FAQs
on GST
What is GST? How does it work?
GST is one indirect tax for the whole
nation, which will make India one unified common market. GST is a single tax on
the supply of goods and services, right from the manufacturer to the consumer.
Credits of input taxes paid at each stage will be available in the subsequent
stage of value addition, which makes GST essentially a tax only on value
addition at each stage. 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.
What are the benefits of GST?
The benefits of GST can be summarized
as under:
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For business and industry
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Easy compliance: A robust and comprehensive IT
system would be the foundation of the GST regime in India. Therefore, all tax
payer services such as registrations, returns, payments, etc. would be
available to the taxpayers online, which would make compliance easy and
transparent.
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Uniformity of tax rates and structures: GST will
ensure that indirect tax rates and structures are common across the country,
thereby increasing certainty and ease of doing business. In other words, GST
would make doing business in the country tax neutral, irrespective of the
choice of place of doing business.
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Removal of cascading: A system of seamless
tax-credits throughout the value-chain, and across boundaries of States,
would ensure that there is minimal cascading of taxes. This would reduce
hidden costs of doing business.
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Improved competitiveness: Reduction in transaction
costs of doing business would eventually lead to an improved competitiveness
for the trade and industry.
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Gain to manufacturers and exporters: 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) would
reduce the cost of locally manufactured goods and services. This will
increase the competitiveness of Indian goods and services in the
international market and give boost to Indian exports. The uniformity in tax
rates and procedures across the country will also go a long way in reducing
the compliance cost.
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For Central and State Governments
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Simple and easy to administer: Multiple indirect
taxes at the Central and State levels are being replaced by GST. Backed with
a robust end-to-end IT system, GST would be simpler and easier to administer
than all other indirect taxes of the Centre and State levied so far.
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Better controls on leakage: GST will result in
better tax compliance due to a robust IT infrastructure. Due to the seamless
transfer of input tax credit from one stage to another in the chain of value
addition, there is an in-built mechanism in the design of GST that would
incentivize tax compliance by traders.
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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.
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For the consumer
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Single and transparent tax proportionate to the
value of goods and services: Due to multiple indirect taxes being levied by
the Centre and State, with incomplete or no input tax credits available at
progressive stages of value addition, the cost of most goods and services in
the country today are laden with many hidden taxes. Under GST, there would be
only one tax from the manufacturer to the consumer, leading to transparency
of taxes paid to the final consumer.
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Relief in overall tax burden: Because of efficiency
gains and prevention of leakages, the overall tax burden on most commodities
will come down, which will benefit consumers.
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Which taxes at the Centre and State level are being
subsumed into GST?
At the Central level, the following taxes are being
subsumed:
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Central Excise Duty,
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Additional Excise Duty,
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Service Tax,
·
Additional Customs Duty commonly known as
Countervailing Duty, and
·
Special Additional Duty of Customs.
At the State
level, the following taxes are being subsumed:
·
Subsuming of State Value Added Tax/Sales Tax,
·
Entertainment Tax (other than the tax levied by the
local bodies), Central Sales Tax (levied by the Centre and collected by the
States),
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Octroi and Entry tax,
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Purchase Tax,
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Luxury tax, and
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Taxes on lottery, betting and gambling.
What are the major chronological events that have led
to the introduction of GST?
GST is being introduced in the country
after a 13 year long journey since it was first discussed in the report of the
Kelkar Task Force on indirect taxes. A brief chronology outlining the major
milestones on the proposal for introduction of GST in India is as follows:
·
In 2003, the Kelkar Task Force on indirect tax had
suggested a comprehensive Goods and Services Tax (GST) based on VAT principle.
·
A proposal to introduce a National level Goods and
Services Tax (GST) by April 1, 2010 was first mooted in the Budget Speech for
the financial year 2006-07.
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Since the proposal involved reform/ restructuring of
not only indirect taxes levied by the Centre but also the States, 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).
·
Based on inputs from Govt of India and States, the EC
released its First Discussion Paper on Goods and Services Tax in India in
November, 2009.
