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.
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.
Advantages: GST will mainly remove the cascading effect that is created by the tax on tax regime on the sale of goods and services. The effect will directly have an impact on the cost of goods. It has reduced the price of many items including; prices of movie tickets, dining in restaurants, television, washing machine, stoves and many more. GST is a technologically driven tax as all the activities like registration, return filing, application for refund, and response to notices have to be done through online GST portal. This speeds up the process. Also, it has no hidden cost to registered retailers, and so the cost of doing business will be lower.
Disadvantages: While the imposition of GST Registration has reduced the tax burden for many items, it has increased the prices of some items for the common man. The items that have become costlier include; mobile bills, residential rent, school feed, aerated drinks, cigarettes and tobacco products, commuting by metro, and many more. Also, since the all the activities for GST proceed online, one should not forget that India is a country with low literacy rate. Many people may not know the process of Online GST portal or may not know how to operate it and would thus require assistance.
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.
Legaldocs will guide you in getting all necessary Documents and Registration required to get GST Registration in India, Please click on the following link to connect with our consultants.Apply for GST Registration