Saturday, 25 July 2015

Goods and Services Tax in India

Goods and Services Tax

As you all know the Central government is likely to introduce the Goods and Services tax in the monsoon session of the parliament. What do you need to know about this tax and its effect on you?
The Goods and services tax ( Herein referred to as the GST)

The GST does not apply to Alcohol, Petroleum products and electricity (or that is what is said)
            Initially there was Central excise ( Cenvat), Sales tax – Later known as Sales Value added tax and service tax. Now it is proposed to replace all these taxes with a single uniform tax namely GST.

           All Indirect taxes both at the centre and the state level are going to be replaced by one tax - the GST.

What are the advantages of having the GST

a     There was widespread tax evasion when there were lots of taxes. This resulted in the government realizing less money than when there was simple tax regime.
       Total cost will reduce in a single tax regime
       Time taken when goods move between borders of states will be reduced drastically.
       The unnecessary loss of fuel while waiting at the border will be reduced
       Demand will increase when the Cost is reduced.
       The GDP will be benefited by about 0.9 to 1.5% if GST is introduced


Kelkar Task Force – A task force was set up in 2005 for Fiscal Responsibility Budget management. 

And it recommended a uniform tax known as GST.

Kelkar Committee recommended  that all indirect taxes be replaced by one tax known as GST

What will not be affected by GST?
Direct taxes - Income tax, Corporate Tax and Capital gains tax

GST will replace all indirect taxes if the Parliament approves both in Lok Sabha and the Rajya Sabha (two thirds majority) and must be ratified by 50% of the states.

There are 3 types of GST namely
State GST – Collected by the state governments (SGST)
Central GST – Collected by the Central government (CGST)
Integrated GST – Collected by the Central government (IGST) (the exact names may change in the law but this is for understanding)

New System
Old system
Sale within the state
VAT and Excise/ ST
Under the new system transaction will have SGST – goes to the state and CGST – Goes to the centre
The levying of excise or sales tax was not dependent on the levy of VAT
Sale outside the state
CST and Excise/ST
Under the new system the transaction between states has one type of tax – Integrated GST to the centre
Levying of CST was not dependent on Excise or sales tax

The GST is implemented in countries like Australia and Malaysia. It has resulted in better tax collection and fewer Tax evasion. Hence it is in everybody’s interest that the GST is passed in the Parliament.

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