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GOODS AND SERVICE ACT
A brief Overview
WHAT IS GST?
So there comes the basic question..
What is GST?
GST, or Goods and Services Tax is a proposed tax
structure which will subsume central indirect
taxes like excise duty, countervailing duty and
service tax, as also state levies like value added
tax, octroi and entry tax,luxury tax and many
other taxes.
2
HISTORY OF GST
 Goods and Services Tax (GST) was introduced in
France in 1954 and has been adopted by more
than 120 countries, including all member states of
the European Union (EU). Goods and Services Tax
(GST) is a percentage tax on value added (the
difference between sales and the cost of purchased
material inputs) at each stage of production.
3
RATES OF GST ACROSS THE WORLD
20%
7.50%
20% 19%
7%
18%
10%
5%
17%
GST Rates
4
GST IN INDIA
 The GST regime was intended to be functional from 1st
April, 2016.
 The first mention of the bill was in 2009 when the
previous UPA government opened a discussion on it.
They were successful in introducing the bill but failed to
get it passed.
 On 17th December 2014, the NDA government made
slight changes to it and redefined it in the Lok Sabha.
The bill got cleared on May 6th this year.
 However the current challenge facing the bill is that it
needs two-third majority of both houses and 50 percent
of the state assemblies will have to ratify it.
 The bill is now stuck in the Rajya Sabha, because the
current government does not hold a majority here. 5
6
EXCEPTION TO GST
 All goods and services, except alcoholic liquor for human
consumption, will be brought under the purview of GST.
 Petroleum and petroleum products have been constitutionally
included as ‘goods’ under GST. However, it has also been
provided that petroleum and petroleum products shall not be
subject to the levy of GST till notified at a future date on the
recommendation of the GST Council. The present taxes levied
by the States and the Centre on petroleum and petroleum
products, viz. Sales Tax/VAT and CST by the States, and
excise duty the Centre, will continue to be levied in the interim
period.
 Taxes on tobacco and tobacco products imposed by the
Centre shall continue to be levied over and above GST.
 In case of alcoholic liquor for human consumption, States
would continue to levy the taxes presently being levied, i.e.,
State Excise Duty and Sales Tax/VAT.
7
WHY GST IS REQUIRED?
 Presently, the Constitution empowers the Central Government to levy
excise duty on manufacturing and service tax on the supply of services.
Further, it empowers the State Governments to levy sales tax or value
added tax (VAT) on the sale of goods. This exclusive division of fiscal
powers has led to a multiplicity of indirect taxes in the country. In
addition, central sales tax (CST) is levied on inter-State sale of goods by
the Central Government, but collected and retained by the exporting
States. Further, many States levy an entry tax on the entry of goods in
local areas.
 This multiplicity of taxes at the State and Central levels has resulted in a
complex indirect tax structure in the country that is ridden with hidden
costs for the trade and industry. Firstly, there is no uniformity of tax rates
and structure across States. Secondly, there is cascading of taxes due to
‘tax on tax’. No credit of excise duty and service tax paid at the stage of
manufacture is available to the traders while paying the State level sales
tax or VAT, and vice-versa. Further, no credit of State taxes paid in one
State can be availed in other States. Hence, the prices of goods and
services get artificially inflated to the extent of this ‘tax on tax’.
8
WHY GST IS REQUIRED?(CONTINUED)
 The introduction of GST would mark a clear departure from the scheme of distribution of
fiscal powers envisaged in the Constitution. The proposed dual GST envisages taxation
of the same taxable event, i.e., supply of goods and services, simultaneously by both the
Centre and the States. Therefore, both Centre and States will be empowered to levy GST
across the value chain from the stage of manufacture to consumption. The credit of GST
paid on inputs at every stage of value addition would be available for the discharge of
GST liability on the output, thereby ensuring GST is charged only on the component of
value addition at each stage. This would ensure that there is no ‘tax on tax’ in the country.
