An overview of Goods and Services tax in India

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  • Dear Sir / Madam

    I shall feel highly obliged for your please clarifying as follows:

    Applicability of Service Tax in case of Indian Resident Individual (self employed) providing services to a 3rd Country’s manufacturing Company (Seller) for sale (business promotion) of their Machines to Buyers in India. Against one such Contract between Seller and Buyer the Commission / Fee received from Seller is in Foreign Exchange of Euros 19,200 (about 13 lacs INR) received/credited to my Bank on April 20 2012. Basic Understanding way back was my appointment as Distributor in India with remuneration as Commission. I am not yet registered for Service Tax. If applicable then when am I (what amount as a senior citizen) supposed to deposit the same after completing ST formalities?

    Thanks and with best of regards

    Rajinder Batra
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An overview of Goods and Services tax in India

  1. 1. CHRIST UNIVERSITY Department of Commerce I Subject: Other Taxes Topic: Goods and Services Tax Continuous Internal assessment III By, Karthik Ravi – 08D0027 Kushal S S – 08D0062 Mayank Baid – 08D0041 Ramesh Kumar – 08D0044 Submitted to, Dr. Alice Mani
  2. 2. Goods and Services Tax 2 | C o n t i n u o u s i n t e r n a l A s s e s s m e n t Table of Contents What is GST ?....................................................................................................................3 Roadmap to GST ..............................................................................................................3 Why Goods and service tax? .........................................................................................4 Benefits of GST..................................................................................................................5 Indirect taxes subsumed under GST...............................................................................5 The GST model in India....................................................................................................6 Dual GST ............................................................................................................................6 Taxable event....................................................................................................................6 Tax payer identification number....................................................................................7 Payment of tax..................................................................................................................7 Collection of GST ..............................................................................................................7 Input tax credit setoff.......................................................................................................7 Constitution amendment for levying service tax by the states ..................................7 Applicability of CGST and SGST...................................................................................7 GST rates............................................................................................................................8 Periodical return................................................................................................................8 Method:...............................................................................................................................8 Exract ..................................................................................................................................9 Conclusion ........................................................................................................................ 10
  3. 3. Goods and Services Tax 3 | C o n t i n u o u s i n t e r n a l A s s e s s m e n t Goods and Services Tax (GST) is a part of the proposed tax reforms that center round evolving an efficient and harmonized consumption tax system in the country. Presently, there are parallel systems of indirect taxation at the central and state levels. Each of the systems needs to be reformed to eventually harmonize them. In the Union Budget for the year 2006-2007, Finance Minister proposed that India should move towards national level Goods and Services Tax that should be shared between the Centre and the States. He proposed to set April 1, 2010 as the date for introducing GST. World over, goods and services attract the same rate of tax. That is the foundation of a GST. The first step towards introducing GST is to progressively converge the service tax rate and the CENVAT rate. The goods and service tax (GST) is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at a national level. Integration of goods and services taxation would give India a world class tax system and improve tax collections. It would end the long standing distortions of differential treatments of manufacturing and service sector. The introduction of goods and services tax will lead to the abolition of taxes such as octroi, Central sales tax, State level sales tax, entry tax, stamp duty, telecom license fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services, and eliminate the cascading effects of multiple layers of taxation. GST will facilitate seamless credit across the entire supply chain and across all states under a common tax base. As we have parallel systems of indirect taxation at the central and state levels, each of the systems needs to be reformed to eventually harmonise them. The central excise duty should be converted into a full fledged manufacturing Stage VAT on goods and services and the states sales tax systems should be transformed into a retail stage destination based VAT, before the two are integrated. At the central level, beginning has been made by converging widely
