GST in India - An Overview

|| Om Shree Ganeshaya Namah ||

11-11-2016

Dear Readers,

Starting a blog with the title tax-laws, I intend to share my understanding on the subject of tax and other laws, in a very simple language, for the benefit of all.

Goods and Services Tax (GST) is around the corner in India (expected date of implementation being 1^st of April 2017), has created a lot of curiosity coupled with anxiety, not only in the minds of the business community but also the ultimate consumers at large.  GST is a unified consumption tax. Since GST is a uniform tax across the country, tax rate shall not determine the place of doing business in any part of the country.  Also since GST is a destination based or consumption based tax, it will be distributed amongst the states in the proportion of consumption of goods and services. 

Around 150 countries across the globe have GST mechanism, with France being the first country (in 1954) and Malaysia being the latest (in 2015).  USA does not have GST.

Most of the countries have a single tax as GST, however a very few countries like Brazil and Canada has “dual GST”.  India being a Federal country, has adopted ‘dual GST’ mechanism.

The Centre shall collect Central GST (CGST) and the States shall collect State GST (SGST) simultaneously levying it on a common base.  Also, Integrated GST (IGST) would be levied on inter-State supply (including stock transfers) of goods or services and shall be collected by the Centre.  Import of goods or services would be treated as ‘inter-State’ supplies and would be subject to IGST in addition to the applicable customs duties.  Exports would be zero-rated.

Unlike the Excise duty being levied on ‘manufacture’ of goods and Sales Tax/VAT being levied on ‘sale’ of goods and Service Tax is levied on ‘provision’ of services, GST shall be levied on “Supply” of goods and services.

Although India has walked in this direction in 2005, when the Value-Added Tax (VAT) was introduced to replace the Sales Tax regime across the country, a mega-merger of significant indirect taxes is now proposed under GST regime.  Taxes like Central Excise, Countervailing Duty (CVD) and Special Additional Duty (SAD) under the Customs law, Service Tax, Central Sales Tax, Sales Tax or VAT, Purchase Tax, Entry Tax, Entertainment Tax, Luxury Tax, and related Surcharges and Cesses thereto shall be included in the new GST.

GST is likely to apply to all goods and services except for (a) Alcohol for human consumption where State Excise and VAT will be applicable, (b) Electricity where Electricity Duty will be applicable and (c) Sale / purchase of Real Estate where Stamp Duty and Property Taxes will be applicable. GST on five specified petroleum products (Crude, Petrol, Diesel, ATF & Natural gas) would be applicable from a future date to be proposed. Tobacco and tobacco products would be subject to GST, in addition to the Central Excise duty levied by the Central Govt.

Necessary Constitutional amendments have taken place with Presidential assent.  A GST Council has been set by the Union Cabinet with Finance Minister as its Chairperson.  The GST Council shall play a very important role in implementation of GST in India and has a large number of recommendatory powers including tax rates.  The GST Council has recommended the 4 slabs of GST rates being 5%, 12% 18% and 28%.  The Council has also recommended threshold exemption to be fixed at Rs.20 lakhs for all the States except the States specified under Article 279A of the Constitution (North Eastern, Himachal Pradesh, Uttarakhand, J&K) where threshold exemption limit is fixed at Rs.10 lakhs.

The Model GST law is also released by the Ministry of Finance (MoF).  Central Board of Excise and Customs (CBEC) has also released draft rules on Registration, Invoice, Payment, Returns and Refund for public comments.

Goods and Services Tax Network (GSTN), a Public Private Partnership (PPP) Company under section 25 of the Companies Act, 1956 is formed, with Centre and States holding 24.50% shares each and the Financial Institutions (FIs) holding 51%.  GSTN would provide three basic front end services to taxpayers, namely registration, payment and returns.

GSTN is managing the GST Common Portal @ www.gst.gov.in .  Let us understand the migration process of existing registered tax payers to GST regime, in the next paper.

Comments, suggestions and improvements are most welcome.

Best Wishes,

Amol Mahajan.