GST (Goods and Service Tax) – Know All About It

~Introduction~

Indirect taxation in India has witnessed a paradigm shift on July 01, 2017.  With ushering into a unified indirect tax regime wherein a large number of central and indirect taxes have been amalgamated into a single tax – Goods and Service tax. The introduction of GST is a very significant step in the field of indirect tax reforms in India.

The hitherto tax structure in India has been complex. There are two types of taxes in India :

1. Direct taxes – directly paid by the individual to the government (e.g. income tax, corporate tax, wealth tax).
2. Indirect taxes – paid to the government via a third person (e.g. VAT, service tax, etc. paid to restaurants which, in turn, pay it to the government).

Indian GST is a dual-mode GST. It is imposed concurrently by the centre and state government.

GST is levied on the supply of goods and services in India by a taxable person subject to some exemption. It is computed in a specified manner and to be paid by supplier or by some other person as specified on the basis of time of supply and actually to be paid on a monthly or quarterly basis.

  ~GST timeline~

• 2000

  • Vajpayee government started the discussion on GST by setting up an expert panel headed by Asim Dasgupta, former West Bengal finance minister

• 2003

  • The Kelkar Task Force suggested the need to have a comprehensive indirect tax reform through GST

• 2006

  • UPA finance minister P Chidambaram proposes GST in his Union budget. The Empowered Committee (EC) of state finance ministers was assigned the responsibility to chalk out a road map for its implementation

• 2008

  • Empowered Committee submits a report ‘A Model and Roadmap for GST in India’

• 2009

  • The Empowers Committee after holding discussions with the Centre and the states submits the first discussion paper

• 2011

  • Constitution Amendment Bill introduced in Lok Sabha and referred to the Standing Committee on Finance for scrutiny

• 2013

  • Standing Committee submits its report to Parliament. But UPA government fails to take the legislation forward. The bill lapses with the dissolution of the Lok Sabha

• 2014

  • Finance minister Arun Jaitley introduces the Constitution (122nd Amendment) Bill, 2014 in Lok Sabha on December 19

• 2015

  • Jaitley in his budget speech sets GST rollout deadline on April 1, 2016. Lok Sabha approves the bill on May 6. Congress demands to cap the GST rate at 18%. The NDA government fails to get it passed in Rajya Sabha

• 2016

  • Centre and states agree on Constitution Amendment Bill without a cap on the rates. The bill is approved by the RS in August 2016. The amended bill is passed in the LS on August 8
  • The GST Council headed by the Union finance minister is formed. The council decided on a four-slab rate GST structure of 5%, 12%, 18% and 28%. The ‘sin’ or “demerit” products such as tobacco items, aerated drinks, and luxury cars, would come under the highest tax slab and may attract a cess. This could raise the tax burden to 40%

• 2017

  • The date for the implementation of the new tax structure is shifted to July 1, 2017.  As the Centre and states took time to finalize the draft bills— CGST, IGST, SGST and UT-GST
  • May: GST Council during its meet in Srinagar fixes rates of goods and services.

~GST Common Portal~

A common portal was needed which could act as a clearinghouse and verify the claims and inform the respective governments to transfer the funds. Resultantly, Common GST  Electronic Portal www.gst.gov.in has been set up by the government.

It is a website which is managed by GSTN(Goods and Service Network) which is a company incorporated under provisions of Section 8 of Companies Act, 2013.

~Advantages of GST~

The new tax will require firms to upload their invoices every month to a portal that will match them with those of their suppliers or vendors. Because a tax number is needed for a firm to claim a credit on the cost of its inputs, many companies are refusing to buy from unregistered businesses. Those who don’t sign up risk losing any customer who has. Hence, a large number of unregistered businesses are expected to come under the tax net.

1. It will capture nearly all commercial transaction. Hence, it is expected to result in an increase in tax compliance
2. A number of indirect taxes will be subsumed.
3. The cascading burden of taxes will be eliminated.
4. A common market will be created.
5. ”Make in India” initiative will be boosted.

Read about 

GST Confusions and Restaurant’s Billing

~GST rates~

The GST Council is vested with the authority to decide the tax rate on products. It is headed by the Union Finance Minister and includes finance ministers of states. The GST Council has decided the following structure for GST in India:-

Goods and services are categorized under different tax slabs as follows :

No tax(0%)

Goods

No tax will be imposed on items like Jute, fresh meat, fish chicken, eggs as well as milk, buttermilk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, prasad, salt, bindi. Sindoor, stamps, judicial papers, printed books, newspapers, bangles, handloom, Bones and horn cores, bone grist, bone meal, etc.; hoof meal, horn meal, Cereal grains hulled, Palmyra jaggery, Salt – all types, Kajal, Children’s’ picture, drawing or colouring books, Human hair

Services

Hotels and lodges with tariff below Rs 1,000, Grandfathering service has been exempted under GST. Rough precious and semi-precious stones will attract a GST rate of 0.25 per cent.

