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Introduction to GST
What was
the need?
Indirect Tax structure in India
Tax
Structure
Direct Tax
Income Tax Wealth Tax
Indirect
Tax
Central Tax
Excise Service Tax Customs
State Tax
VAT
Entry Tax,
luxury tax,
Octroi etc.
3
Credit of Excise not
allowed
MAHARASHTRA MADHYA PRADESH
Cascading effect of Tax
Credit of CST not
available
4
No Entry Tax
Entry
Tax
Value Added Tax
e.g. on Sugar
@
4%
@ NIL
%
Lack of uniformity 5
Central Excise
(On Manufacturing)
Service Tax
(On provision of
Service)
VAT
( On sale of
Goods)
6
Different points of taxation
Central
Excise
7
Multiple registrations
Sale
Manufacturing
License
Software in
CD
Services
Sale of Food In
Restaurant
8
Goods vs. Services dilemma
Overhauling
Indirect Taxes
The journey to GST 10
GST from a constitutional perspective 11
GST from a constitutional perspective 12
• Bill passed by Rajya Sabha on 03.08.2016 & Lok Sabha on 08.08.2016
• Notified as Constitution (101st Amendment ) Act, 2016 on 08.09.2016
• Key Features:
• Concurrent jurisdiction for levy & collection of GST by the Centre & the States – Article 246A
• Centre to levy & collect IGST on supplies in the course of inter-State trade or commerce including
imports – Article 269A
• Compensation for loss of revenue to States for five years on recommendation of GST Council – Sec 18
of the Constitution (101st Amendment) Act, 2016
• GST on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas &
aviation turbine fuel to be levied from a later date on recommendations of GST Council
What it meant? 13
Central
Levies
Customs
Duty
Service
Tax
Excise
Duty
Cess
Central
Sales
Tax
Purchase Tax
Entertainment Tax
Entry Tax & Octroi
Luxury Tax
VAT
State
Levies
The change
Pre-GST Indirect tax structure
Central Taxes
Administration
Acts and Rules
Procedures
Multiple Taxes
Multiple State
Administration
Multiple Acts & Rules
Multiple Procedures
GST
CGST SGST/ UTGST IGST
GST structure
Single Tax – GST
Single Tax
administration
Uniform law
Computerised uniform
procedures
14
Indirect Tax structure in India
Tax
Structure
Direct Tax
Income Tax Wealth Tax
Indirect
Tax
Central Tax
Excise Service Tax Customs
State Tax
VAT
Entry Tax,
luxury tax,
Octroi etc.
15
Indirect Tax structure in India
Tax Structure
Direct Tax
Income Tax Wealth Tax
Indirect Tax
GST
Intra State
(CGST,
SGST)
Inter State
(IGST)
Others
(Customs,
State levies)
16
One Tax
For
Manufacturing
Trading
Services
ONE NATION: ONE TAX
17
One Nation: One Tax
State Taxes:
• Road & Passenger Tax
• Toll Tax
• Property Tax
• Electricity Duty
• Stamp Duty & Registration Fees
Taxes not subsumed under GST
Central Taxes:
• Customs Duty
• Other Customs Duty like anti-
dumping duty, Safeguard duty etc.
• Export Duty
18
Outside GST 19
GST Council 20
• Chairperson – Union Finance Minister
• Vice Chairperson - to be chosen amongst the Ministers of State Government
• Members - MOS (Finance) and all Ministers of Finance / Taxation of each State
• Quorum is 50% of total members
• States - 2/3 weightage and Centre - 1/3 weightage
• Decision by 75% majority
• Council to make recommendations on everything related to GST including laws, rules and
rates etc.
SGST
IGST
• Stands for Central GST
• Tax collected by Central Government
• Applicable on supplies within the state
• Stands for State GST
• Tax collected by State Government
• Applicable on supplies within the state
• Stands for Integrated GST
• Tax collected is shared between Centre and State
• Applicable on inter-state, Export and import transactions
UTGST
• Stands for Union Territory GST
• Tax collected by Union Territory
• Applicable on supplies within the Union Territory w/o legislature
CGST
Structure under GST 21
Foreign Territory
State 1
Union territory without legislature
State 2
Understanding the matrix 22
Compensation Cess 23
• The objective of levying this cess is to compensate the states for the loss of revenue arising due to
the implementation of GST.
• Effective from 1st July 2017 for a period of five years or such period as recommended by the GST
Council.
• Taxpayers (other than exporters and composition taxpayers) supplying select goods/ services will
collect the cess. Includes cess chargeable on such goods imported to India. In case cess is paid on
exports, it can be claimed as refund.