 GST will simplify and harmonise the indirect tax regime in the country. It is expected to
reduce cost of production and inflation in the economy, thereby making the Indian trade
and industry more competitive, domestically as well as internationally. It is also expected
that introduction of GST will foster a common or seamless Indian market and contribute
significantly to the growth of the economy.
 Further, GST will broaden the tax base, and result in better tax compliance due to a
robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage to
another in the chain of value addition, there is an in-built mechanism in the design of
GST that would incentivize tax compliance by traders.
9
WHICH DUTIES WILL BE SUBSUMED UNDER
GST
10
Central Taxes
 Central Excise Duty [including
additional excise duties, excise duty
under the Medicinal and Toilet
Preparations (Excise Duties) Act,
1955]
 Service tax
 Additional Customs Duty (CVD)
 Special Additional Duty of Customs
(SAD)
 Central Sales Tax ( levied by the
Centre and collected by the States)
 Central surcharges and cesses (
relating to supply of goods and
services)
State Taxes
 Value Added Tax
 Octroi and Entry Tax
 Purchase Tax
 Luxury Tax
 Taxes on lottery, betting &
gambling
 State cesses and surcharges
 Entertainment tax (other than the
tax levied by the local bodies)
 Central Sales Tax ( levied by the
Centre and collected by the States)
MODELS OF GST
11
THE DUAL STRUCTURE OF GST
 Many countries in the world have a single unified
GST system i.e. a single tax applicable throughout
the country. However, in federal countries like Brazil
and Canada, a dual GST system is prevalent
whereby GST is levied by both the federal and state
or provincial governments. In India, a dual GST is
proposed whereby a Central Goods and Services
Tax (CGST) and a State Goods and Services Tax
(SGST) will be levied on the taxable value of every
transaction of supply of goods and services.
12
INTER-STATE TRANSACTIONS AND THE IGST
MECHANISM
The Centre would levy and collect the Integrated Goods
and Services Tax (IGST) on all inter-State supply of
goods and services. The IGST mechanism has been
designed to ensure seamless flow of input tax credit
from one State to another. The inter-State seller would
pay IGST on the sale of his goods to the Central
Government after adjusting credit of IGST, CGST and
SGST on his purchases (in that order). The exporting
State will transfer to the Centre the credit of SGST used
in payment of IGST. The importing dealer will claim
credit of IGST while discharging his output tax liability
(both CGST and SGST) in his own State. The Centre
will transfer to the importing State the credit of IGST
used in payment of SGST.
13
LET US CONSIDER AN EXAMPLE FOR IGST
TRANSFER
EXAMPLE
The transaction under study is as under:-
TRANSACTIONS OF SALES :X of Mumbai sold
Goods
worth Rs. 10.00 Lakhs to Y of Mumbai and Y of
Mumbai sold the same goods to Z of Rajasthan at
Rs. 10.50 Lakhs.Now at second stage Z of Rajasthan
sold the same goods to a consumer in Rajasthan at
Rs.11.00 Lakhs.Suppose the rate of SGST is 12%
and
rate of CGST is 14%.
14
INTER-STATE TRANSACTIONS AND THE IGST
MECHANISM(CONTD..)
1.X has to collect Rs. 1.20 Lakhs as SGST and Rs. 1.40
as the CGST on his sales to the dealer of same state on
the sale of Rs. 10 Lakhs @ 12% and 14% CGST.
2.The input credit for Y is Rs. 1.20 Lakhs as SGST and
Rs.1.40 Lakhs as CGST paid by him to X the dealer of
same state. .
3. The rate of IGST will be 26% (SGST 12% + CGST
14%).
4. Y will charge Rs. 2.73 Lakhs as IGST since the rate of
IGST is 26% and the sale value is Rs. 10.50 Lakhs
which he sold to the dealer of Rajasthan during the
course of Interstate Trade. Y will deposit a sum of Rs.