·
In order to take the GST related work further, a Joint
Working Group consisting of officers from Central as well as State Government
was constituted in September, 2009.
·
In order to amend the Constitution to enable
introduction of GST, the Constitution (115th Amendment) Bill was introduced in
the Lok Sabha in March 2011. As per the prescribed procedure, the Bill was
referred to the Standing Committee on Finance of the Parliament for examination
and report.
·
Meanwhile, in pursuance of the decision taken in a
meeting between the Union Finance Minister and the Empowered Committee of State
Finance Ministers on 8th November, 2012, a ‘Committee on GST Design’,
consisting of the officials of the Government of India, State Governments and
the Empowered Committee was constituted.
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This Committee did a detailed discussion on GST design
including the Constitution (115th) Amendment Bill and 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.
·
The Empowered Committee in the Bhubaneswar meeting
also decided to constitute three committees of officers to discuss and report
on various aspects of GST as follows:-
ä Committee on
Place of Supply Rules and Revenue Neutral Rates;
ä Committee on
dual control, threshold and exemptions;
ä Committee on
IGST and GST on imports.
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The Parliamentary Standing Committee submitted its
Report in August, 2013 to the Lok Sabha. The recommendations of the Empowered
Committee and the recommendations of the Parliamentary Standing Committee were
examined in the Ministry in consultation with the Legislative Department. Most
of the recommendations made by the Empowered Committee and the Parliamentary
Standing Committee were accepted and the draft Amendment Bill was suitably
revised.
·
The final draft Constitutional Amendment Bill
incorporating the above stated changes were sent to the Empowered Committee for
consideration in September 2013.
·
The EC once again made certain recommendations on the
Bill after its meeting in Shillong in November 2013. Certain recommendations of
the Empowered Committee were incorporated in the draft Constitution (115th
Amendment) Bill. The revised draft was sent for consideration of the Empowered
Committee in March, 2014.
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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.
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In June 2014, the draft Constitution Amendment Bill
was sent to the Empowered Committee after approval of the new Government.
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Based on a broad consensus reached with the Empowered
Committee on the contours of the Bill, the Cabinet on 17.12.2014 approved the
proposal for introduction of a Bill in the Parliament for amending the
Constitution of India to facilitate the introduction of Goods and Services Tax
(GST) in the country. The Bill was
introduced in the Lok Sabha on 19.12.2014, and was passed by the Lok Sabha on
06.05.2015. It was then referred to the Select Committee of Rajya Sabha, which
submitted its report on 22.07.2015.
How would GST be administered in India?
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. No cross utilization
of credit would be permitted.
How would a particular transaction of goods and
services be taxed simultaneously under Central GST (CGST) and State GST (SGST)?
The Central GST and the State GST would
be levied simultaneously on every transaction of supply of goods and services
except on exempted goods and services, goods which are outside the purview of
GST and the transactions which are below the prescribed threshold limits.
Further, both would be levied on the same price or value unlike State VAT which
is levied on the value of the goods inclusive of Central Excise.
Will cross utilization of credits between goods and
services be allowed under GST regime?
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 which is explained in answer to the next question.
How will be Inter-State Transactions of Goods and
Services be taxed under GST in terms of IGST method?
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 under Article 269A (1) of the
Constitution. The IGST would roughly be equal to CGST plus SGST. The IGST
mechanism has been designed to ensure seamless flow of input tax credit from
one State to another. The inter-State seller would pay IGST on the sale of his
goods to the Central Government after adjusting credit of IGST, CGST and SGST
on his purchases (in that order). 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 (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. Since GST is a destination-based tax,
all SGST on the final product will ordinarily accrue to the consuming State.
How will IT be used for the implementation of GST?
For the
implementation of GST in the country, the Central and State Governments have
jointly registered Goods and Services Tax Network (GSTN) as a not-for-profit,
non-Government Company to provide shared IT infrastructure and services to
Central and State Governments, tax payers and other stakeholders. The key
objectives of GSTN are to provide a standard and uniform interface to the
taxpayers, and shared infrastructure and services to Central and State/UT governments.
