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Goods and Services Tax
(GST) in India
- By Hoshedar Patwa
Current Tax
Structure in India
• Taxes represent the amount of money we
pay to the Government. Taxes are the
basic source of revenue to the
Government using which it provides
various kinds of services to the tax payers.
There are mainly two types of Taxes,
direct tax and indirect tax which are
governed by two different boards, Central
Board of Direct Taxes (CBDT) and Central
Board of Excise and Customs (CBEC).
Direct Taxes
Direct taxes are the personal liability of tax payer. These
are collected directly from the tax payers and they have
to be paid by the persons on whom it is imposed.
• Income Tax
• Wealth Tax
• Property Tax/Capital Gains Tax
• Corporate Tax
• Gift Tax/ Inheritance or Estate Tax
Indirect Tax
• Impact and incidence of indirect Taxes fall on
different persons. These taxes are recovered
from different groups of people but the liability
remains with the person who collects it. Tax
payer recovers the indirect taxes paid from their
consumers and clients and finally pays it to
government.
• For example, when we purchase any product we
pay VAT, when we eat in restaurants we pay
service tax which are ultimately deposited to
government by the service providers.
Indirect Tax
Brief about various types of indirect taxes
is given below:
• Service Tax
• Custom Duty
• Excise Duty
• Sales Tax and VAT
• Security Transaction Tax (STT)
Method of Collection
• There are two methods for collection of VAT in India. In
the first method, tax is charged separately on the basis
of the tax which is paid on purchase, and the tax that is
payable on the sale (shown separately in the invoice).
Therefore, the difference between the tax paid on
purchase and the tax payable on sale as per the invoice
is the VAT.
• In the second method, tax is collected and charged on
the aggregate value of the tax payable on sale and
purchase, by applying the rate of tax applicable to the
goods. Therefore, the difference between the sale price
and purchase price would be VAT.
Issues in
current Tax Structure
• The credit of Input VAT is available against Output VAT.
In the same manner, the credit of input excise/service
tax is available for set-off against output liability of
excise/service tax. However, the credit of VAT is not
available against excise and vice versa.
• Current taxes are calculated as tax-on-tax.
(* CVD – Countervailing Duty; SAD – Special Additional Duty)
Goods and Services
Tax (GST)
• The GST shall subsume all the above
taxes, except the Basic Customs Duty that
will continue to be charged even after the
introduction of GST. Other indirect taxes,
such as stamp duties etc shall also
continue. India shall adopt a Dual GST
model, meaning that the GST would be
administered both by the Central and the
State Governments. This makes it the first
tax of its kind in India!
The Dual GST Model
We begin by stating the dual GST model and the taxes
levied on each kind of transaction. See these
abbreviations before we understand them-
• SGST – State GST, collected by the State Govt.
• CGST – Central GST, collected by the Central Govt.
• IGST – Integrated GST, collected by the Central Govt.
GST – the story so far /
Policy developments
How GST operates?
It is worth mentioning here that the levy of Excise or
Service Tax was not dependent on the levy of VAT/CST,
as they were governed by different laws.
These are the taxes that shall be levied under the new
system of GST. How this shall operate, and how can we
have cross utilisation of credits can be seen in the
discussion that follows –
Case 1: Sale in one state,
resale in same state
In the example illustrated below, goods are moving from Mumbai to Pune. Since it is a sale within
a state, CGST and SGST will be levied. The collection goes to the Central Government and the
State Government as pointed out in the diagram. Then the goods are resold from Pune to
Nagpur. This is again a sale within a state, so CGST and SGST will be levied. Sale price is
increased so tax liability will also increase. In the case of resale, the credit of input CGST and
input SGST (Rs. 8) is claimed as shown; and the remaining taxes go to the respective
governments.
Case 2: Sale in one state,
resale in another state
In this case, goods are moving from Indore to Bhopal. Since it is a sale within a state, CGST and
SGST will be levied. The collection goes to the Central Government and the State Government
as pointed out in the diagram. Later the goods are resold from Bhopal to Lucknow (outside the
state). Therefore, IGST will be levied. Whole IGST goes to the central government.
Against IGST, both the input taxes are taken as credit. But we see that SGST never went to the
central government, still the credit is claimed. This is the crux of GST. Since this amounts to a
loss to the Central Government, the state government compensates the central government by
transferring the credit to the central government.
Case 3: Sale outside state,
resale in that state
In this case, goods are moving from Delhi to Jaipur. Since it is an interstate sale, IGST will be
levied. The collection goes to the Central Government. Later the goods are resold from Jaipur to
Jodhpur (within the state). Therefore, CGST and SGST will be levied.
Against CGST and SGST, 50% of the IGST, that is Rs. 8 is taken as a credit. But we see that
IGST never went to the state government, still the credit is claimed against SGST. Since this
amounts to a loss to the State Government, the Central government compensates the State
government by transferring the credit to the State government.
