Introduction to GST

By Bikash Chowdhury

4 min read

GST CONCEPTS

Goods and Service Tax (GST) is a destination based tax on consumption of goods and services. It is proposed to be levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as setoff. In a nutshell, only value addition will be taxed and burden of tax is to be borne by the final consumer. It would be a dual GST with the Centre and States simultaneously levying it on a common tax base. The GST to be levied by the Centre on intra-State supply of goods and / or services would be called the Central GST (CGST) and that to be levied by the States would be called the State GST (SGST). Similarly Integrated GST (IGST) will be levied and administered by Centre on every inter-state supply of goods and services. Centre will levy and administer CGST & IGST while respective states will levy and administer SGST.

Taxes Subsumed Taxes not Subsumed

Excise

Service Tax

VAT/CST

State Excise Duty (Except Liquor)

Cess and Surcharge

CVD & SAD

Entry Tax-Local Body Tax

Taxes on lottery, betting and gambling

Luxury Tax

Entertainment Tax (Except levied by local bodies)

Basic Customs Duty

Excise Duty on tobacco products

Export Duty

Taxes on liquor and petroleum products

 Toll Taxes

Environment Taxes

 Stamp Duty

Property Tax

 Tax on Electricity

 Important Terms

Scope of composition scheme under GST

Small taxpayers with an aggregate turnover in a financial year up to [Rs. 50 lakhs] shall be eligible for composition levy. Under the scheme, a taxpayer shall pay tax as a percentage of his turnover during the year without the benefit of ITC. The floor rate of tax for CGST and SGST shall not be less than [1%]. A tax payer opting for composition levy shall not collect any tax from his customers. Tax payers making inter- state supplies or paying tax on reverse charge basis shall not be eligible for composition scheme.

Taxable event under GST

The taxable event under GST shall be the supply of goods and / or services made for consideration in the course or furtherance of business. The taxable events under the existing indirect tax laws such as manufacture, sale, or provision of services shall stand subsumed in the taxable event known as ‘supply’.

 Meaning of supply

The term ‘supply’ is wide in its import and includes all forms of supply of goods and / or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. It also includes import of service. The model GST law also provides for including certain transactions made without consideration within the scope of supply. Taxable supply A ‘taxable supply’ means a supply of goods and / or services which is chargeable to good and services tax under the GST Act. 

Time of supply

The time of supply fixes the point when the liability to charge GST arises. It also indicates when a supply is deemed to have been made. The MGL provides separate time of supply for goods and services.

Transaction Value

Transaction value refers to the price actually paid or payable for the supply of goods and or services where the supplier and the recipient are not related and price is the sole consideration for the supply. It includes any amount which the supplier is liable to pay but which has been incurred by the recipient of the supply.

TDS for Government and Government undertakings

TDS stands for Tax Deducted at Source (TDS). As per section 37, this provision is meant for Government and Government undertakings and other notified entities making contractual payments in excess of Rs. 10 Lakhs to suppliers. While making such payment, the concerned Government/authority shall deduct 1% of the total payable amount and remit it into the appropriate GST account.

 TCS for E-commerce

This provision is applicable only for E-Commerce Operator under section 43C of MGL. Every E-Commerce Operator needs to withhold a percentage (to be notified later on the recommendation of the GST Council) of the amount which is due from him to the supplier at the time of making actual payment to the supplier. Such withheld amount is to be deposited by such E-Commerce Operator to the appropriate GST account by the 10th of the next month. The amount deposited as TCS will be reflected in the electronic cash ledger of the supplier.

GST Rate Slabs

GST Rate Slabs were finalized during GST Council Meeting on November 3,2016. The slab rates are 5% (essentials), Standard Rate of 12% and 18% and 28% for demerit goods. Cess would be levied on certain demerit goods over and above the rate of 28%. Cess is likely on five products including Luxury Cars, Tobacco, Aerated Drinks. The rate of cess was not specified. Finance Minister has also stated that there would be a 0% tax on goods consumed predominantly by the common man covering almost 50% of the goods comprised in the Consumer Price Index. He said that the goods in this category would be Zero Rated . As is understood,  Zero Rated  goods mean that there would be no tax on the supply of those goods but Input Tax Credit (ITC) would be eligible which can be used by the assessee either to discharge tax on other taxable goods or claimed as refund. Further clarity is required on whether the goods in the 0% tax rate are  zero rated goods or just exempted goods which means that the supply is exempt and no Input Tax Credit is eligible. On services, the indication is that the taxable services would be split between 12% and 18%.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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