GST in India

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Introduction of GST
‘G’ – Goods
‘S’ – Services
‘T’ – Tax
GST is a tax on goods and services with value addition at each stage
having comprehensive and continuous chain of set-of benefits from the
producer’s/service provider’s point up to the retailer’s level where only
the final consumer should bear the tax.” Through a tax credit
mechanism, GST is collected on value-added goods and services at each
stage of sale or purchase in the supply chain.
GST is paid on the procurement of goods and services can be set off
against that payable on the supply of goods or services. But being the
last person in the supply chain, the end consumer has to bear this tax
and so, in many respects, GST is like a last-point retail tax.
France was the first country to introduce GST in 1954. Worldwide,
almost 150 countries have introduced GST in one or the other form
since now. Most of the countries have a unified GST system. Brazil and
Canada follow a dual system vis-à-vis India is going to introduce. In
China, GST applies only to goods and the provision of repairs,
replacement and processing services.
 GST rates of some countries are given below: -

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Basically, GST is a value added tax, levied at all points in the supply
chain with credit allowed for any tax paid on inputs acquired for use in
making the supply. It is indirect tax that brings most of the taxes
imposed on most goods and services, on manufacture, sale and
consumption of goods and services, under a single domain at the
national level. It would apply to both goods and services in a
comprehensive manner with exemptions restricted to a minimum and
it is payable at the final point of consumption.
Need for GST in India
 Introduction of a GST to replace the existing multiple tax structures
of Centre and State taxes are not only desirable but imperative in
the emerging economic environment. Increasingly, services are used
or consumed in production and distribution of goods and vice versa.
Separate taxation of goods and services often requires splitting of
transaction values into value of goods and services for taxation,
which leads to greater complexities, administration and compliances
costs.
 Integration of various taxes into a GST system would make it
possible to give full credit for inputs taxes collected. GST, being a
destination-based consumption tax based on VAT principle, would

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also greatly help in removing economic distortions and will help in
development of a common national market.
 The implementation of GST will help create a common Indian market
and reduce the cascading effect of tax on the cost of goods and
services. It will impact tax structure, tax incidence, tax computation,
credit utilization and reporting, leading to a complete overhaul of
the current indirect tax system.
 GST will have a far-reaching impact on almost all aspects of business
operations in a country, including pricing of products and services;
supply chain optimization; IT, accounting and tax compliance
systems. GST is expected to be a critical reform in spurring growth in
the economy. When introduced, GST will not only make the tax
system simpler, but will also help in increased compliance, boost tax
revenues, reduce the tax outflow in the hands of the consumers and
make exports competitive.
Existing taxation system vs. GST
 Existing: -
Tax is compulsory contribution to state revenue, levied by the
government on workers' income and business profits, or added to the
cost of some goods, services, and transactions.

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 Direct Taxes: -
These types of taxes are directly imposed & paid to Government of
India. There has been a steady rise in the net Direct Tax collections
in India over the years, which is healthy signal. Direct taxes, which
are imposed by the Government of India, are:
 Income Tax: -
Income tax is mostly known to everyone. Every individual whose
total income exceeds taxable limit has to pay income tax based on
prevailing rates applicable time to time. By doing investment in
certain scheme you can save Income Tax.
 Wealth Tax: -
A wealth tax (also called a capital tax, equity tax, or net worth tax)
is a levy on the total value of personal assets, including owner-
occupied housing; cash, bank deposits, money funds, and savings in
insurance and pension plans; investment in real estate and
unincorporated businesses; and corporate stock, financial securities,
and personal trusts. Typically, liabilities (primarily mortgages and
other loans) are deducted; hence it is sometimes called a net wealth

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tax. A wealth tax taxes the accumulated stock of purchasing power,
in contrast to income tax, which is a tax on the flow of assets.
 Capital Gains Tax: -
Capital Gain tax as name suggests it is tax on gain in capital. If you
sale property, shares, bonds & precious material etc. and earn profit
on it within predefined time frame you are supposed to pay capital
gain tax. The capital gain is the difference between the money
received from selling the asset and the price paid for it.
Capital gain tax is categorized into short-term gains and long-
term gains. The Long-term Capital Gains Tax is charged if the capital
assets are kept for more than certain period 1 year in case of share
and 3 years in case of property. Short-term Capital Gains Tax is
applicable if these assets are held for less than the above-mentioned
period.
 Indirect Taxes: -
An indirect tax is a tax collected by an intermediary (such as a retail
store) from the person who bears the ultimate economic burden of
the tax (such as the consumer). The intermediary later files a tax
return and forwards the tax proceeds to government with the
return. Some of the indirect taxes imposed are:
 Sales Tax: -
Sales tax charged on the sales of movable goods. Sale tax on Inter
State sale is charged by Union Government, while sales tax on intra-
State sale (sale within State) (now termed as VAT) is charged by
State Government. Sales can be broadly classified in three categories
- (a) Inter-State Sale (b) Sale during import/export (c) Intra-State (i.e.

