gst

https://www.slideshare.net/PankajSharma1221/project-report-on-gst-2018

1. What is GST?
GST is an Indirect Tax which has replaced many Indirect Taxes in India. The Goods
and Service Tax Act was passed in the Parliament on 29th March 2017. The Act came
into effect on 1st July 2017; Goods & Services Tax Law in India is
a comprehensive, multi-stage,destination-based tax that is levied on every value
addition.

In simple words, Goods and Service Tax (GST) is an indirect tax levied on the supply of
goods and services. This law has replaced many indirect tax laws that previously
existed in India.

GST is one indirect tax for the entire country.

So, before Goods and Service Tax, the pattern of tax levy was as follows:
Under the GST regime, the tax is levied at every point of sale. In the case of intra-state
sales, Central GST and State GST are charged. Inter-state sales are chargeable to
Integrated GST.

Now let us try to understand the definition of Goods and Service Tax – “GST is
a comprehensive, multi-stage, destination-based tax that is levied on every value
addition.”

Multi-stage
There are multiple change-of-hands an item goes through along its supply chain: from
manufacture to final sale to the consumer.

Let us consider the following case:

 Purchase of raw materials

 Production or manufacture
 Warehousing of finished goods
 Sale to wholesaler
 Sale of the product to the retailer
 Sale to the end consumer

Goods and Services Tax is levied on each of these stages which makes it a multi-stage tax.
Value Addition

The manufacturer who makes biscuits buys flour, sugar and other material. The value of the
inputs increases when the sugar and flour are mixed and baked into biscuits.

The manufacturer then sells the biscuits to the warehousing agent who packs large
quantities of biscuits and labels it. That is another addition of value after which the
warehouse sells it to the retailer.

The retailer packages the biscuits in smaller quantities and invests in the marketing of
the biscuits thus increasing its value.

GST is levied on these value additions i.e. the monetary value added at each stage to
achieve the final sale to the end customer.

Destination-Based
Consider goods manufactured in Maharashtra and are sold to the final consumer in
Karnataka. Since Goods & Service Tax is levied at the point of consumption. So, the
entire tax revenue will go to Karnataka and not Maharashtra.

2. Journey of GST in India

The GST journey began in the year 2000 when a committee was set up to draft law. It took 17
years from then for the Law to evolve. In 2017 the GST Bill was passed in the Lok Sabha and
Rajya Sabha. On 1st July 2017 the GST Law came into
force.
3. Advantages Of GST
GST has mainly removed the Cascading effect on the sale of goods and services. Removal of
cascading effect has impacted the cost of goods. Since the GST regime eliminates the tax on
tax, the cost of goods decreases. GST is also mainly technologically driven. All activities like
registration, return filing, application for refund and response to notice needs to be done online
on the GST Portal; this accelerates the processes.

4. What are the components of GST?

There are 3 taxes applicable under this system: CGST, SGST & IGST.

 CGST: Collected by the Central Government on an intra-state sale (Eg: transaction

happening within Maharashtra)
 SGST: Collected by the State Government on an intra-state sale (Eg: transaction
happening within Maharashtra)
  IGST: Collected by the Central Government for inter-state sale (Eg: Maharashtra to
Tamil Nadu)

In most cases, the tax structure under the new regime will be as follows:

Transaction New Old Regime

Regime

Sale within CGST + VAT + Central Revenue will be shared equally between the
the State SGST Excise/Service tax Centre and the State

Sale to IGST Central Sales Tax + There will only be one type of tax (central) in case
another State Excise/Service Tax of inter-state sales. The Centre will then share the
IGST revenue based on the destination of goods.

Illustration:

 Let us assume that a dealer in Gujarat had sold the goods to a dealer in Punjab worth
Rs. 50,000. The tax rate is 18% comprising of only IGST.

In such case, the dealer has to charge Rs. 9,000 as IGST. This revenue will go to the Central
Government.

