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What is GST?

by Uddipana Gogoi

GST is the abbreviation of Goods and Services Tax. It is an indirect tax (or consumption tax) used in India on the supply of goods and services. The idea of moving towards goods and services was first mooted by the then Union Finance Minister in his Budget speech for 2006-07. Accordingly, the constitution Amendment Bill was passed by the Lok Sabha in May, 2015. It has been enacted as the 101st Constitution Amendment Act, 2016. Hence, the government proposes to introduce goods and services with effect from 1st July 2017.

The introduction of the Goods and Services Tax (GST) is a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax, GST will mitigate ill effects of cascading or double taxation in a major way and pave the way for a common national market. In India, the classification for GST rate for various goods and services are-

  • 5% GST
  • 12% GST
  • 18% GST
  • 28% GST

Salient features of GST

The salient features are as under:

(i) Firstly, GST is applicable on ‘supply’ of goods or services as against the present concept on the manufacture of goods or on sale of goods or on provision of services. 

(ii) Secondly, GST is based on the principle of destination-based consumption taxation as against the present principle of origin-based taxation. 

(iii) Thirdly. it is a dual GST with the Centre and the States simultaneously levying tax on a common base. Thus, the Centre imposes GST – Central GST(CGST) and that to be levied by the States would be called State GST (SGST). 

(iv) Thereafter, an Integrated GST (IGST) would be levied on an inter-state supply (including stock transfers) of goods or services. Accordingly, this shall be levied and collected by the Government of India.

(v) Moreover, import of goods or services treats as inter-state supplies and would be subject to IGST in addition to the applicable customs duties. 

(vi) CGST, SGST & IGST levies at rates to be mutually agreement between Centre and the States. Thus, the rates would be notified on the recommendation of the GST Council.

(vii) GST would replace the following taxes currently levied and collected by the Centre:-

a) Central Excise Duty 

b) Duties of Excise (Medicinal and Toilet Preparations) 

c) Additional Duties of Excise (Goods of Special Importance) 

d) Additional Duties of Excise (Textiles and Textile Products) 

e) Additional Duties of Customs (commonly known as CVD) 

f) Special Additional Duty of Customs(SAD)

g) Service Tax

h) Ceases and surcharge in so far as they relate to supply of goods and services.

(viii) State taxes that would be subsumed within the GST are:-

a) State VAT 

b) Central Sales Tax 

c) Purchase Tax d) Luxury Tax 

e) Entry Tax (All forms) 

f) Entertainment Tax and Amusement Tax (except those levied by the local bodies) 

g) Taxes on advertisements

h) Taxes on lotteries, betting and gambling

i) State ceases and surcharges in so far as they relate to supply of goods and services.

 (ix) Goods and services would apply on all goods and services except Alcohol for human consumption. 

(x) GST on five specified petroleum products (Crude, Petrol, Diesel, ATF & Natural Gas) would be applicable from a date to be recommended by the GSTC. 

(xi) Tobacco and tobacco products would be subject to goods and services tax. In addition, the Centre would have the power to levy Central Excise duty on these products. 

(xii) A common threshold exemption would apply to both CGST and SGST. Thus, taxpayers with an annual turnover not exceeding Rs.20 lakh (Rs.10 Lakh for special category States) would be exempt from GST. For small taxpayers with an aggregate turnover in a financial year upto 50 lakhs, a composition scheme is available.

(xiii) The list of exempted goods and services keep to a minimum. Thus, it harmonizes for the Centre and the States as well as across States as far as possible. 

(xiv) Exports would be zero-rated supplies.

(xv) Credit of CGST is paid on inputs may be used only for paying CGST on the output and the credit of SGST paid on inputs may be used only for paying SGST.

a) ITC of CGST allowed for payment of CGST & IGST in that order;

b) ITC of SGST allowed for payment of SGST & IGST in that order;

c) ITC of IGST allowed for payment of IGST, CGST & SGST in that order.

 (xvi) Settlement of account takes place periodically between the Centre and the States.

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