Contents

  • 1. Prologue
  • 2. Definition
  • 3. Components of GST
  • 4. Various GST Tax rates applicable
  • 5. Tax Laws before GST
  • 6. Items exempted from GST
  • 7. GST impact on Indian Economy
  • 8. Impact of GST on various sectors in India
  • 9. Advantages
  • 10. Disadvantages

Prologue

Goods and Services Tax or Indian version of GST is a destination based tax proposed by the government with the aim to eliminate several indirect taxes like VAT, Central Excise Duty, Sales Tax, Service Tax, etc. It is fondly described as one tax for one nation. However, unlike GST of other countries, Indian GST is anything but one tax. It is actually a culmination of three taxes – Central Goods and Service Tax (CGST), Integrated / Interstate Goods and Service Tax (IGST) and State Goods and Service Tax (SGST).

CGST and SGST both will be levied on intra-state supply of goods and services while IGST will be applicable on inter-state supply of goods and services in India. Since it is a destination based tax, it will be levied at all stages right from manufacturer up to the final consumer with credit of taxes paid at previous stages available as set off. In short, tax will be levied only on value addition and the final burden of tax will be borne by the ultimate consumer.

Goods and Service Tax in India came into force on 1st July,2017.

Definition

GST (Goods and Services Tax) is the biggest indirect tax reform of India. GST is a single tax on the supply of goods and services. It is a destination based tax. GST has subsumed taxes like Central Excise Law, Service Tax Law, VAT, Entry Tax, Octroi, etc.

GST is expected to bring together state economies and improve overall economic growth of the nation.

GST is a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. It will replace all indirect taxes levied on goods and services by states and Central. Businesses are required to obtain a GST Identification Number in every state they are registered.
There are around 160 countries in the world that have GST in place. GST is a destination based taxed where the tax is collected by the State where goods are consumed. GST has been implemented in India from July 1, 2017 and it has adopted the Dual GST model in which both States and Central levies tax on Goods or Services or both.

  • SGST – State GST, collected by the State Govt.
  • CGST – Central GST, collected by the Central Govt.
  • IGST – Integrated GST, collected by the Central Govt.
  • UTGST – Union territory GST, collected by union territory government

Components Of GST

There are 3 taxes applicable under this system: CGST, SGST & IGST.

  • CGST: Collected by the Central Government on an intra-state sale (Eg: Within Maharashtra)
  • SGST: Collected by the State Government on an intra-state sale (Eg: Within Maharashtra)
  • IGST: Collected by the Central Government for inter-state sale (Eg: Maharashtra to Tamil Nadu)

In most cases, the tax structure under the new regime will be as follows:

TransactionNew RegimeOld RegimeDetails
Sale within the StateCGST + SGSTVAT + Central Excise/Service taxRevenue will be shared equally between the Centre and the State
Sale to another StateIGSTCentral Sales Tax + Excise/Service TaxThere will only be one type of tax (central) in case of inter-state sales. The Center will then share the IGST revenue based on the destination of goods.

Illustration

  • • Let us assume that a dealer in Gujarat had sold the goods to a dealer in Punjab worth Rs. 50,000. The tax rate is 18% comprising of only IGST.
  • In such case, the dealer has to charge Rs. 9,000 as IGST. This revenue will go to the Central Government.

  • • The same dealer sells goods to a consumer in Gujarat worth Rs. 50,000. The GST rate on the good is 12%. This rate comprises of CGST at 6% and SGST at 6%.
  • The dealer has to collect Rs. 6,000 as Goods and Service Tax. Rs. 3,000 will go to the Central Government and Rs. 3,000 will go to the Gujarat government as the sale is within the state.

  • Various GST tax rates applicable

The Government announced that GST would be applicable in four taxes rates – 5%, 12%, 18%, and 28%. Few items have been kept out of GST. The states are interested in keeping few things out of the field of GST which are sensitive to their states like UP wants puja material out of tax net while few want cotton and silk yarn out. All the Goods and Services would be charged with any of the mentioned rates as decided by the GST council. Nearly 81% of items have been kept under 18% tax slab and only 19% of the goods will be taxed above 18%.

What are the GST rates for the house hold expenses?

Now, let us categorize all house hold expenses into 5 buckets i.e. Food, Entertainment, Personal Care, Transportation and communication services.

  • Food items – Earlier tax 12.5% – New Tax under GST – 5% – Positive news
  • Entertainment – Earlier tax 30% – New Tax under GST – 28% – Positive news
  • Transportation – Earlier tax 15% – New Tax under GST – 18% – Negative news
  • Personal Care – Earlier tax 28% – New Tax under GST – 18% – Positive news
  • Communication (mobile and Internet services) – Earlier taxes 15% – New Tax under GST – 18% – Negative news

How does GST Rates look for high consuming products for a common man?

