Frequently asked Questions on GST

What is GST? How does it work?

GST is a form of tax system that will regularize taxes across the country by introducing one uniform tax regime in India for a unified common market. One single tax will be applicable on the supply of goods and services starting right from the manufacturer to the end consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, making the GST a tax only on value addition at each stage. Meaning, the consumer will bear only the GS that has been charged by the last dealer in the supply chain with set-off benefits at all the previous stages.

What are the benefits of GST?

The benefits of GST can be summarized as under:

For Business and Industry

  • Easy Compliance: With a robust and comprehensive IT system forming the backbone of the GST regime in India. All taxpayer services ranging from registrations to returns and payments etc. would be made available to the tax payers online, making compliance easy and highly transparent.
  • Uniformity Of Tax Rates And Structures: By ensuring uniform indirect tax rates and structures common across the country, it will increase the certainty and ease of doing business in India. In short, GST would ensure that doing business in India is tax neutral irrespective of the place of doing business.
  • Removal Of Cascading: Seamless tax-credits throughout the entire value-chain and across states would ensure minimal cascading of taxes; thereby, reducing the hidden costs of doing business.
  • Improved Competitiveness: A reduction in transaction costs in conducting business will lead to improved competition for trade and industries.
  • Gain To Manufacturers And Exporters: The GST will absorb most of the major Central and State taxes, complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) which will significantly reduce the cost of locally manufactured goods and services. Thereby, increasing the competitiveness of goods manufactured in India in the international market, giving a boost to exports. Also, the compliance cost will be reduced as a direct effect of having uniformity in tax rates and procedures.

For Central and State Governments

  • Simple And Easy To Administer: The GST will replace multiple indirect Central and State level taxes and will be backed by a robust end-to-end IT system in place, making it easier to administer than every other form of indirect taxes levied by the Centre or the states so far.
  • Better Controls On Leakage: It will result in better tax compliance due to its IT infrastructure. It will make the transfer of input tax credit from one stage to another seamless in the chain of value addition. Moreover, the in-built mechanism in the design of GST would incentivize tax compliance by traders.
  • Higher Revenue Efficiency: GST will decrease the cost associated with the collection of revenues of the government leading to higher revenue efficiency.

For the consumer

  • Single And Transparent Tax Proportionate To The Value Of Goods And Services: The cost of most of the goods and services in the country today are laden with many hidden taxes as multiple indirect taxes by the centre and the state are levied with either incomplete of no input tax credits available at progressive stages of value addition. The GST ensures that there is only one tax that gets passed on from the manufacturer to the consumer; thereby, leading to greater transparency in the taxes paid to the final consumer.
  • Relief In Overall Tax Burden: The gain in efficiency and prevention of leakages will result in the overall burden of taxes on most commodities to come down benefitting the consumer.

Which taxes at the Centre and State level are being subsumed into GST?

The following taxes are being subsumed at the Central level:

  • Central Excise Duty,
  • Additional Excise Duty,
  • Service Tax,
  • Additional Customs Duty commonly known as Countervailing Duty, and
  • Special Additional Duty of Customs.

The following taxes are being subsumed at the State level:

  • Subsuming of State Value Added Tax/Sales Tax,
  • Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States),
  • Octroi and Entry tax,
  • Purchase Tax,
  • Luxury tax, and
  • Taxes on lottery, betting and gambling.

What are the major chronological events that have led to the introduction of GST?

GST has been introduced after almost 13 years since it was initially discussed in the Kelkar Task report on indirect taxes. Below is a chronological representation of the major milestones on the proposal to introduce GST in India:

  • 2003, Kelkar Tax Force on indirect taxes suggest a comprehensive GST based on the VAT principle.
  • April 1, 2010, proposal to introduce a National Level Goods and Services Tax is voiced in the Budget speech for the financial year 2006-07.
  • The responsibilty to come up with a road map for implementing the GST was assigned to the Empowered Committee of State Finance Ministers (EC) as it called for reform and restructure of the entire tax system involving not only the indirect taxes levied by the centre but the states as well.
  • November 2009. The EC releases it’s first discussion paper on the Goods ans Services Tax in India compile on the basis of the inputs received by the Govt. of India and the States.
  • September 2009, A Joint Working Group comprised of officers from both the Central and State governement is constituted to further the GST related work.
  • March 2011, The Constitution (115th Amendment) bill is introduced in the Lok Sabha to ammend the Constitution for enabling the introduction of the GST. This bill was referred the the Standing Committee on Finance of the Parliament for examination and report as per the precribed procedure.
  • A Committee on GST Design is comprising officials for the Government of India, State Governments and the Empowered Committed was constituted in pursuance of the decision taken in a meeting between the Union Finance Minister and the Empowered Committee of State Finance Ministers on 8th November, 2012.
  • The Committee conducts a detailed discussion on the GST design taking into account the Constitution (115th) amendment bill and a report is submitted on January 2013. The EC recommends changes based on the submitted report at a meeting in Bhubaneswar on January 2013.
  • This meeting led to the Empowered Committee in Bhubaneswar to constitute three committees of officers for further discussion and reporting on the various aspects of the GST:
  1. Committee on Place of Supply Rules and Revenue Neutral Rates;
  2. Committee on dual control, threshold and exemptions;
  3. Committee on IGST and GST on imports.
  • August 2013, The Parliamentary Standing Committed submits its report to the Lok Sabha. All the recommendations of the Empowered committee and the Parliamentary Standing Committee are examined in the in consultation with the Legislative Department. Most of these recommendations are accepted, and the draft amendment bill is revised.
  • September 2013, The final draft Constitutional Amendment Bill incorporating all the stated changes is sent to the Empowered Committee for consideration.
  • November 2013, The EC again makes certain recommendations on the bill after this meeting.Certain recommendations that were suggested by the Empowered Committee were incorporated in the draft Constitution (115th Amendment) Bill. This revised draft was then sent for consideration to the Empowered Committee in March 2014.
  • The 115th Constitutional Amendment Bill to introduce the GST presented in the Lok Sabha in March 2011 lapses with the dissolution of the 15th Lok Sabha.
  • June 2014, the draft Constitution Amendment Bill is sent to the Empowered Committee after the new Government’s approval.
  • On the basis of the broad consensus reached with the Empowered Committee on the contours of the Bill, the Cabinet approved the proposal for the introduction of a Bill in front of the Parliament for amending the Constitution of India for introducing the Goods and Services Tax in the country is approved on 17th December 2014. The Bill was introduced on 19th December 2014 in the Lok Sabha, and it gets passed on 6th May 2015. The Bill then gets referred to the Select Committee of the Rajya Sabha, which submitted its report on the 22nd July 2015.

 

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How would GST be administered in India?

There will essentially be two components of GST taking into account the federal structure of the country—Central GST (CGST) and State GST (SGST). The Centre and the States will both levy GST across the entire value chain simultaneously and taxes will be levied on every supply of goods and services. Meaning, that the Central Government would collect The Central GST and similarly the State Government would collect the State GST on all transactions within a state. Moreover, the Input tax credit of the CGST would be available for discharging the liabilities of the CGST on the output at each stage and the credit of SGST paid on inputs would be allowed for paying the SGST on output. There is no provision for cross utilization of credit in the new tax regime.

How would a particular transaction of goods and services be taxed simultaneously under Central GST (CGST) and State GST (SGST)?

The Central GST and the State GST would be levied simultaneously on every transaction on the supply of goods and services except for in the case of goods and services that have been exempted from the rule. Moreover, transactions below a certain threshold limit have also been kept outside the purview of the GST. Moreover, both the Central and the State GST would be levied at the same price and value, which is unlike the State VAT that was levied on the value of goods inclusive of Central Excise.

You can get an idea of how the Dual GST model will work within a state from the diagrammatic representation below:

Will cross utilization of credits between goods and services be allowed under GST regime?

Even though cross utilization of credit of CGST goods and services would be allowed and the facility is available in the case of the SGST as well pertaining to the cross utilization; there is no provision for cross utilization CGST and SGST except for the inter-state supply of goods and services under the IGST model.

How will be Inter-State Transactions of Goods and Services be taxed under GST in terms of IGST method?

The Centre would levy and collect the integrated Goods and Services Tax (IGST) on all supplies of goods and services on an inter-state level under Article 269A (1) of the constitution. The IGST would be roughly equal to CGST plus SGST. The mechanism of the IGST has been designed in a way, so as to ensure that there is seamless flow of input tax credit from one state to another.