13000.00 after claiming the input credit of SGST and
CGST of Rs. 2.60 Lakhs as mentioned in point no. 2
above.
15
INTER-STATE TRANSACTIONS AND THE IGST
MECHANISM(CONTD..)
5. The state of Maharashtra will transfer the amount of SGST as
per point No.1 amounting to Rs. 1.20 Lakhs to the centre
which is used by Y while paying his IGST.
6. Z of Rajasthan sold these Goods to a consumer in Rajasthan
on a sum of Rs.11 Lakhs and will collect from him Rs. 1.32
Lakhs as SGST and Rs. 1.54 Lakhs as CGST. Z has paid Rs.
2.73 Lakhs as IGST hence his input credit is Rs. 2.73 Lakhs
which he will claim while paying his Liability of SGST and
CGST. We can calculate his available input credit against
SGST is Rs. 1.26 Lakhs and CGST Rs. 1.47 Lakhs out of his
total IGST credit of Rs. 2.73 Lakhs. He will deposit Rs.
6000.00 as SGST and Rs. 7000.00 Lakhs as the CGST.
7. A central agency will transfer the amount of input credit of
SGST while discharging the liability to pay the SGST in the
state of Rajasthan i.e. Rs. 1.26 Lakhs to the consumer state
i.e. Rajasthan.
That will complete the full circle of IGST. 16
DESTINATION BASED TAX
 GST will be a destination-based tax. This implies
that all SGST collected will ordinarily accrue to the
State where the consumer of the goods or services
sold resides.
 Destination based consumption tax means that
state and central taxes levied at different stages of
the supply chain will be totally shifted to the final
destination, consumers, and the destination state
will get the full SGST paid by its residents.
17
BENEFIT TO SMALL ENTREPRENEURS AND
SMALL TRADERS?
The present threshold prescribed in different State VAT Acts
below which VAT is not applicable varies from State to State.
The existing threshold of goods under State VAT is Rs. 5 lakhs
for a majority of bigger States and a lower threshold for North
Eastern States and Special Category States. A uniform State
GST threshold across States is desirable and, therefore, the
Empowered Committee has recommended that a threshold of
gross annual turnover of Rs. 10 lakh both for goods and services
for all the States and Union Territories may be adopted with
adequate compensation for the States (particularly, the States in
North-Eastern Region and Special Category States) where lower
threshold had prevailed in the VAT regime. Keeping in view the
interest of small traders and small scale industries and to avoid
dual control, the States considered that the threshold for Central
GST for goods may be kept at Rs.1.5 crore and the threshold for
services should also be appropriately high. This raising of
threshold will protect the interest of small traders..
18
COMPOSITION SCHEME IN GST
 A Composition/Compounding Scheme will be an
important feature of GST to protect the interests of
small traders and small scale industries. The
Composition/Compounding scheme for the purpose
of GST should have an upper ceiling on gross
annual turnover and a floor tax rate with respect to
gross annual turnover. In particular there will be a
compounding cut-off at Rs. 50 lakhs of the gross 49
annual turnover and the floor rate of 0.5% across
the States. The scheme would allow option for GST
registration for dealers with turnover below the
compounding cut-off. 19
IMPORT AND EXPORT UNDER GST
 GST on export would be zero rated
 Both CGST and SGST will be levied on import of
goods and services into the country. The
incidence of tax will follow the destination principle
and the tax revenue in case of SGST will accrue
to the State where the imported goods and
services are consumed. Full and complete set-off
will be available on the GST paid on import on
goods and services.
20
REGISTRATION UNDER GST
 Each of the business entity either providing pure
services or trading in goods will be required to
obtain GSTIN from both Centre and State
Government. The business entity has to file 2
applications with each of the Govt. for registration
and allotment of GSTIN. The registration no. under
GST regime will be of 15 digits containing first 2
digits as state code and next 10 digits as PAN, 13th
digits will be the entity code i.e. depending upon the
registration no. obtained by an entity in a particular
state. The 14th digits will be optional and will be
used in future and 15th digit will be check sum digit.