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within the State) sale. State Government can impose sales tax only
on sale within the State.
CST is payable on inter-State sales is @ 2%, if C form is
obtained. Even if CST is charged by Union Government, the revenue
goes to State Government. State from which movement of goods
commences gets revenue. CST Act is administered by State
Government.
 Service Tax: -
Most of the paid services you take you have to pay service tax on
those services. This tax is called service tax. Over the past few years,
service tax been expanded to cover new services.
Few of the major service which comes under vicinity of service
tax are telephone, tour operator, architect, interior decorator,
advertising, beauty parlor, health center, banking and financial
service, event management, maintenance service, consultancy
service.
Current rate of interest on service tax is 14%. This tax is passed
on to us by service provider.
 Value Added Tax: -
The Sales Tax is the most important source of revenue of the state
governments; every state has their respective Sales Tax Act. The tax
rates are also different for respective states.
Tax imposed by Central government on sale of goods is called as
Sales tax same is called as Value added tax by state government. VAT
is additional to the price of goods and passed on to us as buyer (end
user). Around 220+ Items are covered with VAT. VAT rates vary
based on nature of item and state.

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Government is planning to merge service tax and sales tax in form
of Goods service tax (GST).
 Custom duty & Octroi (On Goods): -
Custom Duty is a type of indirect tax charged on goods imported into
India. One has to pay this duty, on goods that are imported from a
foreign country into India. This duty is often payable at the port of
entry (like the airport). This duty rate varies based on nature of
items. Octroi is tax applicable on goods entering in to municipality
or any other jurisdiction for use, consumption or sale. In simple
terms one can call it as Entry Tax.
 Excise Duty: -
An excise or excise duty is a type of tax charged on goods produced
within the country. This is opposite to custom duty which is charged
on bringing goods from outside of country. Another name of this tax
is CENVAT (Central Value Added Tax). If you are producer /
manufacturer of goods or you hire labor to manufacture goods you
are liable to pay excise duty.
 Entertainment Tax: -
Tax is also applicable on Entertainment; this tax is imposed by state
government on every financial transaction that is related to
entertainment such as movie tickets, major commercial shows
exhibition, broadcasting service, DTH service and cable service.
 GST: -
GST is a major indirect tax reform in India which takes VAT to its
logical conclusion. GST would avoid burden of multiple taxation (tax
on tax) with a cascading effect. GST seeks to rule out cascading tax

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effect. Once it introduced, CST will also be removed. The proposed
model of GST and the rate as follows:
A dual GST system is planned to be implemented in India as
proposed by the Empowered Committee under which the GST will
be divided into two parts:
 State Goods and Services Tax (SGST)
 Central Goods and Services Tax (CGST)
 Integrated Goods and Services Tax
(IGST)
Both SGST and CGST will be levied on the taxable value of a
transaction. All goods and services, leaving aside a few, will be
brought into the GST and there will be no difference between goods
and services. The GST system will combine Central excise duty,
additional excise duty, services tax, State VAT entertainment tax etc.
under one banner.
The GST rate is expected to be around 14-16 per cent. After the
combined GST rate is fixed, the States and the Centre will decide on
the SGST and CGST rates. At present, 10 per cent is levied on services
and the indirect taxes on most goods are around 20 per cent.
Comparison between the Existing system and GST

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 Indirect taxes that will be included under GST: -
State taxes which will be subsumed in SGST are -
 VAT/Sales Tax
 Entertainment Tax (unless it is levied by local bodies)
 Luxury Tax
 Taxes on lottery, betting and gambling.
 State cess and surcharges to the extent related to supply of
goods and services.
 Entry tax not on in lieu of octroi.
Central Taxes which will be subsumed in CGST are -
 Central Excise Duty.
 Additional Excise Duty.

