2. Overview
Present Taxation System
Old Sales Tax Regime
Introduction of VAT and CST
Value Added Tax and Input Credit System
Excise Tax, Service Tax, MODVAT, CENVAT
Why GST?
What is GST?
Which Central And States Taxes would be subsumed
Framework of GST
Integrated GST(IGST)
Benefits of GST
GST Council and its Objectives
Implementation Challenges
122nd Constitutional Amendment Bill, 2014
4. Sales Tax
It is an indirect tax levied on the sales of goods.
Rs. 10000
10% sales tax 10% sales tax
+500 value added
Rs. 10000 +
Rs.1000 +
Rs. 500
Rs. 11500 +
Rs. 1150
Rs.12650
1000+100+50
Till 2005
5. Problems of Sales Tax
Cascading effect(Tax on tax)
Selling without bill- no tax liability
“Inspector Raj”- Bribing of officials
Tax base decreases and thus the revenue
decreases
6. Solution: Introduction of VAT and CST
Value added Tax
Levied on the sales of goods within
the state.
It is collected by state.
Comes under the State list.
Tax on value addition at each stage.
Here, every next stage dealer gets
credit of the tax paid at earlier stage
against his tax liability.(INPUT CREDIT
SYSTEM)
So, tax liability= output tax – input
tax.
Central Sales Tax
Levied on the sales of goods from
one state to another.
It is collected by selling state.
But comes under the central list.
Input credit same as VAT
In fact, It’s a VAT but comes into
play when sales of goods b/w states.
VAT CST
7. Input Credit System
• Dealers liability = Output tax – Input tax
• You can consider Input credit as wallet.
• It is this system on which VAT and CST is based.
Purchase(Input) =
1000 paid
(VAT)
Sales(output)=
1150
collected
Dealer’s VAT liability
Output - Input =
1150-1000=
150 to pay to state
8. VAT paid on
Inputs
Rs. 10000
Input Credit Rs.10000
VAT collected from
Output
Rs. 5000
Input Credit (+)Rs. 5000
VAT paid on
Inputs
0(no new stock)
Input Credit Rs.5000
VAT on Output Rs. 7000
Input Credit (-)Rs. 2000
i.e. Rs. 2000 to be
paid
January February
Have to sell and buy with
Invoice and TIN
Else No Input Credit
10. Excise Duty
• An Excise or Excise Duty is an indirect tax on the goods produced or
manufactured for sale within the country.
• It is levied by the central govt. and comes within the union list.
Excise
Excise
Excise
Excise
Excise
Cascading
Cascading
Cascading
To address this cascading
effect, MODVAT was
introduced
11. MODVAT : Modified Value Added Tax
Excise
Excise
Excise
Excise
Excise
Input Credit
Now, similar to VAT, manufacturer
at each stage started getting
credit for the excise duty paid
earlier. Thus eliminating
cascading effect.
12. Cascading
Service Tax
Service Tax
Service Tax
Excise
Cascading
• Service Tax is
a tax imposed by Govt.
of India on services
provided(except those
in negative list) in India.
• The service provider
collects the tax and
pays the same to the
govt.
• Introduced in 1994,only
on 3 services.
• In 2012, there were 119
such services after
which govt. gave the
definition of ‘services’
and made all of them
taxable.
• However, there are
negative list and
exemption list.
13. Cascading
Service Tax
Service Tax
Service Tax
Excise
Cascading
CENVAT :
Central Value
Added Tax
Input Credit
• CENVAT replaced
MODVAT
• CENVAT collected by
central govt.
• Input credit on Excise
duty as well as
service tax paid
earlier.
• Thus, removes
cascading of taxes.
• For raw components,
materials used.
• For services used.
14. THEN WHY GST????
Cascading of taxes removed to a large
extent.
Tax evasion reduced.
Efficient Input Credit(VAT, CENVAT) system
introduced.
Tax collection improved
16. Why India need GST?
Purpose- GST is introduced majorly due to two reasons:
1. The current indirect tax structure is full of uncertainties due to multiple taxes and
multiple rates.
2. Due to multiple rates, there are multiple forms and intern cumbersome
compliances. This will improve Tax compliances.
Because of above transparency, Taxation would increase and lead to reduced
tax evasion.
It would also reduce cascading effect(tax on tax) up to much extent.
17. Goods And Services Act(GST)
Touted as “Single biggest Indirect Tax reform” since 1947.
GST aims to simplify the indirect tax regime with a single tax on
manufacture, sale and consumption of goods and services at national
level.