5% tax

Goods

Items such as fish fillet, Apparel below Rs 1000, packaged food items, footwear below Rs 500, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices in addition with  pizza bread, rusk, sabudana, kerosene, coal, medicines, stent, lifeboats, Cashew nut, Cashew nut in shell, Raisin, Ice and snow, Biogas, Insulin, Agarbatti, Kites, Postage or revenue stamps, stamp-postmarks, first-day covers

Services

Transport services (Railways, air transport), small restaurants will be under the 5% category because their main input is petroleum, which is outside GST ambit.

12% tax

Goods

Apparel above Rs 1000, frozen meat products , butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, fruit juices, Bhutia, Namkeen, Ayurvedic medicines, tooth powder, Agarbatti, colouring books, picture books, umbrella, sewing machine, cell phones, Ketchup & Sauces, All diagnostic kits and reagents, Exercise books and notebooks, Spoons, forks, ladles, skimmers, cake servers, fish knives, tongs, Spectacles, corrective, Playing cards, chess board, carom board and other board games, like Ludo.

Services

State-run lotteries, Non-AC hotels, business class air ticket, fertilizers, Work Contracts will fall under 12 per cent GST tax slab

18% tax

Goods

Most items are under this tax slab which includes footwear costing more than Rs 500, Trademarks, goodwill, software, Bidi Patta, Biscuits (All categories), flavoured refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, mineral water, tissues, envelopes, tampons, notebooks, steel products, printed circuits, camera, speakers and monitors, Kajal pencil sticks, Headgear and parts thereof, Aluminium foil, Weighing Machinery [other than electric or electronic weighing machinery], Printers [other than multifunction printers], Electrical Transformer, CCTV, Optical Fiber, Bamboo furniture, Swimming pools and paddling pools, Curry paste; mayonnaise and salad dressings; mixed condiments and mixed seasonings

Services

AC hotels that serve liquor, telecom services, IT services, branded garments and financial services will attract 18 per cent tax under GST, Room tariffs between Rs 2,500 and Rs 7,500, Restaurants inside five-star hotels

28% tax

Goods

Bidis, chewing gum, molasses, chocolate not containing cocoa, waffles and wafers coated with chocolate, pan masala, aerated water, paint, deodorants, shaving creams, after shave, hair shampoo, dye, sunscreen, wallpaper, ceramic tiles, water heater, dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum cleaner, shavers, hair clippers, automobiles, motorcycles, aircraft for personal use, will attract 28 % tax – the highest under GST system.

Services

Private-run lotteries authorized by the states, hotels with room tariffs above Rs 7,500, 5-star hotels, race club betting, cinema will attract tax 28 per cent tax slab under GST

~Criticism~

-> Unlike the present GST structure in India which has multiple tax slabs, an ideal GST has a standard rate with a plus and minus rate. However, as per the Union Finance Minister, the slabs have been created keeping the interests of the poor in mind. Otherwise, it would mean “taxing Hawai chappal (slippers) and Mercedes car at the same rate.” the Union Finance Minister said.

-> Some experts have criticized so many tax slabs as it makes the GST complicated and perplexed for some, contrary to the objective of having a simpler indirect tax system.

-> Arvind Subramanian panel, which was set up by the Central government to determine the optimal GST rate for India, recommended that the maximum GST must not exceed 18 per cent. However, the GST Council went ahead with a 28 per cent slab, 10 points higher than the government’s own Chief Economic Advisor.

-> Because of its vagueness, the anti-profiteering provisions may potentially result in harassment and extortion of small and medium businesses, resulting in inspector raj.

-> Some experts believe that the GST rates are quite high which may lead to tax evasion, defeating the very purpose of GST; lower rates could have provided better results.

-> Some specific GST rates have been widely criticized :

• Stationery: most of the stationery items—notebooks, boards, papers, etc. have been put in the 18 per cent tax bracket. Only books are exempted from any taxes.
• Toothpaste and soap: used by the majority of the population have been put under 18 per cent tax slab.
• Shampoo and detergents: commonly used in almost, if not all, every house in the country have been put under 28 per cent tax slab!
• Fertilizer was earlier kept under the 12 per cent bracket, but thankfully, it has been shifted to 5 per cent slab.

Despite some minor concerns and criticisms, there a consensus among the experts that GST is indeed a game-changer. It will benefit us in the long run. The GST, in its present form, has several imperfections which can, and hopefully will be addressed by the government and the GST council. So far, the response of the government has been positive and responsive to criticism and suggestions. With more steps in the right direction and efficient implementation of GST, we can hope for a better future of India.

Read more about GST Here

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