GST or Goods and Services Tax can be rightfully called the largest indirect taxation reform of the country since 1947. The history of GST in India goes back to 2006 when the then Finance Minister proposed the idea of introducing it. The new tax regime was finally implemented on 1st July 2017. The government proposed GST as a more transparent and self-policing tax regime that is easier to administer and would also boost economic growth of the country.
What is GST?
GST is an Indirect Tax which has replaced many Indirect Taxes in The Goods and Service Tax Act was passed in the Parliament on 29th March 2017. The Act came into effect on 1st July 2017; Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.
In simple words, Goods and Service Tax (GST) is an indirect tax levied on the supply of goods and services. This law has replaced many indirect tax laws that previously existed in India.
GST is one indirect tax for the entire country.
Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales, Central GST and State GST are charged. Inter-state sales are chargeable to Integrated GST.
Now let us try to understand the definition of Goods and Service Tax – “GST is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.”
History of Goods and Services Tax
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.
What are the components of GST?
There are 3 taxes applicable under this system: CGST, SGST & IGST.
CGST: Collected by the Central Government on an intra-state sale (Eg: transaction happening within Gujarat)
SGST: Collected by the State Government on an intra-state sale (Eg: transaction happening within Gujarat)
IGST: Collected by the Central Government for inter-state sale (Eg: Gujarat to Tamil Nadu)
|Transaction||New Regime||Old Regime|
|Sale within the State||CGST + SGST||VAT + Central Excise/Service tax||Revenue will be shared equally between the Centre and the State|
|Sale to another State||IGST||Central Sales Tax + Excise/Service Tax||
There will only be one type of tax (central) in case of inter-state sales. The Centre will then share the IGST revenue based on the destination of goods.
Let us assume that a dealer in Gujarat had sold the goods to a dealer in Rajasthan worth Rs. 50,000. The tax rate is 18% comprising of only IGST.
In such case, the dealer has to charge Rs. 9,000 as IGST. This revenue will go to the Central Government.
The same dealer sells goods to a consumer in Gujarat worth Rs. 50,000. The GST rate on the good is 12%. This rate comprises of CGST at 6% and SGST at 6%.
The dealer has to collect Rs. 6,000 as Goods and Service Tax. Rs. 3,000 will go to the Central Government and Rs. 3,000 will go to the Gujarat government as the sale is within the state.
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 lakhs. For some select states specified under article 279A of the constitution, this limit is Rs. 10 lakhs.
Small taxpayers including select categories of service providers and manufacturers having turnover of up to Rs. 50 lakhs 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
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