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 The Excise Duty levied under the medical and Toiletries
Preparation Act
 Service Tax.
 Additional Customs Duty, commonly known as countervailing
Duty (CVD)
 Special Additional duty of customs(SAD)
 Education Cess
 Surcharges.
Taxes that may or may not be subsumed due to no consensus
between the Central and State Governments are -
 Stamp Duty
 Vehicle Tax
 Electricity Duty
 Other Entry taxes and Octroi
 Entertainment Tax (levied by local bodies)
 Basic customs duty and safeguard duties on import of goods into
India.
Application and functioning of GST
In keeping with the federal structure of India, it is proposed that GST
be levied concurrently by the Centre (CGST) and the States (SGST). It is
expected that the base and other essential design features would be
common between CGST and SGST, across SGSTs for the individual
States. Both CGST and SGST would be levied on the basis of the
destination principle.
Thus, exports would be zero-rated, and imports would attract the tax
in the same manner as domestic goods and services. Inter-State

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supplies within India would attract an Integrated GST (aggregate of
CGST and the SGST of the Destination State).
GST is a consumption-based tax/levy. It is based on the “Destination
principle.” GST is applied on goods and services at the place where
final/actual consumption happens.
GST is collected on value-added goods and services at each stage of sale
or purchase in the supply chain. GST paid on the procurement of goods
and services can be set off against that payable on the supply of goods
or services. The manufacturer or wholesaler or retailer will pay the
applicable GST rate but will claim back through tax credit mechanism.
But being the last person in the supply chain, the end consumer has to
bear this tax and so, in many respects, GST is like a last-point retail tax.
GST is going to be collected at point of Sale.

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The GST is an indirect tax which means that the tax is passed on till the
last stage wherein it is the customer of the goods and services who
bears the tax. This is the case even today for all indirect taxes but the
difference under the GST is that with streamlining of the multiple taxes
the final cost to the customer will come out to be lower on the
elimination of double charging in the system.
The current tax structure does not allow a business person to take tax
credits. There are lot of chances that double taxation takes place at
every step of supply chain. This may set to change with the
implementation of GST.
o Rate of GST: -
There would be two-rate structure –a lower rate for necessary items
and items of basic importance and a standard rate for goods in general.
There will also be a special rate for precious metals and a list of
exempted items. For goods in general, government is considering
pegging the rate of GST from 20% to 23% that is well above the global
average rate of 16.4% for similar taxes, however below the revenue
neutral rate of 27%.
The combined GST rate is currently being discussed by the Centre and
the EC. The rate is expected to be in the range of 14-16 %. Once the
total GST rate is determined, the states and the Centre have to agree
on the CGST and SGST rates. Today, services are taxed at 10% and the
combined incidence of indirect taxes on most goods is around 20%.
o Model of GST with example: -
 The GST shall have two components: one levied by the Centre
(referred to as Central GST or CGST), and the other levied by the

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States (referred to as State GST or SGST). Rates for Central GST and
State GST would be approved appropriately, reflecting revenue
considerations and acceptability.
 The CGST and the SGST would be applicable to all transactions of
goods and services made for a consideration except the exempted
goods and services.
 Cross utilization of ITC both in case of Inputs and capital goods
between the CGST and the SGST would not be permitted except in
the case of inter-State supply of goods and services (i.e. IGST).
 The Centre and the States would have concurrent jurisdiction for
the entire value chain and for all taxpayers on the basis of thresholds
 For goods and services prescribed for the States and the Centre.
The prices of commodities are expected to come down in the
long run as dealers pass on the benefits of reduced tax incidence to
consumers by slashing the prices of goods.
Features of GST
 The proposed Article 246A intends to grant concurrent powers to
the Union and State legislatures to make laws with respect to GST.
The power to make laws in respect of supplies in the course of
inter-State trade or commerce will be vested only in the Union
government. States will have the right to levy GST on intra-State
transactions including on services.
 Centre will levy IGST on inter-State supply of goods and services.
On intra-State supply of goods and services, Centre to levy CGST

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and States shall levy SGST. Import of goods will be subject to basic
customs duty and IGST.
 GST defined as any tax on supply of goods and services other than
alcohol for human consumption.
 Central taxes like, Central Excise duty, Additional Excise duty,
Service tax, Additional Custom duty and Special Additional duty
and State level taxes like, VAT or sales tax, Central Sales tax,
Entertainment tax, Entry tax, Purchase tax, Luxury tax and Octroi
will subsume in GST.  Petroleum and petroleum products shall be
subject to the GST on a date to be notified by the GST Council.
 Alcohol for human consumption will be out of GST, States to
continue to levy taxes on alcohol. Items of tobacco product will be
subject to separate excise duty by the center over and above GST.
 1% origin based additional tax to be levied on inter-State supply
of goods will be non-creditable in GST chain. This origin based non-
creditable tax on supply of goods will be hugely distortionary and
should be revisited.
 Provision for removing imposition of entry tax / Octroi across India.
 Entertainment tax, imposed by States on movie, theatre, etc. will
be subsumed in GST, but taxes on entertainment at panchayat,
municipality or district level to continue.
 GST may be levied on the sale of newspapers and advertisements
and this would give the government’s access to substantial
incremental revenues.
 Stamp duties, typically imposed on legal agreements by the state,
will continue to be levied by the States.
 Article 279 provides the constitution of GST Council by the
president within 60 days from the date of the passing of the Bill and

