Comparision of Current Tax System with Proposed GST

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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

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