Goods and Services Tax in India (GST)

What is the GST?

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.Let’s take an example:
Let’s assume that the raw materials to make a pair of shoes cost Rs.100. If the GST rate is 10%, then Rs.10 will be added as tax, and the manufacturer will purchase these supplies for Rs.110 (100 + GST 10%). After making a pair of shoes, he adds a value of Rs.100 (his profit margin). Now here, instead of applying that 10% tax to the new total value of Rs. 210 (Rs.110 + Rs.100), under the GST, that tax will only be applied to the value addition of Rs. 100 (this will add another Rs. 10). The manufacturer would then sell his shoes to a retailer for Rs. 220 (Rs. 210 + Rs. 10). The retailer then adds a value of Rs.100 (his profit margin), and GST of 10% (Rs. 10) is applied to that value addition, which places the total cost of the shoes at Rs.330 (Rs.320 + Rs.10) for the end consumer.

Which taxes at the Centre and State level are being subsumed into GST ?

Currently, there are several indirect taxes that are collected by both the state and central governments on every purchase and sale.

Below is a list of central taxes that the GST will replace:

  • Central Excise Duty
  • Additional Excise Duties
  • Excise Duty (Medicinal and Toiletries Preparation)
  • Service Tax
  • Additional Customs Duty, commonly known as Countervailing Duty (CVD)
  • Special Additional Duty of Customs
  • Surcharges
  • Cesses

Here’s a list of state taxes that will be replaced by GST:

  • VAT / Sales Tax
  • Entertainment Tax (unless it is levied by the local bodies).
  • Luxury Tax
  • Taxes on lottery, betting, and gambling
  • State Cesses and Surcharges that are related to the supply of goods and services
  • Entry Tax, not in lieu of Octroi

How will the GST work?

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.

Dual GST within State: Working Example

Dual GST within State: Working Example

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.

A diagrammatic representation of the working of the IGST model for inter-State transactions is shown in Figure 2 below.

Inter-State Transactions of Goods and Services be taxed under GST in terms of IGST

Inter-State Transactions of Goods and Services be taxed under GST in terms of IGST

Which goods and services will not be covered by the GST?

The existing taxation that has applied to the following goods and services will not be fully or partially covered by the GST:

  • Alcohol for human consumption (State Excise plus VAT will continue to be applied)
  • Electricity (Electricity Duty)
  • Real Estate (Stamp Duty plus Property taxes)
  • Tobacco products (GST plus Central Excise will be applied)

What is the proposed rate of the GST?

The GST council has proposed a four-tier tax model that includes a base rate of 5% on goods like edible oil, spices, tea, coffee, etc., standard rates of 12% on products like computers, processed food, and cycles, an 18% on most services as well as items such as soap, shaving razors, etc., and a higher rate of 28% on demerit goods like SUVs, tobacco products, and aerated drinks. The goods coming under the 28% tax bracket will also attract additional cess on top of GST. Apart from this, about 50% of the products in the consumer basket, such as food grains, will be kept zero rated.
How will businesses owners benefit from the GST?

Business owners can sell more in other states without worrying about interstate transaction costs. There will be no entry tax under the GST, which will save money and time spent at check posts at each state border.

Businesses can enjoy reduced tax burden and operating costs. With Input Tax Credits under the GST system, there will no longer be a need for tax cascading. Business owners can offset the tax paid on the purchase of goods and services with the tax on the supply of goods and services.

It will be easier for business owners to comply with tax laws under the GST. Currently there are up to 15 different legislatures with different definitions, tax rules and regulations. GST will replace several of these taxes, simplifying the compliance process for businesses.

How will the GST impact customers?

Under the current system, from the production to the consumption of a product, there are multiple taxes that are applied without the provision of tax credits. As a result, the price of the final product is increased, causing the customer to pay more. The GST will absorb many of the current taxes into a single tax, while also providing tax credits. This will reduce the price of final products for end consumers.
Who should register for GST?

Any business with an aggregate turnover, as specified below, should register for the GST. If you fall below the threshold, you can choose not to register, but you cannot add the GST charge to your customers’ purchases. If your turnover goes above the threshold at a later point in time, you need to register within 30 days.Aggregate turnover is the combined value of all taxable and non-taxable supplies, exempt supplies, and export of goods and services of a person with the same PAN. The value of inward supplies, as well as those on which reverse charge is levied, are not included in this.

If you are already registered for one or more of the following taxes, you need to register for the GST during the registration window for your state:

  • Central Excise
  • Service Tax
  • State Sales Tax/VAT (except exclusive liquor dealers if registered under the VAT)
  • Entry Tax
  • Luxury Tax
  • Entertainment Tax (except for those levied by local bodies)

The following business have to register, irrespective of the turnover:

  • Businesses selling taxable goods outside the state
  • Casual taxable person
  • Businesses required to pay reverse charge
  • Non-resident taxable person
  • Businesses that are required to deduct tax (e.g. e-commerce business operating in a marketplaces such as Amazon)
  • The person supplying goods or services or both as an agent of any other person
  • Input Service Distributor
  • E-commerce operator
  • An aggregator who supplies services under his brand name

When should I register?

The window for registration for existing tax payers has opened for all states and Union Territories. The last date of registration is 31-Mar-2017.
Check GST website for more details: https://www.gst.gov.in/
What do I need to register?

You must ensure you have the following official documents ready before you begin the registration process:

  • Provisional ID received from State/Central Authorities
  • Password received from the State/Central Authorities
  • Valid email address
  • Valid mobile number
  • Bank account number
  • Bank IFSC

In addition to these, you are also required to present the following documents:

Limited Liability Company

  • Company PAN card
  • Registration certificate of the company
  • Memorandum of Association (MOA) /Articles of Association (AOA)
  • Copy of company’s cancelled cheque
  • Declaration to comply with the provisions
  • Copy of board resolution
  • PAN and ID proof of directors
  • Copy of electricity bill/landline bill/water bill
  • No objection certificate of the owner
  • Rent agreement (in case premises are rented)

Limited Liability Partnership

  • PAN card of the LLP
  • Registration certificate of the LLP
  • LLP partnership agreement
  • Copy of LLP’s cancelled cheque
  • Declaration to comply with the provisions
  • Copy of board resolution
  • PAN and ID proof of designated partners
  • Copy of electricity bill/landline bill/water bill
  • No objection certificate of the owner
  • Rent agreement (in case premises are rented)

Sole proprietorship

  • PAN card and ID proof of the individual
  • Copy of cancelled cheque or bank statement
  • Declaration to comply with the provisions
  • Copy of electricity bill/landline bill/water bill
  • No objection certificate fro the owner
  • Rent agreement (in case premises are rented)

How do I register?

  • Obtain your Provisional ID and password from your State VAT Authority. You will use this to log in to the GST portal.
  • Enter your mobile number and email address (or fill in the information of the authorized signatory). You will receive an OTP, which you need to enter. All future correspondence from the GST portal will be sent to this registered mobile number and email address.
  • Create a username and password, and answer the security questions that follow.
  • You will then be taken to your dashboard, where you can fill in your details. At the top of the page, there are eight tabs: Business Details, Promoters/Partners,Authorized Signatory, Principal Place of Business, Additional Place of Business, Goods & Services, Bank Accounts, and Verification. Enter the necessary information in these tabs.
  • Once you have filled all the details, click on the Submit with DSC button to complete the registration process. Make sure that you have updated your Digital Signature Certificate (DSC) in the same portal. You will receive an acknowledgement with a reference number in your registered mobile and email.

For more information on how to register, click here.

GST Invoice