 The same dealer sells goods to a consumer in Gujarat worth Rs. 50,000. The GST rate
on the good is 12%. This rate comprises of CGST at 6% and SGST at 6%.

The dealer has to collect Rs. 6,000 as Goods and Service Tax. Rs. 3,000 will go to the
Central Government and Rs. 3,000 will go to the Gujarat government as the sale is
within the state.

5. Tax Laws before GST

In the earlier indirect tax regime, there were many indirect taxes levied by both state and centre.
States mainly collected taxes in the form of Value Added Tax (VAT). Every state had a different
set of rules and regulations. Interstate sale of goods was taxed by the Centre. CST (Central
State Tax) was applicable in case of interstate sale of goods. Other than above there were
many indirect taxes like entertainment tax, octroi and local tax that was levied by state and
centre. This led to a lot of overlapping of taxes levied by both state and centre. For example,
when goods were manufactured and sold, excise duty was charged by the centre. Over and
above Excise Duty, VAT was also charged by the State. This lead to a tax on tax also known as
the cascading effect of taxes. The following is the list of indirect taxes in the pre-GST regime:

 Central Excise Duty

 Duties of Excise
 Additional Duties of Excise
 Additional Duties of Customs
 Special Additional Duty of Customs
 Cess
 State VAT
 Central Sales Tax
 Purchase Tax
 Luxury Tax
 Entertainment Tax
 Entry Tax
 Taxes on advertisements
 Taxes on lotteries, betting, and gambling

CGST, SGST, and IGST has replaced all the above taxes. However, the chargeability of CST
for Inter-state purchase at a concessional rate of 2%, by issue and utilisation of c-Form is still
prevalent for certain Non-GST goods such as: (i) Petroleum crude; (ii) High-speed diesel; (iii)
Motor spirit (commonly known as petrol); (iv) Natural gas; (v) Aviation turbine fuel; and (vi)
Alcoholic liquor for human consumption. in respect of following transactions only:

 Resale
 Use in manufacturing or processing
 Use in the telecommunication network or in mining or in the generation or distribution of
electricity or any other power

6. What changes has GST brought in?

In the pre-GST regime, every purchaser including the final consumer paid tax on
tax. This tax on tax is called Cascading Effect of Taxes.

GST has removed this cascading effect as the tax is calculated only on the value-
addition at each stage of the transfer of ownership. Understand what the cascading
effect is and how GST helps by watching this simple video:
This indirect tax system under GST has improved the collection of taxes as well as
boosted the development of Indian economy by removing the indirect tax barriers
between states and integrating the country through a uniform tax rate.

Illustration:
Based on the above example of biscuit manufacturer along with some numbers, let’s see what
happens to the cost of goods and the taxes in the earlier and GST regimes. Tax
calculations in earlier regime:

Action Cost 10% Tax Total

Manufacturer 1,000 100 1,100

Warehouse adds a label and repacks @ 300 1,400 140 1,540

Retailer advertises @ 500 2,040 204 2,244

Total 1,800 444 2,244

Along the way, the tax liability was passed on at every stage of the transaction and the final
liability comes to rest with the customer. This is called the Cascading Effect of Taxes where a
tax is paid on tax and the value of the item keeps increasing every time this happens. Tax
calculations in current regime:

Action Cost 10% Tax Actual Total

Liability

Manufacturer 1,000 100 100 1,100

Warehouse adds label and repacks @ 300 1,300 130 30 1,430

Retailer advertises @ 500 1,800 180 50 1,980

Total 1,800 180 1,980

In the case of Goods and Services Tax, there is a way to claim credit for tax paid in acquiring
input. What happens in this case is, the individual who has paid a tax already can claim credit
for this tax when he submits his taxes. In the end, every time an individual is able to claim the
input tax credit, the sale price is reduced and the cost price for the buyer is reduced because of
lower tax liability. The final value of the biscuits is therefore reduced from Rs. 2,244 to Rs.
1,980, thus reducing the tax burden on the final customer. GST regime also brought a
centralised system of waybills by the introduction of “E-way bills”. This system was launched on
1st April 2018 for Inter-state movement of goods and on 15th April 2018 for intra-state
movement of goods in a staggered manner. Under the e-way bill system, manufacturers, traders
& transporters are now able to generate e-way bills for the goods transported from the place of
its origin to its destination on a common portal with ease. Tax authorities are also benefitted as
this system has reduced time at check -posts and help reduce tax evasion