Advantages of GST
Apart from full allowance of credit, there are several
other advantages of introducing a GST in India:
• Reduction in prices
• Increase in Government Revenues
• Less compliance and procedural cost
• Move towards a Unified GST as per
International Stadards
Points to Ponder
The GST is a very good type of tax. However, for the successful
implementation of the same, we must be cautious about a few aspects.
Following are some of the factors that must be kept in mind about GST:
• Firstly, it is really required that all the states implement
the GST together and that too at the same rates.
• The GST is a destination based tax, not the origin one.
In such circumstances, it should be clearly identifiable as
to where the goods are going.
• More awareness about GST and its advantages have to
be made
Comparison between Multiple Indirect
tax laws and proposed one law (GST)
(A) Goods-Producer to Whole-
Seller
Under VAT (Rs.) Under GST (Rs.)
Cost of Production 5,000.00 5,000.00
Add: Profit Margin 2,000.00 2,000.00
Producers basic price 7,000.00 7,000.00
Add: Excise Duty @ 12% 840.00 -
Value(a) 7,840.00 7,000.00
Add: VAT @ 12.5% 980.00 -
Add: CGST @ 12% - 840.00
Add: SGST @ 12% - 840.00
Invoice Value 8,820.00 8,680.00
Comparison between Multiple Indirect
tax laws and proposed one law
(B) Wholesaler to Retailer Under VAT (Rs.) Under GST (Rs.)
COG to Wholesaler(a) 7,840.00 7,000.00
Add: Profit Margin@10% 784.00 700.00
Total Value(b) 8,624.00 7,700.00
Add: VAT @ 12.5% 1,078.00 -
Add: CGST @ 12% - 924.00
Add: SGST @ 12% - 924.00
Invoice Value 9,702.00 9,548.00
Comparison between Multiple Indirect
tax laws and proposed one law
(B) Retailer to Consumer: Under VAT (Rs.) Under GST (Rs.)
COG to Wholesaler(a) 8,624.00 7,700.00
Add: Profit Margin@10% 862.40 770.00
Total Value(b) 9,486.40 8,470.00
Add: VAT @ 12.5% 1,185.80 -
Add: CGST @ 12% - 1,016.40
Add: SGST @ 12% - 1,016.40
Invoice Value 10,672.20 10,502.80
Cost saving to consumer - 169.40
THANK YOU
- For Deloitte
- By Hoshedar Patwa

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Goods and Service Tax

  • 1. Goods and Services Tax (GST) in India - By Hoshedar Patwa
  • 2. Current Tax Structure in India • Taxes represent the amount of money we pay to the Government. Taxes are the basic source of revenue to the Government using which it provides various kinds of services to the tax payers. There are mainly two types of Taxes, direct tax and indirect tax which are governed by two different boards, Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC).
  • 3. Direct Taxes Direct taxes are the personal liability of tax payer. These are collected directly from the tax payers and they have to be paid by the persons on whom it is imposed. • Income Tax • Wealth Tax • Property Tax/Capital Gains Tax • Corporate Tax • Gift Tax/ Inheritance or Estate Tax
  • 4. Indirect Tax • Impact and incidence of indirect Taxes fall on different persons. These taxes are recovered from different groups of people but the liability remains with the person who collects it. Tax payer recovers the indirect taxes paid from their consumers and clients and finally pays it to government. • For example, when we purchase any product we pay VAT, when we eat in restaurants we pay service tax which are ultimately deposited to government by the service providers.
  • 5. Indirect Tax Brief about various types of indirect taxes is given below: • Service Tax • Custom Duty • Excise Duty • Sales Tax and VAT • Security Transaction Tax (STT)
  • 6. Method of Collection • There are two methods for collection of VAT in India. In the first method, tax is charged separately on the basis of the tax which is paid on purchase, and the tax that is payable on the sale (shown separately in the invoice). Therefore, the difference between the tax paid on purchase and the tax payable on sale as per the invoice is the VAT. • In the second method, tax is collected and charged on the aggregate value of the tax payable on sale and purchase, by applying the rate of tax applicable to the goods. Therefore, the difference between the sale price and purchase price would be VAT.
  • 7. Issues in current Tax Structure • The credit of Input VAT is available against Output VAT. In the same manner, the credit of input excise/service tax is available for set-off against output liability of excise/service tax. However, the credit of VAT is not available against excise and vice versa. • Current taxes are calculated as tax-on-tax. (* CVD – Countervailing Duty; SAD – Special Additional Duty)
  • 8. Goods and Services Tax (GST) • The GST shall subsume all the above taxes, except the Basic Customs Duty that will continue to be charged even after the introduction of GST. Other indirect taxes, such as stamp duties etc shall also continue. India shall adopt a Dual GST model, meaning that the GST would be administered both by the Central and the State Governments. This makes it the first tax of its kind in India!
