Lets Understand GST Good and service tax

1. What is GST? 

GST is an Indirect Tax that in India replaced various Indirect Taxes. The legislation was passed by Parliament on 29 March 2017. The goods and service tax law was passed. The Act came into force on 1 July 2017; the Goods & Services Tax Law in India provides for a multiphased, comprehensive destination tax that is charged on any added value. In other words, the GST tax is an indirect tax on the supply of goods and services. The GST tax is not an additional charge.This bill also repealed many of India’s current indirect tax rules. For the whole country, GST is an indirect tax. The tax levy trend, then, was as follows before the goods and service tax.

The tax is levied at each point of sale under the GST regime. Central GST and State GST are charged for intra-state sales. Interstate sales are subject to an Integrated GST fee.

Now let us try to understand the concept of Goods and Service Tax–’ GST is a systematic, multi-stage, destination-based tax levied on every addition of value.’ Multi-stage change-of-hand is taking place throughout the supply chain: from production to final sales to the customer.

Let us consider the following case:

• Purchase of raw materials
• Production or manufacture
• Warehousing of finished goods
• Sale to wholesaler
• Sale of the product to the retailer
• Sale to the end consumer

Goods and Services Tax is levied on each of these stages which makes it a multi-stage tax.

Value Addition

Meal, sugar and other materials are bought by the producer making biscuits. When the sugar and meal are combined and baked into cookies, the input value increases. 
The manufacturer then sells the cookies to the warehouse officer who sells large amounts of cookies and tags them. This is yet more cost, which is offered to the distributor by the warehouse. 

The manufacturer packages the biscuit in smaller amounts and therefore increases its value by investing in the promotion of the biscuits. 

GST is lent on these added value, i.e. the additional money value for the final sale to the consumer at each point.

Destination-Based

Find goods produced in Maharashtra and sold in Karnataka to the final consumer. Thanks to the tax on goods and services at the point of sale. Therefore, Karnataka, not Maharashtra, will be the entire tax revenue.

GST Journey in India

In 2000, the GST journey began with the creation of an act committee. The law was then evolved in seventeen years. In 2017, the Lok Sabha and Rajya Sabha were passed by the GST Act. The GST Law entered into force on 1 July 2017.

The ripple impact on the sale of goods and services has been largely removed by GST. Removal of the effect on cascading has impacted product prices. The cost of goods decreases since the GST system eliminates the tax. GST is also driven mostly by technology. The GST Portal will automate online all activities such as registration, return filing, reimbursement request as well as response to notification.

omponents of GST?

There are 3 taxes applicable under this system: CGST, SGST & IGST.

• CGST: Collected by the Central Government on an intra-state sale (Eg: transaction happening within Maharashtra)
• SGST: Collected by the State Government on an intra-state sale (Eg: transaction happening within Maharashtra)
• IGST: Collected by the Central Government for inter-state sale (Eg: Maharashtra to Tamil Nadu)

In most cases, the tax structure under the new regime will be as follows:

• Let us assume that a dealer in Gujarat had sold the goods to a dealer in Punjab worth Rs. 40,000. The tax rate is 18% comprising of only IGST.

In such case, the dealer has to charge Rs. 7200 as IGST. This revenue will go to the Central Government.

• The same dealer sells goods to a consumer in Gujarat worth Rs. 40,000. The GST rate on the good is 12%. This rate comprises of  CGST at 6% and SGST at 6%.

The dealer has to collect Rs. 4,000 as Goods and Service Tax. Rs. 2,000 will go to the Central Government and Rs. 2,000 will go to the Gujarat government as the sale is within the state.

Tax Laws before GST

There were many indirect taxes imposed by the Government and by the center under the previous indirect tax system. States raised primarily taxes in the form in VAT. There were different rules and regulations in each government. The Centre has regulated American exports of products. In the case of inter-state sale of goods, CST (Central State Levy) was applicable.    Additionally, many indirect taxes were collected by the state and centers like the entertainment tax, allowance and local taxes. It resulted in a large disparity of state and local taxes. For example, excise duties were levied by the center when goods were produced and sold. VAT was also paid by the State, in addition to the excise duty. This leads to a tax, often referred to as the tax cascading effect. In the pre-GST scheme, the following is the list of indirect taxes:

• Central Excise Duty
• Duties of Excise
• Additional Duties of Excise
• Additional Duties of Customs
• Special Additional Duty of Customs
• Cess
• State VAT
• Central Sales Tax
• Purchase Tax
• Luxury Tax
• Entertainment Tax
• Entry Tax
• Taxes on advertisements
• Taxes on lotteries, betting, and gambling

All of the above taxes have been substituting for CGST, SGST and IGST. Nevertheless, for certain Non-GST products such as:(i) petroleum crude oil, (ii) high-velocity diesel, (iii) engine spirit (commonly known as petrol), (iv) Natural gas, (v) aviation turbine fuel and (vi) alcohol for human consumption the characteristic of CST is still prevalent in terms of inter-state buying charges and use. CST’s loading rate remains 2%. For fees only as follows:

• Resale
• Use in manufacturing or processing
• Use in the telecommunication network or in mining or in the generation or distribution of electricity or any other power

What changes has GST brought in?

Each buyer, including the final consumer, has paid a tax under the pre-GST regime.   This tax is known as the Cascading Tax Impact. 

GST has taken away this cascading effect since the tax is calculated at each point of the transfer of ownership only on the added value.

The indirect GST tax system has increased the collection of taxes and boosted Indian economy growth by abolishing the indirect tax barriers between countries and integrating the world by means of a uniform tax rate.

Illustration:

Based on the above example of biscuit manufacturer along with some numbers, let’s see what happens to the cost of goods and the taxes in the earlier and GST regimes. Tax calculations in earlier regime:

In all aspects of this agreement the tax liability has been shifted and the consumer remains with the final liability. This is referred to as the cascading effect of taxation, where a tax is paid and the value of the item decreases as and when this happens. Present system of tax calculations:

The way of claiming credit for the tax payable on production is goods and services. Which occurs in this situation is that when he presents his tax a person who has already paid a tax will demand the credit for that tax. In the final analysis, when the input tax credit is claimed by an individual, the selling price is reduced, and the buyer’s price prices are reduced due to a lower tax liability. Thus, the final cost of the biscuits is reduced from Rs. 2,244 up to Rs. 1,980, reducing the final customer’s tax burden. In implementing “e-way bills,” the GST regime brought also a centralized system of roadbills. The system for the inter-state movement of goods was introduced on 1 April 2018 and for intra-state goods movement on 15 April 2018. The e-way bill process now allows suppliers, traders and hauliers to produce digital bills on specific portals for goods shipped from the place of origin to the destination.   Tax administrations also benefit from a reduced check-point time system and a reduction in tax evasion.

To verify any GST no visit the link - FindYourGst.

Thankyou!