Goods and Services Tax (GST)
Goods and Services Tax is a single tax on goods and services. It has
subsumed central indirect taxes like excise duty, countervailing duty and service
tax and State indirect taxes like Value added tax, Octree and Entry tax, luxury
tax, Purchase tax and Entertainment Tax. Introduction of GST will not affect
Direct tax system. Commodities outside GST. The government of India will
continue to charge central excise duty on all petroleum & natural gas
products, tobacco and opium products. GST on above products will be applicable
at a later stage, which will be decided by GST Council. Only alcohol has been
kept out of purview of GST. Thus, existing central and state taxes will
continue to apply on alcohol. Composition of GST Council.
GST Council has the following composition:
a) Union Minister of Finance as the chairman,
b) Union Minister of State in charge of Finance as member
c) Finance/revenue ministers of each state government as members.
GST Rate
GST rate has not been capped. It has been decided by the GST Council
and will be reviewed by the council from time to time. Compensation to states Parliament
has agreed to compensate states for any loss of revenues, on account of change in
taxation system to GST, for a period of five years. A shift to new taxation
system initially reduces the tax compliance among people and thus, in initial
years the revenue of state governments may reduce. However, in the long run,
GST will lead to increase in revenue of state governments.
Implication of introducing GST
1. As GST is a uniform taxation system applicable throughout the
country, GST will create a uniform market across the country and make taxation
transparent and hassle-free.
2. GST has subsumed many taxes and thus, GST has made taxation system
simple and reduced the cost of complying the taxation system.
3. The earlier system of numerous tax departments hampered
inter-department
coordination and made tax evasion possible. GST will drastically
increase the tax base and reduce tax evasion.
4. After introduction of GST, most of the goods will be cheaper. The
rate of tax under GST is less as compared to the tax rates existing earlier.
Infact, the GST rate for essential commodities is 0%
5. The reduction in tax burden will reduce the price of goods, lower
the production cost and improve exports. Thus, in the long run, implementation
of GST will create a large number of jobs.
6. Services are presently taxed at 15%. The GST rate for most of the
services is around 18%. Thus, services are expected to be costlier.
Administration of GST. As decided by the GST Council, the tax base will be
shared between the assessment
machinery of the Centre and the States. 90:10 formula was agreed upon
for dual control of assesses. As per the formula for dual control of assesses,
90 per cent of those with a GST turnover of Rs. 1.5 crore or less will be
assessed by the administrative machinery of the States, and 10 per cent by the
administrative machinery of the Centre. Those above a turnover of Rs. 1.5 crore
would be assessed in the ratio of 50:50 between the Centre and the States. The
territorial jurisdiction between the Centre and the States was also decided. As
per United Nations Convention on Law of seas (UNCLOS), territorial waters
extend upto 200 nautical miles. The states have been given right to tax
transactions upto 12 nautical miles.
(1 nautical mile = 1.853 km)
Rate of GST
The Goods and Services Tax (GST) has goods and services categorized
under the following slab rates:
No Tax Goods
No tax will be imposed on items like fresh meat, fish chicken, eggs,
milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour,
besan, bread, prasad, salt, bindi. Sindoor, stamps, judicial papers, printed
books, newspapers, bangles, handloom, etc. Services Hotels and lodges with
tariff below Rs 1,000, Grandfathering service has been exempted under GST.
5% Tax Goods
Items such as fish fillet, cream, skimmed milk powder, branded paneer,
frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, kerosene,
coal, medicines, stent, lifeboats will attract tax of 5 %, Services Transport
services (Railways, air transport), small restaurants will be under the 5% category
because their main input is petroleum products, which is outside GST ambit.
12% Goods
Frozen meat products, butter, cheese, ghee, dry fruits in packaged
form, animal fat, sausage, fruit juices, namkeen, Ayurvedic medicines, tooth
powder, agarbatti, colouring books, picture books, umbrella, sewing machine,
cellphones will be under 12 % tax slab.
Services: Non-AC hotels, business class air ticket,
fertilisers, Work Contracts will fall under 12 percent GST tax slab
18% Goods
Most items are under this tax slab which include flavoured refined
sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces,
soups, ice cream, instant food mixes, mineral water, tissues, envelopes, note
books, steel products, printed circuits, camera, speakers and monitors.
Services: AC hotels that serve liquor, telecom services, IT
services, branded garments and financial services.
28% Goods
Chewing gum, molasses, chocolate not containing cocoa, pan masala,
aerated water, paint, deodorants, shaving creams, after shave, hair shampoo,
dye, sunscreen, wallpaper, ceramic tiles, water heater, dishwasher, weighing
machine, washing machine, ATM, vending machines, vacuum cleaner, shavers, hair
clippers, automobiles, motorcycles, aircraft for personal use, will attract 28
% tax - the highest under GST system.
Services: 5-star hotels, race club betting, cinema will
attract tax 28 per cent tax slab under GST
3% Goods
Gold, silver, and diamonds are placed in the category of 3% while
rough diamonds would attract a nominal rate of 0.25%. Input Credit under GST Input
credit means at the time of paying tax on output, one can deduct the tax already
paid on inputs. Let us suppose a service provider delivers services on which
the tax payable is 500 and consumes goods and services on which the tax he has
already paid is 370.Therefore,
Tax payable on output is Rs 500
Tax paid on input (purchases) is Rs 370
The service provider can claim input credit of Rs 370 and thus, is
required to deposit only Rs 130 in taxes.
Conditions for
claiming input credit
Input credit can be claimed subject to the following conditions:
1. Supplier has filed GST returns Input credit is only allowed if the
supplier has deposited the tax which he has collected from the purchaser. Thus,
every input credit which can be claimed shall be matched and validated before
it can be claimed.
2. If the tax on purchases is higher than tax on sale, then some input
credit will remain unclaimed. In such a case, one is allowed to carry forward
or claim a refund.
If tax on inputs » tax on
output » carry forward input tax or
claim refund
If tax on output » tax on
inputs » pay balance
3. No interest is paid on input tax balance by the government
4. Since GST is charged on both goods and services, input credit can
be availed on both goods and services.
5. Input tax credit is allowed on capital goods.
6.
Input tax credit is not allowed for goods and services for personal use
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