General Awareness PDF

Goods & Servics Tax (GST)

Introduction To GST
The present Indirect Taxes structure is very complex in India. There are so many types of taxes that are levied by the
Central and State Governments on Goods & Services.

Goods and Service Tax (GST) is a tax system which will replace all the indirect taxes in the country like Service
Tax, Excise Duty, VAT, Sales Tax etc. and make India One Nation One Tax Country.
Due to so many indirect taxes prevailing in the system, the ultimate tax on some items reached 30-35%,
which after introduction of GST will come down to around 18%.
GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. The
final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off
benefits at all the previous stages.
Salient Features Of GST
1. GST, or Goods and Services Tax, will subsume central indirect taxes like excise duty, countervailing duty and
service tax, as also state levies like value added tax, octroi and entry tax, luxury tax.
2. The final consumer will bear only the GST charged by the last dealer in the supply chain, with set-off benefits
at all the previous stages.
3. As a measure of support for the states, petroleum products, alcohol for human consumption and tobacco have
been kept out of the purview of the GST.
4. It will have two components - Central GST levied by the Centre and State GST levied by the states.
5. The GST Council is to consist of the union finance minister as chairman, the union minister of state of finance
and the finance minister of each state.
6. The bill proposes an additional tax not exceeding 1% on inter-state trade in goods, to be levied and collected
by the Centre to compensate the states for two years, or as recommended by the GST Council, for losses
resulting from implementing the GST.

History of GST
The model of the GST was proposed and designed in the year 2000 by the Vajpayee government by setting up an
empowered committee headed by Asim Dasgupta. The deadline of April 1, 2010 was set for its implementation. The
GST has been in news off and on for over 15 years now. Each successive government has tried and promised to
implement it, but has not been successful so far.

Goods and Service Tax was first discussed in India in 2003 with the report of the Kelkar Task Force on
indirect taxes. 2000- A committee headed by then West Bengal Finance Minister Asim Dasgupta was formed
for streamlining the GST model to be adopted as well as putting in place the required backend infrastructure
that would be needed for its implementation.
2003 - the Kelkar Task Force on indirect tax had suggested a comprehensive Goods and Services Tax (GST)
based on VAT principle.
2006 In the budget speech of 2006-07, a proposal for National level GST by 1 April, 1010 was proposed.
The responsibility of preparing a Design and Road Map for the implementation of GST was assigned to the
Empowered Committee of State Finance Ministers (EC). The EC released its First Discussion Paper on Goods
and Services Tax in India in November, 2009.
2011- the Constitution (115th Amendment) Bill was introduced in the Lok Sabha in March 2011 for the
introduction of GST

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2012 - Committee on GST Design consisting of the officials of the Government of India, State Governments
and the Empowered Committee was constituted on 8th November, 2012 after a meeting between the Union
Finance Minister and the Empowered Committee of State Finance Ministers
2013 - This Committee submitted its report in January, 2013. Based on this Report, the EC recommended
certain changes in the Constitution Amendment Bill in their meeting at Bhubaneswar in January 2013.
o The Parliamentary Standing Committee submitted its Report in August, 2013 to the Lok Sabha. Most
of the recommendations made by the Empowered Committee and the Parliamentary Standing
Committee were accepted and the draft Amendment Bill was suitably revised.
o The 115th Constitutional (Amendment) Bill, 2011, for the introduction of GST introduced in the Lok
Sabha in March 2011 lapsed with the dissolution of the 15th Lok Sabha.
2014 - In June 2014, the draft Constitution Amendment Bill was sent to the Empowered Committee after
approval of the new Government.
2015 Rajya Sabha and Lok Sabha Passed the bill unanimously in August 2015. The bill was circulated to the
state government for ratification.
2016 President of India gave approval to the bill (on 08 September 2016) after 50% of the states ratified the
bill.

GST COMMITTEE
The GST bill seeks to set up a GST Council. The GST Council aims to develop a harmonized national market of
goods and services. According the GST Bill, the President must constitute a GST Council within sixty days of this Act
coming into force.
The composition of the GST Council includes:
The Union Finance Minister (as Chairman)
The Union Minister of State in charge of Revenue or Finance and
The Minister in charge of Finance or Taxation or any other Minister, nominated by each state government.
The decisions of the GST Council will be made by three-fourth majority of the votes cast. The centre shall have onethird of the votes cast, and the states together shall have two-third of the votes cast.