No distinction is made between
A study conducted by NCAER estimated that roll out of GST would
boost the India’s GDP growth by 1% to 2%.
It is a consumption based tax.
It would subsume most of the indirect taxes of the centre and the
state.
It is a tax on goods and services with value addition at each stage of
transaction(sale,manufacture and consumption).
Based on Input credit system just like VAT.
Overcomes most of the drawbacks of the current system.
18. Framework(Model) of GST
India will have Concurrent Dual GST comprising of Central GST and State GST
levied on the same base.
GST rate= CGST rate + SGST rate
Total tax collected in GST will be distributed to centre and state as per CGST
, SGST rate
Central GST(or CGST) would be administered by Central Govt.
State GST(or SGST) would be administered by State Govt.
Integrated GST(or IGST) administered by central Govt. on inter state transfer
of goods and services.
In this model, all the goods and services would be subject to concurrent
taxation by the state and the centre.
For example, if a product have levy at base price of Rs. 10000 and rate of GST
are 8% , CGST is 3% and SGST is 5% ,then tax collected during transaction is
800 , 300 goes to central govt as CGST tax, 500 goes to the state govt. as
SGST tax.
Central GST
(CGST)
• No Excise
• No Service Tax
• No Cess,
Surcharges,
etc.
State GST
(SGST)
• No VAT
• No Cess,
Surcharges,
entry taxes,
etc.
19. Which Central Taxes will be subsumed??
1) Custom Duty
2) Tobacco Products
3) Petroleum Products- so far no but maybe yes
4) Central Excise Duty
5) Central Sales Tax
6) Service Tax
7) Counter-Veiling Duty on Imported goods
8) Cess, Surcharges
ONLY CGST
20. Which State Taxes Will Be Subsumed??
1) Excise On Liquor For Human Consumption
2) Stamp Duty On Immovable Properties
3) Electricity Duty
4) Petroleum Products (Will Depend Upon The
GST Council But till now no)
5) State VAT
6) Luxury Tax, Entertainment Tax,Purchase tax
7) Entry Tax
8) Lottery , Betting , Gambling
ONLY SGST
21. GST
Sales Price
Before GST(in ₹)
After GST
GST=10%(assumption)
Payment to Government
(Total GST-Input
Credited)
Supplier Price=100 Supplier sales price
=100+10
=110
Total GST=10
Input Credited=0
GST Payable=10
Manufacturer=160 Manufacturer sales price
=160+16
=176
Total GST=16
Input Credited=10
GST Payable=6
Wholesaler=200 Whole Sales price
=200+20
=220
Total GST=20
Input Credited=16
GST Payable=4
Retailer=250 Retailer Sales price
=250+25
=275
Total GST=25
Input Credited=20
GST Payable=5
Consumer Total payment to retailer
=275
Total GST paid to the
govt. = 25
22. Integrated GST (IGST)
IGST model would be adopted for inter-state transaction of goods and
services.
Centre would levy IGST where IGST = CGST + SGST
The revenue collected from IGST will be distributed among the state
and the centre as per SGST and CGST rate.
Input Tax Credit system would be followed.
SGST is credited to the importing state as against the exporting state
(in present system).
IGST just a
mechanism
not a “Tax”
23. Mechanism of IGST:
1. X has to collect ₹1.2 lakh as SGST and ₹1.4 lakh as CGST on sale of his goods to Y of same
state.
2. Input credit of Y is ₹1.2 lakh as SGST and ₹1.4 lakh as CGST paid by him to X of same state.
3. Rate of IGST is 26%(CGST + SGST).
4. When Y sales this to Z of Rajasthan at ₹10.5 lacs, he charges ₹2.73 lacs as IGST. Y will
deposit ₹13k after claiming his input credit against CGST and SGST.
5. The state of Maharashtra will transfer the amount of SGST(₹1.2 lacs) to the centre which is
used by Y as IGST.
6. Z of Rajasthan sold it to a consumer at cost of ₹11 lacs and will collect from him ₹1.32 lacs
as SGST and ₹1.54 lacs as CGST. Z has already paid ₹2.73 lacs while as IGST which he will
claim while paying his liability of CGST and SGST. So he has input credit of ₹1.26 lacs as
SGST and ₹1.47 lacs as CGST. After deducting, he will pay ₹6000 SGST and ₹7000 CGST.
7. A central agency will transfer the amount of input credit of SGST i.e. ₹1.26 lacs to the
consumer state(Rajasthan).
