GST (Goods and Service Tax) in India

1
GST (Goods Service Tax)

• An Overview

2
Table of Contents

• Following Questions to be addressed
• What
• Why
• How
• Implications
• When
• How much

3
What is GST

• GST stands for Goods and Service Tax and is a
  comprehensive Indirect Tax levy on manufacture ,
  sale and consumption of Goods and Services at the
  national level.
• The above statement implies that unlike the
  current tax structure wherein on production
  excise is levied, on sale VAT is levied and on
  service element Service Tax is levied under GST
  only GST as an indirect tax will be levied and
  all other taxes will rule out

4
Need for GST

• Currently various taxes have been levied on
  activities like sale, manufacture
• However inter-tax credit of these taxes is
  allowed only to a certain extent
• Hence the party adds these taxes to the cost of
  production
• This leads to cascading effect i.e. taxes on
  taxes and thereby adds to the cost of production
• This burden is then shifted to the consumer
  leading to inflation

5
Analysis of Current System

  VAT VAT GST GST
Manufacturer to Wholeseller        
Cost of Production 90000   90000  
Add Profit Margin 10000   10000  
Sales 100000   100000  
Add Excise Duty _at_ 12 12000      
  112000   100000  
VAT   14000    
GST       20000
         
Cost to Wholeseller 112000   100000  
Add Profit Margin 10000   10000  
Sales 122000   110000  
VAT   15250    
GST       22000
Liability   1250   2000
         
Cost to retailer 122000   110000  
Add Profit 10000   10000  
Sales 132000   120000  
VAT   16500    
GST       24000
Liability   1250   2000
         
Cost to Consumer   148500   144000
6
Applicability of GST

• A national convention for CA students was held on
  2nd and 3rd January, 2015 whereby the President
  of ICAI urged upon the applicability of GST at
  its earliest
• As per the President of ICAI, GST might be
  applicable from 1st of April, 2015, however, this
  depends on the Budget

7
Taxes that may be subsumed

• State and Central Excise Duty
• Service Tax
• Central Sales Tax
• Value Added Tax
• Luxury Tax
• Octroi
• Entry Tax
• Special Additional Duty,CVD

8
Taxes that may not be subsumed

• Basic Customs Duty
• Excise Duty on Tobacco Products
• Central Cess like Education Cess, Oil Cess
• Toll Tax
• Road Tax
• Property Tax
• Environment Tax
• Tax on Liquor

9
Functioning

• BIN (Business Identification Number) is an
  extension of PAN
• GST Council to be setup to redress issues
• Payment of Tax only through Net Banking
• One common tax return for Centre and State
• Threshold limit for levy of GST will be approx 10
  to 20 lacs
• GST paid on inputs to be allowed as set off.

10
Models of GST
11
Explanations

• 1. Central GST/State GST
• Tax administered and controlled by respective
  Government i.e. if Central GST is adopted then
  central government will have the right to collect
  and levy GST
• Revenue sharing arrangements to be made i.e. if
  Central GST is adopted then some portion of
  revenue will be allocated to the states
• 2. Dual GST
• Under Concurrent GST Centre and State will levy
  GST concurrently. It is proposed that Concurrent
  model will be followed in India
• Under Non-Concurrent GST on goods will be levied
  by state and on Services will be levied by centre
  i.e. existing system of VAT to state government
  and Service Tax to Central Government may be
  followed

12
Revenue Neutral Rate (RNR)

• RNR is the rate which will be adopted so that the
  tax revenue despite the change in taxes remains
  the same.
• Since there will be loss to the state government
  the revenue department has been advised to pay
  the state governments a compensation of Rs.500
  crores
• Rates in India are expected to be 12 to 20 for
  the 1st year, 12 to 18 for the 2nd year and 16
  from the 3rd year onwards.

13
Rates of GST around the Globe
14
Expected GST Rates
Goods/Services Levy Rate in 1st Year Rate in 2nd Year Rate in 3rd Year
Goods Lower Rate CGST 6 6 8
Goods Lower Rate SGST 6 6 8
Goods Standard Rate CGST 10 9 8
Goods Standard Rate SGST 10 9 8
Services CSGT 8 8 8
Services SGST 8 8 8
15
Features of GST

• Emphasis on voluntary compliance
• Minimum number of floor rates (Approx 2 rates)
• Common law throughout the country
• GST Council to manage functioning
• Destination based tax
• Input Tax Credit or Subtraction method of VAT to
  be followed for GST
• Business friendly approach
• MIS amongst different Government departments

16
Advantages of GST

• Computerization of process
• Removal of Cascading Effect
• Lower cost of production
• Reduced sale price
• Increase in Domestic and Export market -Increase
  In profit
• Reduction in administration costs since only one
  department
• Interpretational issues sorted out
• Single Authority to deal with

17
GST Collection and Inputs Criteria
Type of Sale GST collection on Output GST Input eligibility
Taxable Yes Yes
GST Free (Commonly known as Zero rated Sales in VAT) No Yes
Exempt No No
18
Thank you

• This presentation is for private Circulation only
• Source Background Material on GST (popularly
  known as VAT globally)
• Prepared by Aditya Shah , Articled Assistant, R
  Devarajan Co.