GST in India

GST Background and Basic understanding

A. What is origin of GST in India?

The basic idea of GST in India was brought in by Kelkar Task Force in 2004. After that in 2006-07 budget speech, then Union Prime Minister, Shri P. Chidambaram announced that GST would be introduced from 1st April, 2010. Since then, GST missed several deadlines.

But it was finally introduced in India on 1st July 2017, in a historic midnight session at the Central Hall of parliament.

B. What is GST?

GST or Goods and Services Tax is the comprehensive taxation system. Comprehensive means this taxation system has put in all the indirect taxes under single umbrella. As the name indicates this taxation system has combined the Taxation of Services and Goods under single law of GST, means there will not by separate tax for services and goods. GST has subsumed multiple indirect taxes like excise duty, service tax, VAT, CST, luxury tax, entertainment tax, entry tax, etc.

France was the first country to implement GST in the year 1954. Within 62 years of its advent, about 160 countries have adopted GST. It is the single uniform indirect tax. But this tax is introduced in India with dual GST model.

C. Which Indirect Taxes have been replaced by GST?

Abolishment of different types of indirect taxes is the most important ingredient of GST. Various types of taxes which have been replaced by GST are:

Central Taxes subsumed

(i) Central Excise duty & Additional Excise Duties

(ii) Additional Duties of Customs (CVD)

(iii) Special Additional Duty of Customs (SAD)

(iv) Service Tax

(v)Central Sales Tax

(vi) Central surcharges and Cesses related to supply of goods and services

State Taxes subsumed

(vii) State VAT

(viii) Entertainment and Amusement Tax (except when levied by the local bodies)

(ix) Taxes on lotteries, betting and gambling

(x) State surcharges and Cesses related to supply of goods and services

(xi) Entry Tax and Purchase Tax

(xii) Luxury Tax

(xiii) Taxes on advertisements

D. What is Dual GST Model?

Dual GST means that Taxation is administered by both Central and State Governments together. Transactions within single state are levied with Central GST (CGST) by the Central Government and State GST (SGST) by the State governments. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government.

E. What are the major benefits of GST?

Mitigation of Cascading Effects: Under earlier indirect tax system, a manufacturer of excisable goods used to charge excise duty and value added tax on intra state sale. However, VAT dealer on subsequent intra state sale charged VAT only as he is not eligible to adjust credit of Excise which resulted in cascading of taxes. Cascading means tax on tax. Even the dealers were not able to take credit of CST.

Elimination of multiple taxes and double taxation: GST has subsumed majority of indirect tax levies both at Central and State level. This has helped in ease of doing business and tackling the issues related to double taxation.

F. GST is a consumption based tax, What does it mean?

GST is a consumption-based tax/destination-based tax, therefore, taxes are paid to the state where the goods or services are consumed not the state in which they were produced. IGST complicates tax collection for State Governments by disabling them from collecting the tax owed to them directly from the Central Government. Under the previous system, a state would only have to deal with a single government in order to collect tax revenue.

G. What is HSN?

HSN (Harmonised System of Nomenclature) code is used for classification of Goods and Services under GST. This is a scheme of classification of goods and services under various sections, headings and groups for proper implementation of tariff rates.

H. What is Compensation Cess?

A GST Compensation Cess at specified rate has been imposed under Goods and Services Tax (Compensation to States) Cess Act, 2017 on specified luxury items or demerit goods, like pan masala, tobacco, aerated waters, motor cars etc., computed on value of taxable supply. Compensation cess is leviable on both intra-state supplies and inter-state supplies.

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