Lets understand this mechanism via a example
Transaction of Sales: X of Mumbai sold Goods worth ₹10 lacs to Y of Mumbai and Y of
Mumbai sold the same goods to Z of Rajasthan at ₹10.50 lacs. Now at the second
stage, Z of Rajasthan sold the same goods to a consumer in Rajasthan at ₹11 lacs.
Suppose rate of SGST is 12% and that of CGST is 14%.
24. Benefits of GST
Improved Logistics/Seamless movement of goods across the country as entry check
points(for entry tax)won’t be there. It will end the warehousing obsession of large
companies.
It will convert India into a uniform market.
Better compliance and tax buoyancy.
A lower GST rate and removal of Cascading effect will bring down the prices.
GST will be levied only at destination point and not at various points(from
manufacturing to retail outputs).
Expected to build a transparent and corruption-free tax administration.
Both CGST and SGST will be charged at same floor(manufacturing cost). This will
benefit the consumers as the cost will go down.
No distinction b/w imported goods and Indigenous goods. Same rate(CGST/SGST)
on both.
Exports would however will be zero rated i.e. exporters of goods/services need
not pay the GST. GST paid by them on the procurement of goods/services will be
refunded to them.
25. GST Administration by GST Council
1/3rd voting
power 2/3rd voting
power
MIN QUORUM-
50% MEMBERS
GST Council
Chairman
Union Min. of
State for
Finance/Revenue
Min. of Finance
or any other Min.
nominated by
each State Govt.
Each decision must have
approval of 3/4th members
of the council.
26. Objective of GST Council
Which Central/State taxes would be subsumed in GST
Which goods/services are subject to GST
Threshold limit under GST
Floor rate with band of Goods and Services
Disputes Resolution
GST council would give the following recommendation:
• Voting Strength- 1/3rd vote of CG and 2/3rd vote of SG.
• Any Decision needs 75% support.
• At least 50% of the members must be present at the time of voting.
27. GST IMPLEMENTATION CHALLENGES
High Revenue Neutral Rate: After GST, the govt. revenue will not remain the same.
Through RNR govt. would try to adjust tax in such a way that its revenue remains the
same. If RNR is kept high, it will have negative impact on economy.
Compensation to States: Revenue loss to the states(specially to manufacturing states) in
the short run owing to reduction in no of taxes. So, compensation has to be paid to the
states for the initial 5 years.
Threshold Limit: Difficulties in deciding THRESHOLD LIMIT OF TURNOVER for the
companies/dealers to pay GST .
Lack of unanimity on Threshold limit between State Finance ministers
And Union finance min.
Dispute between State Finance ministers over tax-sharing.
Support in Parliament: Lack of support in Upper house and some of the manufacturing
states.
28. GST IMPLEMENTATION CHALLENGES
Robust IT (Information technology) Network:
• Success of GST depends on robust IT network connecting central govt., every
state govt. , all Banks, public/private companies, manufacturers, dealers
etc.
• Centre has already Incorporated an SPV- GSTN. But real challenge is in some
of the states which lack IT infrastructure.
• A very large database needed for registrations, tax return filing, IGST, CGST,
SGST settlements all over the country.
Extensive Training to tax administration staff for better GST implementation.
Dispute Settlement Authority: Decision making problems in GST council due to
the democratic structure of the council. So, an independent authority must be
set up to settle disputes between Centre and States.
29. 122nd Constitutional Amendment Bill, 2014
To provide greater authority to states in tax collection, this bill amends the
constitution to provide the same.
It aims to introduce Goods and Services Tax(GST).
Parliament and state legislatures will have concurrent powers to make laws on GST.
Only Centre may levy IGST on interstate supply of goods and services, and imports.
Alcohol for human consumption has been exempted from GST. GST will apply to five
petroleum products at later date as suggested by council.
A GST council has to be constituted inside 60 days of its approval from the president.
Parliament may, by law, provide compensation to states for any loss of revenue up to
a period of 5 years.
How to pass
the bill
122nd Bill
Highlights of the Bill:
30. 122nd Constitutional Amendment Bill, 2014
Since it is an constitution amendment bill, The govt. requires the support of 2/3rd of
the members in both the houses (Lok Sabha and Rajya Sabha) of the parliament.
It cannot be passed by calling joint session in the parliament.
It also needs to get passed in the legislative assembly of at least half of the states.
After approval from Parliament and the states, the bill will become law as soon as the
President signs it.
Currently, this bill has been passed in the Lok Sabha but is stuck in Rajya Sabha as the
govt. is in minority there.
How to pass
the bill
122nd Bill
How to pass the Bill:
