Gst and its implications

Dr.(CA) Subrahmanya Bhat.K.M
CharteredAccountant
Associate Professor Shree Damodar College of
Commerce & Economics
Margao- Goa
GST and Its Implications
Sunday, April 8, 2018

What is GST?
ONE NATION: ONE TAX

What is GST?
‘G’ – Goods
‘S’ – Services
‘T’ – Tax
“Goods and Service Tax (GST) is a
comprehensive tax levy on manufacture, sale
and consumption of goods and service at a
national level.
GST is a tax on goods and services with value
addition at each stage having comprehensive and
continuous chain of set-of benefits from the
producer’s/ service provider’s point up to the
retailer’s level where only the final consumer
should bear the tax.” Sunday, April 8, 2018

ROAD TO GST –ROAD TO GST –
MILESTONESMILESTONES
4

Road to GST- Milestones
 2006, announcement of the intent to introduce GST by
01.04.2010
 November 2009 – First Discussion Paper (FDP) released by
EC on which Comments were provided by Government of
India.
 June 2010- Three sub-working Groups constituted by
Government of India on:
 Business Process related issues.
 Drafting of Central GST and model State GST legislations.
 Basic design of IT systems required for GST in general and
IGST in particular.

Road TO GST- Milestones contd.
 March 2011 - Constitution (115th Amendment) Bill
introduced in Parliament
 November 2012 – Committee on GST Design constituted by
EC
 February 2013 - Three Committees constituted by EC
o Dual Control, Thresholds and Exemptions in GST
regime
o RNRs for SGST & CGST and Place of Supply Rules
o IGST and GST on Imports
 March 2013- GSTN Incorporated as Section 25 Company

Road To GST- Milestones contd.
 June 2013- Committee constituted by EC to draft model GST
Law
 August 2013- Standing Committee on Finance submitted
Report
 April 2014- Committee constituted by EC to examine
business processes under GST
 December 2014- 122nd
Constitutional Amendment bill
introduced in Parliament.
 .1st
July2017 GST Implemented.

 GST is a tax on goods and services with comprehensive and continuous chain of
setoff benefits from the Producer’s point and Service provider’s point up to the
retailer level.
 GST is expected be levied only at the destination point, and not at various points
(from manufacturing to retail outlets). It is essentially a tax only on value addition at
each stage and a supplier at each stage is permitted to setoff through a tax credit
mechanism which would eliminate the burden of all cascading effects, including the
burden of CENVAT and service tax.
 Under GST structure, all different stages of production and distribution can be
interpreted as a mere tax pass through and the tax essentially sticks on final
consumption within the taxing jurisdiction.
 Earlier a manufacturer needs to pay tax when a finished product moves out from the
factory, and it is again taxed at the retail outlet when sold. The taxes are levied at
the multiple stages such as CENVAT, Central sales tax, State Sales Tax, Octroi, etc.
will be replaced by GST to be introduced at Central and State level.
Continued…….
Concept of GST

 All goods and services, barring a few exceptions, will be brought into the GST
base. There will be no distinction between goods and services.
 Under GST, the taxation burden will be divided equitably between
manufacturing and services, through a lower tax rate by increasing the tax base
and minimizing exemptions.
 However, the basic features of law such as chargeability, definition of taxable
event and taxable person, measure of levy including valuation provisions,
basis of classification etc. would be uniform across these statutes as far as
practicable.
 The existing CST will be discontinued. Instead, a new statute known as IGST
will come into place on the inter-state transfer of the Goods and Services.
 By removing the cascading effect of taxes (CST, additional customs duty,
surcharges, luxury Tax, Entertainment Tax, etc. ),CGST & SGST will be
charged on same price .
Concept of GST

Need for GST
Introduction of a GST to replace the existing multiple tax structures of
Centre and State taxes is not only desirable but imperative in the
emerging economic environment. Increasingly, services are used or
consumed in production and distribution of goods and vice versa.
Separate taxation of goods and services often requires splitting of
transaction values into value of goods and services for taxation, which
leads to greater complexities, administration and compliances costs.
Integration of various taxes into a GST system would make it possible
to give full credit for inputs taxes collected. GST, being a destination-
based consumption tax based on VAT principle, would also greatly
help in removing economic distortions and will help in development
of a common national market.