  • 9. The Dual GST Model We begin by stating the dual GST model and the taxes levied on each kind of transaction. See these abbreviations before we understand them- • SGST – State GST, collected by the State Govt. • CGST – Central GST, collected by the Central Govt. • IGST – Integrated GST, collected by the Central Govt.
  • 10. GST – the story so far / Policy developments
  • 11. How GST operates? It is worth mentioning here that the levy of Excise or Service Tax was not dependent on the levy of VAT/CST, as they were governed by different laws. These are the taxes that shall be levied under the new system of GST. How this shall operate, and how can we have cross utilisation of credits can be seen in the discussion that follows –
  • 12. Case 1: Sale in one state, resale in same state In the example illustrated below, goods are moving from Mumbai to Pune. Since it is a sale within a state, CGST and SGST will be levied. The collection goes to the Central Government and the State Government as pointed out in the diagram. Then the goods are resold from Pune to Nagpur. This is again a sale within a state, so CGST and SGST will be levied. Sale price is increased so tax liability will also increase. In the case of resale, the credit of input CGST and input SGST (Rs. 8) is claimed as shown; and the remaining taxes go to the respective governments.
  • 13. Case 2: Sale in one state, resale in another state In this case, goods are moving from Indore to Bhopal. Since it is a sale within a state, CGST and SGST will be levied. The collection goes to the Central Government and the State Government as pointed out in the diagram. Later the goods are resold from Bhopal to Lucknow (outside the state). Therefore, IGST will be levied. Whole IGST goes to the central government. Against IGST, both the input taxes are taken as credit. But we see that SGST never went to the central government, still the credit is claimed. This is the crux of GST. Since this amounts to a loss to the Central Government, the state government compensates the central government by transferring the credit to the central government.
  • 14. Case 3: Sale outside state, resale in that state In this case, goods are moving from Delhi to Jaipur. Since it is an interstate sale, IGST will be levied. The collection goes to the Central Government. Later the goods are resold from Jaipur to Jodhpur (within the state). Therefore, CGST and SGST will be levied. Against CGST and SGST, 50% of the IGST, that is Rs. 8 is taken as a credit. But we see that IGST never went to the state government, still the credit is claimed against SGST. Since this amounts to a loss to the State Government, the Central government compensates the State government by transferring the credit to the State government.
  • 15. Advantages of GST Apart from full allowance of credit, there are several other advantages of introducing a GST in India: • Reduction in prices • Increase in Government Revenues • Less compliance and procedural cost • Move towards a Unified GST as per International Stadards
  • 16. Points to Ponder The GST is a very good type of tax. However, for the successful implementation of the same, we must be cautious about a few aspects. Following are some of the factors that must be kept in mind about GST: • Firstly, it is really required that all the states implement the GST together and that too at the same rates. • The GST is a destination based tax, not the origin one. In such circumstances, it should be clearly identifiable as to where the goods are going. • More awareness about GST and its advantages have to be made
  • 17. Comparison between Multiple Indirect tax laws and proposed one law (GST) (A) Goods-Producer to Whole- Seller Under VAT (Rs.) Under GST (Rs.) Cost of Production 5,000.00 5,000.00 Add: Profit Margin 2,000.00 2,000.00 Producers basic price 7,000.00 7,000.00 Add: Excise Duty @ 12% 840.00 - Value(a) 7,840.00 7,000.00 Add: VAT @ 12.5% 980.00 - Add: CGST @ 12% - 840.00 Add: SGST @ 12% - 840.00 Invoice Value 8,820.00 8,680.00
  • 18. Comparison between Multiple Indirect tax laws and proposed one law (B) Wholesaler to Retailer Under VAT (Rs.) Under GST (Rs.) COG to Wholesaler(a) 7,840.00 7,000.00 Add: Profit Margin@10% 784.00 700.00 Total Value(b) 8,624.00 7,700.00 Add: VAT @ 12.5% 1,078.00 - Add: CGST @ 12% - 924.00 Add: SGST @ 12% - 924.00 Invoice Value 9,702.00 9,548.00
  • 19. Comparison between Multiple Indirect tax laws and proposed one law (B) Retailer to Consumer: Under VAT (Rs.) Under GST (Rs.) COG to Wholesaler(a) 8,624.00 7,700.00 Add: Profit Margin@10% 862.40 770.00 Total Value(b) 9,486.40 8,470.00 Add: VAT @ 12.5% 1,185.80 - Add: CGST @ 12% - 1,016.40 Add: SGST @ 12% - 1,016.40 Invoice Value 10,672.20 10,502.80 Cost saving to consumer - 169.40
  • 20. THANK YOU - For Deloitte - By Hoshedar Patwa