Our Finance Minister Mr. P Chidambaram has declared that Goods and Service Tax will be introduced soon in India . This tax is a consolidation of many indirect taxes already levied in India, thereby drastically overhauling the system of indirect taxes in India. It will replace all indirect taxes levied on goods and services by the Indian Central and State governments. This article is based on implementation of goods and service tax can be next game changer
What is GST?
Goods and Service Tax is a tax on goods and services. It is defined as welcome tax in India and is set to integrate State economies and boost overall growth of economy. Also, GST is a destination based tax.
Need for GST?
The concept of GST was introduced to abolish the cascading effect of taxes i.e. taxes on taxes. The implementation of GST will lead to the abolition of other taxes such as octroi, Central Sales Tax, State-level sales tax, entry tax, stamp duty, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services, et cetera, thus avoiding multiple layers of taxation that currently exist in India.
Model of GST?
GST is a dual model concept and is collected by the State Government and the Central Government. There are various types of GST namely:
SGST â€“ State GST, collected by State Government,
CGST â€“ State GST, collected by Central Government, and
IGST â€“ State GST, collected by Central Government.
SGST, CGST and IGST are the taxes that shall be levied under the new system of GST.
Case 1: In case sale is made within the State
As per the new system, a transaction of sale within the state shall have two taxes, SGST – which goes to the State Government and CGST which goes to the Central Government. Earlier, as per the old system, VAT and Excise Duty were collected when the sale was made.
Case 2: In case sale is made outside the State
Under the new system, a transaction of sale from one state to another shall have only one type of tax, IGST which is collected by the Central Government. Earlier, as per the old system, CST and Excise Duty were collected when the sale was made.
Working of GST?
Â Case 1: Sale in one state, resale in the same state
Suppose goods are sold from Mumbai to Pune. Since it is a sale within a state, CGST and SGST will be levied. The collection goes to the Central Government and the State Government.
Now, suppose goods are resold from Pune to Nagpur. This is again a sale within a state, so CGST and SGST will be levied. Sale price is increased so tax liability will also increase. In the case of resale, the credit of input CGST and input SGST can be claimed and the remaining taxes go to the respective governments.
Case 2: Sale in one state, resale in another state
In this case, let goods are sold from Indore to Bhopal. Since it is a sale within a state, CGST and SGST will be levied and will be collected accordingly.
Later the goods are resold from Bhopal to Lucknow (outside the state). Therefore, IGST will be levied and is collected by the central government. Against IGST, both the input taxes can be taken as credit.
Case 3: Sale outside the state, resale in that state
Goods are sold from Delhi to Jaipur. This is an interstate sale, where IGST will be levied and is collected by the Central Government. Later the goods are resold from Jaipur to Jodhpur (within the state). Therefore, CGST and IGST will be levied. 50% of the IGST can be set off against CGST and the remaining 50% IGST can be set off against SGST which will be claimed as credit.
Crux of GST:
Â Against IGST, both the input taxes are taken as credit though SGST being a state levy is not collected by the Central Government. Similarly, IGST is not collected by the state government; still its credit is claimed against SGST. Since this amounts to a loss to the State Government, the Central government compensates the State government by transferring the credit to the State government.
Benefits of GST?
Â Â·Â Â Â Â Â Â Â Â Reduction in Prices:Â Under GST, the taxation burden will be equally divided between manufacturing and services, thus lowering the tax burden on the final consumer. Due to this, manufacturers or traders do not have to include taxes as a part of their cost of production leading to reduction in prices.
Â·Â Â Â Â Â Â Â Â GST levied at destination point: GST will be is levied only at the destination point, and not at various points (from manufacturing to retail outlets).Thus a manufacturer needs to pay tax when a finished product moves out from a factory, and it is again taxed at the retail outlet when sold.
Â·Â Benefit to the Centre and the States: Implementation of Goods and Services Tax has proved to be beneficial to Central and State Government too as it would promote exports, raise employment and boost growth.
- Benefits of GST for individuals and companies: Since, GST is charged at a destination point, so this will benefit individuals as prices are likely to come down. Lower prices will lead to more consumption, thereby helping companies.
- Increase in Government Revenue: Proper collection of all taxes will help government in increasing their revenues as there will be no tax evasion as all people will pay taxes rather than restoring them.
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