-
21
THANK YOU!!!
- By Joy Waghela 22
JW Initiatives
THANKS TO FOLLOWING SOURCES
1.dor.gov.in
2.www.ey.com
3.www.thehindu.com
4.indiatoday.intoday.in
5.taxguru.in
6. www.gstindia.com
7. http://empcom.gov.in/content/20_1_FAQ.aspx
23

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Goods and service act - A Basic Overview

  • 1. GOODS AND SERVICE ACT A brief Overview
  • 2. WHAT IS GST? So there comes the basic question.. What is GST? GST, or Goods and Services Tax is a proposed tax structure which will subsume central indirect taxes like excise duty, countervailing duty and service tax, as also state levies like value added tax, octroi and entry tax,luxury tax and many other taxes. 2
  • 3. HISTORY OF GST  Goods and Services Tax (GST) was introduced in France in 1954 and has been adopted by more than 120 countries, including all member states of the European Union (EU). Goods and Services Tax (GST) is a percentage tax on value added (the difference between sales and the cost of purchased material inputs) at each stage of production. 3
  • 4. RATES OF GST ACROSS THE WORLD 20% 7.50% 20% 19% 7% 18% 10% 5% 17% GST Rates 4
  • 5. GST IN INDIA  The GST regime was intended to be functional from 1st April, 2016.  The first mention of the bill was in 2009 when the previous UPA government opened a discussion on it. They were successful in introducing the bill but failed to get it passed.  On 17th December 2014, the NDA government made slight changes to it and redefined it in the Lok Sabha. The bill got cleared on May 6th this year.  However the current challenge facing the bill is that it needs two-third majority of both houses and 50 percent of the state assemblies will have to ratify it.  The bill is now stuck in the Rajya Sabha, because the current government does not hold a majority here. 5
  • 6. 6
  • 7. EXCEPTION TO GST  All goods and services, except alcoholic liquor for human consumption, will be brought under the purview of GST.  Petroleum and petroleum products have been constitutionally included as ‘goods’ under GST. However, it has also been provided that petroleum and petroleum products shall not be subject to the levy of GST till notified at a future date on the recommendation of the GST Council. The present taxes levied by the States and the Centre on petroleum and petroleum products, viz. Sales Tax/VAT and CST by the States, and excise duty the Centre, will continue to be levied in the interim period.  Taxes on tobacco and tobacco products imposed by the Centre shall continue to be levied over and above GST.  In case of alcoholic liquor for human consumption, States would continue to levy the taxes presently being levied, i.e., State Excise Duty and Sales Tax/VAT. 7
  • 8. WHY GST IS REQUIRED?  Presently, the Constitution empowers the Central Government to levy excise duty on manufacturing and service tax on the supply of services. Further, it empowers the State Governments to levy sales tax or value added tax (VAT) on the sale of goods. This exclusive division of fiscal powers has led to a multiplicity of indirect taxes in the country. In addition, central sales tax (CST) is levied on inter-State sale of goods by the Central Government, but collected and retained by the exporting States. Further, many States levy an entry tax on the entry of goods in local areas.  This multiplicity of taxes at the State and Central levels has resulted in a complex indirect tax structure in the country that is ridden with hidden costs for the trade and industry. Firstly, there is no uniformity of tax rates and structure across States. Secondly, there is cascading of taxes due to ‘tax on tax’. No credit of excise duty and service tax paid at the stage of manufacture is available to the traders while paying the State level sales tax or VAT, and vice-versa. Further, no credit of State taxes paid in one State can be availed in other States. Hence, the prices of goods and services get artificially inflated to the extent of this ‘tax on tax’. 8
