INTRODUCTION TO GOODS AND SERVICES TAX

Introduction

Before moving into the concept of Goods and Services Tax, we need to first understand the two different kinds of taxes, which are:

1. Direct Taxes: This type of tax is levied on the income of an individual. The higher the person earns the more he needs to pay the amount of tax.
2. Indirect Taxes: Indirect tax is not imposed directly on the income of the individuals. These are levied on the goods and services, therefore the cost of goods and services are increased. The amount of this tax is borne by the end customer, rich and poor alike. Some of these are imposed by Central Government whereas some are imposed by different State Government. This, in the end, makes the system of Indirect Tax complicated.

What is GST?

The Goods and Services Tax was introduced with One Hundred and First Amendment Act, 2016.  It is levied upon the supply of Goods and Services. It has replaced many Indirect Taxes in India in order to simplify the tax system. GST is a comprehensive, multi-stage, destination-based tax that is levied on every value addition. It is one indirect tax for the entire country. There are four major Acts which are related to Goods and Services Tax, which are:

1. Central Goods & Services Act, 2017 – This Act came with an objective to make a provision for levy and collection of tax on intra-State supply of goods or services or both by the Central Government.
2. State Goods & Services Act, 2017 – Under this Act, many states are individually covered. And all of them have their separate Act for the levy and collection of tax on intra-State supply of goods and services in that specific state.
3. Integrated Goods and Services Act, 2017 – As per this Act, provisions for levy and collection of tax on inter-State supply of goods or services or both by the Central Government will be made.
4. Union Territory Goods and Services Act, 2017 – The aim of this Act is to make provisions for levy and collection of tax on intra-State supply of goods or services or both by the Union territories.

Advantage of GST

The main advantage of GST is that it has deducted the various numbers of indirect taxes which were imposed on the goods and services. In other words, we can say that the cascading effect (tax on tax) of the tax is removed will the help of GST.

Before the application of GST, the various taxes were charged on different stages of the making of the Goods. For e.g. for making biscuits the main ingredients that are needed are flour and sugar. Here, at this stage, the value of the biscuits will be increased as the manufacturer will pay the VAT. After this stage, when the goods are sold to the wholesaler, the tax is again added to the goods which are already being taxed in the previous stage. Therefore, all the burden of the taxes is being borne by the final customers.

There are certain taxes of Central and State Acts which are now the part of the Goods and Services Tax. Some of these are:

Central Acts:

1. Central Excise Duty
2. Additional Duties Of Excise
3. Excise Duty Levied under Medicinal & Toiletries Preparation Act
4. Additional Duties Of Customs (CVD And SAD – Countervailing Duty and Special Additional Duty )
5. Service Tax
6. Surcharge And  Cess

State Acts:

1. State VAT / Sales Tax
2. Central Sales Tax
3. Purchase Tax
4. Entertainment Tax (Other than those levied by local bodies)
5. Luxury Tax
6. Entry Tax (All Forms)
7. Taxes on lottery, betting and gambling
8. Surcharges and cesses.

Goods and Services Tax Council

The Goods and Service Tax Council (“GSTC”) comprises of the Union Finance Minister, the Minister of State (Revenue) and the State Finance Ministers to recommend on the various matters related to GST. One-half of the total number of members of the Council form quorum in meetings. Decisions of the Council are taken by a majority of not less than three-fourth of weighted votes cast. Centre has one-third weightage of the total votes cast and all the states taken together have two-third of weightage of the total votes cast.

To ensure smooth roll-out of the GST, various Committees and sectoral groups have been formed comprising of members from both Centre and States.

Various Slabs under the GST

There are 5 slabs under the Goods and Services Act. These slabs are divided as per the needs of the people of the Country. The products that are basic to the human needs are in the low tax bracket whereas the luxury products are in the higher tax brackets. The different brackets are:

1. No GST (Exempted)
2. 5%
3. 12%
4. 18%
5. 28%