  4. 4. Goods and Services Tax 4 | C o n t i n u o u s i n t e r n a l A s s e s s m e n t varying tax rates and extending input tax credit to convert excise duties into a CENVAT. The reformed indirect tax system GST-Goods and service tax is proposed to implement on 1st April 2010 in India. Several countries implemented this tax mechanism followed by France, the first country introduced GST. Goods and service tax is a new version of VAT which gives a comprehensive setoff for input tax credit and subsuming many indirect taxes from state and national level. The GST Implementation is not yet declared by government and the drafting of GST law is still under process and a clear picture will be available only after announcement of Implementation. As the name denotes the goods and service tax is integrated in GST for setoff benefit of Input tax credit. One of the main reasons of the introduction of GST is to avoid cascading effect of taxes in India. For example manufacturing of a product attract CENVAT. The manufacturer pays CENVAT on goods produced. So the CENVAT element is loaded on the product. According VAT rules, the sales tax is payable on the aggregate selling price which include CENVAT. Here there is no set off benefits available. Likewise there are many situations in the nature of cascading effect for instance, State VAT on CST, Entry tax on VAT etc. Now Government has decided to abolish tax on tax effect by implementing GST. Indirect taxes like luxury tax, entertainment tax, are yet to be included in the VAT. These taxes are still existing and payable.
  5. 5. Goods and Services Tax 5 | C o n t i n u o u s i n t e r n a l A s s e s s m e n t Several taxes like additional customs duty, surcharges not included under CENVAT. Input tax and service tax set off is out of reach to the manufacturer and dealers. 1. GST provide comprehensive and wider coverage of input credit setoff, you can use service tax credit for the payment of tax on sale of goods etc. 2. CST will be removed and need not pay. At present there is no input tax credit available for CST. 3. Many indirect taxes in state and central level subsumed by GST, You need to pay a single GST instead of all. 4. Uniformity of tax rates across the states 5. Ensure better compliance due to aggregate tax rate reduces. 6. By reducing the tax burden the competitiveness of Indian products in international market is expected to increase and there by development of the nation. 7. Prices of goods are expected to reduce in the long run as the benefits of less tax burden would be passed on to the consumer. 8. Overall tax compliance cost will reduce for government and can concentrate on GST The following indirect taxes from state and central level is going to integrated with GST 1. VAT/Sales tax 2. Entertainment Tax ( unless it is levied by local bodies) 3. Luxury tax 4. Taxes on lottery, betting and gambling. 5. State cesses and surcharges in so far as they relate to supply of goods and services. 6. Entry tax not on in lieu of octroi. 7. Purchase tax ( This is not sure still under discussion )
  6. 6. Goods and Services Tax 6 | C o n t i n u o u s i n t e r n a l A s s e s s m e n t 1. Central Excise Duty. 2. Additional Excise Duty. 3. The Excise Duty levied under the medical and Toiletries Preparation Act 4. Service Tax. 5. Additional Customs Duty, commonly known as countervailing Duty ( CVD) 6. Special Additional duty of custums-4% ( SAD) 7. Surcharges 8. Cessess The above taxes dissolve under GST; instead only CGST & SGST exists. Many countries are following single GST. But it is proposed that dual CST is suitable for federal country like India. The end user, i.e. consumer cannot recover taxes but a business can recover by claiming input tax setoff. Dual GST means, the proposed model will have two component called CGST – Central goods and service tax for levied by central Govt. SGST – State goods and service tax levied by state Govt. There would have multiple statute one CGST statute and SGST statute for every state. Supply of goods and supply of services will be considered as taxable event under GST. Any economic activity which is not supply of goods is treated a supply of service.
  7. 7. Goods and Services Tax 7 | C o n t i n u o u s i n t e r n a l A s s e s s m e n t Each tax payer allotted a pan based identification number containing 13 or 15 digit number. The central GST would be paid to central and state GST paid to state government in the prescribed account head. It is same as VAT; Tax is collected on the basis of value addition on each stage of sale. Both CGST and SGST would have to be charged in an every service bill and sale bill and paid after adjusting input credit available on both. The input tax credit of SGST can be utilized for the payment of SGST only and input tax credit on CGST can be utilized for the payment of CGST only. This means that cross utilization of input tax credit will not be allowed. Making it clearer; input tax credit of CGST cannot be utilized for the payment of SGST and vice versa. However there is an exemption for the above in the case of interstate transaction .For interstate transaction IGST is proposed and would be implemented along with CGST and SGST. The power of levying service tax is rest with central Government and a constitutional amendment is necessary for empowering states for levying service tax. The applicability of taxes is as usual there would be a prescribed limit of annual turnover, also some goods and services are exempted under GST. The dealer whose turnover is below prescribed limit need not pay tax.