  • 9. WHY GST IS REQUIRED?(CONTINUED)  The introduction of GST would mark a clear departure from the scheme of distribution of fiscal powers envisaged in the Constitution. The proposed dual GST envisages taxation of the same taxable event, i.e., supply of goods and services, simultaneously by both the Centre and the States. Therefore, both Centre and States will be empowered to levy GST across the value chain from the stage of manufacture to consumption. The credit of GST paid on inputs at every stage of value addition would be available for the discharge of GST liability on the output, thereby ensuring GST is charged only on the component of value addition at each stage. This would ensure that there is no ‘tax on tax’ in the country.  GST will simplify and harmonise the indirect tax regime in the country. It is expected to reduce cost of production and inflation in the economy, thereby making the Indian trade and industry more competitive, domestically as well as internationally. It is also expected that introduction of GST will foster a common or seamless Indian market and contribute significantly to the growth of the economy.  Further, GST will broaden the tax base, and result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of GST that would incentivize tax compliance by traders. 9
  • 10. WHICH DUTIES WILL BE SUBSUMED UNDER GST 10 Central Taxes  Central Excise Duty [including additional excise duties, excise duty under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955]  Service tax  Additional Customs Duty (CVD)  Special Additional Duty of Customs (SAD)  Central Sales Tax ( levied by the Centre and collected by the States)  Central surcharges and cesses ( relating to supply of goods and services) State Taxes  Value Added Tax  Octroi and Entry Tax  Purchase Tax  Luxury Tax  Taxes on lottery, betting & gambling  State cesses and surcharges  Entertainment tax (other than the tax levied by the local bodies)  Central Sales Tax ( levied by the Centre and collected by the States)
  • 12. THE DUAL STRUCTURE OF GST  Many countries in the world have a single unified GST system i.e. a single tax applicable throughout the country. However, in federal countries like Brazil and Canada, a dual GST system is prevalent whereby GST is levied by both the federal and state or provincial governments. In India, a dual GST is proposed whereby a Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST) will be levied on the taxable value of every transaction of supply of goods and services. 12
  • 13. INTER-STATE TRANSACTIONS AND THE IGST MECHANISM The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supply of goods and services. The IGST mechanism has been designed to ensure seamless flow of input tax credit from one State to another. The inter-State seller would pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST and SGST on his purchases (in that order). The exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The importing dealer will claim credit of IGST while discharging his output tax liability (both CGST and SGST) in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST. 13
  • 14. LET US CONSIDER AN EXAMPLE FOR IGST TRANSFER EXAMPLE The transaction under study is as under:- TRANSACTIONS OF SALES :X of Mumbai sold Goods worth Rs. 10.00 Lakhs to Y of Mumbai and Y of Mumbai sold the same goods to Z of Rajasthan at Rs. 10.50 Lakhs.Now at second stage Z of Rajasthan sold the same goods to a consumer in Rajasthan at Rs.11.00 Lakhs.Suppose the rate of SGST is 12% and rate of CGST is 14%. 14
  • 15. INTER-STATE TRANSACTIONS AND THE IGST MECHANISM(CONTD..) 1.X has to collect Rs. 1.20 Lakhs as SGST and Rs. 1.40 as the CGST on his sales to the dealer of same state on the sale of Rs. 10 Lakhs @ 12% and 14% CGST. 2.The input credit for Y is Rs. 1.20 Lakhs as SGST and Rs.1.40 Lakhs as CGST paid by him to X the dealer of same state. . 3. The rate of IGST will be 26% (SGST 12% + CGST 14%). 4. Y will charge Rs. 2.73 Lakhs as IGST since the rate of IGST is 26% and the sale value is Rs. 10.50 Lakhs which he sold to the dealer of Rajasthan during the course of Interstate Trade. Y will deposit a sum of Rs. 13000.00 after claiming the input credit of SGST and CGST of Rs. 2.60 Lakhs as mentioned in point no. 2 above. 15
