Goods and Services Tax (GST) can be rightfully called as the largest Indirect Taxation Reform of the country since 1947. The history of GST in India goes back to 2006 when the Finance Minister proposed the idea of introducing it. The new tax regime of GST was finally implemented on 1st July 2017. The government proposed GST as a transparent and self-policing tax regime that is easier to administer that further shall boost economic growth of the country.
Table of Contents :
What is GST?
GST is a comprehensive Indirect Tax that is to be levied on sale, manufacture, and consumption of goods and services across the nation. It is a single tax applicable on the supply of goods from the manufacturer to the consumer. GST is applicable only on value addition at each stage. With the implementation of the new tax regime, India has become one unified market with only one indirect tax that is GST.
GST has come as a big advantage for the consumers, as it mitigates the cascading effect of the older tax regime and paves the way for a common national market. In addition to this, the overall tax burden will also be reduced and it would be more transparent to the consumers.
History of Goods and Services Tax (GST)
The then Union Finance Minister mooted the idea of GST in his Budget speech for 2006-07. The first discussion paper (FDP) on GST was released in November 2009 after a thorough discussion between the Empowered Committee of State Finance Ministers (which had also prepared the design of State VAT) and the central government. The paper became the basis of all future discussions on GST and included the proposed features of the new taxation model.
To introduce a new institutional mechanism which would ensure that decisions regarding structure, design and operations of GST are taken jointly by the center and stage, the 122nd constitutional amendment was introduced in the 16th Lok sabha. After being introduced in December 2014, the bill was passed in May 2015 by Lok sabha and was sent to select committee of Rajya Sabha in May itself. The report on bill was submitted in July by Rajya Sabha and was passed in Rajya Sabha with certain amendments and thereafter in Lok sabha. On 8th of September the bill received the assent of the President after being ratified by the required number of states, it was enacted as Constitution Act (101st Amendment) on 16th September 2016.
Centre-state Financial Relations post GST
Even prior to GST, the fiscal powers between the state and center were clearly demarcated without any overlap. Previously, the center was empowered to levy tax on manufacture of goods except for certain products such as alcohol/liquor made for human consumption. The state was allowed to levy tax on sale of goods, however in case of inter-state sales the tax was called as Central Sales Tax and was levied by the central government. The originating states use to both retain and collect these taxes. Center use to levy additional duties of customs for the sale or purchase of goods in the course of their export from India or import into India. This was in addition to the basic customs duty and was commonly known as CVD or SAD. In case of domestic products sales tax, State VAT and excise duties are levied for the same.
Post GST, a unique institutional mechanism has been put into place that ensures that decision about the designing and operation of GST would be taken by the center and state jointly. The tax shall be levied as Dual GST separately- the Union (CGST) and the States (SGST). On interstate trade or commerce (including imports) in goods and services, the Parliament has exclusive power to levy GST (IGST).
With the introduction of the new taxation regime a lot of rules would be changing. Salient features of GST can be summed up in the points given below.
Also Read: GST Returns: How to File GST Return & Due Dates
Components of GST
- GST would be levied on a common base by both the central and the state government simultaneously. The dual GST can be categorized into the following:
- Central GST (CGST)- GST to be levied by the central government
- State GST (SGST)/Union Territory GST (UTGST)- GST to be levied by states/Union Territories with legislature
- Integrated GST (IGST)- GST levied by central government on inter-state supply of goods and services to ensure that the credit chain is not disrupted. Apart from the applicable custom duties, import of goods and services would be treated as inter-state supplies and would therefore be subject to IGST
Read more about the types of GST.
GSTC (GST Council) would be responsible for deciding the rates of CGST, IGST and SGST/UTGST with mutual agreement of the states and the center. The following taxes currently levied by the center have been absorbed with the introduction of GST:
- Central Excise Duty
- Duties of Excise (Medicinal and Toilet Preparations)
- Special Additional Duty of Customs (SAD)
- Service Tax
- Cess and Surcharge applicable to goods and services.
- Additional Duties of Excise (Textiles and Textile Products)
- Additional Duties of Excise (Goods of Special Importance)
- Additional Duties of Customs (commonly known as CVD)
The following taxes currently levied by the state have been absorbed with the introduction of GST-
- Central Sales Tax
- State VAT
- Purchase Tax
- Entry Tax (All forms)
- Luxury Tax
- Taxes on advertisements
- Entertainment Tax (except those levied by the local bodies)
- State Cesses and Surcharges applicable so far related to supply of goods or services
- Taxes on lotteries, betting and gambling
Key things to remember:
- Alcohol for human consumption would be the only product on which GST is not applicable
- Crude, Diesel, ATF, Petrol and Natural Gas are the five specific petroleum products on which GST would be applicable from a date decided by GSTC
- The center would levy central excise duty on tobacco and tobacco products and they would also be subject to GST
Also Read : GST Registration Process
Features and Benefits of GST
- The tax which was previously levied on manufacture or sale of goods and provision of services would now be levied on ‘supply’ of goods and services
- As against the present principle of origin based taxation, GST would function on the principle of taxation on destination based consumption
- The exemption limit is applicable on both SGST and CGST and holds good for taxpayers having an annual turnover of Rs. 20 lakh. However, for some hilly and North Eastern states specified under article 279A of the constitution, this annual turnover limit is Rs. 10 lakh
- Small taxpayers, including select categories of service providers and manufacturers having annual turnover of up to Rs. 50 lakh have the option to pay tax at a flat rate without credits, also known as compounding option. This compounding scheme and threshold exemption is optional
- The number of exempted services and goods will be kept to a minimum
- All exports will be zero rated
Apart from this, taxpayers should also note that credits for a certain category of GST may only be used for paying GST of that particular category. This means that credits of CGST may not be used for paying SGST/ UTGST and similarly credits of SGST/UTGST may not be used for paying CGST. The two types of ITS (input tax credit) may not be cross utilized, however there is exception to this rule for specific circumstances for payment of IGST of inter-state supplies. The ITC is permitted to be utilized in the following manner.
