What is GST?
Goods & Service Tax or GST is a value added tax which will subsume and replace all the current indirect taxes levied in India. Hailed as one of the biggest fiscal reforms in the country, GST will be applicable to all businesses, small and large. With GST, there will be no scope for variable taxation anymore and the entire nation will follow a unified tax structure.
GST will be levied on both goods and services. India will follow a dual system of GST to keep the Centre and State fiscally independent of each other. The GST Council, consisting of the Union Finance Minister and various State Finance Ministers, has devised a four-tiered tax structure for the country with tax slabs of 5%, 12%, 18%, and 28% for different categories of products.
Which Taxes will GST Replace?
It will replace all the following taxes and bring them under one umbrella to make compliance easier:
(i) Taxes currently levied and collected by the Centre:
- Central Excise duty
- Additional Duties of Customs (commonly known as CVD)
- Special Additional Duty of Customs (SAD)
- Service Tax
(ii) Taxes currently levied and collected by the State:
- State VAT
- Central Sales Tax
- Entertainment and Amusement Tax (except when levied by the local bodies)
- Taxes on lotteries, betting and gambling
Please click on the blue headings for more detailed analysis on each topic.
- India will follow dual form of GST (like Canada and Brazil)
- At the intra-state level (goods/services are sold within the state)- CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax) will be levied
- At the inter-state level, IGST (Or Integrated Goods and Services Tax) shall be levied.
- Imports shall be considered as inter-state supply and IGST will be applicable. However, basic customs duty will apply on imports
- Exports shall be zero-rated.
- Supplies to SEZ will be zero-rated
Benefits of GST
An important benefit of the introduction of GST will be the removal of the cascading tax effect. In simple words “cascading tax effect” means tax on tax.
Under the current regime, service tax paid on input services cannot be set off against output VAT. Under GST, input tax credit can be availed smoothly across goods and services thus reducing the tax burden and removing cascading effect.
Also, the current tax regime has excise VAT and service tax, each of which has their own returns and compliances. GST will unify all these reducing the number of returns and compliances.
A ‘taxable person’ under GST, is a person who carries on any business at any place in India and who is registered or required to be registered under the GST Act.
GST registration is mandatory for (amongst others)-
- Any business whose turnover in a financial year exceeds Rs 20 lakhs (Rs 10 lakhs for North Eastern and hill states)
- Input service distributor (see below)
- E-commerce operator or aggregator
- Person who supplies via e-commerce aggregator
(Click here for the full list)
An expected 8 million taxpayers will migrate from various platforms into GST. All of these businesses will be assigned a unique Goods and Services Tax Identification Number (GSTIN). But most are yet not aware of the new registration process and the identification number.
Each taxpayer will be allotted a state-wise PAN-based 15-digit Goods and Services Taxpayer Identification Number (GSTIN). PAN is absolutely mandatory for GST. A person without PAN must first obtain a PAN before registering for GST.
Normally, the supplier pays the tax on supply. In certain cases, the receiver becomes liable to pay the tax, i.e., the chargeability gets reversed which is why it is called reverse charge.
The concept of reverse charge mechanism is already present in service tax. In GST regime, reverse charge will be applicable for goods (new) as well as services.
This is a new concept introduced in GST which will cover all supplies made together, in a bundle, whether the supplies are related or not. The concept of composite supply in GST regime is similar to the concept of bundled services under Service Tax Laws. However, the concept of mixed supply is entirely new.
Composite supply means a supply comprises two or more goods/services, which are naturally bundled and supplied with each other in the ordinary course of business, one of which is a principal supply. The items cannot be supplied separately.
Mixed supply under GST means two or more individual supplies of goods or services, or any combination, made together with each other by a taxable person for a single price. Each of these items can be supplied separately and is not dependent on any other.
The goods/services are supplied periodically and the payments are also made periodically, often monthly. For example, supplying bricks to builders is a continuous supply of goods because there will be a periodic supply for a long time.
Telecom and internet services provided by telecom companies are other examples of continuous supply of services.
According to the model GST law, refund claims under the GST regime will also be processed on merit basis, i.e on the GST compliance rating of the registered taxpayer. It is expected that certain slabs rates will be maintained for various taxpayers falling under various bandwidths of compliance rating and the instant refunds will be made in terms of percentage amount based on the individual rating of the taxpayer. For example, a taxpayer with rating 8 will get 80% instant refund.