GST Basics And Other Queries Related To It

 

What is GST?

It is a destination based tax on the consumption of goods and services. According to the introduction GST should be applied on every stages from the core manufacturer to the end user or consumer.for a tax applied on a particular phase or stage, the previous tax would be considered as credit. To be precise, tax would be applied on the value added to the product to every stage, and the consumer would have to afford the tax.

 

What does it mean by destination based tax on consumption?

The place where the goods and services will be consumed, the tax would be submitted in the local administrator’s account.

gst

Which of the present taxes would be included in the goods and services tax?

In present time tax applied and collected by the central government:

  1. Central Excise Duty
  2. Duties of Excise ( medicinal and toilet preparations)
  3. Additional Duties of Excise (goods of special importance)
  4. Additional Duties of Excise (textile and textile products)
  5. Additional Duties of Customs ( commonly known as CVD)
  6. Special Additional Duty of Customs (SAD)
  7. Service Tax
  8. Central surcharge and Cess related to goods and service supply

 

Taxes that would be included in GST:

  1. State VAT
  2. Central Sales Tax
  3. Luxury Tax
  4. Entry Tax (all tax)
  5. Entertainment and Amusement Tax (exception: tax determined by local bodies)
  6. Tax applied on advertisement
  7. Purchase Tax
  8. Tax on Lottery, betting and gambling
  9. State surcharge and Cess related to goods and service supply

GST council will request Central and state govt. To include taxes, Cess, and surcharges that are determined by the central govt., state and local body in goods and service tax.

 

According to which policy the aforementioned taxes are included in GST?

The following policies are kept in mind before applying the GST:

  1. The taxes that would be applied should be according to the characteristics of the indirect taxes applied to the goods and services.
  2. The taxes that would be included must be a part of a transaction chain, one end of which the production, import, and services would take place on the other end would be consumption of goods and services.
  3. During the inclusion the credit flow of the tax should not be hindered in inter state or intrastate level. The taxes, fees etc. that are not directly related to the consumption of goods and services, that should be exempted from the GST list.
  4. Equality should be maintained in both state and central govt.’s income.

 

List of the things that are not included in GST  

Alcohol, petroleum and related products such as unrefined petroleum, motor spirit, high speed diesel, natural gas, Aviation turbine fuel, electricity.

 

Why dual GST is important?

In India central and state govt. Both are given the authority to determine and collect taxes through justified law implementation. These two govt. Need to perform some duties according to the constitution and for that they need wealth. For this the dual govt. Is important for dual GST.

 

Which administrative body will determine and monitor GST?

 

GST and IGST would be determined and monitored by the central govt. While SGST would be determined and monitored by state govt.

 

Why GST is advantageous for the country?

For reforming indirect taxes GST is a very important step taken by the Govt. taking all different taxes together and maintaining one single tax  and using the tax paid in the previous stage as the credit for the tax will reduce the cascading effect of applying tax on tax and widen the chances of making a just market all through India. The present consumers will get the benefit of reduced tax ( previously 25 to 30 percent tax was applied). After implementation of GST our production will become much more competitive in the national and international market. According to the research, economical growth will follow GST. in addition to this, tax base enlargement can result into increased income of both state and central govt. Entire quantity of commerce and tax compliance will increase. And as this system is clear from the roots , monitoring it will also be easy.

 

How would goods and services be classified in GST?

According to Harmonized System of Nomenclature (HSN) goods and services will be classified in GST.

 

How taxes will be applied on imported products?

IGST will be applied on imported goods. Destination principal will decide where the tax should be paid. The state in which the imported goods and services will be consumed will receive the tax money. The GST paid in the time of import will be deducted completely.

 

What policies will be followed in terms of exported materials?

No tax will be applicable on the goods and services. The benefit of input tax credit can be gained as well as this credit  is refundable.

Levy of and exemption from Tax

 

Is reverse charge mechanism applicable only to services?

No, reverse charge mechanism is applicable both on goods and services.

 

What if we buy goods from a non-registered seller?

The buyer would not get ITC, even if he is registered in composite scheme.

 

If goods are exchanged, suppose we have given a gold coin in exchange of the hotel services, will this exchange be considered as two different supply or the main supplier will be taxable?

No, this exchange is made on the services that the hotel had offered its consumer. In this case, the hotel has made taxable supply.

Can a taxable person choose composition scheme for one of his three types of business verticals?

No, for the similar PAN no, all the three will be applicable for composition scheme.

 

What is tax Remission?

If the goods are not available anymore, or due to some natural cause goods are destroyed then the taxpayer will get tax remission. It is possible only when all laws are properly maintained.   

