Introduction

• Indireact tax a revenue to the government for public expenditure.

• Levy of tax is made through a statue Article 265 of the Constitution of India.

• In indirect tax burden is passed on to the the ultimate consumer whereas in

direct tax burden cannot be passed to any other person.

• Eg. Customs duty paid on the imports gets passed on to the end user. But
income tax paid by the assessee is not passed on to anyone.

• Indirect taxes imposed on the commodities or services affect the prices of

the commodities and services leading to an inflationary trend.

• In order to curn inflation which was in practice due to multiplicity of taxes and
cascading effect, GOI has introduced one of the biggest reforms since
independent India by introducing Goods & Service Tax (GST) with effect from 1st
July, 2017.
History of GST
 Direct Tax vs Indirect Tax

Direct Taxes Indirect Taxes

Tax burden is borne by the person Tax burden is passed ln by the seller to the
who has taxable income. consumer.
Direct tax revenue of the Government Indirect tax revenue of the Government is
is less than indirect tax revenue. more than direct tax revenue.
Direct tax is progressive in nature i.e. Indirect tax is regressive in nature i.e. tax
tax burden depends upon the status of burden is the same on the end user of
the person responsible for paying tax. any goods/services irrespective of
whether the person is rich or poor.
The person bearing the tax is aware of The person (ultimate consumer) bearing
his tax burden. the tax burdenmay not be aware of the
tax pinch.
Income tax is considered to be a direct Indirect taxes include Good & Service
tax. Tax (GST) and Customs Duty.
 What is GST ?

• GST is known as the Goods and Services Tax. It is an indirect tax which has
replaced many indirect taxes in India such as the excise duty, VAT, services tax,
etc. The Goods and Service Tax Act was passed in the Parliament on 29th March
2017 and came into effect on 1st July 2017.

• In other words, Goods and Service Tax (GST) is levied on the supply of goods
and services. Goods and Services Tax Law in India is a comprehensive, multi-
stage, destination-based tax that is levied on every value addition. GST is a
single domestic indirect tax law for the entire country.

• Under the GST regime, the tax is levied at every point of sale. In the case of
intra- state sales, Central GST and State GST are charged. All the inter-state sales
are chargeable to the Integrated GST.
 Structure of indirect tax levy in India

Buying Raw
Materials

VAT

Sale to
Manufacture Wholesaler/
Warehousing

VAT + Excise Duty

VAT

Final Sale
to Sale to Retailer
Consumer
VAT
 Multi-stage

An item goes through multiple change-of-hands along its supply chain: Starting from
manufacture until the final sale to the consumer.
Buying Raw
Stages: Materials

• Purchase of raw materials

• Production or manufacture
Sale to
• Warehousing of finished goods Manufacture Wholesaler/
• Selling to wholesalers Warehousing

• Sale of the product to the retailers

• Selling to the end consumers

Final Sale
to Sale to Retailer
Consumer

The Goods and Services Tax is levied on each of these stages making it a multi-stage
tax.
 Value Addition

Value
Value Value
Addition
Addition Addition

Flour & Sugar Biscuits Label Biscuits

• A manufacturer who makes biscuits buys flour, sugar and other material. The
value of the inputs increases when the sugar and flour are mixed and baked into
biscuits.

• The manufacturer then sells these biscuits to the warehousing agent who packs
large quantities of biscuits in cartons and labels it. This is another addition of
value to the biscuits. After this, the warehousing agent sells it to the retailer.

• The retailer packages the biscuits in smaller quantities and invests in the
marketing of the biscuits, thus increasing its value. GST is levied on these value
additions, i.e. the monetary value added at each stage to achieve the final sale to
the end customer.
 Destination Based

• Consider goods manufactured in Maharashtra and sold to the final consumer in

Karnataka. Since the Goods and Service Tax is levied at the point of
consumption, the entire tax revenue will go to Karnataka and not Maharashtra.
 Pre GST Regime

Central Excise Service Tax VAT

(On (On provision ( On sale of Goods)
Manufacturing) of
Service)
 Tax Laws before GST

Inter-state sale of goods was taxed by the centre. CST (Central State Tax) was applicable in case of inter-state
sale of goods. The indirect taxes such as the entertainment tax, octroi and local tax were levied together by
state and centre. These led to a lot of overlapping of taxes levied by both the state and the centre.

The following is the list of indirect taxes in the pre-GST regime:

• Central Excise Duty
• Central Sales Tax
• Duties of Excise
• Purchase Tax
• Additional Duties of Excise
• Luxury Tax
• Additional Duties of Customs
• Entertainment Tax
• Special Additional Duty of Customs
• Entry Tax
• Cess
• Taxes on advertisements
• State VAT
• Taxes on lotteries, betting, and gambling

CGST, SGST, and IGST have replaced all the above taxes.
Taxes Subsumed in GST
 How Has GST Helped in Price Reduction?

