monthly returns to be filed (few persons are allowed to file
quarterly returns)
Let’s see some examples
Shall we …. ?
Example - 1
• Rs.100,000 worth laptop is sold by an electronics store in
Pune, Maharashtra to a customer in Nagpur, Maharashtra and
the applicable GST rate is 18%
• Then Amount of GST:
• Rs.18,000
• Goods are supplied from:
• Maharashtra
• Goods are supplied to:
• Maharashtra
• Type of transaction:
• Intra-state (within the same state), i.e. CGST & SGST
• Payable to:
• Rs.9,000 to Center and Rs.9,000 to Maharashtra State
Example - 2
• Rs.100,000 worth laptop is sold by an electronics store in
Chandigarh to a customer in Chandigarh and the applicable
GST rate is 18%
• Then Amount of GST:
• Rs.18,000
• Goods are supplied from:
• Chandigarh
• Goods are supplied to:
• Chandigarh
• Type of transaction:
• Intra-state (within the same UT), i.e. CGST & UTGST
• Payable to:
• Rs.9,000 to the Center & Rs.9,000 to Chandigarh UT
Example - 3
• Rs.100,000 worth laptop is sold by an electronics store in New
Delhi to a customer in Chandigarh and the applicable GST rate
is 18%
• Then Amount of GST:
• Rs.18,000
• Goods are supplied from:
• New Delhi
• Goods are supplied to:
• Chandigarh
• Type of transaction:
• Inter-state (between two UTs), i.e. IGST
• Payable to:
• Rs.18,000 to the Center
Example - 4
• Rs.100,000 worth laptop is sold by an electronics store in
Daman, Daman & Diu, to a customer in Chandigarh and the
applicable GST rate is 18%
• Then Amount of GST:
• Rs.18,000
• Goods are supplied from:
• Daman & Diu
• Goods are supplied to:
• Chandigarh
• Type of transaction:
• Inter-state (between two UTs), i.e. IGST
• Payable to:
• Rs.18,000 to the Center
Example - 5
• Rs.100,000 worth laptop is sold by an electronics store in
Pune, Maharashtra to a customer in Mysore, Karnataka and
the applicable GST rate is 18%
• Then Amount of GST:
• Rs.18,000
• Goods are supplied from:
• Maharashtra
• Goods are supplied to:
• Karnataka
• Type of transaction:
• Inter-state (between two States), i.e. IGST
• Payable to:
• Rs.18,000 to the Center
Example - 6
• Rs.100,000 worth laptop is sold by an electronics store in
Silvassa, Dadra & Nagar Haveli to a customer in Mumbai,
Maharashtra and the applicable GST rate is 18%
• Then Amount of GST:
• Rs.18,000
• Goods are supplied from:
• Dadra & Nagar Haveli
• Goods are supplied to:
• Maharashtra
• Type of transaction:
• Inter-state (between UT and State), i.e. IGST
• Payable to:
• Rs.18,000 to the Center
Example - 7
• Rs.100,000 worth laptop is sold by an electronics store in
Visakhapatnam, AP, to a customer in Port Blair, Andaman &
Nicobar Islands and the applicable GST rate is 18%
• Then Amount of GST:
• Rs.18,000
• Goods are supplied from:
• Andhra Pradesh
• Goods are supplied to:
• Andaman & Nicobar Islands
• Type of transaction:
• Inter-state (between State and UT), i.e. IGST
• Payable to:
• Rs.18,000 to the Center
Example - 8
• Rs.100,000 worth laptop is sold by an electronics store in
Srinagar, to a customer in Jammu and the applicable GST rate
is 18%
• Then Amount of GST:
• Rs.18,000
• Goods are supplied from:
• J&K
• Goods are supplied to:
• J&K
• Type of transaction:
• Intra-state (within the same UT), i.e. CGST & SGST
• Payable to:
• Rs.9,000 to the Center and Rs.9,000 to J&K State
• Compensation Cess
• Charged in addition to CGST, SGST / UTGST & IGST
• For 5 years (2017-18 to 2021-22)
• To compensate the loss faced by States because of abolition of
CST
• Is charged on Tobacco products; Pan masala; Motor cars; Coal;
Aerated waters
• Import of goods
• Customs duty (+) education cess (+) IGST (+) GST
Compensation Cess
• If goods are exempt from Customs duty, then IGST also
exempted on such goods
• Tobacco products
• Excise duty of State (+) GST (+) GST Compensation Cess
• Special provision for State of Kerala
• To mobilize revenues to meet the cost of rehabilitating parts
of the State that were ravaged by recent floods
• Calamity Cess of 1%
• For 2 years
• On all intra-state sales
• Presently the following goods do not fall under GST regime
• On these goods only the respective State Excise Duty is levied
• Alcoholic liquor
• Petroleum products (including petroleum crude)
• High speed diesel
• Motor spirit / Petrol
• Natural gas
• Aviation turbine fuel
• Coding of Goods and Services
• Used for classifying goods and services
• For goods: HSN Code
• Harmonized System of Nomenclature is used for classifying
goods
• Internationally accepted product coding system created by
General Agreement on Tariffs & Trade (GATT)
• For services: SAC Code
• Services Accounting Code is used for classifying services
• Classification system for services is developed by the Service
Tax Department of India
• Other concepts:
• Composition Scheme
• Reverse Charge Mechanism
• Input Tax Credit