Dual GST Model for India

There will be two component of GST in India. Central GST (CGST) and State GST (SGST).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.
Cross utilization of credit of CGST between goods and services would be allowed. Similarly, the facility of
cross utilization of credit will be available in case of SGST. However, the cross utilization of CGST and
SGST would not be allowed except in the case of inter-State supply of goods and services under the IGST
model.

Integrated Goods And Services Tax (IGST)

In case of inter-State transactions, the Centre would levy and collect the Integrated Goods and
Services Tax (IGST) on all inter-State supplies of goods and services.
IGST will ensure seamless flow of input tax credit from one state to another state. The inter-State
seller would pay IGST on the sale of his goods to the Central Government.
The exporting State will transfer to the Centre the credit of SGST used in payment of IGST.The

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importing dealer will claim credit of IGST while discharging his output tax liability (both CGST and
SGST) in his own State.
The Centre will transfer to the importing State the credit of IGST used in payment of SGST.

A 4-tier GST tax structure

The GST Council finalised a four-tier Goods and Services Tax (GST) structure ranging from 5% to 28% .The four
GST slabs are 5%, 12% 18% and 28%.
Slab
Slab 1 (5%)
Slab 2 (12%)
Slab 3 (18%)
Slab 4 (28%)

Product & Services

Edible Oil, Spices, Tea, Coffee
Computer, Processed foods
Soaps, Oils, Cosmetics
Heavy Consumer durables like
AC, Refrigerator, Television

Current Rate
Upto 9%
9-15%
15-21 %
21%

New Rate
5%
12%
18%
28%

Need for GST

Non Uniformity in Indirect Tax - There is no uniformity in the tax rates and structure across the state and country.
Cascading of Tax The increase of tax due to cascading effect of tax i.e TAX ON TAX is another problem
GST will simplify & harmonize the indirect tax regime of the country
A uniform tax will make that movement of commercial products smoother.

Benefits of GST
The introduction of GST would be a significant step in the reform of indirect taxation in India.
Amalgamating several central and state taxes into a single tax will diminish double taxation, facilitating a
common national market. A common tax would mean easy compliance and uniformity of tax rates and
structures for industry and would thus contribute to ease of doing business by removing cascading costs.
For central and state governments, GST is expected to lead to easier administration and enforcement. From
the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden
on goods.
The benefits of GST can be summarized as under:

Single and Transparent Tax system Because of multiple indirect tax in the country the cost of most goods
and services in the country today are laden with many hidden taxes. GST will overcome this problem.
Simple and easy to administer - As multiple indirect tax will be replaced by a single tax it would be easier
for government to administer the tax system.
Better controls on leakage - Due to the seamless transfer of input tax credit from one stage to another in the
chain of value addition, the tax leakage due to various loop holes in the system will be eliminated.
Higher revenue efficiency - GST is expected to decrease the cost of collection of tax revenues of the
Government, and will therefore, lead to higher revenue efficiency.
Uniform Tax Structure - GST will ensure that indirect tax rates and structures are common across the
country, thereby increasing certainty and ease of doing business.
Removal of Cascading Effect
Improved competitiveness
Gain to manufacturers and exporters.
Relief in overall tax burden

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Which taxes at the Centre and State level are being subsumed into GST?
Central Level
Central Excise Duty,
Additional Excise Duty
Service Tax
Countervailing Duty(CVD)
Special Additional Duty of Customs.
State level

State VAT/ Sales Tax

Octroi and Entry Tax
Purchase Tax
Luxury Tax
Tax on Lottery and Gambling
Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and
collected by the States).

GST bill ratified by States

For Presidents approval of GST minimum 16 states were required to ratify the Bill. Till date 23 states have ratified the
bill. The government is looking to implement the new tax regime from April 1, 2017.
List of States Ratified
1. Assam (12 August 2016)

13. Mizoram (30th August 2016)

2. Bihar (16 August 2016)

14. Sikkim (30th August 2016)

3. Jharkhand (17 August 2016)

15. Goa (31st August 2016)

4. Himachal Pradesh (22 August 2016)

16. Orissa (1st September 2016)

5. Chhattisgarh (22 August 2016)

17. Rajasthan (2nd September 2016)

6. Gujarat (23 August 2016)

18. Puducherry (2nd September 2016)

7. Madhya Pradesh (24th August 2016)

19. Andhra Pradesh (8th September 2016)

8. Delhi (24th August 2016)

20. Arunachal Pradesh (8th September 2016)

9. Nagaland (26th August 2016)

21. Meghalaya (9th September 2016)

10. Maharashtra (29th August 2016)

22. Punjab (12th September 2016)

11. Haryana (29th August 2016)

23. Tripura (26 September 2016)

12. Telangana (30th August 2016)

List of States who are yet to ratify GST Bill
1. Jammu and Kashmir

3. Kerala

2. Karnataka (See Note-1 Below)

4. Manipur

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5. Tamil Nadu

7. Uttarakhand

6. Uttar Pradesh

8. West Bengal

GST IMPLEMENTATION CHALLENGES

1.
2.
3.
4.
5.

