GST in India April 2017?

1. GST-India

2.  What is GST?
 Why GST?
 What is cascading of Taxes?
 Value Added Tax Regime
 How GST is different from VAT?
 What is Dual GST structure?
 Salient Features
 Glossary
Agenda

3.  GST stands for Goods and Service Tax which is a comprehensive tax levied
on manufacture, sale and consumption of goods and services at pan-India
level. Implying, GST will subsume host of central (Excise, Countervailing
Duty and Service Tax) and state taxes (Octroi, VAT, Entry tax and Luxury
tax).
 GST is touted as the biggest indirect tax reform in India since
independence and is expected to boost GDP growth by 100 to 150 basis
points.
What is GST?

4.  The current indirect taxation regime has several limitations and
inefficiencies that will get addressed by GST. GST will redistribute the
taxation uniformly across manufacturing and services and bring in
simplicity and uniformity in tax administration. The unhealthy competition
between states will be eliminated thus uniting the country economically.
By expanding the tax base (Tax: GDP ratio will increase) and improving
compliance, GST aims to boost economic growth of the country besides
increasing revenue for the government.
 A uniform tax framework across country would boost businesses by
significantly reducing the efforts required in meeting tax compliance.
Efficiencies will also be derived in tax administration and audit by central
and state governments. By eliminating the cascading effect of taxes from
production till end customer, the burden on consumer is also reduced.
Why GST?

5. Let us understand a little history;
 Sales Tax Regime:
 Under the sales tax regime, the tax is calculated on the selling price
of a product and each stage of transaction (Manufacturer >
Wholesaler > Retailer > End Consumer) the tax gets added. This ‘tax
on tax’ or double taxation is termed cascading effect.
 Illustration:
 Product: Mobile Phone
 Tax Rate: 5%
 Margin: 10%
What is cascading of Taxes?

6. Seller Cost Selling Price
(after 10% margin)
Tax (@ 5%) Amount
Manufacturer 5000 5500 275 5775
Wholesaler 5775 6353 318 6671
Retailer 6671 7338 367 7705
960
What is cascading of Taxes?
The total tax paid to government is Rs 960 in the above
example with tax getting added at each stage. In the above
illustration from stage 2 onwards, tax is getting calculated on
the selling price which already includes tax charged in
previous stage, thus leading to double taxation.

7.  To overcome the cascading effect of taxation, VAT was
introduced in stages across India beginning 1st April 2005. As
VAT is applied only on the value addition done (difference
between Sale price and purchase price) and not on the entire
sale price, this prevents the cascading effect. VAT provides for
an ability to set-off the Output VAT collected on sales against
the input VAT paid on purchases and pay only the differential to
the government.
Value Added Tax Regime:

8. Illustration:
 In the context of the above example, let us see the VAT implications:
 As is obvious, the amount of tax to be paid to government is significantly reduced to Rs
341 and a tax saving of Rs 619. Businesses can in turn pass on the accrued benefit to end
customers.
Value Added Tax Regime:
Seller Cost Selling Price
(after 10% margin)
Input VAT
(@ 5%)
Output VAT
(@ 5%)
Tax Paid
to Govt.
Amount
Manufacturer 5000 5500 275 275 5775
Wholesaler 5775 6353 275 318 43 6671
Retailer 6671 7338 318 367 49 7705
960 341

9.  If VAT is addressing the cascading effect, why do we need GST?
 With introduction of VAT the cascading effect of taxes in Sales tax regime got addressed
and helped in reducing the inflationary effect of taxes on prices. Similarly in the case of
Central Excise, the credit accrued from excise duty paid at input stages is allowed to be
set-off against liability of excise on removal of goods under MODVAT scheme. In case of
Service tax as well, since 2002, set-off has been provided. Also, in 2004 CENVAT Credit
rules allowed cross utilisation of input between excise and service tax.
 However, there is no cross-utilisation between central (Excise/Service Tax) and state taxes
(VAT). That is, the credit of VAT cannot be set-off against liability of Excise/Service tax and
vice-versa. The assessable value for calculation of VAT includes excise paid. Similarly,
CENVAT credit is provided only for Excise duty paid on inputs, excluding VAT component.
 Hence the cascading effect of taxes, although reduced, still exists!
 GST aims to eliminate this cascading effect by introducing a single uniform tax across the
country which will subsume a host of central and state indirect taxes.
How GST is different from VAT?

10.  Taking cognizance of the federal structure of India, the GST
model adopted is dual GST which is very unique and prevalent
in few countries like Canada and Brazil. Under this model, tax is
administered, collected and shared by both centre and states
based on the nature of transaction (local or interstate).
 The components of Dual GST:
 SGST: State GST
 CGST: Central GST
 IGST: Integrated GST
What is Dual GST structure?

11. Transaction Applicability Remarks
Supply within the state SGST and CGST
SGST will go to state and CGST collected will go to
centre
Supply outside the state IGST (CGST+SGST)
Proceeds of IGST will get apportioned between
centre (CGST component) and consuming state
(SGST part of IGST)
What is Dual GST structure?
IGST will have 2 components (i.e CGST and SGST), the centre will collect IGST, retain
the CGST component and transfer the SGST part to the consuming state.

12.  GST would enable central government to tax supply of goods
(hitherto VAT is charged by state governments only) and state
governments to tax supply of services (till now, the domain of
centre).
 GST is a destination or consumption based tax and the implication
being, the state where goods/services are consumed earns the GST
revenue. Hence, imports will be taxed and not exports.
 Taxable event will shift from manufacturing or sale of goods or
provision of services to ‘Supply of goods and services’. The term
‘Supply’ refers to all sale, transfer, barter, lease and import of
goods/services for a consideration.
Salient Features:

13.  Eligibility for Input Tax Credit:
 Cross-utilization of Input:
 Cross-utilization of SGST input against liability of CGST or vice-
versa is not allowed. Excess input if any after set-off may be
either claimed or carried forward.
Salient Features:
Sl No. Nature of Supply Eligibility for ITC
1 Taxable Supply Yes
2 Zero Rated Supply Yes
3 Exempted Supply No
Input Tax Credit Set-off against liability of
CGST CGST and IGST (in that order)
SGST SGST and IGST (in that order)
IGST IGST, CGST, SGST (in that order)

14.  What will get subsumed under GST?
 Central Excise
 Service Tax
 VAT/Sales Tax
 Entertainment Tax
 Luxury Tax
 Taxes on lottery
 Octroi and Entry Tax
 Purchase tax
 What will not get subsumed in GST?
 Basic Customs duty
 Alcohol for human consumption
 Petrol / Diesel / Aviation fuel / Natural Gas (to be included only at a later date)
 Stamp duty and Property tax
 Toll tax
 Electricity Duty
Salient Features:

15.  GST Rates: The following 3 rate slabs are proposed apart from exempt goods/service
(Zero Rate)
 Floor Rate (lower rate for merit goods and services of basic necessity)
 Standard Rate (for most goods and services)
 Higher rate for luxury or demerit goods (Ex: soft drinks and tobacco)
 RNR (Revenue Neutral Rate): It is the rate at which if the government adopts GST, there
will be no net revenue gain or loss.
 Taxable event:
 In case of goods: Removal of goods or receipt of payment or issuance of invoice or date
on which buyer shows receipt of goods whichever is earlier.
 In case of services: Issuance of invoice or receipt of payment or date on which recipient
shows receipt of services whichever is earlier.
 Transaction value: The price actually paid or payable for supply of goods/service. It would
include expenses such as packing and commission.
 Place of supply: Broadly, for goods it would be location where goods are delivered. For
services, location of recipient.
Glossary:

16. Thank you