1. Becoming GST ready in a short time
can be challenging.
To know how to make it into a boon, read on.

2. Table of Contents
1. Executive Summary ................................................................................ 3
2. GST: Concept & Design ......................................................................... 4
3. How Does GST Impact Business?............................................................ 9
4. Frequently Asked Questions (FAQs) ...................................................... 13
5. GST Implementation: Preparatory Steps ................................................ 15
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02

3. 1. Executive Summary
Goods & Services Tax (GST) is being regarded as a big bang milestone in Indirect Tax reform in
India, post the introduction of Value Added Tax (VAT) in the fiscal year 2005. This move will consolidate,
rationalize and thereby simplify the tax base for both the Central & the State governments by bringing goods
and services together under the VAT net.
Two major weaknesses of the indirect taxation system in India are:
• CENVAT (or earlier known as Central Excise Duty) is levied on manufacture of goods on which at
the time of sale VAT [i.e SST (State Sales Tax) / CST (Central Sales Tax)] is also levied without any tax
credit. This phenomenon of tax on tax (cascading effect) leads to price distortion in the economy.
• VAT at the state level taxes only goods not services which is a major weakness of the present
VAT design.
Exclusion of services from the base
- Would not eliminate the problem of cascading from the tax system.
- Discriminates goods against services giving rise to serious problems of separating service
component in sale of goods transactions such as works contracts and services of food restaurants
and so on.
A single tax GST
• Would replace CENVAT (Central Excise duty) on manufacture and Service Tax on services at the
Central level.
• Would replace VAT / CST on sale of goods and bring both goods and services under the tax ambit
at the State level.
With GST becoming imminent inferring from the mood of the government in power and underscored by the
positive comments in the Union Budget 2014-15, it is time corporates embark on the journey of becoming
GST Ready.
03

4. 04
2. GST: Concept & Design
So what exactly is the Concept of GST?
GST is a composite levy on the supply of goods and / or services across the value chain of any enterprise.
It is levied at each stage of value addition right from sourcing (including imports) to manufacture to
distribution to sale to final consumption by the end consumer. What makes GST truly encouraging is that
taxes paid at each stage of value addition are available as credit / can be set-off against the tax liability
of the next stage of value addition such that there is no tax on tax (no cascading effect) as you move
down the value chain.
In short, input taxes are available as a credit against output tax liability. Final tax liability
is borne by the end consumer.

5. 05
Rationale for GST
The rationale for GST is adequately established from the significant changes that it will bring about:
• Availability of input tax credit (on both goods and services) will eliminate the phenomenon of tax
on tax (cascading effect) which is prevalent currently.
• Since availment of tax credit by any party necessitates reporting of each stage of a transaction,
there is a dis-incentive to evade tax. This is expected to widen the tax base substantially.
• A wider tax base paves the way for a lower GST rate in the long run without reduction in indirect
tax revenue for the governments.
• The collective impact of the above is to reduce the cost of production or cost of services.
• This in turn will enhance the competitiveness of domestic industry aiding exports.
• A comprehensive levy such as GST will
eliminate the multiplicity of taxes which is
prevalent currently (by way of subsuming
into GST).
• Single Rate of GST (with CGST & SGST
components) aims to achieve uniformity of
tax rates.
• This in turn will simplify the indirect tax administration and compliance in the country to a
great extent.

6. 06
Design of GST
Introduction of GST will lead to subsumation of a whole lot of Central Government and State
Government levies as below:
Central Levies:
• Additional Customs Duties such as
o Countervailing Duty (CVD)
o Special Additional Duty (SAD)
• CENVAT / Central Excise Duty
• Service Tax
• Central Sales Tax (CST)
State Levies:
• State Value Added Tax (VAT)
• Entry Tax (not in lieu of Octroi)
• Luxury Tax, Entertainment Tax, Lottery Tax, Cesses, Surcharges
However there are certain levies both at the Central & State level which are outside the
ambit of GST such as below:
Central Levies:
• Basic Customs Duty
State Levies:
• Stamp Duty
• Excise on Alcohol
• Octroi / LBT
• Entertainment Tax (levied by municipal body)