GSTN is working on developing a
state-of-the-art comprehensive IT infrastructure including the common GST
portal providing frontend services of registration, returns and payments to all
taxpayers, as well as the backend IT modules for certain States that include
processing of returns, registrations, audits, assessments, appeals, etc. All
States, accounting authorities, RBI and banks, are also preparing their IT
infrastructure for the administration of GST.
There would no manual filing of returns.
All taxes can also be paid online. All mis-matched returns would be
auto-generated, and there would be no need for manual interventions. Most
returns would be self-assessed.
How will imports be taxed under GST?
The Additional Duty of Excise or CVD and
the Special Additional Duty or SAD presently being levied on imports will be
subsumed under GST. As per explanation to clause (1) of article 269A of the
Constitution, IGST will be levied on all imports into the territory of India.
Unlike in the present regime, the States where imported goods are consumed will
now gain their share from this IGST paid on imported goods.
What are the major features of the Constitution (122nd
Amendment) Bill, 2014?
The salient features of the Bill are as
follows:
·
Conferring simultaneous power upon Parliament and the
State Legislatures to make laws governing goods and services tax;
·
Subsuming of various Central indirect taxes and levies
such as Central Excise Duty, Additional Excise Duties, Service Tax, Additional
Customs Duty commonly known as Countervailing Duty, and Special Additional Duty
of Customs;
·
Subsuming of State Value Added Tax/Sales Tax,
Entertainment Tax (other than the tax levied by the local bodies), Central
Sales Tax (levied by the Centre and collected by the States), Octroi and Entry
tax, Purchase Tax, Luxury tax, and Taxes on lottery, betting and gambling;
·
Dispensing with the concept of ‘declared goods of
special importance’ under the Constitution;
·
Levy of Integrated Goods and Services Tax on
inter-State transactions of goods and services;
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GST to be levied on all goods and services, except
alcoholic liquor for human consumption. Petroleum and petroleum products shall
be subject to the levy of GST on a later date notified on the recommendation of
the Goods and Services Tax Council;
·
Compensation to the States for loss of revenue arising
on account of implementation of the Goods and Services Tax for a period of five
years;
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Creation of Goods and Services Tax Council to examine
issues relating to goods and services tax and make recommendations to the Union
and the States on parameters like rates, taxes, cesses and surcharges to be
subsumed, exemption list and threshold limits, Model GST laws, etc. The Council
shall function under the Chairmanship of the Union Finance Minister and will
have all the State Governments as Members.
What are the major features of the proposed
registration procedures under GST?
The major features of the proposed
registration procedures under GST are as follows:
Existing dealers: Existing VAT/Central excise/Service
Tax payers will not have to apply afresh for registration under GST.
New dealers: Single application to be filed online for
registration under GST.
The registration number will be PAN based and will
serve the purpose for Centre and State.
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Unified application to both tax authorities.
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Each dealer to be given unique ID GSTIN.
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Deemed approval within three days.
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Post registration verification in risk based cases
only.
What are the major features of the proposed returns
filing procedures under GST?
The major features of the proposed
returns filing procedures under GST are as follows:
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Common return would serve the purpose of both Centre
and State Government.
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There are eight forms provided for in the GST business
processes for filing for returns. Most of the average tax payers would be using
only four forms for filing their returns. These are return for supplies, return
for purchases, monthly returns and annual return.
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Small taxpayers: Small taxpayers who have opted
composition scheme shall have to file return on quarterly basis.
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Filing of returns shall be completely online. All
taxes can also be paid online.
What are the major features of the proposed payment
procedures under GST?
The major features of the proposed
payments procedures under GST are as follows:
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Electronic payment process- no generation of paper at
any stage
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Single point interface for challan generation- GSTN
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Ease of payment – payment can be made through online
banking, Credit Card/Debit Card, NEFT/RTGS and through cheque/cash at the bank
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Common challan form with auto-population features
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Use of single challan and single payment instrument
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Common set of authorized banks
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Common Accounting Codes
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