Goods and Services Tax

Goods and Services Tax, popularly known as the GST, is said to be the most revolutionary tax reform that has been undertaken since independence. It has replaced all major indirect taxes applicable in our country. GST was introduced to the Indian Parliament via the 122nd Constitutional Amendment Bill.

Present Tax System in India

Taxes can be divided into two broad categories-

  1. Direct taxes-these are the taxes imposed on persons and paid to the government by the taxpayer himself. For example-income tax.

2. Indirect taxes-these are the taxes imposed of goods and services and paid to the government via third person. For example-service tax.

Indirect taxes are levied by the central government as well as the state government. Major indirect taxes levied by central government are Excise duty(on manufacturing), service tax (on services), custom duty (on imports), central sales tax (on inter state sale).

Indirect taxes levied by state government are Value Added Tax(VAT)(on goods sale within state), entertainment tax (on various form of entertainment for eg- movie tickets), Luxury tax, Octroi /entry tax (on transfer of goods).

What is GST?

  • It is an indirect tax levied on goods and services. Thus, the Goods and Services Tax is going to have any impact on direct tax.
  • The reason it will be a game changer is that it’ll replace all major indirect taxes levied by the Centre and state.
  • There will be two parts to the GST- Central GST (CGST) and State GST (SGST). So if the GST rate on a product is, say, 18%- then 9% will be the share of the and the remaining 9% will be the share of the concerned state.
  • All central level taxes except for custom duty will be replaced by CGST. All state level taxes will be replaced by SGST.

Goods and Services Tax

Advantages of GST-

  • Economists say that the new system can add up to 2% into India’s GDP and should help keep India’s economy moving.
  • It will remove cascading effect (taxes on tax).
  • It will reduce the flow of black money in the country.
  • One India, one market- a singly imposed tax all over the country.
  • Seamless flow of goods across nation
  • Ease of doing business

Rate of GST- there are 4 main tax slabs ranging from 5%to 28%. These four rates are 5%, 12%, 18% and 28%.

  • Essential items (e.g. grains) would be taxed at 0%. So there won’t be any tax on items like milk, eggs, curd, salt, fruits and vegetables.
  • The lower 5% rate would be for commonly used items like edible oil, coffee, spices, processed food items (under indirect taxes the rate was 9%). So it will lower the price of these items.
  • 12% slab for mobiles, processed food, business class airfares (under indirect taxes-9-15%)
  • 18% slab for shampoo, soap, hair oils, shaving cream, toothpaste, budget hotels etc. (under indirect tax system 15-21%).
  • 28% slab for luxury goods (additional cess up to 15% may be put on luxury cars, tobacco, aerated drinks), high end hotels with rate 5000+ tariff (under indirect taxes 21%). This will lead to increase the price of these items.

How it is going to impact the common man-

In the indirect tax regime the taxes on goods is 27-32% in general and taxes on services is 15%. With GST, the cost of goods will come down but the cost of services will rise. Overall, the burden of tax on consumer will reduce considerably.

Goods and Services Tax

Items on which GST will not be applicable- alcohol, tobacco, petroleum products and tax on electricity bills is out of the purview of the Goods and Services tax, for now.

It was rolled out yesterday, i.e., July 1 2017, with a special session of the Parliament being convened for its historic launch. The GST council has decided to set up an anti-profiteering committee which will take up complaints and recommend actions to ensure that benefits of lower tax rates under the GST is passed on to consumers and the industry does not jack up prices. The committee will have officials from the Centre and state revenue departments.

-Randeep Kaur Dhillon

Edited by Mrinaal Datt

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