Lack of adaptation.
Lack of trained staff.
Double registration can increase compliances and cost.
Lack of clear mechanism to control tax evasion.
Hard to estimate the exact impact of GST

GST and its impact after implementation in April 2017

If GST if implemented in India, India will be the 166th country to implement GST.

Sector wise impact of GST: Automobiles:

The effective tax rate in automobile sector currently ranges between 30 per cent and 47 per cent. On
implementation of GST the tax rate is expected to oscillate between 20-22 per cent. It is expected to
drive overall demand and reduce cost for the end user by about 10 per cent.
In a long run, GST is expected to remain positive for automobile sector.
Consumer durables
The current tax rate for the sector ranges between 7 per cent and 30 per cent.
The implementation of GST will essentially benefit companies, which have not availed tax
exemptions in the past. It will lead to the reduction of the price gap between the organised and
unorganised sector.
The impact may remain neutral or negative, specifically for companies which either enjoy tax
exemptions or fall under the concessional tax bracket.
Logistics
The implementation of GST will lead to lower transit time and thereby generate higher truck
utilization. This will boost demand for high tonnage trucks and lead to overall reduction in
transportation costs. It will facilitate seamless inter-state flow of goods, which is expected to directly
accelerate demand for logistics services.
The logistics sector is largely fragmented and comprises many unorganized players. Several players
in the unorganised sector avoid tax which generates a cost gap between them and the organized
players.
Cement
Currently, the tax on cement ranges between 27 per cent and 32 per cent.
The tax rate for the cement sector is expected to decline to 18-20 per cent under the GST regime.This
is expected to lead to savings in the transportation cost, which currently comprises up to 20-25 per
cent of total revenue.

The impact of GST will be positive, as the companies will also be able to save on their logistic costs,
due to rationalisation of warehouses and lower transportation costs (due to decline transit time).

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Entertainment
Multiplexes
This category attracts different taxes such as service tax, entertainment tax and VAT among
others. Currently, the effective tax ranges between 22-24 per cent. It is expected GST tax rate
will trickle down to 18-20%.
The overall impact is expected to be positive
Media
Currently, the effective tax rate for the DTH providers ranges between 20-21 per cent (this
includes service tax of 14 per cent and entertainment tax of around 5-7 per cent).The effective tax
range for the broadcasters is around 14-15 per cent.
On implementation of GST, a rate of around 18-20 per cent will apply, which is lower than
current tax rate for the DTH provider and higher for the broadcaster. Implementation of GST will
be healthy for the DTH providers and downbeat for broadcasters.
Currently the news and print sector is exempted from all indirect taxes. Post GST, we expect
concessional rates to be introduced in this sector. The overall impact on the news and print sector
will be neutral.
Banking and financial services
Currently the effective tax rate is 14 per cent, which is levied only on fee component (and not
interest) of the transaction. Under GST, effective tax rate on fee-based transactions is expected to
increase to 18-20%.
With the implementation of GST a moderate increase in the cost of financial services such as
loan processing fees, debit/credit card charges , insurance premiums, etc. is expected.
Telecom
Currently, telecommunication services are subject to service tax of 14 per cent. The tax rate is
expected to increase to 18 per cent under GST.
It is expected that the telecom companies may pass the increased tax burden on postpaid
subscribers. Increase in effective tax rate may be marginally negative for the sector.
Pharma
Currently, the sector enjoys various location-based tax incentives. The effective tax rate (excise
duty) for most companies is much below the statutory tax rate (6 per cent). It is expected remain
neutral for the pharmaceutical sector.

The successful implementation of GST will depend on its smooth passage in the states, and the formation of a GST
council that drives consensus on rates, exclusion lists, applicability limits, principles of supply, special provisions to
certain states, and a host of other rules and regulations. Even the time chosen for implementation will matter a lot
when it comes to confusion and litigations. Whatever be the implementation hassles and timeframe, the fact remains
GST is a big step towards making India a unified market. The subsuming of major Central and State taxes in GST,
complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) will not
only reduce the cost of locally manufactured goods and services, but will also increase the competitiveness of Indian
goods and services in the international market and give boost to Indian exports. That by our count is more good than
bad.

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