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What is GST?

Goods and Services Tax

Taxes Subsumed in GST

Central Taxes State Taxes
Excise duty Value added tax (VAT)
Service tax Entry tax and octroi
Additional customs duty or Countervailing Duty (CVD) Luxury tax
Special additional custom duty Purchase tax
Central surcharges and cesses Taxes on lottery, gambling etc.State surcharges and cesses

GST is a new form of tax that seeks to replace all central and state taxes and levies such as excise duty, countervailing duty, service tax, value added tax, octroi, entry tax and luxury tax. Goods and services should be taxed based on the value addition at each stage and not based on the gross value of the goods or services billed at each stage. Further, tax should be eventually borne at the point of consumption rather than at the point of production, though the tax department must be able to track value addition at each step and collect tax proportionate to the value added at each stage.

GST is a single tax right from the manufacturer or service provider to the consumer. In this system, taxes paid at each stage will be credited in the subsequent stage of value addition. Thus, Goods and Services Tax charged by the final dealer (seller or service provider) is the final tax borne by the customer, with set off of all taxes paid at all earlier stages in the supply chain.

This new and bold tax reform will help ease countrywide movement of goods and services without complications on account of different state or local jurisdictions. GST implementation is expected to aid overall growth of the economy and add a couple of percentage points to India’s GDP growth rates. Tax compliance is expected to become simpler, thereby giving an impetus to more and more businesses coming into the formal tax net.

GST in India

  • It will be levied on all goods and services produced or supplied or imported in India.
  • As is the case under existing tax regime, exports will not be subjected to Goods and Services Tax.
  • Initially, for a period of 2 years, tax will be levied by central and state governments. The GST levied by the Central authority will be known as CGST and by the state authority will be known as SGST respectively.
  • Starting from the third year, all forms of GST will be merged into one single tax.
  • Goods that are kept outside its purview include alcohol for human consumption, petroleum products such as crude oil, petrol, motor spirit, high speed diesel, natural gas, turbine fuel and electricity

Difference between Current Tax Structure and GST Tax

Current Tax Structure GST Tax
Number of Laws There are separate laws for separate taxes and respective VAT on states There is only ONE law
Tax Rate Existence of separate tax rates There will be one CGST rate and uniform SGST rate across all the states
Cascading effect (Taxes on Tax) Presence of cascading effect of taxes due to multiplicity in taxes Cascading effect is reduced which makes it very simple
Tax Burden High tax burden on taxpayers Tax burden is much reduced
Tax Structure Presence of multiple taxes makes compliance difficult Subsuming or absorbing the taxes into one makes compliance simple and easy
Prices for Consumers Usually very high due to cascading effect of taxes Prices are expected to be reduced

GST Exemptions

Current tax structure GST structure
Food(essential unprocessed foods such as cereals, edible oil, vegetable, pulses) Exempt Exempt
Clothing Low rate Low rate
Medicines Low rate Low rate
Gold and precious metals (gems and jewelry) Centre: exempt; States: low rate (1%) Very low rate (2-6%)
Power Centre: Exempt; State: Subject to Electricity Duty Excluded State taxes will be continued
Alcohol High demerit rate (states only) Excluded State taxes will be continued
Tobacco High demerit rate Excluded Central and State taxes will be levied separately
Luxury cars High demerit rate High demerit rate
Aerated beverages High demerit rate High demerit rate
Petroleum High demerit rate Exempt for now, present tax will be continued till the time decide by GST COUNCIL
Real estate land Exempt Exempt
Education Exempt Exempt
Health(excluding medicines) Exempt Exempt

Benefits of GST

For Manufacturers and Traders
  • Easy compliance
  • Uniformity in tax rates and structure
  • Removal of cascading or compounding effect of tax
  • Enhance the competitiveness
  • Move towards development of a common national market
For Central and State government
  • Simple and easy administration
  • Improved compliance and revenue collections
  • Better revenue effectiveness
For Consumers
  • Payment of the single and transparent tax
  • Reduction of burden of the tax payers
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