GST – Goods & Services Tax
GST has been implemented successfully by the Central Government to streamline all types of indirect taxation to a “Single Taxation” system on July 1st of 2017 with a great public support. Such “One Tax for One Nation” is the culmination of three taxes such as Central Goods and Service Tax (CGST), State Goods and Service Tax (SGST) and Integrated / Interstate Goods and Service Tax (IGST).
Goods & Services Tax:
This is a single tax applied to the supply of goods and services right from the manufacturer to the consumer. GST, a comprehensive, destination based, the multi-stage tax will be levied on every value addition. What does it represent Multi-stage in the statement?
It represents multiple steps an item goes through from the manufacturer to the final sale. We could classify them as:
- Buying raw materials – First stage;
- Manufacturing/production – Second stage;
- Sale to the wholesaler – Third stage;
- Sale to the retailer – Fourth stage;
- Final sale to the customer – End stage
Here, at every stage, the tax is levied.
On the same tax basis, both CGST & SGST are levied. CGST replaces all Central indirect taxes say Service Tax, Excise Duty and SGST replaces VAT, Octroi, Lottery or betting taxes, Luxury tax, Purchase tax, etc. Certain goods like Crude Petroleum, Motor Fuels, Tobacco products, Natural Gas, Consuming alcohol are still charged with Excise Duty.
Why is GST important?
Our Indian tax structure is divided into Direct and Indirect Taxes. Direct Taxes are levied where the liability cannot be passed to someone else. Say, for instance, Income Tax. You are only liable to pay tax for your own earned income. The liability can be passed to someone in the case of Indirect Taxes. For example, when a merchant pays VAT on his sale, he can pass the liability to the customer. Here, the customer pays the price for the item and VAT and the merchant pays the VAT to the Government. So, the customer not only pays the product amount, but also pays the tax liability and the charges are at a higher outlay at the time of buying any product. Why does this burden happen to the end customer?
It is because the merchant shall pay a tax at the time of buying an item from the wholesaler. To recover and pay the VAT to the Government, he passes the liability to the customer who in turn pays an additional amount. So, the merchant is left with no option to recover the VAT paid that’s how it has been passed on the customer’s head.
Goods and Services Tax has an Input Tax Credit system which makes the seller claim the tax that is already paid so that the final tax on the end customer is reduced.
How does GST benefit all?
Consumer: It acts as a single and transparent taxation system. Most of the goods costs, services were with many hidden taxes due to the multiple taxing with incomplete or no input tax credits. But now as per GST rules, there is only one tax from the manufacturer to the final customer which exactly shows the transparency of the taxes paid to the final customer.The overall tax burden on most of the commodities has come down, which eventually benefits the consumers.
Business & Industry: A comprehensive Income tax system is the foundation of the GST regime in our country. The tax paying services say Registrations, Returns and Payments, are availed to the taxpayers through online. This implementation makes the system easy and transparent.
GST makes doing business in the country as a tax neutral irrespective of the place of running a business. Decreased transaction costs finally lead to an enhanced competitiveness in the industry and trade.
Central & State Governments: GST replaced multiple indirect taxes levied by both Central and State Governments. The robust IT infrastructure makes GST in a better tax compliance way. GST is anticipated to decrease the Government’s collection cost of tax revenues and will lead to higher returns efficiency.
GST & advantages :
- GST is a friendly taxation for export oriented businesses because GST is not applied to goods and services which are exported out of the country.
- The lowered tax burden could convert into lower prices on goods for the customers in the long run.
- To widen the tax base, more business entities come under the GST Tax system which leads to more tax revenue collections.
- Companies which are not working as organized sectors come under a Tax
- GST incurred on input costs can be recovered by the manufacturers, suppliers, retailers, and wholesalers. This system eliminates the cost of doing business, thus brings fairer prices for consumers.
- The entire Indian market becomes a unified market, which converts into lower business costs. This facilitates flawless goods movement across the states and reduces the business transaction cost.
GST Slabs on Product & Services:
A four slab structure is designed in the GST scheme under which the goods and services will be taxed. 5%, 12%, 18% and 28% are the four slabs under the GST. A large number of items are categorized under 18% tax slab and 1211 items come under various slabs.
5% GST is applied on the products: Bio gas, Postage or revenue stamps, coffee, tea, spices, frozen vegetables, pizza bread, kerosene, coal, medicines, stent, skimmed milk powder, lifeboats, Agarbatti, Kites, attires under Rs 1000, footwear costs under Rs 500, cream, branded paneer, 5% GST is applied to the Services: Small restaurants, Textile job work, Railways and Air transport.
12% GST is applied on the products: Cell phones, dry fruits in packed form, Bhutia, Butter,Salt, Ayurveda medicine, ghee, tooth powder, Agarbatti, coloring books, picture books, Umbrella, Ketchup & Sauces, cheese, Spoons, forks, Diagnostic kits and reagents, Exercise books and notebooks, ladles, skimmers, cake servers, Eye glasses, corrective, Play cards, Board games like carom and chess and Ludo.
12% GST is applied to the services: Business class air ticket, State-run lotteries, Fertilizers, Work contract, Non-AC Hotels.
18% GST is applied on the products: Biscuits, cornflakes, soups, ice cream, Bidi Patta, pastries and cakes, sauces,preserved vegetables, Curry paste, pasta, mayonnaise and salad dressings, instant food mixes, flavored refined sugar, footwear costing more than Rs 500, Trademarks, goodwill, software, jams, mineral water, tissues, envelopes, Bamboo furniture, Swimming pools and paddling pools, tampons, note books, steel products, printed circuits, camera, speakers and monitors, Kajal pencil sticks, Electrical Transformer, CCTV, Optical Fiber, mixed condiments and mixed seasonings, and Tractor parts, Headgear and parts, Aluminium foil, Weighing Machinery, Printers [Except multifunction printers]
18% GST is applied to the services: IT services, financial services, AC hotels with liquor serve, branded garments, telecom services, Room tariffs between Rs 2,500 and Rs 7,500, Restaurants inside five-star hotels.
28% GST is applied on the products: ceramic tiles, water heater, ATM, vending machines, automobiles, motorcycles, aircraft for personal use, weighing machine, washing machine, dye, sunscreen, aerated water, wallpaper, vacuum cleaner, shavers, hair clippers, molasses, chocolate not containing cocoa, chewing gum, shaving creams, after shave, pan masala, paint, Bidis, waffles and wafers coated with chocolate, dishwasher, hair shampoo, deodorants.
28% GST is applied to the Services: Hotels with room tariffs above Rs 7,500, 5-star hotels, cinema, Private-run lotteries authorized by the states, race club betting
No TAX is levied on the product: Newspapers, bangles, handloom, Bones and horn cores, stamps, judicial papers, printed books, Children’s’ picture, drawing or coloring books, Kajal, Human hair, hoof meal, horn meal, bone grist, bone meal, Palmyra jaggery, Salt – all types, vegetables, flour, besan, bread, Prasad, Jute, fresh meat, fish, chicken, eggs, milk, natural honey, fresh fruits, buttermilk, curd, Cereal grains hulled, Bindi, Sindoor.
No TAX is levied to the Services: Rough precious and semi-precious stones attract 0.25 GST per cent, Hotels and lodges with tariff below Rs 1,000, Grandfathering service has been exempted under GST.
The Gold and rough diamonds will be taxed at 3% and 0.25% respectively.