 

Benefits of registration in GST?

  1. Affiliation as legal goods and services supplier
  2. Proper sheet maintenance of input goods and services,
  3. Collecting taxes from the buyer and legal right to handover credit of the given tax on goods and services to the buyer.

 

Who are the persons liable for registration as according to model GST law?

Any supplier or businessman in any part of the country, whose yearly turnover has exceeded the introduced initial limits, is liable for registration.

A farmer is not considered as a taxable person and he will not be liable for registration.

 

What is ISD?

Full form of ISD is Input Service Distributor. This is mainly an office that will receive the invoices of the input services. Simultaneously, it will distribute the credit in particular ration among the outgoing supply units of its own.

What are the salient features of GST payment system?

 

  1. For all payment receipt should be made on electronic medium, hand written receipt will not be acceptable.
  2. For the advantage of the taxpayer, tax can be paid anytime anywhere
  3. Online submission of tax will be accepted
  4. Reservation of data related to logical tax collection in electronic medium
  5. Swift tax reception in govt. Account
  6. Entire accomplishment of job will be without paper
  7. Swift accounting and detailed description
  8. Coordination of the reception entirely on electronic medium
  9. Simplification of banking methods
  10. Reservation of the digital receipt

 

Now simply understand the concept of GST

Goods and services tax is comprehensive, multi stage, destination based tax that will be levied on every value addition.

To understand the concept we have to understand the underlying meaning of the definition written above. Let us first take the term ‘multi stage’ and proceed with that. There are many stages that a product must go through from the production  to the final sell to the buyer. The first stage of production is – buying the raw material. The next stage is production or manufacture. Third stage is warehousing of the material. Now the product goes to the retailer for sell. Last stage of this cycle is the buyer buying the end product.

Goods and services tax will be applied on each of these stages and thus the term ‘multi stage’ tax comes from.

The next term that we will discuss about is “value- addition”. When a manufacturer wants to make a shoe, for this the raw material he needs to buy is leather. After several stages it will turn out to be shoe. Therefore, the value of the leather can not be the cost price of the shoe, the values will be added on different stages and the value of the leather will definitely increase when it turns out to be a shoe. Then the shoe is sent to the warehouse where labels will be attached to each pair of shoes. The value is added, and then the shoes are sent from the warehouse to the retailer, who will invest on packaging and marketing the product adding to its value. GST will be applied on every part of this cycle until and unless the final product is sold to the end customer for consumption.

Now, another and the last term that will need elaboration, that is ‘destination based’. Goods and services tax will be levied on all transactions happening during the entire manufacturing chain. Previously, a manufacturer had to pay Excise duty to central and VAT to state and another VAT on the next selling point. So, there was three different taxes were applicable on the same product, now the GST will cover all of them.

Now as GST implementation , Goods and Services Tax will be applied at every stage of sale. Suppose, that the whole manufacture process is taking place in Rajasthan and the last point of sale is in Mumbai. Since Goods & Services Tax is levied at the point of consumption, so the state of Rajasthan will get revenue in the manufacturing and warehousing stages, but lose out on the revenue when the product moves out Rajasthan and reaches the end consumer in Mumbai. This means that Mumbai will earn that revenue on the final sale, because it is a destination-based tax and this revenue will be collected at the final point of sale/destination which is Mumbai.

 

Why Goods and Services Tax is so important ?

 

Now, when you are quite clear about the concept of GST, we should discuss, why GST is important and what results will it bring to our country’s tax structure and therefore, economy.

At present the indian tax structure is divided into two- direct and indirect taxes. Direct taxes are those where liability cannot pass on to anyone else, like that of income tax where you earn and pay tax on it and no one else is liable for paying it for you, even if they are depended upon your earning.

On the other hand the indirect taxes are those whose liability can be pass on to another person. For example, a shopkeeper, has to pay VAT on the product but he can pass on the liability to the customer. So, the customer is paying the VAT as well as the price of the goods and the shopkeeper deposits it to the government. Like this the customer has a higher outlay when he goes to buy a product. It happens because, the seller has paid a tax to the wholesaler so he passes on the VAT to the customer.

Goods and services tax will address this issue after the implementation of the same. It has the system of input tax credit that will allow the seller to claim the tax already paid. So the liability on the end customer decreases.

Conclusion

France was the first country to implement GST law in the year 1954 and after the success of GST 159 other countries have have accepted GST in one form or the other.

When on 1st July, the GST will be implemented, it would be the biggest tax reform in India since the year of independence. It will subsume many state and central taxe into a single one, and that will pave the way for a greater common national market. From the consumer point of view the GST will help in bringing down overall tax.

 

 

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