Limitations of old Tax regime
Credit of Excise not
allowed
Credit of CST Not
Available (This should
relate to interstate
supply. An arrow can
be shown from
wholesaler in
KARNATAKA
MADHYA
PRADESH
1. Cascading Effect of Tax

2. Multiple Registrations
Limitations of current Tax regime :
Central
Excise

No Entry Tax
Entry
Tax
Value Added
Tax
@
4%
@ NIL
%
3.Lack of Uniformity
Limitations of current Tax regime :

Tax structure before GST in India

Tax Structure under GST in India

 SGST and CGST for intrastate transaction : In the GST system, both Central and
State taxes will be collected at the point of sale. Both components (the Central and
State GST) will be charged on the manufacturing cost. This will benefit individuals
as prices are likely to come down. Lower prices will lead to more consumption,
thereby helping companies.
 IGST for Interstate transaction: ‘IGST Model’ will be in place for taxation of
inter State transaction of Goods and Services. The scope of IGST Model is that
center would levy IGST which would be CGST plus SGST on all inter State
transactions of taxable goods and services with appropriate provision for
consignment or stock transfer of goods and services.
 The GST paid on the purchase of goods and services, to be paid on the supply of
goods and services.
 There should be no distinction between raw materials and capital goods in allowing
input tax credit. The tax base should comprehensively extend over all goods and
services up to final consumption point on value addition.
 Assessable value for all the taxes will be same.
Model of GST

Salient features of GST...
Destination based consumption tax
The tax would accrue to the State which has jurisdiction over
the place of consumption which is also termed as place of
supply.
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.
Exports would be tax-free and imports taxed at the same rate as
integrated tax (IGST) levied on inter-State supply of like
domestic products
20

Salient features of GST... (contd.)
Tax payers with an aggregate turnover in a financial year up to Rs.20
lakhs would be exempt from tax.
For special category states specified in Article 279A, the threshold
exemption shall be Rs. 10 lakhs.
Tax payers making inter-State supplies or paying tax on
reverse charge basis shall not be eligible for threshold
exemption.
Small taxpayers with an aggregate turnover in a financial year up to
Rs. 150 lakhs shall be eligible for composition levy.
21

Each taxpayer would be allotted a PAN linked taxpayer
identification number with a total of 13/15 digits.
This would bring the GST PAN-linked system in line with
the prevailing PAN-based system for Income tax
facilitating data exchange and taxpayer compliance.
 The exact design would be worked out in consultation with
the Income-Tax Department.
Registration under GST

Mandatory Registration
(irrespective of threshold)
 Persons making inter-State taxable supply
 Persons required to pay tax under reverse charge
 Casual and non-resident taxable persons
 E-Commerce operator /Those required to collect TDS
 Persons supplying goods through e-commerce operator
 Persons making supplies on behalf of a registered taxable
person
 Input Service Distributer
 Every person supplying online information and data
base access or retrieval services from a place outside
India to a person in India, other than a registered person

Justification of GST
Despite the success of VAT, there are still certain
shortcomings in the structure of VAT, both at the Centre
and at the State level.
A. Justification at the Central Level
i. Excise duty paid on the raw material consumed is being
allowed as input credit only. For other taxes and duties paid
for post-manufacturing expenses, there is no mechanism for
input credit under the Central Excise Duty Act.
Contd….

i. adfl
ii. Credit for service tax paid is being allowed
manufacturer/ service provider to a limited extent. In
order to give the credit of service tax paid in respect
of services consumed, it is necessary that there should
be a comprehensive system under which both the
goods and services are covered.
iii. The service tax is levied on restricted items only.
Many other large number of services could not be
taxed. It is to reduce the effect of cascading of taxes,
which means levying tax on taxes.
Contd…

