India Goods & Services Tax
The Empowered Committee of State Finance Ministers has released
the First Discussion Paper on Goods and Services Tax (GST) on
10.11.2009. This note outlines the key proposals provided in the
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A dual tax structure is proposed – having two components
> One levied by the Centre (CGST) and the other by the State (SGST).
> The implementation of the same would be through multiple statutes, viz., one for the
Scope Centre and one each for the respective State.
The Centre and the State would have concurrent powers in the administration of the GST
for the entire value chain and all the tax payers.
The CGST and SGST would be applicable on all transactions of goods and
Thresholds > exempted goods and services - the list is yet to be finalised and it is envisaged to be
uniform across States
> goods and services which are proposed to be kept outside the purview of GST,
Inter-state such as, petroleum products and goods containing alcohol
Most levies other than basic custom duty and select State levies are proposed to be
Input Tax included (subsumed) within the GST framework
Import of goods into India is proposed to be subjected to both, CGST and SGST in
addition to the basic customs duty
Import of services to be liable to both, CGST and SGST
Inter-State supply of goods and services would work under an Integrated GST (IGST)
Introduction Uniformity in laws across states envisaged - various States appear to have
a consensus on the following:
> Basic definitions and charge of tax
> Rate/s of tax
Rates > Provisions relating to computation, valuation and classification
> Rules for availment and utilization of input credits
> Basic exemption thresholds for levy of tax
> Submission of returns in a common format to the extent practicable
> Structure and framework of compounding scheme of taxation
supplies > Process and timelines for refund of unutilized SGST
Input Tax The Governments should ensure that the in-principle agreements are
Credits honoured. Previously, though the States had a prior in-principle agreement
on various aspects under the VAT regime, uniformity across State
Compliances legislations is yet to be achieved.
Scope of the Levy
Introduction It is proposed that the following central and state levies be subsumed into the dual
Central levies State levies Levies which would remain
Scope outside the purview of GST
1. Central Excise Duty 1. VAT / Sales tax 1. Levies on items containing
2. Additional Excise Duties 2. Entertainment tax (unless it alcohol and petroleum
Rates is levied by the local bodies) products to remain status
3. Excise Duty on
quo, viz., would not be under
Medicinal and Toilet 3. Luxury tax
the GST regime.
preparations 4. Taxes on lottery, betting and
Thresholds 2. Excise Duty by Centre may
4. Service Tax gambling
continue on tobacco
5. Countervailing Duty 5. State Cesses and products. This would be in
Inter-state Surcharges in so far as they
6. Special Additional Duty addition to the proposed
supplies relate to supply of goods
of Customs (SAD) GST.
7. Surcharges and cesses
Input Tax 6. Entry tax which is not in lieu
7. Purchase Tax *
* The subsumation is yet being discussed by the Empowered Committee in consultation
with the Government of India.
Scope of the Levy
Introduction A comparison of the applicability of GST vis-à-vis the current scheme of taxation is
Nature of Proposed GST structure Current scheme of taxation
Importer - Basic customs duty - Basic customs duty
- CGST - Countervailing duty
- SGST - Special additional duty of customs
Rates - Protective duties
- Surcharges and cesses
- Entry tax / octroi / purchase tax
Thresholds Manufacturer - CGST + SGST - Excise duty (multiple, in certain
IGST - VAT / CST
- Entry tax / octroi / purchase tax
supplies Reseller - CGST + SGST - Central excise duty
or - VAT / CST
IGST - Entry tax / octroi / purchase tax
Credits Service - CGST + SGST - Service tax
Compliances Works - CGST + SGST - Central excise duty
contractors or - VAT / CST
IGST - Service tax
- Entry tax / octroi / purchase tax
Rates of Tax
The precise rate/s of
Introduction Goods - A two-rate structure SGST and CGST to be
> lower rate for necessary items and goods of made known duly in
basic importance and the course of
Scope appropriate legislative
> a standard rate for goods in general. actions.
Rates However, a special rate for precious metals The list of exempted
goods and whether the
would be prescribed. same would be
retained under the
SGST in the initial
Services – It is envisaged that there may be a
years is being
single rate for services for both SGST and deliberated upon.
Differential rates for
goods and services
Input Tax Exports and supplies to SEZs to be zero-rated. could continue to
result in controversies
on classification of
Supplies from SEZs into the domestic tariff area
Compliances will not be eligible for any concessions.
The empowered committee has recommended the following thresholds
for basic exemption from GST.