The inter-state seller would have to pay the IGST on his sales to the Central Government after adjusting the credits of the IGST, CGST, SGST on his purchases (In that order). The state which is exporting will have to transfer the credit of the SGST used in the payment of the IGST to the centre. Likewise, the dealer who imports will claim the credit of the IGST while discharging his output tax liability in his own state. The centre will transfer the credit of IGST used in payment of SGST to the importing state. GST is a destination based tax and all SGST on the final products will ordinarily accrue to the consuming state.

The diagram below will help you better understand how it works:

How will IT be used for the implementation of GST?

Both the Central and the State Governments have come together to register the Goods and Services Tax Network (GSTN) as a non-profit, non-Government company for the smooth implementation of GST in the country. This network would provide a shared IT infrastructure and services to the Central and State Governments, tax payers and other stakeholders. The primary objective of the GSTN is to provide a standard and uniform interface to all the concerned party, i.e. the taxpayers, and shared infrastructure and services to the Central and State/UT Governments.

A state-of-the-art comprehensive IT infrastructure is being developed by the GSTN which will include the common GST portal and provide frontend services of registration, returns and payments to all the taxpayers. Not only that, it will also offer backend IT modules for certain states that include processing of returns, registrations, audits, assessments, appeals, etc. To make the process as streamlined as possible, all the states, accounting authorities, RBI and banks are already preparing their IT infrastructure for the smooth implementation and administration of the GST.

Manual filing of returns would seize and all taxes would be paid online increasing the transparency and all mismatched returns would be auto generated ending the need for manual intervention. Moreover, most of the returns would be self-assessed.

How will imports be taxed under GST?

The Additional Duty of Excise or the CVD and the Special Additional Duty or SAD which is currently being levied on all imports would absorbed under the GST. As per explanation to clause (1) of article 269A of the constitution, IGST will be levied on all imports coming into India. The states where the imported goods are consumed will now gain their share from this IGST paid on imported goods which is not the case under the current system of taxation.

What are the major features of the Constitution (122nd Amendment) Bill, 2014?

The salient features of the Bill are as follows:

  • Conferring simultaneous power upon Parliament and the State Legislatures to make laws governing goods and services tax;
  • Subsuming of various Central indirect taxes and levies such as Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, and Special Additional Duty of Customs;
  • Subsuming of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, and Taxes on lottery, betting and gambling;
  • Dispensing with the concept of ‘declared goods of special importance’ under the Constitution;
  • Levy of Integrated Goods and Services Tax on inter-State transactions of goods and services;
  • GST to be levied on all goods and services, except alcoholic liquor for human consumption. Petroleum and petroleum products shall be subject to the levy of GST on a later date notified on the recommendation of the Goods and Services Tax Council;
  • Compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period of five years;
  • Creation of Goods and Services Tax Council to examine issues relating to goods and services tax and make recommendations to the Union and the States on parameters like rates, taxes, cesses and surcharges to be subsumed, exemption list and threshold limits, Model GST laws, etc. The Council shall function under the Chairmanship of the Union Finance Minister and will have all the State Governments as Members.

What are the major features of the proposed registration procedures under GST?

The major features of the proposed registration procedures under GST are as follows:

  • Existing dealers: Existing VAT/Central excise/Service Tax payers will not have to apply afresh for registration under GST.
  • New dealers: Single application to be filed online for registration under GST.
  • The registration number will be PAN based and will serve the purpose for Centre and State.
  • Unified application to both tax authorities.
  • Each dealer to be given unique ID GSTIN.
  • Deemed approval within three days.
  • Post registration verification in risk based cases only.

What are the major features of the proposed returns filing procedures under GST?

The major features of the proposed returns filing procedures under GST are as follows:

  • Common return would serve the purpose of both Centre and State Government.
  • There are eight forms provided for in the GST business processes for filing for returns. Most of the average tax payers would be using only four forms for filing their returns. These are return for supplies, return for purchases, monthly returns and annual return.
  • Small taxpayers: Small taxpayers who have opted composition scheme shall have to file return on quarterly basis.
  • Filing of returns shall be completely online. All taxes can also be paid online.

What are the major features of the proposed payment procedures under GST?

The major features of the proposed payments procedures under GST are as follows:

  • Electronic payment process- no generation of paper at any stage
  • Single point interface for challan generation- GSTN
  • Ease of payment – payment can be made through online banking, Credit Card/Debit Card, NEFT/RTGS and through cheque/cash at the bank
  • Common challan form with auto-population features
  • Use of single challan and single payment instrument
  • Common set of authorized banks
  • Common Accounting Codes

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