What is GST, its Benefits and How does it Work

What is GST, Benefits, Tax Rate in India

You have probably been catching wind of a number of news events and discussions about the GST (Goods and Services Tax). Though, have you really caught a hold on what is it all about? This simple article is going to assist you in getting a grasp of the concept behind this tax and will help you in understanding what it is all about.

What is GST?

GST is a form of indirect tax, very similar to how service tax or VAT are indirect taxes. It aims at unifying the Indian market and will act as a tax for the whole nation. GST shall be applied on the supply of all goods and services from the manufacturer to the consumer. It shall provide for the tax credit of all taxes paid at every stage, thus providing a system for taxing the value addition at each stage. The consumer at the last stage of obtaining any goods or services shall be liable to pay taxes charged by the dealer before him and will be able to obtain set off for all other taxes paid previously.

GST is implemented with a moto of standardizing the tax structure in India, which clearly goes by its tagline “One Tax for One Country”

Suggested Breakdown of GST

IGST – Stands for Integrated GST, will be levied and administered by Centre on every inter-state supply of goods and services.

CGST – Stands for Central GST, will be levied by the Centre on intra-State supply of goods and/or services

SGST – Stands for State GST, will be levied by the States would be called the State GST

How will GST bring benefits to the Indian economy?

The benefits of GST shall accrue to the different set of consumers in different ways. Let us have a look at these advantages from the individual perspective.

Benefits for businesses

  1. Businesses and consumers, in general, will find it easier to comply with the requirements of the taxation system as it will be backed with a holistic IT system, making available all services, such as registration, filing returns and payment of taxes through an online system. In this way, one can carry out the formalities of GST in an easy manner.
  2. Carrying out business operations across the country will become a neutral process. A common tax rate structure will allow people to start and operate a business at any location.
  3. This system of taxation eliminates the cascading effect of the tax, thus, reducing hidden costs of doing business.
  4. Reduction of tax rates and a uniformity across them will give way to increased competition across industries.

Benefits to the governments

  1. So far, the central and state governments were administering a number of indirect taxes, all of which had a number of provisions and rules that had to be complied with and checked. Now, with a uniform tax rate and system across the entire nation, backed with an efficient IT system, the task of administering the taxation system will be simplified.
  2. A comprehensive check across the taxes and constant monitoring with dedicated IT systems will ensure that noncompliance of taxes is caught easily.
  3. It is also expected that due to an online system of taxation, the cost of collecting taxes will reduce significantly. As a result, there will be higher revenue collection from the government.

Benefits to the consumer

  1. In the present day, there are many goods and services in the country that are laden with the cost of hidden taxes. With a single taxation structure and availability of input tax credit at every stage, it will be possible to have a transparency in the pricing of goods.
  2. The overall tax burden on most commodities will fall down significantly.

Benefits to the SME/MSME’s

  1. Tax payers with an aggregate turnover in a financial year up to [Rs.10 lakhs] would be exempt from tax.
  2. For the NE States and Sikkim, the exemption threshold shall be [Rs. 5 lakhs].
  3. All taxpayers eligible for threshold exemption will have the option of paying tax with input tax credit (ITC) benefits.
  4. SMEs in the service sector enjoys no exemption or concessions. Concessions are only for the SME manufacturers. The total tax incidence in every product that we manufacture in India is anything between 27 to 31%, which is supposed to come down to a 20%
  5. The SMEs whose turnover is up to Rs 1.5 crore were availing excise exemption, but they were subject VAT/CST/entry tax etc under the state law. It is worth mentioning that the exemption to SME does not mean that the entire Rs 1.5 crore is exempt from excise.

Which are the existing taxes being merged into GST?

(i) Center taxes that would be subsumed as one under GST:

  1. Central Excise duty
  2. Duties of Excise (Medicinal and Toilet Preparations)
  3. Additional Duties of Excise (Goods of Special Importance)
  4. Additional Duties of Excise (Textiles and Textile Products) 4 5
  5. Additional Duties of Customs (commonly known as CVD)
  6. Special Additional Duty of Customs (SAD)
  7. Service Tax
  8. Central Surcharges and Cesses so far as they relate to supply of goods and services

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

  1. State VAT
  2. Central Sales Tax
  3. Luxury Tax
  4. Entry Tax (all forms)
  5. Entertainment and Amusement Tax (except when levied by the local bodies)
  6. Taxes on advertisements
  7. Purchase Tax
  8. Taxes on lotteries, betting, and gambling
  9. State Surcharges and Cesses so far as they relate to supply of goods and services

How does the government plan to administer GST?

Since India has a federal structure, GST will be administered in two stages, central and state level. GST shall be levied on the supply of all goods and services. Cross utilization of input tax credit shall not be allowed and the input tax credit of a respective stage shall be allowed to be set off from that stage itself. However, cross utilization of central GST across goods and services shall be allowed, as shall be allowed for State administered GST.

Major features of proposed payment system under GST

The holistic system of GST shall be administered along with the following features:

  • Complete electronic system
  • Single point of interface for challan generation
  • Online modes of payment for taxes
  • Common challan
  • Common set of authorized banks
  • Common accounting codes

Return filing under GST system

  • There will be common returns, for both central as well as state taxes.
  • In total, there are eight forms that have been prepared for the purpose of filing tax returns under the GST system. However, for the purpose of an average user, there will be a need to use only four of them, including the return for supplies, purchases, monthly returns and annual return.
  • There is an option for small taxpayers to file a quarterly return under the composition scheme
  • The procedure for filing returns shall be completely done through online mode.

How to get registered under the new GST system?

  • For existing dealers of VAT, central excise and service tax, there shall be no need to apply for a fresh registration.
  • Although, for new dealers who have not obtained a registration previously, there will be a single application form that will have to be filed. It will be based on the PAN of the person and shall serve the purpose of both central and state level. Within three days, approval shall be granted and each dealer shall get a unique GST ID.

Facility for on it tax payers

In order to cater to the needs of taxpayers who are not IT savvy, following facilities shall be made available: –

  • Tax Return Preparer (TRP):
  1. A taxable person may prepare his registration application /returns himself or can approach the TRP for assistance.
  2. TRP will prepare the said registration document/return in prescribed format on the basis of the information furnished to him by the taxable person.
  3. The legal responsibility of the correctness 38 39 of information contained in the forms prepared by the TRP will rest with the taxable person only and the TRP shall not be liable for any errors or incorrect information.
  • Facilitation Centre (FC)
  1. shall be responsible for the digitization and/or uploading of the forms and documents including summary sheet duly signed by the Authorized Signatory and given to it by the taxable person.
  2. After uploading the data on common portal using the ID and Password of FC, a print-out of acknowledgment will be taken and signed by the FC and handed over to the taxable person for his records.
  3. The FC will scan and upload the summary sheet duly signed by the Authorized Signatory

 

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Shalini Bisht

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