Impact of GST on inter-state trade

gst

The Goods and Service Tax (GST) Bill got passed in Rajya Sabha on Wednesday, 3rd August 2016. It is one of the most important and the biggest economic reform that ever occurred in the history of India. With the air of having “One Nation, One Tax,” the GST is all set to effect each one of us.

GST which is an indirect tax reform aims to replace various State and Local Taxes with a single unified tax that will help remove tax barriers between states, creating a single market. The new tax regime is to come is force with effect from 1st Aril 2017, however, the standard tax rate to be levied still needs to be decided. The Congress warned that the rate should not be more than 18% but some of the State Government have sought more than 20% tax rate.

Before the GST gets implemented, the country will witness yet another battle between the politicians and economists to fix a reasonable standard rate of tax that will benefit one and all. Let understand the impact of GST on inter-state transfer of goods with the help of pictorial illustration:

The GST or IGST (Integrated Goods and Service Tax) as it would be called would have two components:

  • CGST (Central Goods and Service Tax) – The revenue from this component of GST would go to Central Government.
  • SGST(State Goods and Service Tax) – The revenue from this component of GST would go to State Government.

Lets understand the Tax implication on interstate trade under GST scenario with help of below example. For the purpose of illustration, CGST and SGST is presumed @ 10% each.

Interstate Trade GST

 

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