GST: The Short-Term Impact

From the viewpoint of the consumer, they would now have pay more tax for most of the
goods and services they consume. The majority of everyday consumables now draw
the same or a slightly higher rate of tax. Furthermore, the GST implementation has a
cost of compliance attached to it. It seems that this cost of compliance will be prohibitive
and high for the small scale manufacturers and traders, who have also protested
against the same. They may end up pricing their goods at higher rates.

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What the Future Looks Like

Talking about the long-term benefits, it is expected that GST would not just mean a
lower rate of taxes, but also minimum tax slabs. Countries where the Goods and
Service Tax has helped in reforming the economy, apply only 2 or 3 rates – one being
the mean rate, a lower rate for essential commodities, and a higher tax rate for the
 luxurious commodities. Currently, in India, we have 5 slabs, with as many as 3 rates –
an integrated rate, a central rate, and a state rate. In addition to these, cess is also
levied. The fear of losing out on revenue has kept the government from gambling on
fewer or lower rates. This is very unlikely to see a shift anytime soon; though the
government has said that rates may be revisited once the RNR (revenue neutral rate) is
reached.

The impact of GST on macroeconomic indicators is likely to be very positive in the

medium-term. Inflation would be reduced as the cascading (tax on tax) effect of taxes
would be eliminated. The revenue from the taxes for the government is very likely to
increase with an extended tax net, and the fiscal deficit is expected to remain under the
checks. Moreover, exports would grow, while FDI (Foreign Direct Investment) would
also increase. The industry leaders believe that the country would climb several ladders
in the ease of doing business with the implementation of the most important tax reform
ever in the history of the country.

Summing Up
On priority, it is up to the government to address the capacity building amongst the
lesser-endowed participants, such as the small-scale manufacturers and traders. Ways
have to be found for lowering the overall compliance cost, and necessary changes may
have to be made for the good of the masses. GST will become good and simple, only
when the entire country works as a whole towards making it successful.

Benefits of GST to the Indian Economy

 Removal of bundled indirect taxes such as VAT, CST, Service tax, CAD, SAD, and Excise.
 Less tax compliance and a simplified tax policy compared to current tax structure.
 Removal of cascading effect of taxes i.e. removes tax on tax.
 Reduction of manufacturing costs due to lower burden of taxes on the manufacturing sector. Hence
prices of consumer goods will be likely to come down.
 Lower the burden on the common man i.e. public will have to shed less money to buy the same
products that were costly earlier.
 Increased demand and consumption of goods.
 Increased demand will lead to increase supply. Hence, this will ultimately lead to rise in the production
of goods.
 Control of black money circulation as the system normally followed by traders and shopkeepers will be
put to a mandatory check.
 Boost to the Indian economy in the long run.
These are possible only if the actual benefit of GST is passed on to the final consumer. There are other
factors, such as the seller’s profit margin, that determines the final price of goods. GST alone does not
determine the final price of goods.
Read more: GST Bill: Who will it benefit the most?

How will GST impact the Indian Economy?

 Reduces tax burden on producers and fosters growth through more production. The current taxation
structure, pumped with myriad tax clauses, prevents manufacturers from producing to their optimum
capacity and retards growth. GST will take care of this problem by providing tax credit to the
manufacturers.
 Different tax barriers, such as check posts and toll plazas, lead to wastage of unpreserved items being
transported. This penalty transforms into major costs due to higher needs of buffer stock and
warehousing costs. A single taxation system will eliminate this roadblock.
 There will be more transparency in the system as the customers will know exactly how much taxes
they are being charged and on what base.
 GST will add to the government revenues by extending the tax base.
 GST will provide credit for the taxes paid by producers in the goods or services chain. This is expected
to encourage producers to buy raw material from different registered dealers and is hoped to bring in
more vendors and suppliers under the purview of taxation.
 GST will remove the custom duties applicable on exports. The nation’s competitiveness in foreign
markets will increase on account of lower costs of transaction.
Read more: GST Impact on SMEs

