How will Tax Structure Look Like After Implementation of Goods and Services Tax?

GST Council approves four tier GST rates @ 5% (Food Items), 12% & 18% (Standard) & 28% (Aerated drinks, Pan Masala, Tobacco & Luxury Items). GST rate for Gold to be decided later.

The Goods and services tax is a new regime in the indirect taxation in India. This was basically introduced mainly with the intention of removing the cascading effect that is the effect of paying taxes on taxes in India.

The prevailing indirect taxes which are VAT, CST, service tax, central excise will all vanish once the GST comes into force. It is proposed that GST would come into force from 1st of April,2017.

This new GST would open the doors of theIndian market to many foreign investors who are willing to trade in India. Thus the trade barriers which are prevailing now due to the complications of Indian indirect taxation regime will be removed by GST.

On the darker side, GST would also bring up some challenges to Indian businesses as there would be an ease of entry into Indian market thus increasing competition.

But however, the business persons in India are still happy with GST because they no longer have to face the complications which prevail right now. Especially for service-oriented industries, it is no less than a boon.

In order to appreciate the provisions of GST, we need to have an overlook over the present tax structure. By doing so, we can have a comparative view. That would be more convincing. Here we go!

Present tax structure

Presently both state and the central governments are involved in imposing and collecting of taxes under various entries of the constitution. A detailed analysis is given below:

• Service tax

Service tax is collected by the union government for the taxable services which are provided in the taxable territory ( thewhole of India except Jammu and Kashmir). The rates are differential based on the service provided.

• Central Sales Tax ( CST)

It is collected by the state where the sale has been made. Only interstate sales come under CST. Local sales are left under State VAT.

• State VAT

The sales or purchases which are affected within the state are subject to state VAT. They are collected by respective state governments.

• Central excise

This is collected by the union government. It is collected by the manufacturers producing goods and is collected when the manufactured goods are removed from the premises.

• State excise

This is collected by the state government on the alcoholic production.

Now, that was an overview of the present tax structure. Let us now zoom into the proposed GST structure. Read on!

The proposed GST structure

There would be 3 types of Tax in the proposed GST regime:

• Central Goods and Services Tax( CGST)

The sale of goods and services between 2 different states come under this. It is levied and collected by the central government.

• State Goods and Services Tax ( SGST)

The local sales happening in the state are covered here. It is imposed and collected by the state government.

• Integrated Goods and Services Tax ( IGST)

Other residual sales are covered under this head. This is again collected by the central government.

The list of central taxes which are going to be subsumed in GST is given below for better insight:

• Additional excise duty
• Service tax
• Central excise
• Excise duty which is presently levied under Medicinal and toiletries preparation act
• Central Sales tax
• Cesses

Similarly, the state taxes or levies which are going to be subsumed in GST are:

• Luxury tax
• State VAT
• Entry tax
• Entertainment tax
• State cessesand surcharges
• Taxes on betting, gambling and lotteries

GST in relation to certain specific products

Though GST is supposed to be the unanimous tax which promises uniformity in taxes, the GST treats certain products differentially.

These products have a separate provision in the GST regime. Highlights of these provisions are summarized below:

• The manufacturing of alcoholic beverages is outside the ambit of GST. Thus alcoholic beverages will have no ruling sections and would continue to be levied by the state excise act and collected by the respective state government.
• Also, the tobacco and tobacco related products also are not covered under GST. They would continue to be charged by the central excise by the central government.
• Imposing GST on the petroleum products is kept at a halt as of now. It would be included on a later date when the GST council deems it necessary.
• Till then, the central government would continue to collect taxes on petroleum products. The petroleum products are inclusive of the following:
• Petrol
• Diesel
• Natural gas
• Aviation turbine fuel

Read our articles:

• E-Invoice Mechanism under the GST
• Blocking/Unblocking the E-Way Bill creation system if fails to file GSTR-3B: GSTN
• Reasons for the Movement of Goods under the GST

The set-off and adjustment credit

As it is already mentioned, the main intention of GST is to remove the cascading effect of taxes. The double taxation will thus be removed by GST.

 

Therefore, it is crucial that some set-off and adjustment credits need to be given when thetax is paid on both services and goods which are received to be set off against the liability which is to be paid when the goods are sold.

The 3 types of GST will have set off provisions like:

• SGST can be set off against any surplus arising from IGST.
• CGST can be set off against SGST and surplus from IGST.
• IGST can be set off against SGST and CGST in the same sequence.

Exemption limits and the GST rate

The exemption limits and the GST rates are yet to be finalized by the GST council. However, it is estimated that the exemption limit would be INR 10 lacs.

In layman terms, businesses which do not cross the turnover of 10 lacs are given exemptions under GST.

The rate of GST will have apositive impact on themajority of products like electronic goods and consumer goods and a negative impact on a few.

The rate is estimated to be fixed between 18% and 20%. The concessional rate would be around 12% and the rate fir precious metals would be 2% to 6%.

GST registration

All the businesses indulged in thesale of goods and services are required to get themselves registered under GST. The registration has to be obtained based on states and not India as a whole.

As the E- filing is in practice now obtaining GST registration is mandatory. The GST council has announced that the registration process is kept very simple and there is ease of operation.

Bottom line of GST

Thus as a whole, we can come to a conclusion that GST is going to reduce the price of many products and services. Moreover, due to ease of entry and ease of operations, the Indian market will be exposed to the international market. This can also pave way for investors to invest in India globally.

The complications that prevailed in the indirect tax regime are removed by GST. Especially the service tax which is considered very complicated and confusing for many persons, GST is a boon.

Besides the consumers too can benefit from theintroduction of GST as the frauds and errors are bound to decrease. There is no scope for escapism too to the dealers.

Thus, bills will all be made white and no scope for theblack money. Everything would be billed and with a uniform tax rate. Thanks to the GST council and GST proposing committee!

We look forward for your valuable comments. www.carajput.com

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