B. Justification at the State Level
i. A major defect under the State VAT is that the State is charging
VAT on the excise duty paid to the Central Government, which
goes against the principle of not levying tax on taxes.
ii. In the present State level VAT scheme, Cenvat allowed on the
goods remains included in the value of goods to be taxed which is
a cascading effect on account of Cenvat element.
iii.Many of the States were continuing with various types of indirect
taxes, such as luxury tax, entertainment tax, etc.
iv.As tax is being levied on inter-state transfer of goods, there was
no provision for taking input credit on CST leading to additional
burden on the dealers.

GST Rates
Rates: 0%( on essential items, rice/wheat)
5%: ( on items of mass consumption )
12%/18%:(standard rates covering most manufactured items and
Services)
28% : ( on Consumer Durable Goods, Pan masala, tobacco and
aerated drinks etc)
Basic philosophy behind these rates are that, to the extent
possible, the current combined rate of tax levied on individual
goods by the Central and the State Governments should be
maintained in GST
Uniform GST rate not possible at this stage as luxury goods and
goods consumed by poorer sections of society cannot be taxed at
the same rate
 Rates will be notified by Government on

Implications of GST – A Study
1. To study the need of Goods and Service Tax
(GST) in India.
2. To study the advantages of Goods and Service
Tax (GST) to the Manufactures, traders and
society.
3. To study the outcomes of GST in India.
4. To Study on Implications on Implementation
of GST in India.

Salient features of GST
The GST would be applicable on the supply of goods or
services.
It would be a single GST on any item out of which 50% will go
to Central Govt and 50% will go to State Govt / Union
Territory.
Central tax (CGST) and State tax (SGST) / Union territory tax
(UTGST).
The GST would apply on all goods or services or both other
than alcoholic liquor for human consumption and five petroleum
products.
29

Research Methodology
The Researchers used an exploratory research technique
based on past literature from respective journals, annual
reports, newspapers and magazines covering wide
collection of academic literature on Goods and Service
Tax. According to the objectives of the study, the
research design is of descriptive in nature. Available
secondary data was extensively used for the study.

NEED FOR GST IN INDIA
Under VAT system, an input tax set-off is given for
purchases made only within the State. For example under
Goa VAT Act, the dealer can claim the Input Tax Credits
towards Out Put tax if the goods are purchased only from
the state. If the goods purchased from outside state the dealer
cannot claim the Input Tax Credit. Under the State level
VAT scheme, CENVAT load on goods has not been removed
and cascading effect of that part of tax burden still remains.
Further the burden of CST on purchase of inter-state goods
which has been reduced from four percent to two percent
has not been fully phased out.

Model of GST
The dual GST model proposed by the Empowered Committee and
accepted by the Centre will have dual system for imposing the tax.
GST shall have two components i.e.
(i) Central GST
(ii) State GST
Central Excise duty, additional excise duty, services tax and
additional duty of customs (equivalent to excise), state VAT
entertainment tax, taxes on lotteries, betting and gambling and
entry tax (not levied by local bodies)would be subsumed within
GST

GST - Salient Features
 It would be applicable to all transactions of goods and service.
 It to be paid to the accounts of the Centre and the States separately.
 The rules for taking and utilization of credit for the Central GST and the State GST
would be aligned.
 Cross utilization of ITC between the Central
GST and the State GST would not be allowed except in the case of inter-State
supply of goods.
 The Centre and the States would have concurrent jurisdiction for the entire value
chain and for all taxpayers on the basis of thresholds for goods and services
prescribed for the States and the Centre.
 The taxpayer would need to submit common format for periodical returns, to both
the Central and to the concerned State GST authorities.
 Each taxpayer would be allotted a PAN-linked taxpayer identification number with
a total of 13/15 digits.

Chargeability of Tax under GST
It will be replacement of ED and other taxes.
There will be two parallel Statutes – one at the Centre and other under the
respective State GST Act – governing the tax liability of the same
transaction.
All the items of goods and services are proposed to be covered and
exemptions will be granted to few selected items.
After introduction of GST, all the traders will be paying both the types of
taxes i.e. CGST and SGST.

Taxable Event
Following questions arises:
At what point of time, the tax will be levied?
Will TE covers both i.e. supply of goods and rendering of services?
What will be the nature of TE?
Will it not involve new language and terminology?
What impact the change in TE can have?
GST is proposed to be levied by both the CG and SGs. How will it be
defined under CGST and SGST?

Taxable Person
It will cover all types of person carrying on business activities, i.e.
manufacturer, job-worker, trader, importer, exporter, all types of service
providers, etc.
If a company is having four branches in four different states, all the four
branches will be considered as TP under each jurisdiction of SGs.
All the dealers/ business entities will have to pay both the types of taxes on
all the transactions.
A dealer must get registered under CGST as it will make him entitle to
claim ITC of CGST thereby attracting buyers under B2B transactions.
Importers have to register under both CGST and SGST as well.

Subsumed of IndirectTaxes
The sub-sumation should result in free flow of tax credit in intra
and inter-State levels so that unrelated taxes, levies and fees are
not be subsumed under GST.
Sl.
No.
Subsumed under CGST Subsumed under SGST
1 Central Excise Duty VAT / Sales tax
2 Additional Excise Duties Entertainment tax (unless it is levied by the local bodies).
3 Excise Duty-Medicinal and Toiletries Preparation Act Luxury tax
4 Service Tax Taxes on lottery, betting and gambling.
5 Additional CVD State Cesses and Surcharges (supply of goods and services)
6 Special Additional Duty of Customs - 4% (SAD) Entry tax not in lieu of Octroi
7 Surcharges
8 Ceses

Alcohol, tobacco, petroleum products are likely to be out of the GST regime.
Tax on items containing Alcohol: Alcoholic beverages would be kept out of the
purview of GST. Sales Tax/VAT could be continued to be levied on alcoholic beverages
as per the existing practice. In case it has been made VA table by some States, there is
no objection to that. Excise Duty, which is presently levied by the States may not also
be affected.
Tax on Petroleum Products: Petroleum and petroleum products have also been
constitutionally brought under the GST. However, it has also been provided that
petroleum and petroleum products shall not be subject to the levy of GST till notified at
a future date on the recommendation of the GST Council.
Tax on Tobacco products: Tobacco products would be subjected to GST with ITC.
Centre may be allowed to levy excise duty on tobacco products over and above GST
with ITC.
Taxation of Services: As indicated earlier, both the Centre and the States will have
concurrent power to levy tax on goods and services. In the case of States, the principle
for taxation of intra-State and inter46 State has already been formulated by the Working
Group of Principal Secretaries /Secretaries of Finance / Taxation and Commissioners of
Trade Taxes with senior representatives of Department of Revenue, Government of
India. For inter-State transactions an innovative model of Integrated GST will be
adopted by appropriately aligning and integrating CGST and IGST.
Exemption of Goods and
Services

Taxes that may or may not be
subsumed
There are few other indirect taxes that may or may not be
subsumed under the GST regime as there is no consensus among
States and Centre & States –
Purchase tax
Stamp Duty
Vehicle Tax
Electricity Duty
Other Entry taxes and Octroi Sunday, April 8, 2018

ADVANTAGES OF GST:
Under GST there will be input credit set-off at every stage and
this can be used to payment of service tax.
CST will be abolished and in the absence of it there is no need to
collect it.
Many Central and State indirect taxes will be subsumed in GST.
There will be uniformity of tax rates in all the states.
It may ensure better compliance due to aggregate tax rate
reduction.
By reducing the tax burden the competitiveness of Indian
products in international market is expected to increase.