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also provides for the appointment of members of the GST Council
and its composition and powers to make recommendation.
 Administration of GST will be the responsibility of the GST Council,
which will be the apex policy making body for GST. Members of GST
Council comprised of the Central and State ministers in charge of the
finance portfolio. In the GST Council Centre will have one-third vote
and all States combined to have two-third vote. Quorum for GST
Council is 50% of total members and for majority of Council decisions
75% of the weighted votes of the members present and voting.
 The power to make laws in respect of supplies in the course of
inter-State trade or commerce will be vested only in the Union
government. States will have the right to levy GST on intra-State
transactions including on services.
 It would be applicable to all transactions of goods and service.
 It to be paid to the accounts of the Centre and the States
separately.
 The rules for taking and utilization of credit for the Central GST and
the State GST would be aligned.
 Cross utilization of ITC between the Central GST and the State GST
would not be allowed except in the case of inter-State supply of
goods.
 The Centre and the States would have concurrent jurisdiction for
the entire value chain and for all taxpayers on the basis of thresholds
for goods and services prescribed for the States and the Centre.
 The taxpayer would need to submit common format for periodical
returns, to both the Central and to the concerned State GST
authorities.

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 Each taxpayer would be allotted a PAN-linked taxpayer
identification number with a total of 13/15 digits.
Process of implementation and Roadmap the Constitution
GST is being introduced in the country after a 13-year long journey
since it was first discussed in the report of the Kelkar Task Force on
indirect taxes. A brief chronology outlining the major milestones on the
proposal for introduction of GST in India is as follows:
♦ In 2003, the Kelkar Task Force on indirect tax had suggested a
comprehensive Goods and Services Tax (GST) based on VAT
principle.
♦ A proposal to introduce a National Level Goods and Services Tax
(GST) by April 1, 2010 was first mooted in the Budget Speech for the
financial year 2006-07.
♦ Since the proposal involved reform/ restructuring of not only
indirect taxes levied by the Centre but also the States, the
responsibility of preparing a Design and Road Map for the
implementation of GST was assigned to the Empowered Committee
of State Finance Ministers (EC).
♦ Based on inputs from Govt of India and States, the EC released its
First Discussion Paper on Goods and Services Tax in India in
November, 2009.
♦ In order to take the GST related work further, a Joint Working Group
consisting of officers from Central as well as State Government was
constituted in September, 2009.
♦ In order to amend the Constitution to enable introduction of GST,
the Constitution (115th Amendment) Bill was introduced in the Lok
Sabha in March 2011. As per the prescribed procedure, the Bill was

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referred to the Standing Committee on Finance of the Parliament for
examination and report.
♦ Meanwhile, in pursuance of the decision taken in a meeting
between the Union Finance Minister and the Empowered
Committee of State Finance Ministers on 8th November, 2012, a
‘Committee on GST Design’, consisting of the officials of the
Government of India, State Governments and the Empowered
Committee was constituted.
♦ This Committee did a detailed discussion on GST design including the
Constitution (115th) Amendment Bill and submitted its report in
January, 2013. Based on this Report, the EC recommended certain
changes in the Constitution Amendment Bill in their meeting at
Bhubaneswar in January 2013.
♦ The Empowered Committee in the Bhubaneswar meeting also
decided to constitute three committees of officers to discuss and
report on various aspects of GST as follows: -
(a) Committee on Place of Supply Rules and Revenue Neutral
Rates;
(b) Committee on dual control, threshold and exemptions;
(c) Committee on IGST and GST on imports.
* The Parliamentary Standing Committee submitted its Report in
August, 2013 to the Lok Sabha. The recommendations of the
Empowered Committee and the recommendations of the
Parliamentary Standing Committee were examined in the Ministry
in consultation with the Legislative Department. Most of the
recommendations made by the Empowered Committee and the
Parliamentary Standing Committee were accepted and the draft
Amendment Bill was suitably revised.