Particulars CGST SGST
Goods INR 15 Mil
Services Not specified (envisaged to INR 1 Mil
be in excess of INR 1 mil)
A compounding scheme of taxation for SGST is also proposed for
Inter-state dealers having a gross annual turnover below INR 5 Mil with a flat
supplies rate of tax at 0.5%.
Inter-State Supplies (IGST)
Introduction Tax on inter-State supplies would be levied by the Central
Government and would be the sum of CGST and SGST on
such goods and services - the Integrated GST (IGST)
The mechanism is expected to facilitate and ensure Clarity required
> uninterrupted input tax credit chain on inter-State for determining
transactions and when a service
> no upfront payment of tax for inter-State buyers / would be
suppliers. classified as inter-
Thresholds The scheme broadly involves:
> Payment of IGST by the seller on his supplies after
adjusting available credit of IGST, CGST and SGST on
Inter-state the purchases There is no
supplies mention of
> The buyer would be entitled to claim credit of IGST paid
on such purchases in the importing State treatment in cases
Input Tax > The component of SGST used in discharging the IGST on of free supplies,
Credits supplies would be transferred by the exporting State to captive
the Centre consumption and
> The Centre to transfer to the importing State, the related party
component of IGST used in discharging SGST
Appropriate mechanism would be provided for treatment of
Others stock transfers
Credit for Input Taxes
Introduction The proposed structure provides for
> utilization of credit of CGST on inputs only against
CGST payable on outputs; and
Scope > SGST paid on inputs only against SGST payable on
Currently, CST paid
Rates on inter-State
Cross utilization of CGST and SGST would be allowed in
purchases is not
case of inter-State supply of goods and services under
allowed as credit
an IGST framework.
under the VAT
It is aimed that the accumulation of unutilized GST the GST regime,
credits would be avoided except in cases of exports, inter-State supplies
supplies capital goods purchases and cases where the input GST would be subjected
rate is higher than output GST rate. to IGST which may
be claimed as credit
Credits In respect of import of goods into India, the CGST and by the buyer in the
SGST paid to be availed as credit based on destination destination State.
principle (no credit for basic customs duty). The importer
Compliances will be eligible to claim credit of CGST and SGST paid
on such imports in the destination State irrespective of
where the CGST and SGST were paid.
Payment of Tax
> CGST and SGST should be collected separately and paid
into the accounts of Centre and State respectively.
> Each taxpayer to be allotted a PAN linked taxpayer
identification number (TIN). This would be inline with the
existing PAN based system for Income Tax and facilitate
Rates data exchange and tax payer compliance. All tax payers
> All inter-State dealers to be e-registered and
communication would be through emails.
would have to
Thresholds maintain separate
Returns details for utilization
> Separate returns to be filed for CGST and SGST. and refund of credit.
However, it is envisaged that the return formats would be
supplies common to the extent practicable.
No relaxation for
Refunds documentation /
Input Tax > Refund of unutilized CGST and SGST to be completed in credit claims for
Credits a time bound manner. The procedures and timeline are exporters
yet to be clarified.
Compliances The functions of assessment, enforcement, scrutiny and audit
would be undertaken by the authority collecting the tax with
information sharing between Centre and States.
Introduction Constitutional amendments - A Joint Working Group has been constituted
to prepare a draft legislation for Constitutional Amendment to enable States to
levy service tax and GST on imports and consequential matters thereto.
Special Industrial Area Scheme - The current tax exemptions and
concessions under various industrial incentive schemes to be converted into
Rates cash refund schemes after collection of taxes to enable a continuous chain of
set-offs under the GST model. This model would continue upto its legitimate
expiry date. It is recommended that no new exemptions or remissions would
Thresholds be allowed under the GST framework. However, where need be, the same
could be provided through a reimbursement mechanism.
supplies Dispute resolution and advance ruling - Appropriate provisions, rules and
procedures would be made for dispute resolution and advance rulings.
The discussion paper provides a much awaited clarity on the proposed framework and
the levies which would be subsumed into the GST framework. This is a very positive step
towards a comprehensive indirect tax reform in the country.
Inspite of extensive deliberations over the last couple of years, the discussion paper fails
to address the following. Consequently, it does not enable the trade and industry to
assess the real impact of the change:
> There is no indication on the tax rates
> No reference made to the transitional provisions
unutilsed credits under CENVAT and VAT mechanisms
tax element contained in the goods in stock as on the date of implementation
> Lack of clarity on time-lines for implementation and a transition window for enabling
a smooth transition to the businesses
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