• Goods covered – Pan Masala, Tobacco, Coal, Aerated water and Motor Cars.
• Levied over and above the amount of GST charged in relation to a particular supply.
• Input credit of the cess can only be used to set off liability of cess arising due to outward supply.
• State’s revenue of FY 2015-16 is kept as base and a projected growth rate of 14% (compounded) is
applied. Shortfall, if any, between actual and projected revenue is released from the Fund .
Key features 24
• Four tax rates namely 5%, 12%, 18% and 28%. Separate tax rate for precious metals and
Works Contract. Some goods and services are exempt from GST.
• Uniform rates across India. Tax from supplies within the State are equally shared by Union
and State. Revenue from IGST apportioned among Union and States on the basis of
recommendation from GST Council.
• Compensation Cess on specified luxury and sin goods.
• Compensation for loss of revenue to States for five years.
• Applicable on the supply of goods or services (other than alcoholic liquor for human
consumption and five petroleum products).
• Levied at all stages right from manufacture up to final consumption with credit of taxes
paid at previous stages available as setoff. Thus, only value addition is being taxed.
Key features 25
• Distinction between goods and services mostly eliminated.
• HSN code/ SAC Code used for classifying goods and services.
• Nation-wide introduction of E-way bill for movement of goods
• Destination based consumption tax - Tax would accrue to the State which has jurisdiction
over the place of consumption which is also termed as place of supply.
• Input Tax Credit available on taxes paid on all procurements (except few specified items).
• All transactions and processes only through electronic mode – Non-intrusive
administration
• PAN Based Registration. Registration only if turnover more than threshold limit with an
option for voluntary registration.
Key features 26
• To ensure single interface, all administrative control over taxpayers judiciously divided
between Central and State tax administration.
• Easy refund facility. Provisional release of 90% refund to exporters within 7 days
• Set of auto-populated Monthly returns and Annual Return
• System of GST Compliance Rating
• Well documented process and regulations to ensure smooth and effective compliance and
to avoid ambiguity and confusion
• GST Practitioners for assisting filing of returns
• GSTN and GST Suvidha Providers (GSPs) to provide technology based assistance
27
Reduction in Cascading of Taxes
Availability of Input Tax Credit
Common National Market
Single registration/ less compliance
Self-Regulating System
Non-Intrusive Electronic Tax System
Decrease in
Inflation
Ease of Doing
Business
Decrease in
“Black”
Transactions
Benefits of GST
28
Simplified Tax Regime
Reduction in Multiplicity of Taxes
Consumption Based Tax
Abolition of CST
Exports to be Zero Rated
Protection of Domestic Industry - IGST
More informed
consumer
Poorer States
to Gain
Make in India
Benefits of GST
Let’s look at the benefit 29
Particulars Percentage Amount Percentage Amount
1. Manufacturer
Cost of Production 1,000 1,000
Profit Margin 25% 250 25% 250
Selling Price 1,250 1,250
Excise Duty 12.5% 156 -
VAT/ GST 12.5% 176 18.0% 225
Total Invoice Value 1,582 1,475
2. Wholesaler
Cost of Goods 1,406 1,250
Other Costs 50 50
Profit Margin 25% 364 25% 325
Selling Price 1,820 1,625
VAT/ GST 12.5% 228 18.0% 293
Total Invoice Value 2,048 1,918
3. Retailer
Cost of Goods 1,820 1,625
Other Costs 100 100
Profit Margin 25% 480 25% 431
Selling Price 2,400 2,156
VAT/ GST 12.5% 300 18.0% 388
Total Invoice Value 2,700 2,544
Pre GST Post GST
Thank You
Manmohan Daga
Daga & Associates
9804199500
mmdaga@hotmail.com

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Introduction to GST

  • 3. Indirect Tax structure in India Tax Structure Direct Tax Income Tax Wealth Tax Indirect Tax Central Tax Excise Service Tax Customs State Tax VAT Entry Tax, luxury tax, Octroi etc. 3
  • 4. Credit of Excise not allowed MAHARASHTRA MADHYA PRADESH Cascading effect of Tax Credit of CST not available 4
  • 5. No Entry Tax Entry Tax Value Added Tax e.g. on Sugar @ 4% @ NIL % Lack of uniformity 5
  • 6. Central Excise (On Manufacturing) Service Tax (On provision of Service) VAT ( On sale of Goods) 6 Different points of taxation
  • 8. Sale Manufacturing License Software in CD Services Sale of Food In Restaurant 8 Goods vs. Services dilemma
  • 10. The journey to GST 10
  • 11. GST from a constitutional perspective 11