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* The final draft Constitutional Amendment Bill incorporating the
above stated changes were sent to the Empowered Committee for
consideration in September 2013.
* The EC once again made certain recommendations on the Bill after
its meeting in Shillong in November 2013. Certain recommendations
of the Empowered Committee were incorporated in the draft
Constitution (115th Amendment) Bill. The revised draft was sent for
consideration of the Empowered Committee in March, 2014.
* The 115th Constitutional (Amendment) Bill, 2011, for the
introduction of GST introduced in the Lok Sabha in March 2011
lapsed with the dissolution of the 15th Lok Sabha.
* In June 2014, the draft Constitution Amendment Bill was sent to the
Empowered Committee after approval of the new Government.
* Based on a broad consensus reached with the Empowered
Committee on the contours of the Bill, the Cabinet on 17.12.2014
approved the proposal for introduction of a Bill in the Parliament for
amending the Constitution of India to facilitate the introduction of
Goods and Services Tax (GST) in the country. The Bill was introduced
in the Lok Sabha on 19.12.2014 and was passed by the Lok Sabha on
06.05.2015. It was then referred to the Select Committee of Rajya
Sabha, which submitted its report on 22.07.2015.
* But last of all GST is implemented in India from 1st July,2017.
Hurdles of implementation
Before it can be introduced, the Centre and states have to sort out
issues like agreement on GST rates, constitutional amendments
empowering states to tax services, taxation on inter-state transactions
of goods and services, drafting of CGST and SGST laws, consultation
with all stakeholders including trade and industry associations before

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finalization, administrative preparedness to implement the new tax
regime and resolution of all other issues under discussion.
 Challenges for implementing Goods & Services Tax system: -
 The bill is yet to be tabled and passed in the Parliament.
 To implement the bill (if cleared by the Parliament) there has to
be lot changes at administration level, Information Technology
integration has to happen, sound IT infrastructure is needed, the
state governments has to be compensated for the loss of revenues
(if any) and many more.
 It is really required that all the states implement the GST
together and that too at the same rates. Otherwise, it will be really
cumbersome for businesses to comply with the provisions of the
law. Further, GST will be very advantageous if the rates are same,
because in that case taxes will not be a factor in investment
location decisions, and people will be able to focus on profitability.
 For smooth functioning, it is important that the GST clearly sets
out the taxable event. Presently, the CENVAT credit rules, the Point
of Taxation Rules are amended/introduced for this purpose only.
However, the rules should be more refined and free from
ambiguity.
 The GST is a destination-based tax, not the origin one. In such
circumstances, it should be clearly identifiable as to where the
goods are going. This shall be difficult in case of services, because it
is not easy to identify where a service is provided, thus this should
be properly dealt with.

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 More awareness about GST and its advantages have to be made,
and professionals really have to take the onus to assume this
responsibility.
 GST, being a consumption-based tax, states with higher
consumption of goods and services will have better revenues. So,
the co-operation from state governments would be one of the key
factors for the successful implementation of GST
 Assuming GST at 20%, services would see a rise in tax rates while
manufactured consumer goods may see a fall. The two are likely to
offset each other resulting in a limited net impact on inflation
based on the consumer price index.
 But actual impact on inflation can’t be known with certainty as
much depends on how the change in tax rates is passed on to
consumers and what the actual GST rate is.
 If there is a partial pass through of higher taxes, impact could be
limited, but if GST rate is higher than 18-22%, effect on inflation
can be more than anticipated
 2 levels of GST—state and Centre—means multiple compliances.
 This could mean not just stricter compliance and audit but also
an increase in cost of compliance.
 Globally, the norm is a single, central GST. The jury is still out
whether the central and state governments will function on a
common platform due to existing cultural and operational
differences.
 The GST credit flow requires each vendor to input details of
invoices issued containing details of the customer, for the next in
line (i.e. the customer) to receive credit. If vendors aren’t able to
upload invoice details in a timely manner, then credit blockages

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could happen. Since GST replaces many cascading taxes, the
common man may benefit after implementing it. But it all depends
on ‘what rate the GST is going to be fixed at?’ Also, Small Traders
(based on Annual Business turnover) may be exempted from it.
Impact on the economy
GST would be one of the most significant fiscal reforms of
independent India. GST is expected to result in major rationalization
and simplification of the consumption tax structure at both Centre
and State levels. It is expected to replace all indirect taxes, thus
avoiding multiple layers of taxation that currently exist in India.
Depending on the final GST base and rate, there will be a significant
redistribution of tax across different goods and services. Goods
currently subject to both Centre and State taxes should experience a
net reduction in tax, with positive impact on consumer demand.
Besides simplifying the current system and lowering the costs of doing
business, GST will call for a fundamental redesign of supply chains. It
will affect how the companies operate their businesses, presenting
significant opportunities for long-term revenue and margin
improvement.
For instance, under the current tax structure, supply chains are
invariably designed to minimize the burden of the Central Sales Tax,
with distribution centers located in individual States where the
consumers are located. They are sub-optimal from a strategic and
economic perspective. The elimination of the central sales tax will
provide an opportunity to optimize supply chains, enabling companies
to re-evaluate existing procurement patterns, and distribution and
warehousing arrangements.

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GST is also expected to result in a reduction in inventory costs.
Dealers would be able to claim a credit for the tax paid on their
inventories, leading to improved cash flows.
A successful implementation of GST is significantly dependent on IT
capability – not just at the tax administration level but also at the
taxpayer level. Efforts will be required to change existing IT systems for
GST enablement which could be complex, challenging and lengthy task
for the IT department.
 Impact on Prices of Goods & Services: -
 For manufactured consumer goods, the current tax regime means the
consumer pays approximately 25-26% more than the cost of
production due to excise duty (peak of about 12.5%)and value added
tax
 While there hasn’t been any clear indication of a GST rate, experts
suggest between 18% and 22%. Such goods are likely to become
marginally cheaper
 On the other hand, for goods where the current duty structure is
lower, e.g. small cars, which have an excise duty of only 8%, the impact
of GST will most likely be opposite—these can get more expensive
 Heavy vehicles such as SUVs and large cars that have an excise duty
of 27-30% will see a marked drop in prices if GST is implemented in the
expected range of 18-22%
 As regards petroleum, it has been proposed to keep this out of the
GST umbrella for at least the first two years, which means petroleum
prices aren’t likely to change with the advent of GST and the variance
in prices across states could also continue.
 Prices of goods may not be completely uniform across states as there
is talk of allowing states to have 1-2% variance in tax. Let’s assume that
if the median GST rate is 20% and the Centre applies 10%, for the
remainder, the states may be allowed, say, a range of 9-11% levy.

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 Service tax is 14% currently. If GST is implemented, this rate will
increase (given the expectation that GST will be 18-22%) making
services more expensive.
GST will affect every part of your business in India with regards to cash
flow, costing of capital, pricing of products and services, financial
reporting, tax accounting, compliance processes, supply chain,
procurements and contracts and all technology currently enabling this
ecosystem. In addition, there will be significant training needs for
personnel to understand and operate effectively under this new
regime.
The transition to GST will have to be managed in a phased manner and
will require proactive and timely planning. Companies will have to start
by understanding key areas of impact to their business model and
prepare different scenarios for the design and application of GST.
Implementation of changes will have to be managed through robust
program management across various company stakeholders in the
entire value chain.
Advantages of GST
 Uniformity in Taxation: -
The objective of GST is to drive India towards becoming an
integrated economy by charging uniform tax rates and eliminating
economic barriers, thereby making the country a common national
market. The subsuming of the aforementioned State and Central
indirect taxes into just one tax will also provide a major lift to the
Government’s ‘Make in India’ campaign, as goods that are produced
or supplied in the country will be competitive not only in national
markets, but in the international ones as well. Moreover, IGST

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(Integrated Goods and Services Tax) will be levied on all imported
goods. IGST will be equal to State GST + Central GST, more or less,
thus bringing uniformity in taxation on both local as well as imported
goods.
 Helping Government Revenue Find Buoyancy: -
GST is forecast to help the Government Revenue find buoyancy by
expanding the tax base whilst enhancing the taxpayer compliance.
The reform is also expected to improve the country’s ranking so far
as the ‘Ease of Doing Business Index’ is concerned. To add to it, it is
also estimated to enhance the GDP by 1.5% - 2%.
 Cascading of Taxes: -
The cascading of taxes will be prevented by GST as the whole supply
chain will get an all-inclusive input tax credit mechanism. Business
operations can be streamlined at each stage of supply thanks to the
seamless accessibility to input tax credit across products or services.
 Simpler and Lesser Number of Compliances: -
Compliance will be simpler through the harmonization of tax rates,
procedures, and laws. Synergies and efficiencies are expected across
the board thanks to common formats/forms, common definitions,
and common interface via the GST portal. Inter-state disputes such
as those on e-commerce taxation and entry tax that currently prevail
will no longer cause concerns, while multiple taxation on the same
transactions will also be removed. Compliance costs will also reduce
as a result.
The previous tax regime had service tax and VAT, and they both had
their own compliances and returns. GST will merge them and lower
the number of returns as well as the time spent on tax compliances.
GST has around 11 returns under it. Four of them are basic returns
that are applicable to all taxable entities under GST. Although the
number of returns could increase, the main GSTR-1 shall be manually

26 | P a g e
populated, while GSTR-2, GSTR-3, AND GSTR-4 shall be auto-
populated.
 Common Procedures: -
The procedures for refund of taxes and registration of taxpayers will be
common, while the formats of tax return will be uniform. The tax base
will also be common, as will the system of assortment of products or
services in addition to the timelines for each activity, thereby ensuring
that taxation systems have greater certainty.
 Common Portal: -
Since technology will be used heavily to drive GST, taxpayers will have
a common portal (GSTN). The procedures for different processes like
registration, tax payments, refunds, returns, etc., will be automated
and simplified. Whether it is the filing of returns, filing of refund claims,
payment of taxes, or even registration, all processes will be done online
via GSTN. The verification of input tax credit will be done online too,
and input tax credit across the country will be matched electronically,
thereby turning the process into an accountable and transparent one.
As a result, the process will also be much quicker since the taxpayer will
not have to interact with the tax administration.
 Lowered Tax Burden on Industry and Trade: -
The average tax burden on industry and trade is expected to lower
because of GST, resulting in a reduction of prices and increased
consumption, which will eventually increase production and ultimately
enhance the development of various industries. Domestic demand is
set to increase and local businesses will have greater opportunities,
thus generating more jobs within the country.
 Regulation of Unorganized Industries: -
Certain sectors in the country, such as textile and construction, are
highly unorganized and unregulated. GST aims to ensure that payments
and compliances are done online, and input credit can only be availed

27 | P a g e
when the supplier accepts the amount, thus ensuring that these
industries have regulation and accountability.
 Composition Scheme: -
Small businesses can find respite from tax burdens through the
composition scheme. Small businesses that earn turnovers ranging
from Rs.20 lakh to Rs.50 lakh will be subject to lower taxes.
These are some of the main benefits offered by GST. In the following
sections we shall take a brief look at the advantages of the regime to
the common man, the economy, and industry and trade.
 Benefits to the Common Man: -
 A good number of products and/or services are either exempt
from tax or charged at 5% or less.
 The poor will receive their due.
 Small traders will find themselves on a level playing field.
 Simplified tax structure with fewer exemptions.
 Products and services will be allowed to move freely across the
country.
 Increased competition between manufacturers and businesses
will benefit consumers.
 Items such as movie-ticket prices, two-wheelers, televisions,
stoves, washing machines, SUVs and luxury cars, two-wheelers,
etc. will be cheaper.
 Benefits to the Economy: -
 Creation of a unified common market.
 Increase in manufacturing processes.
 Enhancement of exports and investments.
 Generation of more jobs through enhanced economic activity.
 Benefits to Industry and Trade: -

28 | P a g e
 Uniform procedures for registration, filing of returns, payment of
taxes, and tax refunds.
 Elimination of cascading of taxes thanks to the seamless flow of
tax credit from the supplier or manufacturer to the retailer or
user.
 Small scale suppliers can make the most of the composition
scheme to make their goods less expensive.
 Higher efficiency with regards to the neutralization of taxes so
that exports are globally competitive.
Dis-advantages of GST
 Not a one nation one tax in spirit: -
An ideal GST would have been one where only one law
would have been framed and only one authority would have been
assigned with the
accountability of framing, governing and regulating the GST law.
However, contrary to what was
expected, we presently have 31 legislations governing the entire
framework of the law which is
definitely not one nation one tax. In other words, Gujarat GST law
is different from the
Maharashtra GST law and if a person is doing business in both the
states then he has to take
separate GST registration in both the states, file separate GST
returns, maintain multiple state
wise accounts and get the tax assessed by each state authority
separately which compromises
the basic structure of the GST that was expected so much so that
many experts have started
claiming that this GST is not a tax reform but it is just a old wine in
a old bottle with a new label.

