Goods and Services Tax (GST) - Science Tutor

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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