Rate of Tax
 There with be a two-rate structure –a lower rate for necessary items and
items of basic importance and a standard rate for goods in general. There will
also be a special rate for precious metals and a list of exempted items.
 For CGST relating to goods, the States considered that the Government of
India might also have a two-rate structure, with conformity in the levels of
rate with the SGST. For taxation of services, there may be a single rate for
both CGST and SGST.
 It will be total of the rate as applicable under CGST & SGST.
 It is understood that the Government is considering pegging the revenue
neutral rate of GST at a rate between 18% to 22%. This represents the
aggregate of CGST and SGST payable on the transaction. However, it may
be noted that at this stage, the Government is yet to indicate whether the
revenue neutral rate of tax on goods and services would be the same.

What will be out of GST?
 Levies on petroleum products
 Levies on alcoholic products
 Taxes on lottery and betting
 Basic customs duty and safeguard duties on import of goods
into India
 Entry taxes levied by municipalities or panchayats
 Entertainment and Luxury taxes
 Electricity duties/ taxes
 Stamp duties on immovable properties
 Taxes on vehicles

Inter-State Transactions of
Goods & Services
 The existing CST will be discontinued. Instead, a new
statute known as IGST will come into place. It will
empower the GC to levy and collect the tax on the inter-
state transfer of the GS.
 The scope of IGST Model is that Centre would levy IGST
which would be CGST plus SGST on all inter-State
transactions of taxable goods and services with
appropriate provision for consignment or stock transfer of
goods and services.
Contd…

Inter-State Transactions of
Goods & Services
 The inter-State seller will pay IGST on value addition after adjusting
available credit of IGST, CGST, and SGST on his purchases. The
Exporting State will transfer to the Centre the credit of SGST used
in payment of IGST. The Importing dealer will claim credit of IGST
while discharging his output tax liability in his own State. The
Centre will transfer to the importing State the credit of IGST used
in payment of SGST. The relevant information will also be
submitted to the Central Agency which will act as a clearing house
mechanism, verify the claims and inform the respective
governments to transfer the funds.

OUTCOME OF GST
The taxes Centre and State level are being subsumed into GST
Keeping in mind the federal structure of India, there will be two
components of GST – Central GST (CGST) and State GST
(SGST). Both Centre and States will simultaneously levy GST
across the value chain. Tax will be levied on every supply of
goods and services. Centre would levy and collect Central
Goods and Services Tax (CGST), and States would levy and
collect the State Goods and Services Tax (SGST) on all
transactions within a State. The input tax credit of CGST would
be available for discharging the CGST liability on the output at
each stage. Similarly, the credit of SGST paid on inputs would be
allowed for paying the SGST on output.

ADMINISTRATION OF GST
State Value Added Tax and GST
Central Excise and GST:
IMPLICATIONS OF GST ON DEALERS

The taxpayer would need to submit periodical returns to
both the Central GST authority and to the concerned State
GST authorities.
ITC credit can also be verified on the basis of the returns
filed and revenues reconciled against Challan data from
banks.
Common standardized return for all taxes (with different
account heads for CGST, SGST, IGST) can come into
picture.
Common standardized Challan for all taxes (with different
account heads for CGST, SGST, IGST) can come into
picture.
Returns under GST

IMPLICATIONS OF GST ON DEALERS
In the GST regime, any regular business has to file three
monthly returns and one annual return. This amounts to 37
returns in a year.
Types of GST Returns

Conclusion
 The taxation of goods and services in India has, hitherto, been characterized as a
cascading and distortionary tax on production resulting in mis-allocation of
resources and lower productivity and economic growth. It also inhibits voluntary
compliance. It is well recognized that this problem can be effectively addressed by
shifting the tax burden from production and trade to final consumption. A well
designed destination-based value added tax on all goods and services is the most
elegant method of eliminating distortions and taxing consumption. Under this
structure, all different stages of production and distribution can be interpreted as
a mere tax pass-through, and the tax essentially ‘sticks’ on final consumption
within the taxing jurisdiction.
 A ‘flawless’ GST in the context of the federal structure which would optimize
efficiency, equity and effectiveness. The ‘flawless’ GST is designed as a
consumption type destination VAT based on invoice-credit method.

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