29 | P a g e
 Multiple Tax rates: -
Presently there are 7 standard tax rates and multiple rates of cess
provided
for various goods and services which only open the Pandora box of
classification disputes and
unnecessary confusion. The nightmare of HSN codes is still
prevailing in the industry and trade
with many not having any clarity and following the incorrect coding
system. This may lead to
unnecessary issues being faced by businesses at a later date in the
form of tax demands with
interests and penalties. A single rate or a dual rate GST system
would have been more
appropriate than the present one with varied tax rates.
 GST Portal issues: -
The complete electronic means of reporting transactions in GST is a
good
idea but it would have been better if the same is implemented with
proper system in place. GST
was implemented without the portal being fully ready and
functional with businesses facing
multiple issues in obtaining registrations, cancelling registrations,
filing GST returns etc. Even as
the government looks to resolve the glitches of the GST Network,
the efforts don’t seem any
beneficial as while the old issues get addressed, the new issues
crop up. Since, GST in general
demands detailed reporting of transactions through this portal and
sub-standard functioning of
the portal is only leading to high time, money and resources being
spent by businesses on
unproductive compliances.

30 | P a g e
 Hurried implementation of law: -
GST is known as the largest tax reform since independence, it
is seen that government has somehow hurried its implementation,
while many business houses
and tax experts warned government of its implementation on 1st
of July 2017 and suggested to
implement the same from 1st of October 2017 or a little later but
without paying any heed,
government went ahead with its implementation. Resultantly, it is
seen that there was confusion
amass among industry, trade, professionals and also government
officials. Even today, there
are many aspects of GST which lack clarity. Now, as a damage
control mechanism, every time
and again a new notification, press release, circulars, orders,
tweets are issued leading to
frequent changes in the law which is only adding to the confusion.
This has been one of the
biggest setback and disadvantage which GST has brought that
could have been easily avoided
if more patience in its implementation was shown.
 Working capital blockage: -
Working capital is the fuel of every business, it is the money
available for your company’s day-to-day operations, and it reflects
the short-term financial
health of the company. Exporters have face the brunt of working
capital to the core with refunds
being blocked so much so that even today post 200 days of
implementation of GST, exporters
are not able to smoothly claim refunds, same is the position for
traders who are not able to claim

31 | P a g e
the transitional benefit due to non-availability of the required
forms on the portal. Further, in
service sector, tax rate will be 18% under GST as compared to 15%
under earlier regime
leading to increased blocking of working capital for certain
businesses where the credit period is
high.
 High compliance burden: -
Compliance under GST is very high due to filing of three tax returns
in a month. Not only that if a person is doing business in multiple
states then it needs to obtain
multiple registrations for each state and separate GST returns
needs to be filed for each state.
This structure of GST has increased compliance burden and it is
causing pain mainly for
compliances mainly for small businesses which cannot spend high
costs on support functions
such as accounting and taxation etc.
 Elimination of local tax incentives/ schemes: -
In earlier tax regime many investments based
tax incentives were given by central and state governments to
make the area business friendly
and encourage investments by virtue of fiscal policies. With
implementation of GST, it is seen
that the tax incentives in indirect taxes are no more made available
by the governments and the
earlier existing tax incentives have also been discontinued and
pruned. This has caused a huge
worry to industries which have set up its business in various states
especially in north eastern
states based on various tax incentives promised by the

32 | P a g e
governments. The continuance of such
tax incentives in the GST regime in a new form are not more
lucrative and causing high
concerns over viability of such setup.
 Disconnect from Foreign Trade Policy: -
Foreign Trade Policy (FTP) is a beneficial piece of
legislation that provide incentives to various export and import
transactions thereby encouraging
foreign trade. Earlier such incentives were also available on Excise
duty, service tax, CVD, SAD
paid, however it seen that similar incentives are not continued with
IGST. Further, many
schemes and benefits as available to EOU’s, deemed exports,
advance license etc. are not fully
linked to the GST regime leading to delinking of FTP with GST.
Since, precious foreign currency
brought in the country by the exporters govern the country’s
standing in the international market,
any such pruning in the foreign trade policy can only have adverse
effect on the economy as a
whole.
Conclusion
The taxation of goods and services in India has, hitherto, been
characterized as a cascading and distortionary tax on production
resulting in misallocation of resources and lower productivity and
economic growth. It also inhibits voluntary compliance. It is well
recognized that this problem can be effectively addressed by shifting
the tax burden from production and trade to final consumption. A
well-designed destination-based value added tax on all goods and
services is the most elegant method of eliminating distortions and

33 | P a g e
taxing consumption. Under this structure, all different stages of
production and distribution can be interpreted as a mere tax pass-
through, and the tax essentially ‘sticks’ on final consumption within
the taxing jurisdiction. A ‘flawless’ GST in the context of the federal
structure which would optimize efficiency, equity and effectiveness.
The ‘flawless’ GST is designed as a consumption type destination VAT
based on invoice- credit method.
-------------------------

GST in India

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