A Brighter Economy
The introduction of the Goods and Services Tax will be a very noteworthy step in the field of indirect tax
reforms in India. By merging a large number of Central and State taxes into a single tax, GST is expected
to significantly ease double taxation and make taxation overall easy for the industries. For the end
customer, the most beneficial will be in terms of reduction in the overall tax burden on goods and
services. Introduction of GST will also make Indian products competitive in the domestic and international
markets. Last but not least, the GST, because of its transparent character, will be easier to administer.
Once implemented, the proposed taxation system holds great promise in terms of sustaining growth for
the Indian economy.
Once fully implemented and linked with direct taxes, goods and services tax (GST)
would benefit the economy, help bring in transparency, make small businesses strong,
create more employment and ultimately reduce tax burden for the common man.
It’s been a year since GST has been implemented in India. It all started with panic and
confusion and everyone was busy dealing with the teething problems of this huge tax
reform. The nation was sceptical, be it a financial expert or a common man, on how
successfully GST would function. The GST Council met a number of times post
implementation to consider the difficulties of taxpayers. These meetings resulted in
issuing of number of notifications by the tax department, some relating to relaxation
of certain provisions of law whereas others related to extension of due dates for
compliances. One can now say that the dust is gradually settling down, which is
apparent from the clarifications made by the department by issuing notifications and
circulars to deal with various issues such as application of refunds which has resulted
in smooth sanctioning of such refunds. Historic implementation of e-way bill from 1
April 2018, has aided GST in meeting its idea of “one nation, one market, one tax".
GST is a destination/consumption-based tax which is modelled on the concept of
value addition where credit of taxes already paid can be availed subsequently. At the
time of implementation, GST law mandated filing of various returns including 3 basic
returns i.e. GSTR 1, GSTR 2 and GSTR 3. However, due to the technical glitches of
the GST Network (GSTN), the government has deferred the requirement to file GSTR
2 and GSTR 3.
Further, in order to ensure timely revenue collection as well as providing short-term
relief to the taxpayers, the department has introduced GSTR 3B which is a monthly
summary return for payment of tax liability. The government has also designed a
grievance redressal portal for lodging complaints by taxpayers and other stakeholders.
Also, recently an IT grievance redressal committee has been established to help the
tax payers in filling of returns smoothly.
In the GST regime, goods and services are taxed under a homogeneous scheme at the
applicable rate of 0%, 5%, 12%, 18%, and 28%, across India. There are special rates
imposed on specific products such as gold and rough, precious and semi-precious
stones. An additional cess of 22% is levied on certain products such as tobacco,
luxury cars, and carbonated drinks. There is an expectation that the slab rates will be
further rationalized to three and tax rates lowered, as collections increase, thereby,
reducing the overall burden/cost for the ultimate consumer.
GST has a broader tax base as compared to the erstwhile indirect tax laws. Under the
Central Excise law, there was an exemption for small scale units (SSI) from levy of
duty up to turnover of ₹ 1.5 crore. Under service tax laws, an exemption was provided
if the aggregate turnover was up to ₹ 10 lakh in the preceding financial year. The
threshold limit for levy of VAT varied from state to state ranging between ₹ 5 lakh
to ₹ 20 lakh. Now, in the GST regime, the threshold limit for levy of GST has been
fixed at ₹ 20 lakh( ₹ 10 lakh for special category states). Several suppliers have taken
voluntarily registration so that they can avail and pass the benefit of input tax credit,
and also because the large organized players are insisting on full compliance by their
suppliers/vendors. Thus, GST law has brought under its ambit even the small
suppliers. To ensure there is no major compliance burden to small businesses, a relief
in the form of composition levy is also provided to certain categories of suppliers.
While the overall intent of the GST is laudable, this tax reform has brought new