  8. 8. Goods and Services Tax 8 | C o n t i n u o u s i n t e r n a l A s s e s s m e n t Threshold for annual turnover for goods and services would be 10 lakh for SGST and threshold of CGST for goods may be 1.5 crore and service would have a separate threshold that too will be appropriately high. The rate structure would be as follow; but not final A lower rates for essential commodities Standard rates for general goods Special rates for precious metals For services may be single rates for CGST and SGST. GST rates is not yet announced by government, however it is assumed that aggregate total of CGST & SGST would be 14 % to20%. Taxpayer would have to submit periodical return as prescribed by law in common format for CGST and SGST. We will more updates on GST in coming days, please subscribe our newsletter for stay update with us. The GST system is based on the same concept as VAT. Here, set-off is available in respect of taxes paid in the previous level against the GST charged at the time of sale. The GST model has some aspects which are as follows: Components: GST will be divided into two components, namely, Central Goods and Service Tax and State Goods and Service Tax. Rate: Rates charged across all states and the central level will be uniform along with the regulations, definitions and classifications. Applicability: GST will be applicable to all Goods and Services sold or provided in India, except from the list of exempted goods which fall outside its purview.
  9. 9. Goods and Services Tax 9 | C o n t i n u o u s i n t e r n a l A s s e s s m e n t Payment: GST will be charged and paid separately in case of Central and State level. Input Tax credit: The facility of Input Tax Credit at Central level will only be available in respect of Central Goods and Service tax. In other words, the ITC of Central Goods and Service tax shall not be allowed as a set-off against State Goods and Service tax and vice versa. The budget speech of 2006-2007 contained a proposal to introduce Goods and Services Tax (GST) in India with effect from April 01, 2010. It has been reiterated in the budget speech of 2009-10 that the process for smooth introduction of GST with effect from April 01, 2010 would be accelerated. The proposed GST is not instead of CST alone, but would also subsume many other Central and State taxes. The Empowered Committee of the State Finance Ministers (EC), on the request of Central Government and after due consultation among States, has prepared a model and roadmap for the GST. The Central Government has given its suggestions to the EC on the model. The Centre and the States have agreed upon the basic structure in keeping with the principles of fiscal federalism enshrined in the Constitution. The broad contour of the GST model is that it will be a dual GST comprising of a Central and a State GST. Government of India and the States, including Gujarat, together fund on equal basis, a nation-wide computerization project called “Tax Information Exchange System(TINXSYS)” to enable exchange of critical data on inter-State sale among States. To facilitate the development of capability in States to share their data through TINXSYS, the Government of India also supports projects for computerization of various State VAT administrations. Government of India has sanctioned financial assistance for projects in the North Eastern States, Himachal Pradesh and Jammu & Kashmir. The budget for 2009-10 has provision of Rs408 crore for a Mission Mode Project, to provide financial support to computerisation needs of the Commercial Taxes Departments of States. This information was given by Minister of State for Finance, Shri S.S. Palanimanickam in reply to a question raised by Shri P.P. Chauhan in Lok Sabha.
  10. 10. Goods and Services Tax 10 | C o n t i n u o u s i n t e r n a l A s s e s s m e n t Pan Linked identification: Each taxpayer shall be provided with an unique 13 to 15 digit ID number for filing periodical returns with the Central and State government. Thus, we get an overview of what the system of GST (Goods and Service tax) is likely to be and upon its implementation what benefits are we going to derive from it. All in all a very good proposal which one can look forward to which reduces the complexities of the tax system in respect to both, the taxpayer and the Tax authorities. Refurbishing the current tax system requires implementation of such a new methodology that it is able to eliminate the drawbacks of the present system of taxation in India. India waits for the GST, Goods and Service Tax, to arrive the scenario for a better tax system. Added to it the Direct Tax Code can also replace the Income Tax Act, 1961). But before getting introduced to this system of GST, one must have a general idea about the whole system. The dilemma of multiplicity of taxes is being experienced in India over a number of years, though introduction of CENVAT and VAT has considerably helped in reduction of such multiplicity but still the sorrow continues to prevail. The problem on account of CENVAT is that taxes like Additional Custom Duty, Additional Excise Duty, etc. are not included in it, whereas, Vat fails to include taxes such as Luxury tax, Entertainment tax and others. Added to this one of the main component of overall tax structure, Service Tax is ignored in both the cases. Thus, to overcome such miseries implementation of GST is being considered. GST or Goods and Service Tax will include a uniform rate of taxation in all respect and would allow an implementation of an incessant link from the primary producer of goods and service to the retailer’s stage and will also eradicate all cascading effects in such process.

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