The Goods and Service Tax Act, 2017 passed in the Parliament led to the imposition of Goods and Service Tax (GST) in India. It is an indirect tax or consumption-based tax levied on the supply of goods and services. It is levied at every step in the production process but is refunded to all parties in the chain of production. The final burden of tax lies on the final consumer. Multiple taxes that once existed and were levied by Central and State government, including; central excise duty, service tax, additional customs duty, surcharges, state-level value-added tax, and octroi, were replaced by GST.
GST law in India is comprehensive, multi-stage, destination-based tax that is levied on every value addition. The tax rates, rules and regulations are governed by the GST council with the idea of “one nation, one tax”. The council comprises of finance ministers of the centre and the state. This means that the taxation is now governed by both Union and State governments through Central GST and State GST. The Central GST (CGST) by the Central government and the State GST (SGST) by the state government is levied on the transactions made within a single state. In case of inter-state transactions and imported goods and services Integrated GST (IGST) is levied by the Central Government. However, this complicates the tax collection process for the state governments as they are now disabled to collect the taxes that they earlier owed from the Central government. To determine whether CGST, SGST, & IGST are applicable, one should first know if the transaction is;
Inter-state: when the location of the supplier is same as the location of the buyer i.e. same states.
Intra-state: when the location of supplier and the location of the buyer are in different states.
The split has been made keeping in mind the federal structure of the country where both Centre and States have been assigned powers by the Constitution to levy and collect the tax. Both have distinct responsibilities to perform, for which they need to raise tax revenue. Such a structure of tax helps the taxpayers take a credit against each other.
GST has supplanted numerous Indirect Taxes in India. The Goods and Service Tax Act was passed in the Parliament on 29th March 2017. The Act came into existence on 1st July 2017.
As well as GST tax is differentiated in 4 types which are mentioned below:
SGST implies State Goods and Service Tax, one of the four classifications under Goods and Service Tax (CGST, IGST, and SGST) with an idea of one tax in one country. SGST falls under State Goods and Service Tax Act 2016. The current state taxes of State Sales Tax, Luxury Tax, Entertainment tax (unless it is levied by the local bodies), VAT, Taxes on the lottery, betting and gambling, Entry tax not in lieu of Octroi, State Cesses are subsumed in SGST tax. It is against CGST and IGST.
CGST is a Central Goods and administrations tax. It is liable on providers managing inside the state. Expenses which are gathered will be shared with the focal expert body.
This infers that both the Central and the State governments will concede to consolidating their levies with a suitable extent for income sharing between them. It is specified in Section 8 of the GST Act that the charges are imposed on all Intra-State supplies of products or potential benefits yet the rate of expense will not be surpassing 14%, each.
IGST (Integrated Goods and Service Tax), one of the three categories under Goods and Service Tax (CGST, IGST, and SGST) with a concept of one tax one nation. IGST falls under Integrated Goods and Service Tax Act 2016.
IGST is charged when movement of goods and service is done with one state then onto the next. If goods are moved from Tamil Nadu to Kerala, IGST is collected on such products. The income out of IGST is shared by the state government and local government according to the rates settled by the specialists.
UTGST is known as Union Territory Goods and Services Tax. The Union Territory GST is applied to union territories of India namely Chandigarh, Lakshadweep, Daman and Diu, Dadra and Nagar Haveli, Andaman and Nicobar Islands
GST is tax considered as a change in the taxation method. There are various central and state taxes which are now integrated into a single tax named as GST which can lead to a common national market.
VAT rates differ from state to state, but GST makes it uniform and remains constant all over. Here, the tax would be partitioned between the Central and State government. Let us have a gist at the impact of GST in several sectors.
GST helps to create a common national market in India, which also helps to boost foreign investment.
GST leads the foreign investors to invest with “Make in India” campaign.
As India is a developing nation with a huge amount of population, leads to lack of employment. Therefore GST will help to reduce poverty and generate more employment.
SGST (States Goods and Service Tax) and IGST (Integrated Goods and Service Tax) helps to reduce incentive from tax.
Multiple taxes are integrated into one tax.
It helps to reduce the cascading effect to pay tax on each stage.
Neutralization of tax for exports.
There is no more difference between goods and services.
Development of common national market.
Simple taxation system.
Reduction in the price of goods and services.
Transparency in the taxation system.
Tax is uniform all over the country.
Employment opportunities have increased.
Multi-stage: An item goes through multiple changes of hands till it reaches the end consumer. The process usually followed is; buying raw materials, manufacture, sale to the wholesaler, sale to the retailer, and then it finally reaches the end consumer. GST will be levied on each of these stages. Thus, it becomes a multi-stage tax.
Value Addition: The manufacturer who makes the product buys raw materials. The value of raw materials increases as they are processed. The manufacturer then sells to the wholesaler or warehousing agent who packs and labels the product. This is another value-addition that the wholesaler puts in order to sell it to the retailer. The retailer further packages the product in smaller quantities and may choose to market the product for better sales. At each stage, monetary worth is added to the product and GST Registration will be levied on all these value additions.
Destination-based: Since the tax burden falls on the consumer, GST Filing is a consumption based tax levied at the point of consumption. This means if goods are manufactured in a state and sold in another, the tax revenue reaches the state where the goods are consumed and not where they are manufactured.
In the earlier tax regime, the tax liability was passed on at every stage of the transaction. This means the taxes levied on each stage would increase the value of the item (in terms of the price). Therefore, the final liability that rests on the consumer in terms of the price paid for a good or a service would be higher. The scenario is different in case of GST. There is a way to claim credit for tax paid in acquiring input. This means an individual who has paid taxes can claim for tax when after he submits the tax. Therefore, every time one claims an input tax credit, the sale price is reduced.
The recent introduction of the E-way bills for inter-state movement of goods has allowed the movement of goods in a staggered manner. All the stakeholders in the process of moving goods from one place to another within a state; manufacturers, traders, and transporter are benefitted. The tax authorities are also in vantage as this has reduced the time check posts and tax evasion. However, since it is a completely new tax system, it creates a confusion in the minds of taxpayers who may end up paying the wrong type of GST or wrong amount of GST. One should not hesitate to take assistance for the same.
Let us have a look where and how the GST tax is segregated:
When a manufacturer of a particular apparatus or product buys raw materials, such as a pant manufacturer needs a zip, cloth, buttons and various other equipment to make a pant and these raw material costs rupees 500. This 500 rupee includes 10% of tax as per GST rules which will be rupees 50.
As soon as the product is made, the manufacturer has to include his value in the product which can be assumed as rupees 40. Then the total cost of the product will be 540 (500 + 40). And when we count 10% tax which is 54 rupees. Now, the manufacturer has already paid rupees 40 while purchasing the raw materials, so now the tax will be Rs 14 (Rs 54 - Rs 40).
The wholesaler will purchase the product at rupees 540 and find some profit margin in it. For that, he would assume a specific amount which is rupees 30. So, now the total cost of the clothing becomes rupees 570. When we apply the same 10% principle, the tax amount will be 57.
With this rupees 57, rupees 54 have already been paid by the manufacturer. Therefore the in all tax paid by the wholesaler is 3 rupees. (Rs 57 - Rs 54)
The last stage is when the retailer buys the shirt at rupees 570. He will also look after keeping some profit on the product. If we assume that he had set the margin of rupees 10. Then the total price of the product is 580 rupees (Rs 570 +Rs 10). After a 10% tax on the product, the levied tax is 58 rupees. Here Rupees 57 is already given by the manufacturer and the wholesaler, the retailer has to pay only rupees 1 (Rs 58 - Rs 57). The entire tax from manufacturer to wholesaler to retailer the tax is segregated as (40 + 14 + 3 + 1).
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