Meaning and Features of Goods and Service Tax (GST) in India

1.0 Introduction

“Invention is born out of necessity.”As said, GST is born out of necessity. When the current indirect tax structure is no more able to take India towards the dream of economic super power, government steps up and introduced Goods and Service Tax (GST).

Goods and Service Tax (GST) has been introduced with an only motive to accelerate the economic growth. It is expected that GDP growth will increase by 2% after introduction of GST.

2.0 Meaning of Goods and Services Tax (GST)

Goods and Service Tax (GST) is an upgraded version of Value Added Tax (VAT). GST is a consumption based tax and a comprehensive indirect tax which shall levy on the supply of goods and services.

Presently, Indian indirect tax structure is very vast and complex. Under indirect tax ambit, we have Central Excise, Service Tax, Central Sales Tax, 31 VAT laws, Luxury tax, entry tax, etc. As we can see, there is a whole complex web of laws.

GST is set to subsume all these taxes and will prevail as a single indirect tax levy in the whole country. This will facilitate wider tax base, more compliant business, less litigation and tax collection cost will also decrease. 

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Let us see some definition of GST for a better understanding;

As per Article 366(12A); “Goods and Service tax” means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption.

As per Indian Constitution

 GST stands for "Goods and Services Tax", and is proposed to be a comprehensive indirect tax levy on the manufacture, sale and consumption of goods as well as services at the national level. It will replace all indirect taxes levied on goods and services by the Indian Central and State governments.

As per Wikipedia.org

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.

As per FAQs issued by GOI

There are plenty of concepts hidden in the above definitions. Each concept carries vital information. The concepts are narrated as under;

• GST is a consumption based Tax

If we can assume goods or services as a horse, GST is a horse rider. Wherever the horse moves, the rider moves along with. GST is called a consumption based tax because of it is payable to the state in which goods or services are actually consumed.
There is a logical reason behind GST being a consumption based tax. Under the current scenario, a tax is payable in the state where goods are produced. E.g. if goods are sold from Gujarat to Rajasthan, then the tax shall be paid to the government of Gujarat. This is origin-based taxation. Under this principle, consuming state is not getting any tax revenue which is tax base erosion of that particular state. This problem is resolved under proposed GST regime.
Since GST is a consumption based tax, tax revenue will be levied and collected by the consuming state, and this helps the consuming state to protect their tax base.
Similar things were undertaken by the central government under Income-tax Act, 1961, to save the tax base by amending section 9 many times.

• Dual GST

As per the Model GST law and various recommendations, it is proposed to have dual GST model; Central GST and state GST. Both shall be applicable on goods and services within the state. Input Tax Credit (ITC) of CGST and SGST shall not be available against each other.
CGST and SGST shall not be applicable in the case of interstate supply of goods or services.

• Integrated GST

Integrated GST or IGST shall be levied and collected only on the interstate supply of Goods and services. IGST shall also be applicable on import of goods or services in India. The IGST rate shall be equal to combined rate of CGST and SGST.
Input Tax Credit (ITC) of IGST shall be available against CGST and SGST.

• GST Applicability in India

GST is applicable on the supply of all goods or services or both except taxes on the supply of the alcoholic liquor for human consumption. Alcoholic liquor for human consumption shall continue to be taxed under the current system.
GST is currently not applicable on Alcoholic liquor for human consumption and Petroleum crude, high-speed diesel, motor spirit (petrol), natural gas and aviation turbine fuel (GST council will decide until when these will be brought under GST ambit).
GST shall also be applicable on tobacco, tobacco products. The further centre may also impose excise duty on tobacco and tobacco products.

• Single Market Single law

GST is one indirect tax for the whole nation, which will make India one unified common market. Under present structure, there are 31 different VAT laws in the country. Each has a separate registration process, return filing procedure, penalty provisions, etc. This creates difficulty for the business man in running the business smoothly.
Under GST regime, there shall be uniformity across the country. GST will provide a big breakthrough in ease of doing business in India.

• Taxes Subsumed under GST

Presently, there are various indirect tax laws functioning differently still not able to achieve the desired satisfaction. So many taxes create non-compliance, tax evasion and also it is difficult for the government authorities to administer. GST is set to remove this multiplicity of taxes.

Further, narrowing the impact of the multiplicity of taxes is not only desired but also imperative in the current economic scenario.

Conclusion

To know more about the goods and services tax (GST), please subscribe to our monthly magazine.