What is GST

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The Goods and Service Tax (GST) is a Value Added Tax (VAT) to be implemented in India, from April 2016.GST stands for “Goods and Services Tax”, and is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. Some of the highlights of the proposed GST are:

  • GST will be levied on both Goods (Manufacturing and Trading) and Services.
  • GST will replace more than a dozen type of taxes including service tax, central excise duty, additional excise and customs duties, central surcharges and cesses, state VAT, state sales tax, entertainment tax not levied by local bodies, luxury tax, taxes on lottery, betting and gambling, tax on advertisements and state cesses and surcharges related to supply of goods and services
  • In India, GST framework will have dual structure i.e. a central components and state components.
  • GST system is targeted to be a simple, transparent and efficient system of indirect taxation as has been adopted by over 140 countries around the world.
  • Full implementation of GST could raise India’s GDP growth by 0.9 to 1.7 percent, according to the National Council of Applied Economic Research (NCAER).
  • GST, being a destination-based consumption tax based on VAT principle, would also greatly help in removing economic distortions caused by present complex tax structure and will help in development of a common national market.
  • The best GST systems across the world use a single GST while India has opted for a dual-GST model. Critics claim that CGST, SGST and IGST are nothing but new names for Central Excise/Service Tax, VAT and CST and hence GST brings nothing new to the table.
  • GST will be charged on each state of product life cycle and at each stage supplier are eligible to off-set the levy through tax credit mechanism. It means the consumer pay GST at the specified rate on sale price by the last dealer.
  • GST Sample Working:
  Supplier Manufacturer Whole Seller Retailer Consumer
Cost 500 1,000 1,200 1800
Sale Price 500 1,000 1,200 1,500
GST @ 20%** 100 200 240 300
Input Tax Credit 0* 100 200 240
Net GST Payable 100 200 40 60  

 Note:

* the supplier may get tax credit for GST paid on raw materials and services obtained. However, for purpose of simplicity, it has not been considered in this illustration.

** GST rate is assumed at 20% for illustrative purposes only

 

  • As illustrated above, GST is payable on the amount of value addition at various stages of product life cycle and there will not be overlapping of taxes. Consumer will purchased goods at Sale Price plus Reduce tax outflow in the hands of the consumers.
  • Tax Credit is available all through the supply chain, hence the GST will not become the part of Product Cost upto consumer level.
  • A standard rate of GST across various goods and services will be imposed. However, GST rates are yet to decided.
  • Initially certain goods including crude petroleum, diesel, petrol, natural gas, aviation turbine fuel and alcohol for human consumption will be kept out of the GST’s purview, as sharing tax over these goods has been a point of contention between the centre and states. States will have the power to levy taxes on these items, except in the case of imports and inter-state trade

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