7. 07
The proposed GST model in India comprises of the following:
• Within the State Transactions:
o Central GST (CGST) which would be levied by Central Government
• Can be set off only against CGST Liability
o State GST (SGST) which would be levied by State Government
• Can be set off only against SGST Liability
o Both CGST & SGST shall be levied on every transaction within the state
• Inter State Transactions:
o Integrated GST (IGST) = CGST + SGST
• Can be set off against either of IGST, CGST, SGST liability
Proposed Rates of GST for domestic transactions (over a 3 year time frame)
*Tax rates are evenly split between CGST & SGST
Structure of GST
Proposed GST Structure Transaction C Govt S Govt Set Off Against
CGST = Central GST levied by CG Within Collect &
State Retain C
NA CGST Only
SGST = State GST levied by SG Within Collect &
State NA Retain S SGST Only
Collect I,
Integrated GST (IGST)=(CGST + SGST) Inter State Retain C, NA IGST, CGST, SGST
Transfer S
Proposed GST Rates Year 1 Year 2 Year 3
Essential Goods 12% 12% 16%
Services 16% 16% 16%
Other Goods / Supplies 20% 18% 16%

8. 08
Proposed rates of GST for foreign transactions
Quick Comparison between Current & Proposed Regime
Tax on Foreign Trade Tax & Rate
Exports 0%
Import of Goods BCD + IGST
Import of Services IGST
Comparison Current Proposed
Regime Regime
Tax Credit of CST, CVD, Excise Duty, Service Tax on Inputs Not Available
available
Tax credit
Credit of VAT, CST, SAD to service providers Not available on
available CGST, SGST,
IGST
Service Tax Rate 12.36% 20% going to 16%
Registration Under Service Tax Centralized Multiple state wise
VAT: Varies
state wise
Threshold Limits for Tax Liability Excise: GST proposes
`1.5 crores `10 - 25 lakhs
Service Tax:
`10 lakhs

9. 09
3. How does GST Impact Business?
A significant reform such as GST is sure to impact business by ushering in a newer set of nuances in terms
of tax incidence, rates and components of taxes, mechanism to claim tax credits, newer compliances and
a whole lot of enterprise level change management to adapt to this new regime.
The moot question is: How does it affect the Bottomline?
To simplify our understanding of the impact of GST, we look at the 3Cs – Costs, Cashflow and
Compliance which singularly and collectively can impact an enterprise’s bottomline.
• Does GST have a favourable impact on costs?
• Will pricing need to be revised?
• What would be the impact on margins?
• Will GST lead to easing up the cashflow?
• Are the compliance requirements under the
new regime less cumbersome than it is today?
• What are the changes necessitated in the
contracting with vendors & channel partners?

10. 10
Costing, Pricing & Margins
Impact of GST on the costing, pricing and margins would depend on a host of factors such as:
• Whether your products are MRP based or non - MRP based in case of services.
• Whether the finalized GST rates (it is proposed @ 20%) are higher than the existing VAT and
Service Tax rates (which are marginally higher than 12% in both cases).
• Whether you share the burden of tax on the final consumer due to GST rates being higher than
Central Excise, Service Tax, VAT.
• Whether there are multiple business locations which are maintained not from a business need but
purely to avail of a tax arbitrage.
• Whether the enterprise supplies to Government and Government is kept outside the ambit of GST.
• Magnitude of changes required in the ERP / Information Systems to adapt to the requirements of
the new GST regime.
Cashflow
Impact of GST on the cashflow would depend on a host of factors such as:
• Magnitude and duration of tax credit lock-up due to higher tax payments at the time of manufacture
(Proposed GST 20% > Current Central Excise Duty 16%).
• Magnitude and duration of tax credit lock-up due to higher tax payments at the time of procuring
input services (Proposed GST 20% > Current Service Tax 16%).
• Magnitude and duration of tax credit lock-up in refunds (across states).
• Whether stock transfer will attract upfront payment of GST.
• Whether there are multiple business locations which are maintained not from a business need but
purely to avail of a tax arbitrage.
• Magnitude of changes required in the ERP / Information Systems to adapt to the requirements of
the new GST regime.

11. 11
Compliance & Contracting
Impact of GST on the compliance and contracting can be assessed on a host of factors such as:
• Elimination of classification and valuation disputes.
• Transitioning procedure for Existing Tax Credits.
• Need for state wise registrations (especially for service companies).
• New documentation formats.
• Transaction re-structuring with vendors, channel partners,
re-organization of distribution network.
• Magnitude of changes required in the ERP / Information Systems to
adapt to the requirements of the new GST regime.

