With the number of taxes that are being levied doing business in India can get complicated. Taxes like the Central Excise, Service Tax, CST and VAT make it hard for businesses to contain their cost. The number of taxes levied at state and central levels has resulted in a complex web of indirect taxes that only amplify the hidden costs for the trade and industry. To tackle this problem head on a new law has been proposed to reform how people do business and the way in which products and services are being taxed in India.
Goods and Services Tax (GST) is a way to simplify and eliminate the web of indirect taxes in the country allowing businesses to do business efficiently. It is expected to replace a myriad of indirect taxes with a single tax reducing the overall business cost production and inflating the economy. GST will also make the Indian trade and industry competitive at a domestic and global level.
Unlike the current set of indirect taxes that are levied at various state and central levels, GST will be more of a destination based tax system. In the new system, both central and state will levy GST at the same time to make things simpler for the businesses. While the Centre would levy CGST, the state would levy SGST respectively. On top of it, the Centre would also levy and collect the Integrated Goods and Services Tax on all inter-state supply of goods and services.
Levy of GST
As per the new GST Act the new taxes will be levied on central and state levels in the form of Central Goods and Services Tax and State Goods and Services Tax. These taxes will be levied on all intra-state supplied goods and services at a pre-specified rate in the Schedule and collected as prescribed. Every taxable person will pay CGST and SGST in the way it is mentioned in the Act.
Under this Act, every person who supplies goods and services of value exceeding Rs. 20 Lakh in a financial year will pay GST. The GST must be paid when the turnover exceeds Rs. 20 Lakh (in some special states the limit is Rs. 10 Lakh).
The tax is also applicable to any person making inter-state supply of goods and services. GST also applies to e-commerce operators and aggregators who supply services under their own brand or business name. GST is also applicable to non-resident taxable individual, input service distributor, agents and casual taxable individual.
With the introduction of the GST Act, the Goods and Services Tax will be charged on the value of supply made. This means that the transaction value would include all the expenses, fees, price and taxes excluding GST in relation to the supply. The transaction value will exclude any discounts before or at the time of supply. In some cases, where the value cannot be ascertain definitely it will be calculated based on the rules framed in the Act.
Meaning of Supply
Goods and Services Tax is based on the supply of goods and services and therefore it is important to know the definition of supply. The term supply here refers to any kind of sale, transfer, exchange, rental, lease, license and allocation of assets that takes place during the selling of product or importation of service.
The Goods and Services Tax will have different tax rates for different goods and services. While the large number of items fall under the 18% tax slab there are four main tax slabs i.e. 5%, 12%, 18% and 28%.
Credit under GST
The tax base would widen with the introduction of the GST and therefore enable seamless flow of input tax credit from one stage to another. Companies and individuals can pay tax after adjusting the eligible credit. The law has laid down conditions to avail GST input tax credit on supply of goods and services.
Order of utilisation shall be as follows:
- IGST to be used for IGST, CGST and SGST in that order
- CGST to be used for CGST and IGST in that order
- SGST to be used for SGST and ISGT in that order
- CGST to SGST and SGST to CGST adjustment not possible
Exemption from tax
The Centre and the states have come up with the list of goods and services which will be exempted under the proposed GST regime. Some of the exemptions are conditional, while some exemptions are mandatory.
Individuals and businesses that have a turnover of Rs 75 lakh and less is provided with a composition scheme based on recommendation by the GST council. The individual will have to pay the mentioned tax rate instead of the regular tax rate. This rate is expected to be from 1% to 5%.
Businesses that carry out transactions or supply goods and services with a threshold that exceeds Rs 20 lakh or Rs 10 lakh is required to register. With the help of timely GST registration individuals and businesses can avoid penalties levied by tax authorities at a later stage and also avail benefits under the GST regime. Individuals can register as casual taxpayer or composition dealer. Individuals with multiple business verticals in a state can obtain a separate registration for each business vertical.
Records and Returns
As GST is technology based all the GST related transactions will be uploaded on the GST portal periodically. One of the main benefits of GST is that businesses can offset input tax credit with the output tax on the sale. As per the GST Act, businesses and individuals will have to keep records for at least 60 months from the last date of filing of annual returns.