  • 12. GST from a constitutional perspective 12 • Bill passed by Rajya Sabha on 03.08.2016 & Lok Sabha on 08.08.2016 • Notified as Constitution (101st Amendment ) Act, 2016 on 08.09.2016 • Key Features: • Concurrent jurisdiction for levy & collection of GST by the Centre & the States – Article 246A • Centre to levy & collect IGST on supplies in the course of inter-State trade or commerce including imports – Article 269A • Compensation for loss of revenue to States for five years on recommendation of GST Council – Sec 18 of the Constitution (101st Amendment) Act, 2016 • GST on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas & aviation turbine fuel to be levied from a later date on recommendations of GST Council
  • 14. Central Levies Customs Duty Service Tax Excise Duty Cess Central Sales Tax Purchase Tax Entertainment Tax Entry Tax & Octroi Luxury Tax VAT State Levies The change Pre-GST Indirect tax structure Central Taxes Administration Acts and Rules Procedures Multiple Taxes Multiple State Administration Multiple Acts & Rules Multiple Procedures GST CGST SGST/ UTGST IGST GST structure Single Tax – GST Single Tax administration Uniform law Computerised uniform procedures 14
  • 15. Indirect Tax structure in India Tax Structure Direct Tax Income Tax Wealth Tax Indirect Tax Central Tax Excise Service Tax Customs State Tax VAT Entry Tax, luxury tax, Octroi etc. 15
  • 16. Indirect Tax structure in India Tax Structure Direct Tax Income Tax Wealth Tax Indirect Tax GST Intra State (CGST, SGST) Inter State (IGST) Others (Customs, State levies) 16
  • 18. State Taxes: • Road & Passenger Tax • Toll Tax • Property Tax • Electricity Duty • Stamp Duty & Registration Fees Taxes not subsumed under GST Central Taxes: • Customs Duty • Other Customs Duty like anti- dumping duty, Safeguard duty etc. • Export Duty 18
  • 20. GST Council 20 • Chairperson – Union Finance Minister • Vice Chairperson - to be chosen amongst the Ministers of State Government • Members - MOS (Finance) and all Ministers of Finance / Taxation of each State • Quorum is 50% of total members • States - 2/3 weightage and Centre - 1/3 weightage • Decision by 75% majority • Council to make recommendations on everything related to GST including laws, rules and rates etc.
  • 21. SGST IGST • Stands for Central GST • Tax collected by Central Government • Applicable on supplies within the state • Stands for State GST • Tax collected by State Government • Applicable on supplies within the state • Stands for Integrated GST • Tax collected is shared between Centre and State • Applicable on inter-state, Export and import transactions UTGST • Stands for Union Territory GST • Tax collected by Union Territory • Applicable on supplies within the Union Territory w/o legislature CGST Structure under GST 21
  • 22. Foreign Territory State 1 Union territory without legislature State 2 Understanding the matrix 22
  • 23. Compensation Cess 23 • The objective of levying this cess is to compensate the states for the loss of revenue arising due to the implementation of GST. • Effective from 1st July 2017 for a period of five years or such period as recommended by the GST Council. • Taxpayers (other than exporters and composition taxpayers) supplying select goods/ services will collect the cess. Includes cess chargeable on such goods imported to India. In case cess is paid on exports, it can be claimed as refund. • Goods covered – Pan Masala, Tobacco, Coal, Aerated water and Motor Cars. • Levied over and above the amount of GST charged in relation to a particular supply. • Input credit of the cess can only be used to set off liability of cess arising due to outward supply. • State’s revenue of FY 2015-16 is kept as base and a projected growth rate of 14% (compounded) is applied. Shortfall, if any, between actual and projected revenue is released from the Fund .
  • 24. Key features 24 • Four tax rates namely 5%, 12%, 18% and 28%. Separate tax rate for precious metals and Works Contract. Some goods and services are exempt from GST. • Uniform rates across India. Tax from supplies within the State are equally shared by Union and State. Revenue from IGST apportioned among Union and States on the basis of recommendation from GST Council. • Compensation Cess on specified luxury and sin goods. • Compensation for loss of revenue to States for five years. • Applicable on the supply of goods or services (other than alcoholic liquor for human consumption and five petroleum products). • Levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as setoff. Thus, only value addition is being taxed.