The following are the rates of few items that are of use for a common man:

  • Sugar, tea, coffee (not instant) and edible oil to fall under 5% slab.
  • Cereals and milk have been exempted from GST.
  • Capital and intermediate goods would be taxed at 18%, which is expected to be a good boon for the industrial growth.
  • Coal is kept in 5% tax slab which is currently 11.69 %
  • Toothpaste, hair oil and soaps will be taxed at 18% instead of 28%.

Tax Laws before GST

In the earlier indirect tax regime, there were many indirect taxes levied by both state and center. States mainly collected taxes in the form of Value Added Tax (VAT). Every state had a different set of rules and regulations.

Interstate sale of goods was taxed by the Center. CST (Central State Tax) was applicable in case of interstate sale of goods. Other than above there were many indirect taxes like entertainment tax, octroi and local tax that was levied by state and center.
This lead to a lot of overlapping of taxes levied by both state and center.

For example, when goods were manufactured and sold Excise Duty charged by the center was charged by the center. Over and above Excise Duty, VAT was also charged by the State. This lead to a tax on tax also known as cascading effect of taxes.

Items exempted from GST

  • Animal feed
  • Aquatic feed
  • Betel leaves
  • Bread
  • Butter milk
  • Children's' picture, drawing or colouring books
  • Coconuts
  • Contraceptives (Condoms)
  • Curd
  • Earthen pot and clay lamps
  • Educational services
  • Eggs
  • Fire wood
  • Fish

 

  • Hand operated agriculture equipments
  • Indian national flag
  • Indigenous handmade musical instruments
  • Judicial, Nonjudicial stamp papers, Court fee stamps
  • Kumkum, Bindi, Sindur
  • Lassi
  • Live animalsLive trees and plants
  • Medical services
  • Municipal waste, sewage sludge, clinical waste
  •  Non-alcoholic Toddy, Neera
  • Organic manure
  • Pappad
  • Plastic bangles
  • Khadi yarn
  • Jaggery
  • Poultry feed & cattle feed
  • Plastic bangles
  • Poultry feed & cattle feed
  • Prasad (sacred food)
  • Printed books, including Braille books and newspaper, periodicals & journals
  • Puffed rice (muri)
  • Puja samagri
  • Raw jute
  • Raw silk
  • Raw wool
  • Salt
  • Semen
  • Slates, Slate pencils and chalk sticks
  • Tender coconut water
  • Unbranded atta (flour) and maida
  • Unbranded besan (gram flour)
  • Unbranded natural honey
  • Unpacked foodgrains (Cereals, pulses)
  • Unpacked paneer
  • Water (other than aerated, mineral, purified)
  • Wood charcoal
  • Fresh fruits
  • Fresh milk
  • Fresh vegetables
  • Gandhi topi
  • Human hair
  • Human blood
  • Hearing aids

GST impact on Indian Economy

The economists say that countries like New Zealand, Australia and Canada experienced a one-time bump in the prices but soon the situation normalized. Looking the economy of India, it is expected that after the introduction of GST, the GDP of the country would go up by 2%.

Impact of GST on various sectors in India

The implementation of GST will have mixed effects on the different sectors of Indian economy. There are some sectors that would get benefitted from GST in India.

  • a) Automobile sector
  • – GST is a significant cost saver for this industry. The transportation time and overall cost for inter-state transfer of goods will be cut down which will ultimately reduce the cost by 8-10%.

  • b) Cement industry
  • – overall tax incidence for the sector will come down if GST rate is fixed at 18%. Reduction of effective rates and supply chain costs will bring tangible benefits to the cement industry at large.

  • c) Logistics
  • – GST will result in lower transit time, which will ultimately generate high tuck utilization. Facilitation of uninterrupted flow of goods from one state to another will directly accelerate demand for logistics services.

  • d) FMCG sector
  • – there is a mixed bag response in FMCG sector. Sweetened aerated water will attract 28% of tax with 12% of additional cess, which is very high as compared to current rates. Basic things like jaggery, cereals, and milk are exempted from tax, which is beneficial for the industry.

Advantages of GST

1)The tax structure will be made lean and simple.

2) The entire Indian market will be under single umbrella about taxation.

3) It can bring more transparency and good compliance.

4) Number of departments (tax departments) will reduce which in turn may lead to less corruption.

5) More business entities will come under the tax system which would lead to more revenue tax collections.

6) Companies under unorganized sector will come under tax regime.

Disadvantges

1.Increased costs due to software purchase.
2.Being GST-compliant
3.GST will mean an increase in operational costs
4.GST came into effect in the middle of the financial year
5.GST is an online taxation system
6.SMEs will have a higher tax burden