  • 16. INTER-STATE TRANSACTIONS AND THE IGST MECHANISM(CONTD..) 5. The state of Maharashtra will transfer the amount of SGST as per point No.1 amounting to Rs. 1.20 Lakhs to the centre which is used by Y while paying his IGST. 6. Z of Rajasthan sold these Goods to a consumer in Rajasthan on a sum of Rs.11 Lakhs and will collect from him Rs. 1.32 Lakhs as SGST and Rs. 1.54 Lakhs as CGST. Z has paid Rs. 2.73 Lakhs as IGST hence his input credit is Rs. 2.73 Lakhs which he will claim while paying his Liability of SGST and CGST. We can calculate his available input credit against SGST is Rs. 1.26 Lakhs and CGST Rs. 1.47 Lakhs out of his total IGST credit of Rs. 2.73 Lakhs. He will deposit Rs. 6000.00 as SGST and Rs. 7000.00 Lakhs as the CGST. 7. A central agency will transfer the amount of input credit of SGST while discharging the liability to pay the SGST in the state of Rajasthan i.e. Rs. 1.26 Lakhs to the consumer state i.e. Rajasthan. That will complete the full circle of IGST. 16
  • 17. DESTINATION BASED TAX  GST will be a destination-based tax. This implies that all SGST collected will ordinarily accrue to the State where the consumer of the goods or services sold resides.  Destination based consumption tax means that state and central taxes levied at different stages of the supply chain will be totally shifted to the final destination, consumers, and the destination state will get the full SGST paid by its residents. 17
  • 18. BENEFIT TO SMALL ENTREPRENEURS AND SMALL TRADERS? The present threshold prescribed in different State VAT Acts below which VAT is not applicable varies from State to State. The existing threshold of goods under State VAT is Rs. 5 lakhs for a majority of bigger States and a lower threshold for North Eastern States and Special Category States. A uniform State GST threshold across States is desirable and, therefore, the Empowered Committee has recommended that a threshold of gross annual turnover of Rs. 10 lakh both for goods and services for all the States and Union Territories may be adopted with adequate compensation for the States (particularly, the States in North-Eastern Region and Special Category States) where lower threshold had prevailed in the VAT regime. Keeping in view the interest of small traders and small scale industries and to avoid dual control, the States considered that the threshold for Central GST for goods may be kept at Rs.1.5 crore and the threshold for services should also be appropriately high. This raising of threshold will protect the interest of small traders.. 18
  • 19. COMPOSITION SCHEME IN GST  A Composition/Compounding Scheme will be an important feature of GST to protect the interests of small traders and small scale industries. The Composition/Compounding scheme for the purpose of GST should have an upper ceiling on gross annual turnover and a floor tax rate with respect to gross annual turnover. In particular there will be a compounding cut-off at Rs. 50 lakhs of the gross 49 annual turnover and the floor rate of 0.5% across the States. The scheme would allow option for GST registration for dealers with turnover below the compounding cut-off. 19
  • 20. IMPORT AND EXPORT UNDER GST  GST on export would be zero rated  Both CGST and SGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import on goods and services. 20
  • 21. REGISTRATION UNDER GST  Each of the business entity either providing pure services or trading in goods will be required to obtain GSTIN from both Centre and State Government. The business entity has to file 2 applications with each of the Govt. for registration and allotment of GSTIN. The registration no. under GST regime will be of 15 digits containing first 2 digits as state code and next 10 digits as PAN, 13th digits will be the entity code i.e. depending upon the registration no. obtained by an entity in a particular state. The 14th digits will be optional and will be used in future and 15th digit will be check sum digit. - 21
  • 22. THANK YOU!!! - By Joy Waghela 22 JW Initiatives
  • 23. THANKS TO FOLLOWING SOURCES 1.dor.gov.in 2.www.ey.com 3.www.thehindu.com 4.indiatoday.intoday.in 5.taxguru.in 6. www.gstindia.com 7. http://empcom.gov.in/content/20_1_FAQ.aspx 23