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GST Act in Brief: Key Features and Benefits
- 1. Goods and Service Tax Act in Brief GST has been introduced by amalgamating a large number of Central and state taxes into a single tax. It would mitigate the cascading impact and double taxation impact. GST will make Indian products competitive in the Global Markets. Prior to GST, fiscal powers between Centre and States were clearly demarcated in the Constitution with almost no overlap between the respective domains. Centre had the power to levy taxes on manufacture of goods (excluding alcohol and liquor for human consumption, opium and narcotics) while the states have the power to levy taxes on sale of goods. In case on Interstate sales, Centre has the power to levy tax (Central Sales tax) but the tax is collected and retained by the originating state. As far as the services are concerned, Centre is solely empowered to collect taxes. Since the States are not empowered to levy any tax on the sale or purchase of goods in the course of their importation into or exportation from India, the Centre levies and collects this tax as additional duties of customs, which is in addition to the Basic Customs Duty. This additional duty of customs (commonly known as CVD and SAD) counter balances excise duties, sales tax, State VAT and other taxes levied on the like domestic product. Introduction of GST has concurrently empowered the Centre and the States to levy and collect the GST Existing Tax Structure in India CENTRAL TAXES STATE TAXES Central Excise Duty Additional duties of excise Excise Duty levied under Medicinal & Toiletries Preparation Act Additional duties of customs (CVD & SAD) Service Tax Surcharges & Cesses State VAT / Sales Tax Central Sales Tax Purchase Tax Entertainment Tax(other than those levied by local bodies) Luxury tax Entry tax(all forms) Taxes on Lottery, betting and gambling Surcharges and Cesses GST Salient Features of GST 1. GST would be applicable on “supply” of goods or services as against the present concept of tax on manufacture of goods or on sale of goods or provision of services. 2. GST replaces origin based taxation to destination based tax 3. GST levied by Centre will be called CGST and by state as SGST. Union territories without legislature would levy Union territory GST (UTGST)
- 2. 4. An Integrated GST (IGST) would be levied on inter-state supply of goods and service (including stock transfers). This would be collected by the Centre. 5. Import of goods would be treated as inter-state supplies and would be subject to IGST. 6. Import of services would be treated as inter-state supplies and would be subject to IGST. 7. Taxpayer with annual turnover of 20 lac would be exempt from GST.A compounding option would be available to small taxpayers having an annual turnover of upto Rs. 50lac. 8. Credit availability: a) Credit of CGST allowed for payment of CGST & IGST in that order. b) Credit of SGST allowed for payment of SGST & IGST in that order. c) Credit of UTGST allowed for payment of UTGST & IGST in that order. d) Credit of IGST allowed for payment of IGST, CGST and SGST/UTGST in that order. Example Calculation for CGST and SGST Particulars Without GST With GST (Rs.) Manufacture to Wholesaler Cost of Production 5,000.00 5,000.00 Add: Profit Margin 2,000.00 2,000.00 Manufacturer Price 7,000.00 7,000.00 Add: Excise Duty @ 12% 840 – Total Value(a) 7,840.00 7,000.00 Add: VAT @ 12.5% 980 – Add: CGST @ 12% – 840 Add: SGST @ 12% – 840 Invoice Value 8,820.00 8,680.00 Wholesaler to Retailer COG to Wholesaler(a) 7,840.00 7,000.00 Add: Profit Margin@10% 784 700 Total Value(b) 8,624.00 7,700.00 Add: VAT @ 12.5% 1,078.00 – Add: CGST @ 12% – 924 Add: SGST @ 12% – 924 Invoice Value 9,702.00 9,548.00 Retailer to Consumer: COG to Retailer (b) 8,624.00 7,700.00 Add: Profit Margin 862.4 770 Total Value(c) 9,486.40 8,470.00 Add: VAT @ 12.5% 1,185.80 – Add: CGST @ 12% – 1,016.40
- 3. Add: SGST @ 12% – 1,016.40 Total Price to the Final consumer 10,672.20 10,502.80 Cost saving to consumer – 169.4 % Cost Saving – 1.59 Notes: Input tax credit available to wholesaler is Rs. 980 and Rs. 1,680 in case of without GST and with GST respectively. Likewise Input tax credit available to Retailer is Rs. 1,078 and Rs. 1,848 in case of without GST and with GST respectively. Example Calculation for Input Tax Credit As explained above central sales tax shall be discontinued and Centre would levy IGST (cumulative rate for CGST and SGST) on all inter-state transactions of taxable goods and services Mr. X has input tax credit for CGST and SGST of Rs. 750 and Rs. 1050 respectively in respect of purchase of input and capital goods. He manufactured 1600 units. Goods Sold within state=800 units @10 Inter-State = 650 units @10 Stock Transfer=350 units @10 Output Tax Calculation Particulars Sales Within State Stock Transfer Outside State Inter State Sales Total Qty. Sold 800 350 650 Price per unit 10 10 10 Value of Goods Sold 8,000 3,500 6,500 18,000 Tax Amount: Tax Amount – CGST(5%) 400 – – 400 Tax Amount – SGST(7%) 560 – – 560 Tax Amount – IGST(12%) – 420 780 1,200 Tax Payable Particulars CGST SGST IGST Total Tax Payable Amount 400 560 1200 Less: Input Tax Credit CGST 400 – 350 750 SGST – 560 490 1050
- 4. Balance Payable – – 360 360 Input tax credit of CGST and SGST of Rs. 750 and Rs. 1050 are paid on inputs. This input tax credit should first be utilized for payment of CGST and SGST, respectively, and balance is to be used for payment of IGST. Thus, balance available for payment of IGST is Rs. 350 of CGST and Rs. 490 of SGST and he is liable to pay balance amount of IGST of Rs. 360 by cash (1200-350-490 = 360). Since credit of SGST of Rs.490 has been utilized for payment of IGST, the State Government will get debit of Rs. 490 from the Central Government. Thus we see that GST has a positive impact for businesses as well as for consumers.