hurdles for MSMEs in conducting the business. The MSMEs have to take
registrations in each such state from where they are making a supply. The other side
of the coin is that though the compliance burden will increase for MSMEs, it would
also lead to efficiency in the maintenance of books of accounts. This in turn, would
provide the MSMEs a prominent benefit of obtaining loans from financial institution
for the expansion of business and would help them to borrow from formal sector
instead of informal one. India needs strong MSMEs to create more and more
employment. Hopefully, with better accounting and compliance, gradually, MSMEs
will gain strength and grow their businesses.
During the pre-GST regime, the turnover disclosed by the taxpayer under the direct
tax law and indirect tax law differed which gave way to tax evasion. The GST number
is linked with PAN issued by the income tax department which has established a
relationship between direct taxes and indirect taxes and will help to reduce tax evasion
to a great extent. GSTN has developed a robust IT system which has facilitated data
exchange and in the long run will ensure a better tax compliance. According to data
released by the government for the period July 2017 to June 2018, the GST
collections stood at ₹ 11.03 trillion, indicating an average monthly collection of
approximately ₹91,917 crore.
Post introduction of GST, both direct and indirect tax revenues have got a boost.
Though India’s tax to GDP ratio is lower than many other comparable economies, it is
expected that the tax-GDP ratio will see an increase of 30 basis points (bps) each in
the financial years 2018-19 and 2019-20 according to the medium-term expenditure
framework (MTEF) statement tabled in the Lok Sabha. As direct and indirect tax data
bases get linked, it only needs few data analytic tools to throw up any discrepancies
and for the revenue authorities to take necessary action. Thus, it is expected that
India’s tax-to-GDP ratio should improve significantly in near future. The increase in
tax-to-GDP ratios would enable the government to lower the rate of taxes, thereby,
providing overall benefits to public without losing the revenue. It also makes sense
from vote politics as well.
The implementation of GST has been a daunting task and is still in the process of
settling down.
Nevertheless, GST should enormously benefit the Indian economy in the long term
due to its unparalleled benefits including uniformity of taxes, elimination of cascading
effect of taxes and improved efficiency in logistics. After all, it’s rare that for any tax,
government, industry and common man are by and large positive and eager to see its
full results benefitting the whole nation.
FAQs
1. What is the threshold limit for opting composition scheme?
Businesses with an aggregate turnover in the preceding financial year not
exceeding ₹ 1 crore can opt for composition scheme. Only manufacturers, dealers and
restaurants that do not serve alcohol can opt for composition scheme. In the 28th GST
Council meeting it has been recommended that the such limit of turnover for opting
for composition scheme would be raised from ₹ 1 crore to ₹ 1.5 crore.
2. What is IT-grievance redressal mechanism?
It has been decided by the government to put in place an IT-grievance redressal
mechanism to address the difficulties faced by a section of taxpayers owing to
technical glitches on the GST portal. In this regard, GST Council has delegated
powers to an IT-grievance redressal committee to approve and recommend to the
GSTN the steps to be taken to redress the grievance and provide relief to the taxpayer.
The relief could be in the nature of allowing filing of any form or return prescribed in
law or amending any Form or Return already filed. However, where the problem
relates to individual taxpayer, due to localised issues such as non-availability of
internet connectivity or failure of power supply, this mechanism shall not be available.
3. What is an e-way bill and what is the current status of its implementation
across the nation?
E-way bill is an electronic way bill for movement of goods of more than ₹ 50,000
which can be generated on the e-way bill portal. Generation of e-way bill is
mandatory for intra-state as well as inter-state movement of goods for all states.
However, no e-way bill is required to be generated in certain scenarios like movement
of goods in a non-motor vehicle, goods transported under Customs supervision or
under Customs seal, goods transported by rail where the consignor of goods is the
central government, state governments or a local authority, etc.