  • 25. Key features 25 • Distinction between goods and services mostly eliminated. • HSN code/ SAC Code used for classifying goods and services. • Nation-wide introduction of E-way bill for movement of goods • Destination based consumption tax - Tax would accrue to the State which has jurisdiction over the place of consumption which is also termed as place of supply. • Input Tax Credit available on taxes paid on all procurements (except few specified items). • All transactions and processes only through electronic mode – Non-intrusive administration • PAN Based Registration. Registration only if turnover more than threshold limit with an option for voluntary registration.
  • 26. Key features 26 • To ensure single interface, all administrative control over taxpayers judiciously divided between Central and State tax administration. • Easy refund facility. Provisional release of 90% refund to exporters within 7 days • Set of auto-populated Monthly returns and Annual Return • System of GST Compliance Rating • Well documented process and regulations to ensure smooth and effective compliance and to avoid ambiguity and confusion • GST Practitioners for assisting filing of returns • GSTN and GST Suvidha Providers (GSPs) to provide technology based assistance
  • 27. 27 Reduction in Cascading of Taxes Availability of Input Tax Credit Common National Market Single registration/ less compliance Self-Regulating System Non-Intrusive Electronic Tax System Decrease in Inflation Ease of Doing Business Decrease in “Black” Transactions Benefits of GST
  • 28. 28 Simplified Tax Regime Reduction in Multiplicity of Taxes Consumption Based Tax Abolition of CST Exports to be Zero Rated Protection of Domestic Industry - IGST More informed consumer Poorer States to Gain Make in India Benefits of GST
  • 29. Let’s look at the benefit 29 Particulars Percentage Amount Percentage Amount 1. Manufacturer Cost of Production 1,000 1,000 Profit Margin 25% 250 25% 250 Selling Price 1,250 1,250 Excise Duty 12.5% 156 - VAT/ GST 12.5% 176 18.0% 225 Total Invoice Value 1,582 1,475 2. Wholesaler Cost of Goods 1,406 1,250 Other Costs 50 50 Profit Margin 25% 364 25% 325 Selling Price 1,820 1,625 VAT/ GST 12.5% 228 18.0% 293 Total Invoice Value 2,048 1,918 3. Retailer Cost of Goods 1,820 1,625 Other Costs 100 100 Profit Margin 25% 480 25% 431 Selling Price 2,400 2,156 VAT/ GST 12.5% 300 18.0% 388 Total Invoice Value 2,700 2,544 Pre GST Post GST
  • 30. Thank You Manmohan Daga Daga & Associates 9804199500 mmdaga@hotmail.com

Editor's Notes

  1. The present existing tax regime is grossly inefficient with breakage of input tax chain at multiple stages resulting in tax being imposed on tax which is commonly termed as cascade of taxes. All this adds to the costs of a product and results in tendency to avoid paying taxes by using all possible means.
  2. Harmonisation in the different taxation laws of states appears to be missing many a times. Uniformity is lacking while levying VAT or entry taxes in many states. The companies try to take advantage of tax arbitrages leading to decisions being taken on the basis of tax structure rather than on the basis of pure economic reasons. All this leads to inefficiencies in the system.
  3. There are different taxable events with each having issues of definitions, interpretations resulting in overlapping at many places. All this creates confusions with many of the issues reaching courts for a decisions.
  4. Multiple laws require multiple compliances and registrations with no interlinkages amongst them leading to silos being created. In many cases, these different governments- Centre, states are trying to tax same transactions.
  5. There is a concept of Goods-Service Continuum; If goods and services are places on a scale with pure goods being on one side and services on the other side, most of the transactions lie some where in between having elements of goods as well as service. State government and Centre are in Court in many cases just to decide as regards the classification as goods or services. The distinction between two is getting blurred with the advent of technology. For instance software is being taxed by treating it as services as well as goods. GST appears to be much more efficient tax and may solve most of the existing inefficiencies in indirect taxation system.
  6. Whether you are manufacturer, trader, dealer, service supplier- all will be considered as same i.e. taxpayer. Whether you supply within the same state or anywhere in the country, the rate of tax is same, thereby obviating any need for various forms and border check points which is prevalent today.
  7. GST will be a win-win situation for all. It brings benefits to all the stakeholders of industry, government and the consumer. Being largely technology driven., it will reduce the human interface to a great extent, leading to speedy decisions; increased transparency; decrease in black economy; Self policing system of ITC matching will lead to fair and transparent trade.
  8. Reduction in multiplicity of taxes will make it simple; Zero rating of exports will ensure competitiveness of exports; Domestic industry will be protected through equivalent taxes being imposed on imports.