During the pre-GST regime, every purchaser, including the final consumer paid tax on
tax. This condition of tax on tax is known as the cascading effect of taxes.

GST has removed the cascading effect. Tax is calculated only on the value-addition at
each stage of the transfer of ownership. Understand what the cascading effect is and
how GST helps. The indirect tax system under GST will integrate the country with a
uniform tax rate. It will improve the collection of taxes as well as boost the
development of the Indian economy by removing the indirect tax barriers between
states.
 Tax Calculations in Earlier and Current Regime

Action Before GST After GST

Raw Material (₹ 100 + 15 Tax) 115 100
(+) Admin Office OHs 100 100
(+) Factory OHs 100 100
(+) Selling OHs 100 100
(+) Profit 100 100
Selling Price 515 500
(+) Tax at 15% 78 75
Final Selling Price to Customer 593 575

The tax liability was passed on at every stage of the transaction, and the final
liability comes to a rest with the customer. This condition is known as the cascading
effect of taxes, and the value of the item keeps increasing every time this happens.
 Tax Calculations in Earlier Regime

The tax liability was passed on at every stage of the transaction, and the final
liability comes to a rest with the customer. This condition is known as the cascading
effect of taxes, and the value of the item keeps increasing every time this happens.

Tax Calculations in Current Regime

In the case of Goods and Services Tax, there is a way to claim the credit for tax
paid in acquiring input. The individual who has already paid a tax can claim credit
for this tax when he submits his GST returns.

In the end, every time an individual is able to claims the input tax credit, the sale
price is reduced and the cost price for the buyer is reduced because of lower tax
liability. The final value of the biscuits is therefore reduced from ₹ 593 to ₹ 575,
thus reducing the tax burden on the final customer.
 Component of GST

There are three taxes applicable under this system: CGST, SGST & IGST.

• CGST (Central GST): It is the tax collected by the Central Government on an

intra- state sale (e.g., a transaction happening within Maharashtra)

• SGST (State GST): It is the tax collected by the state government on an intra-
state sale (e.g., a transaction happening within Maharashtra)

• IGST (Integrated GST): It is a tax collected by the Central Government for an

inter- state sale (e.g., Maharashtra to Tamil Nadu)
 Component of GST

In most cases, the tax structure under the new regime will be as
follows:
Transaction New Regime Old Regime Revenue
Distribution
Sale within the State CGST + SGST VAT + Central Excise/Service tax Revenue will be
shared equally
between the
Centre and the
State
Sale to another State IGST Central Sales Tax + There will only be
Excise/Service Tax one type of tax
(central) in case of
inter-state sales.
The Centre will then
share the IGST
revenue based on
the destination of
goods.
 Component of GST

Illustration:
• Let us assume that a dealer in Gujarat had sold the goods to a dealer in
Punjab worth Rs. 50,000. The tax rate is 18% comprising of only IGST.

• In such a case, the dealer has to charge IGST of Rs.9,000. This revenue will go
to Central Government.

• The same dealer sells goods to a consumer in Gujarat worth Rs. 50,000. The
GST rate on goods is 12%. This rate comprises CGST at 6% and SGST at 6%.

• The dealer has to collect Rs.6,000 as Goods and Service Tax, Rs.3,000 will go to
the Central Government and Rs.3,000 will go to the Gujarat government since the
sale is within the state.
 Benefits of GST

Benefits to Simplifies Easy Tax Advantages

Economy Tax Compliance for Trade &
Structure Industry
 Benefits of GST

Benefits to Economy
 Benefits of GST

Simplifies Tax Structure

 Benefits of GST

Easy Tax Compliance

 Benefits of GST

Advantages for Trade & Industry

 Benefits of GST

Advantages for Trade & Industry

Framework of GST
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(ATF = Aviation Turbine Fuel)

Framework of GST
Constitutional Provisions
Constitutional Provisions
Constitutional Provisions
 Provisions of Constitution (101st Amendment) Act, 2016

Power to levy Goods & Service Tax (GST) has been conferred by Article 246A of the
Constitution which was introduced by the Constitution (101st Amendment) Act, 2016.

Significant provisions of Constitution (101st Amendment) Act, 2016 are discussed below
:

(I) Article 246A : Power to make laws with respect to Goods and Services Tax
 Provisions of Constitution (101st Amendment) Act, 2016

(II) Article 269A : Levy and collection of GST on inter state supply
 Provisions of Constitution (101st Amendment) Act, 2016

(III) Article 279A : GST Council

 Provisions of Constitution (101st Amendment) Act, 2016

(III) Article 279A : GST Council

 Provisions of Constitution (101st Amendment) Act, 2016

(IV) Article 366 : Definitions of ‘Goods and Services Tax’, ‘Services’ and ‘State’