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Goods & Service Tax- Fundamentals

Goods & Service Tax- Fundamentals

1. Why Goods & Service Tax is needed?

Goods & Service tax is proposed indirect tax in India. GST arose from:-

  • The need to cut down multiple indirect taxes such as excise duty, VAT, Octroi, Entry Tax, Luxury tax etc and have a uniform indirect tax across the country.
  • The need to reduce the impact of taxes being imposed on taxes and thereby limit the overall inflationary impact on the common man.
  • The need to create a single common market by eliminating distortion caused by varying tax rates in different states.
  • The need to have a destination based consumption tax.
2. How is GST levied?
  • GST is levied on supply of goods and services other than alcohol for human consumption
  • The word Goods denotes every kind of movable property excluding money and securities but including actionable claims. Service means anything other than goods excluding money and securities.
  • Supply can be either within a State or between States.
  • Supply within a State attracts Central GST (CGST) and State GST (SGST) while Supply between States is subject to Integrated GST (IGST).
  • Taxation of GST is governed by three separate laws viz., SGST Act, CGST Act and IGST Act along with accompanying rules.
  • The proposed rates are Nil, 5%, 12%, 18% and 28%.
  • Exports would be zero rated meaning that the taxes paid on inputs would be refunded.
  • Information Technology infrastructure is provided by GST Network.
3. When is GST applicable?

GST would be applicable after the enactment of the three separate laws. The law is expected to come into force from 1st July 2017.

4. Who will be subject to GST and who will administer GST?
Aggregate all India turnover of Rs 20 lacs in a financial year would make a person subject to GST. Threshold limit for special category states is Rs 10 lacs.

The turnover would include supplies made as an agent, exempt supply, exports and inter-state stock transfers. The supplier is required to pay GST while for specific goods/services the recipient will be required to pay GST on reverse charge basis. Further, recipient will be required to pay GST for supply received from unregistered supplier.

GST will be administered by Central Govt and State Govt. Central Excise & Services Tax department at the Central level and Commercial taxes department at the State level would be re-designated for implementing GST.
The administration will be divided on mutually agreed basis based on turnover.
5. What will happen to existing indirect taxes after GST becomes the law?

Most of the existing indirect taxes would be subsumed under GST.

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