12. 12
An Illustrative Checklist:
Relative Impact on Bottomline >> Mfg Co. Serv Co. Customer
PRICING & COSTING
Where pricing is MRP based, due to input tax No Change
credits, tax outgo is lower but price is constant + NA in Price
Where pricing is not MRP based and prices are
not reduced, due to input tax credits, tax outgo + + -
is lower
Where pricing is not MRP based and prices are
reduced, margin pass off to customer - - +
Higher GST rates - - -
Rationalization of Business locations existing
due to tax arbitrage + NA
Changes in ERP / Information Systems - - NA
B2G supplies may have a price challenge if
government outside GST - - NA
CASHFLOW
Credit Lock ups in refunds (state wise) - - NA
Credit Lock ups in higher tax outgo at the time
of manufacture, procuring input services (GST - - NA
@ 20% > Central Excise Duty @ 16% & Service
Tax @ 12.36%)
If Stock Transfer is with Value Add, it attracts
upfront payment of GST, blocking working - NA NA
capital till sale
If Stock Transfer is without Value Add No Change NA NA
Rationalization of business locations existing
due to tax arbitrage + NA NA
Changes in ERP / Information Systems - - NA
COMPLIANCE & CONTRACTING
Existing Tax Credits Transitioning + + NA
New Registrations State wise Mixed - NA
Elimination of Classification & Valuation
Disputes + + NA
New Documentation Formats Mixed Mixed NA
Transaction Re-structuring with Partners Mixed Mixed NA
Changes in ERP / Information Systems - - NA
In the table above '+' stands for Positive & '-' stands for Negative.

13. Q: What is the Goods and Service Tax (GST)?
A: The Goods and Service Tax (GST) is a single, comprehensive indirect tax levy at a national level
on the supply of goods and services.
Q: What are the stages covered in the GST?
A: GST covers all the stages across the value chain - sourcing, manufacture, distribution, sale and
final consumption related to a good or a service.
Q: What are the major benefits of the introduction of the GST?
A: First benefit is simplification of tax administration by government and tax compliance by business
through subsumation of multiple taxes – CVD, SAD, CENVAT or Central Excise Duty, Service Tax,
Central Sales Tax (CST), State VAT, Entry Tax, Luxury Tax, Entertainment Tax, Lottery Tax, State
Level Cesses and Surcharges into a single GST. Another benefit over a short to medium term is
enhanced competitiveness of industry through reduced cost of production of goods and cost of
provision of services.
Q: What is the prime feature of GST?
A: The prime feature of the GST is the availability of input tax credit at each stage of the value chain
such that tax is paid only on the value added instead of the whole amount. So for example if
there is a tax paid on `5 lakhs at 20 percent at the first stage then the tax here will be `100,000.
At the next stage when the same goods are sold at `6 lakh then the tax would be `120,000 but
there is a set off of `100,000 available, so the actual tax at that stage will come to just `20,000.
Q: Who bears the final burden of GST?
A: Since GST is an indirect tax, the tax is passed on till the final stage to the end consumer who bears
the tax on goods and services. While this is the situation even today it is expected that since GST
subsumes multiple taxes the final cost to the customer will reduce in the long run due to elimination
of cascading effect (tax on tax) in the taxation system.
13
4. Frequently Asked Questions (FAQs)

14. 14
Q: Will all goods and services be covered under the GST?
A: Barring a specific list of exempted categories, all goods and services will be covered under the
GST making this a single, comprehensive tax in our economy.
Q: What is the proposed rate of GST?
A: For Essential Goods – 12% (Yr 1), 12% (Yr 2), 16% (Yr 3), For Services – 16% (All years),
For Non Essential Goods – 20% (Yr 1), 18% (Yr 2), 16% (Yr 3)

15. “Well begun is half done” – Aristotle
Hon. Finance Minister, Mr. Arun Jaitley proposed the implementation of GST in his maiden Union
Budget 2014-15. Therefore, adapting business operations to a GST environment should be the
topmost priority for industries in this fiscal. The stage is set for companies to re-assess their supply
chains and take proactive steps to implement GST; simply put Be GST Ready!
Inorder to successfully reap the benefits of GST regime, an enterprise needs to start early, gear up
its business operations for the new changed environment and stabilize the change management
processes initiated with no / absolutely minimal business disruption.
An indicative roadmap for becoming GST Ready could be as below:
• Conduct a GST Impact Assessment
o Identify key impact areas
o Analyse the level and direction of impact
• Initiative and drive change management across the organization
o Training
o Transition (Old & New Tax Regimes, Transaction Re-structuring)
o Implementation
• Post Implementation Stability
o Compliance Management
o Input Tax Credit Management
o Other support
15
5. GST Implementation: Preparatory Steps

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THAT'S
LEAD RSHIP
,
GST
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ready benefits of GST in whichever format it gets rolled out in India.