What is GST? How does it work?
GST stands for Goods and Services Tax. It is an one indirect tax. It replaces all the indirect tax. The indirect taxes are excise, sales tax, VAT, octroi ETC. The rate of GST would be same for whole India. It does not change with the change of states. It makes India one common market.
What are the benefits of GST?
The benefits of GST can be summarized as under:
For Business and Industry
A robust and comprehensive IT system would be the foundation of the GST. Therefore, all tax payer services such as registrations, returns, payments, etc. would be available to the taxpayers online. It would make the whole system of GST payment and return filing easy and transparent.
Uniformity of tax rates and structures
GST ensures that indirect tax rates and structures are common across the country. It Increases certainty and ease of doing business. In other words, there would be same rules and rates of tax across the country.
Removal of cascading
A system of seamless tax-credits throughout the value-chain, and across boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden costs of doing business.
Reduction in transaction costs of doing business improves competitiveness for the trade and industry.
Gain to manufacturers and exporters
The GST would decrease the cost of locally manufactured goods because of the following reasons.
- Most of the central and state taxes vanishes
- Central Sales Tax would not be charged
- Complete and comprehensive set-off of the input goods and services
Because of the reduced cost of Indian industry, It would be more competitive in global market. It will give boost to Indian Exports.
For Central and State Governments
Simple and easy to administer
GST replaces multiple indirect taxes at the Central and State levels. Backed with a robust end-to-end IT system, GST would be simpler and easier to administer than all other indirect taxes of the Centre and State.
Better control on leakage
GST will result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of GST that would incentivize tax compliance by traders.
Higher revenue efficiency
GST is expected to decrease the cost of tax collection. It will lead to higher revenue efficiency.
For the consumer
Single and transparent tax proportionate to the value of goods and services
From the manufacturing of a product to the sale, there are many peoples involved. These are manufacturer, distributor, wholesaler and retailer. Every one of them charges for its role thus the cost of the product increases. How should each of them pay the tax. Should the tax levied on the total cost of product at every stage or should it be only on the increased cost? Definitely, It should be on the amount which was increased because of that intermediary. The present system does not consider this. It results in many hidden taxes. But the GST would be charged only on the value addition not on whole sale price. It would make products cheaper.
Relief in overall tax burden
Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit consumers.
Read More About GST Benefits : Top 10 Benefits of GST
Which taxes at the Centre and State level would go Away because of the GST?
At the Central level, the following taxes are going.
- Central Excise Duty,
- Additional Excise Duty,
- Service Tax,
- Additional Customs Duty commonly known as Countervailing Duty, and
- Special Additional Duty of Customs.
At the State level, the following taxes will vanish
- State Value Added Tax/Sales Tax,
- Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States),
- Octroi and Entry tax,
- Purchase Tax,
- Luxury tax, and
- Taxes on lottery, betting and gambling.
How would GST be Implemented in India?
Keeping in mind the federal structure of India, there will be two components of GST – Central GST (CGST) and State GST (SGST). Both Centre and States will simultaneously levy GST across the value chain. Every Goods and service will attract the GST.
The 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. The government has not permitted the cross utilization of credit.
How the Central GST (CGST) and State GST (SGST) is taxed simultaneously ?
Every supply of goods and services would atract the the Central GST and the State GSTboths. Certain goods have got the exemption. These are given below
- exempted goods and services
- Goods which are outside the purview of GST
- Transactions which are below the prescribed threshold limits
The same price or value is used to calculate the SGST and CGST. Till now the VAT includes Central Excise as well.
Will GST regime allow cross utilization of credits between goods and services?
You can use Cross utilization of credit of CGST between goods and services. Similarly, you can also avail the facility of cross utilization of credit in case of SGST.
However, the cross utilization of CGST and SGST would not be allowed except in the case of inter-State supply of goods and services under the IGST model which is explained in answer to the next question.
What is the Mechanism of GST in case of Inter-State Transactions of Goods and Services?
In case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST). All inter-State supplies of goods and services are the subject to GST. The IGST would roughly be equal to CGST plus SGST.
The government has designed IGST to ensure seamless flow of input tax credit from one State to another. The steps are given below.
- The inter-State seller would pay IGST on the sale of his goods to the Central Government. The IGST has two components the SGST and CGST.
- The exporting State will transfer the SGST to the central government. If it was a transaction within the state, the state must have kept the SGST.
- The importing dealer will also pay the SGST and CGST but after the deduction of IGST (SGST + CGST) paid by the inter state seller. Thus, the tax liability of importing dealer goes down. It is proportionate to the value addition.
- The Central Government, would give the SGST (got from exporting state, refer to point 2) to the importing state. Hence, the importing state gets the SGST from its importing dealer and from the inter state seller. Actually, In the inter state transaction, the importing or consuming state gets all of the SGST. Central government get his part in any case.
How will IT be used for the implementation of GST?
A common platform is prepared for implementation of GST across the India. This platform is called as the Goods and Services Tax Network (GSTN). It is ‘not for profit’ and ‘non government’ company. All the states and center would use this platform. The taxpayer and other stakeholders will also use this platform.
There would be no manual filing of returns. You can pay All taxes online. The system will auto generate the mis-matched returns. There would be no need for manual interventions. Most returns would be self-assessed.
What Would be the Registration Procedure of GST?
The registration procedures under GST are as follows:
- Existing dealers: If you are an Existing VAT/Central excise/Service Tax payers, you don’t need to apply for GST. The existing indirect tax payer don’t need to worry.
- New dealers: The new dealer have to apply online. The application would be simple.
- The registration number will be PAN based. The Centre and State, both use this number.
- Unified application to both tax authorities.
- Each dealer would get unique ID GSTIN.
- Deemed approval within three days.
- Post registration verification in risk based cases only.
How Would I File The GST Return
The major features of the proposed returns filing procedures under GST are as follows:
- There would be a Common return for both, Centre and State Government.
- There are eight forms for filing GST returns. However, most of the tax payer will use only four forms. These are return for supplies, return for purchases, monthly returns and annual return.
- Small taxpayers: Small taxpayers who have opted composition scheme shall have to file return on quarterly basis.
- Filing of returns shall be completely online. You can pay the GST online.
How would I Pay the GST?
These are the major features of GST payment.
- Electronic payment process- no generation of paper at any stage
- Single point interface for challan generation- GSTN
- Ease of payment – payment can be made through online banking, Credit Card/Debit Card, NEFT/RTGS and through cheque/cash at the bank
- Common challan form with auto-population features
- Use of single challan and single payment instrument
- Common set of authorized banks
- Common Accounting Codes