- ITC of CGST can be used for payment of IGST and CGST
- ITC of SGST can be used for payment of IGST and SGST
- ITC of UTGST can be used for payment of IGST and UTGST
- ITC of IGST can be used for payment of IGST, CGST, SGST and UTGST
- ITC of CGST is not allowed to be used for payment of SGST/UTGST and vice versa
In order to make sure that the credit of SGST which has been used for the payment of IGST is transferred from the originating state to the center, the accounts are to be settled periodically. Also, the payments will be transferred from the center to the destination state for IGST used for payment of SGST. These transfers will be made on the basis of information mentioned in the returns filed by the taxpayers, including the transfers made from the center to the destination state for the portions of SGST collected on IGST on B2C supplies.
GST Rates- Tax Slabs Explained
The government has proposed a 4-Tier tax structure under 4 slabs of 5%, 12%, 18% and 28% for all the goods and services. Read on to know regarding various goods and services, whether they are tax-free or taxable under the following slabs:
1) 0% (No Tax Slab)
No Tax on these products:
Fresh meat, jute, fish chicken, milk, eggs, curd, butter milk, fresh fruits and vegetables, natural honey, besan, flour, salt, bread, sindoor, prasad, bindi, stamps, printed books, judicial papers, handloom, bones and horn cores, newspapers, bangles, bone grist, etc.; hoof meal, cereal grains hulled, horn meal, salt-all types, palmyra jaggery, kajal, etc.
2) 5% Tax Slab
5% Tax would be applicable on goods such as apparel below Rs. 1,000, fish fillet and footwear below Rs 500 and packaged food items, skimmed milk powder, cream, branded paneer, coffee, tea, frozen vegetables, spices, rusk, pizza bread, kerosene, coal, sabudana, lifeboats, medicines, stent, cashew nut, raisin, cashew nut in shell, ice and snow, insulin, bio gas, kites, postage or revenue stamps, first-day covers Agarbatti, stamp-post marks etc.
3) 12% Tax Slab
Goods such as apparel above Rs 1,000, cheese, ghee, butter, frozen meat products, packaged dry fruits animal fat, fruit juices, sausage, Ayurvedic medicines, bhujia, namkeen, tooth powder, picture books, colouring books, exercise books and note books, sewing machine, umbrella, ketchup & sauces, cellphones, diagnostic kits and reagents, fertilisers, fish knives, spoons, forks, cake servers, ladles, skimmers, tongs, corrective, spectacles, chess board, playing cards, carom board and other board games would be taxed at the rate of 12%. Also, services such as non-AC hotels, state-run lotteries, business class air tickets will fall under 12% GST tax slab.
4) 18% Tax Slab
This slab has maximum goods under it, such as footwear costing more than Rs 500, biscuits (All categories), bidi patta, flavoured refined sugar, cornflakes, pasta, preserved vegetables, pastries and cakes, jams, soups, sauces, instant food mixes, ice cream, tissues, mineral water, tampons, envelopes, steel products, printed circuits, note books, speakers and monitors, Kajal pencil sticks, camera, aluminium foil, weighing machinery, headgear and parts thereof, CCTV, printers electrical transformer, bamboo furniture, optical fiber, mayonnaise and salad dressings, swimming pools and padding pools, mixed condiments and mixed seasonings, curry paste, etc.
5) 28% Tax Slab
Bidis, molasses, chewing gum, waffles and wafers coated with chocolate, chocolate not containing cocoa, pan masala, paint, deodorants, aerated water, shaving creams, hair shampoo, after shave, sunscreen, wallpaper, dye, water heater, ceramic tiles, weighing machine, dishwasher, ATM, washing machine, vacuum cleaner, vending machines, shavers, hair clippers, automobiles, aircraft for personal use, will be charged at the rate of 28%.
For services such as hotels with room tariffs above Rs 7,500, private-run lotteries authorized by the states, 5-star hotels, cinema, race club betting, will attract 28% tax under GST.
Also Read : GST Rates List 2019
GST Mobile App
In order to facilitate a smooth transition to the new indirect tax regime for taxpayers, the Central Board of Excise and Customs (CBEC) has launched a Goods and Services Tax (GST) App. This app has been built to address all the issues and concerns of the tax payers about the new indirect tax regime. They will be helped with migration to GST through toll free numbers, reading material and videos on GST apart from the draft rules and laws.
The GST App is currently available for android users to address their queries about process of migration, how to apply for migration and the steps to be followed next and the laws governing the transition. The app also has a lengthy and exhaustive list of FAQs on common concerns such as registration, valuation, payment of tax, refunds, input tax credit, search and seizures and appeal forum.
The copies of the draft laws and rules which are currently being discussed and debated upon by GST council are also available on the app apart from a toll free helpline number and email ID for taxpayers seeking clarification on GST related matters.