The Government has announced in the Budget 2015 that GST will put in place a state-of-the-art indirect tax system by 1st April, 2016. GST is expected to play a transformative role in the way economy functions and it will add buoyancy to growth by developing a common Indian market and reducing the cascading effect on the cost of goods and services. Touted as the single-biggest indirect taxation reform since independence, the 122nd Constitution Amendment Bill for GST was tabled in the last Winter Session. The Bill will be discussed in the ongoing Budget Session.
The GST will bring significant changes in the indirect tax system by subsumed more than a dozen currently levied taxes. Further, GST avoids the cascade effect of Taxes by taxing only the value added at each stage of value chain. In principle, GST applies to all provisions of goods and services with few exemptions and exceptions. GST is a consumption based tax/levy. It is based on the “Destination principle.” GST is applied on goods and services at the place where final/actual consumption happens.
The below table briefly explain the impact on Indirect Tax System after GST Implementation:
|Particular||Current System||GST System|
|Tax System||Two Separate tax system operate i.e. central and state.
Goods and Services are taxed separately
|Dual Tax (CGST and SGST) will be levied on same base.
No distinction between Goods and Services
|Tax Credit||ITC setoff not available||Allow seamless ITC|
|Excise Duty||Taxed by Centre
Manufacturing is the taxable event
Taxed upto Manufacturing Point
|Subsumed in GST
Supply of Goods is taxable event
Taxed upto Retail level
|Basic Custom Duty (BCD)||Taxed by Centre||No Change as BCD will continue|
|CVD / SAD||Taxed by Centre||Subsumed in GST|
|Service Tax||Taxed by Centre
Provision of service is the taxable event
|Subsumed in GST
Supply of Services is taxable event
|Sales Tax||Taxed by Centre and State
|VAT will subsumed in GST and CST will be phase out|
|Interstate Transaction||Service Tax is collected by Centre whereas CST is collected and retained by State||To be subsumed in GST and IGST (CGST+SGST) will be charged|
|Place of Taxation||Excise : Manufacturing
Sale Tax : Place of Sale
Service Tax : Provision of Services
|Destination Based Tax System|
|Tax on Export||Exempt||Exempt|
|Tax on transfer to Branch||Exempt||To be Taxable|