G.S.T. Unveiled

     

      

Looking back at the roller coaster that our tax system has been on lately, one thing seems for sure, Mr. Murphy was right. Everything that could go wrong in getting GST to bring it to its present status did go wrong. From political catfights to trader strikes, meetings, discussions, GST has seen it all. It isn’t easy being GST.

Over the past few weeks, GST gave everyone something to talk about. It bound the whole country together, and it’s not even implemented yet.

Moreover, it led to the birth of millions of expert economists in our country, and like all other economists trying to be heard, here are our two cents, of course, with the Eco Visionary touch of goodness.

 

What is Goods and Services Tax?

It is a destination-based tax on consumption of goods and services. It is to be levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as setoff. In a nutshell, only value addition will be taxed and burden of tax is to be borne by the final consumer.

Which of the existing taxes are proposed to be subsumed under GST?

The GST would replace the following taxes:

(I) 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. Central Surcharges and Cesses so far as they relate to supply of goods and services

(ii) State taxes that would be subsumed under the GST are:

a. State VAT

b. Central Sales Tax

c. Luxury Tax

d. Entry Tax (all forms)

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

f. Taxes on advertisements

g. Purchase Tax

h. Taxes on lotteries, betting and gambling

i. State Surcharges and Cesses so far as they relate to supply of goods and services

What will be tax rates under the GST regime?

Almost all the goods and services will be categorised into 4 tax rates slabs of 5%,12%,18%,28%.

However essential items or goods used for daily consumption have been exempted from the tax structure. The summary of the tax rates for various items is shown below:-

5%

12%

18%

28%

  

Which are the commodities proposed to be kept outside the purview of GST?

Alcohol for human consumption is kept out of GST by way of definition of GST in the constitution. Five petroleum products viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel have temporarily been kept out and GST Council shall decide the date from which they shall be included in GST. Furthermore, electricity has been kept out of GST.

What will be status of Tobacco and Tobacco products under the GST regime? (The most important question)

Tobacco and tobacco products would be subject to GST. In addition, the Centre would have the power to levy Central Excise duty on these products.

What type of GST is proposed to be implemented?

It would be a dual GST with the Centre and States simultaneously levying it on a common tax base. The GST to be levied by the Centre on intra-state supply of goods and / or services would be called the Central GST (CGST) and that to be levied by the States/ Union territory would be called the State GST (SGST)/ UTGST. Similarly, Integrated GST (IGST) will be levied and administered by Centre on every inter-state supply of goods and services.

How would a particular transaction of goods and services be taxed simultaneously under GST?

The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except the exempted goods and services, those which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, both would be levied on the same price or value unlike State VAT, which is levied on the value of the goods inclusive of CENVAT. While the location of the supplier and the recipient within the country is immaterial for the purpose of CGST, SGST would be chargeable only when the supplier and the recipient are both located within the State.

Suppose hypothetically that the rate of CGST is 10% and that of SGST is 10%. When a wholesale dealer of steel in Uttar Pradesh supplies steel bars and rods to a construction company which is also located within the same State for, say Rs. 100, the dealer would charge CGST of Rs. 10 and SGST of Rs. 10 in addition to the basic price of the goods. He would be required to deposit the CGST component into the central government account while the state GST portion into the account of the concerned State Government. Of course, he need not actually pay Rs. 20 (Rs. 10 + Rs. 10) in cash as he would be entitled to setoff this liability against the CGST or SGST paid on his purchases (say, inputs). But for paying CGST he would be allowed to use only the credit of CGST paid on his purchases while for SGST he can utilize the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.

What are the benefits of GST?

By amalgamating a large number of Central and State taxes into a single tax and allowing set-off of prior-stage taxes, it would mitigate the ill effects of cascading and pave the way for a common national market. For the consumers, the biggest gain would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%. Introduction of GST would also make the products competitive in the domestic and international markets. Studies show that this would instantly spur economic growth. There may also be revenue gain for the Centre and the States due to widening of the tax base, increase in trade volumes and improved tax compliance. Last but not the least, this tax, because of its transparent character, would be easier to administer.

What are the benefits available to small taxpayers under the GST regime?

 Taxpayers with an aggregate turnover in a financial year u p t o [Rs.20 lakhs & Rs.10 Lakhs for NE and special category states] would be exempted from tax. A person whose aggregate turnover in the preceding financial year is less than Rs.50 Lakhs can opt for a simplified composition scheme where tax will payable at a concessional rate on the turnover in a state. Aggregate turnover shall be computed on all India basis. For NE States and special category states, the exemption threshold shall be [Rs. 10 lakhs]. All taxpayers eligible for threshold exemption will have the option of paying tax with input tax credit (ITC) benefits. Taxpayers making inter-State supplies or paying tax on reverse charge basis shall not be eligible for threshold exemption.

Other FAQs

1.    An individual buys a car for personal use and after a year sells it to a car dealer. Will the transaction be a supply in terms of CGST/SGST Act? Give reasons for the answer.

No, because supply is not made by the individual in the course or furtherance of business. Further, no input tax credit was admissible on such car at the time of its acquisition as it was meant for non-business use.

2.    A dealer of air-conditioners transfers an air conditioner from his stock in trade, for personal use at his residence. Will the transaction constitute a supply?

Yes. As per Sl. No.1 of Schedule-I, permanent transfer or disposal of business assets where input tax credit has been availed on such assets shall constitute a supply under GST even where no consideration is involved.

3.    Whether provision of service or goods by a club or association or society to its members will be treated as supply or not?

Yes. Provision of facilities by a club, association, society or any such body to its members shall be treated as supply. This is included in the definition of ‘business’ in section 2(17) of CGST/SGST Act.

4.    What are the different types of supplies under the GST law?

(I) Taxable and exempt supplies. (ii) Inter-State and Intra-State supplies, (iii) Composite and mixed supplies and (iv) Zero-rated supplies.

5.    Whether transfer of right to use goods will be treated as supply of goods or supply of service? Why?

Transfer of right to use goods shall be treated as supply of service because there is no transfer of title in such supplies. Such transactions are specifically treated as supply of service in Schedule-II of CGST/SGST Act.

6.    Whether Works contracts and Catering services will be treated as supply of goods or supply of services? Why?

Works contracts and catering services shall be treated as supply of services as both are specified under Sl. No. 6 (a) and (b) in Schedule-II of the mode GST law.

7.    Whether supply of software would be treated as supply of goods or supply of services under GST law?

Development, design, programming, customization, adaptation, upgradation, enhancement, implementation of information technology software shall be treated as supply of services as listed in Sl. No. 5 (2)(d) of Schedule –II of the model GST law.

8.    What is meant by zero-rated supply under GST?

Zero rated supply means export of goods and/or services or supply of goods and/or services to a SEZ developer or a SEZ Unit

9.    Can any person other than the supplier or recipient be liable to pay tax under GST?

Yes, the Central/State government can specify categories of services the tax on which shall be paid by the electronic commerce operator, if such services are supplied through it and all the provisions of the Act shall apply to such electronic commerce operator as if he is the person liable to pay tax in relation to supply of such services.

See you on the other side of this chaos!