An Overview on GST
by
Bhaskar Sinha Roy
Goods
and Service Tax (GST) as the name suggest is a one single tax on the supply of
goods and services, right from the Manufacturing to the ultimate delivery to
customer. Credits of input tax paid at each stage will be available in the
subsequent stage of value addition, which makes GST essentially a tax only on
value addition at each stage and thus avoiding cascading effect.
The final consumer will thus bear only the GST charged by the last dealer in
the supply chain, with set-off benefits at all the previous stages.
Taxes
to be merged into GST:
At
the Central level, the following taxes shall be replaced
by GST:
·
Central
Excise Duty,
·
Additional
Excise Duty,
·
Service
Tax,
·
Additional
Customs Duty commonly known as Countervailing Duty, and
·
Special
Additional Duty of Customs.
At
the State level, the following taxes shall be replaced
by GST:
·
State
Value Added Tax/Sales Tax, commonly known as VAT,
·
Entertainment
Tax (other than the tax levied by the local bodies) i.e. tax levied by the
local bodies will continue,
·
Central
Sales Tax (levied by the Centre and collected by the States) i.e. CST,
·
Octroi
and Entry tax,
·
Purchase
Tax,
·
Luxury
tax, and
·
Taxes
on lottery, betting and gambling.
How would GST be administered in India:
The
GST shall have two components – One levied by the Centre i.e. Central GST
(CGST) and the other levied by the State i.e. State GST (SGST). Both Centre and
States will simultaneously levy GST across the value chain. Tax will be levied
on every supply of goods and services. Centre would levy and collect Central
Goods and Services Tax (CGST), and States would levy and collect the State
Goods and Services Tax (SGST) on all transactions within a State. The input tax
credit of CGST would be available for discharging the CGST liability on the
output at each stage. Similarly, the credit of SGST paid on inputs would be
allowed for paying the SGST on output. No cross utilization of credit between
CGST and SGST would be permitted.
Transaction of goods and services to be taxed
simultaneously under Central GST (CGST) and State GST (SGST):
The
Central GST and the State GST would be levied simultaneously on every
transaction of supply of goods and services except on exempted goods and
services, goods which are outside the purview of GST and the transactions which
are below the prescribed threshold limits. Further, both would be levied on the
same price or value unlike State VAT which is levied on the value of the goods
inclusive of Central Excise. Let us understand this with the help of an Example
In
our example we presume the rate of SGST to be 10% while rate of CGST to be 15%.
Here Supplier A is the Manufacturer in the state of Maharashtra, sells goods to
supplier B within State which cost him 10000/-. Now on this he won’t charge
excise duty, VAT, etc. but would charge SGST and CGST simultaneously.
Total
Amount paid by Supplier B to Supplier A (Manufacturer) is 12500/- which
includes SGST of 1000/- and CGST of 1500/- available as Input Tax Credit (ITC).
Now Supplier B does Value Addition of 2500/- and sells to Ultimate Customer for
15625/- including SGST of 1250/- and CGST of 1875/-. Here supplier B Can avail
Input Tax Credit (ITC) of SGST and CGST paid by him to Supplier A (
Manufacturer) and can set off Output tax to be paid by him to such an
extent.
Hence
Supplier B shall be liable to Pay SGST of 250/- and CGST of 375/- only on the
amount of value addition done by him. While the Ultimate Customer pays the
total SGST of 1250/- and CGST of 1875/- avoiding cascading effect in the value
chain.
Cross utilization of credits between goods and services
be allowed under GST regime:
Cross
utilization of credit of CGST between goods and services would be allowed.
Similarly, the facility of cross utilization of credit will be available in
case of SGST. However, the cross utilization of CGST and SGST would not be
allowed except in the case of inter-State supply of goods and services under
the IGST model.
Inter-State Transactions of Goods and Services be
taxed under GST in terms of IGST method:
In
case of inter-State transactions, the Centre would levy and collect the
Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods
and services under Article 269A (1) of the Constitution. The IGST would roughly
be equal to CGST plus SGST. The IGST mechanism has been designed to ensure
seamless flow of input tax credit from one State to another. The inter-State
seller would pay IGST on the sale of his goods to the Central Government after
adjusting credit of IGST, CGST and SGST on his purchases (in that order). The
exporting State will transfer to the Centre the credit of SGST used in payment
of IGST. The importing dealer will claim credit of IGST while discharging his
output tax liability (both CGST and SGST) in his own State. The Centre will
transfer to the importing State the credit of IGST used in payment of SGST.
Since GST is a destination-based tax, all SGST on the final product will
ordinarily accrue to the consuming State.
Example: Here we
presume IGST to be 25% while SGST is 10% and
CGST is 15%. Again Supplier A is the Manufacturer in the state of Maharashtra,
sells goods to supplier B within State which cost him 10000/-. In turn Supplier
B sells it to Supplier C in Rajasthan for 12500/-. While Supplier C sells it to
Ultimate Customer. Here Supplier B will charge IGST instead of SGST and CGST as
it is an inter-state sale. However, he will be allowed Credit of CGST and SGST
while paying IGST.
Now
Suppose Supplier C sells it to Ultimate Customer in Rajasthan for 15000/- and
charges SGST and CGST of 10% & 15% respectively. The SGST will be 1500/-
and CGST will be 2250/-. Supplier C will be allowed credit of IGST paid
(3125/-) on purchase while discharging his liability of both CGST and SGST.
Centre will transfer the credit of IGST to the State to the extent used in
payment of SGST.
Major
features of the proposed registration procedures under GST:
The
major features of the proposed registration procedures under GST are as
follows:
·
Existing dealers: Existing VAT/Central excise/Service
Tax payers will not have to apply afresh for registration under GST.
·
New dealers: Single application to be filed online
for registration under GST.
·
The
registration number will be PAN based and will serve the purpose for Centre and
State.
·
Unified
application to both tax authorities.
·
Each
dealer to be given unique ID GSTIN.
·
Deemed
approval within three days.
·
Post
registration verification in risk based cases only.
Major
features of the proposed returns filing procedures under GST:
The
major features of the proposed returns filing procedures under GST are as
follows:
·
Common return would serve the purpose of both Centre and
State Government.
·
There
are eight forms provided for in the GST business processes for filing for
returns. Most of the average tax payers would be using only four forms for
filing their returns. These are return for supplies, return for purchases,
monthly returns and annual return.
·
Small taxpayers: Small taxpayers who have opted
composition scheme shall have to file return on quarterly basis.
·
Filing
of returns shall be completely online. All taxes can also be paid online.
