A Layman's Guide To GST | Legistify

GST- A Layman’s Guide

By Team Legistify / 2017-07-07

GST, the Goods and Service Tax was imposed by the Government on its citizens in order to provide services that would benefit the general public in the long run. Taxes are broadly categorized under Direct Taxes & Indirect Taxes.

In India, Government imposes taxes on its citizens in order to provide services that would benefit the general public in the long run. Taxes are broadly categorized under Direct Taxes & Indirect Taxes. Direct Taxes are those taxes whose burden cannot be shifted to someone else, these taxes are directly paid to the government, e.g. Income Tax. But Indirect Taxes refers to those taxes, whose burden can be shifted to someone else, these taxes are basically levied on a third person,

For example a person rendering any service would be charged for certain taxes on the service being provided, further, these taxes would be reverted to the Government by the Service provider, such taxes are Indirect taxes, e.g. Service Tax.

As the explanation denotes, GST is an Indirect Tax, it has been categorized into two types- CGST i.e. Central GST, and, SGST (or IGST) i.e. State GST (& Inter GST), here all the Central level Indirect Taxes except Custom Duty would be now replaced with CGST & State level Indirect Taxes would be replaced by SGST.

Constitutional Amendment For GST

While the Centre is empowered to tax services and goods upto the production stage, the States have the power to tax sale of goods. The States do not have the powers to levy a tax on supply of services while the Centre does not have the power to levy tax on the sale of goods. Thus, the Constitution does not vest express power either in the Central or State Government to levy a tax on the ‘supply of goods and services’. Moreover, the Constitution also does not empower the States to impose tax on imports. Therefore, it is essential to have Constitutional Amendments for empowering the Centre to levy tax on sale of goods and States for levy of service tax and tax on imports and other consequential issue.

GST = CGST + (SGST + IGST)

In India, before the GST regime, the Taxes were implicated on every stage of the Goods where the taxes would be levied on the amount of the goods, but this amount of Tax would be subject to the additional costing done at every new level the good goes. For e.g., if a manufacturer buys some raw material he has to pay certain tax on this raw material along with the finished goods, these taxes would be added to the Final costing of this good, now once this good reaches to the Retailer, the Amount he would add would be in addition to that of the Taxes that would be implicated on him as well.

Thereby Making it costlier at every level this good goes. But what the GST implicates is that the amount of taxes levied are on the Additional Amount added at every level this good goes & not on the Final Amount at that very stage. For e.g. Manufacturer adding Rs. 50 in the Final Goods will have to pay the GST at this Rs. 50 as it is the additional cost; now, if the Wholesaler adds Rs. 20, the GST to be paid would be upon this Rs. 20 and not on the final price of the good at every stage.

In brief, Credits of input taxes deductible at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on the value added at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

Thereby, GST is one of the most revolutionary fiscal measure government has implemented. It is definitely a blessing in disguise for those who look forward to the impact it has done after the implementation. It would be seen gradually that how well it impacts the Indian Economy in upcoming years.

General points on Various Business Sectors that arise after GST implementation

Real Estate Industry

Construction and Housing sector need to be included in the GST tax base being high tax revenue generating sector and for a reduction in number of tax legislation involved.

FMCG Sector

Implementation of proposed GST and opening of Foreign Direct Investment (F.D.I.) are expected to fuel the growth and raise industry’s size.

Rail Sector

There have been suggestions for including the rail sector under the GST umbrella to bring about significant tax gains and widen the tax net so as to keep overall GST rate low. This will have the added benefit of ensuring that all inter–state transportation of goods can be tracked through the proposed Information technology (IT) network.

Information Technology enabled services

At present, if the software is transferred through electronic form, it should be considered as Intellectual Property and regarded as a service and if the software is transmitted on media or any other tangible property, then it should be treated as goods and this classification is full of litigation. As GST will have a uniform rate for Goods and Services and no concept of state revenue being VAT or central revenue being service tax and hence, the reduction in litigation.

Transport Sector

Truck drivers spend more than half of their time while negotiating check post and tolls. At present, there are more than 600 checkpoints and more than ton types of taxes in the road sector.

After the introduction of GST, the time spend by the road transport industry in complaining with laws will reduce and service is going to be better which will boost the goods industry and thus the taxes also.

Impact on Small Enterprises

There will be three categories of Small Enterprises in the GST regime.

Those below threshold limit of Rs.1.5 Crores would not be covered.
Those between the threshold and composition turnovers will have the option to pay a turnover based tax i.e.composite tax or opt to join the GST regime.
Those above threshold limit will need to be within the framework of GST. Possible downward changes in the threshold in some States consequent to the introduction of GST may result in obligation being created for some dealers.

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