GST Explained: GST Benefits | GST Drawbacks | All You Need To Know
Introduced by The Constitute (122nd) amendment act 2, Goods and services act (GST) was launched as an indirect tax throughout the nation as an alternative of taxes enforced by the central and the state governments. The GST was introduced by the GST council with its chairman as Union Finance Minister of India – Arum Jaitley. The expected date of implementation of GST will be by 1st July 2017. The main agenda of GST will revolutionize the way we do our taxes. GST will be implemented at all the level of production from buying the raw material to selling the final good. Moreover, it will be applied at all the places from where the goods will pass for the trade, together these features make GST multi – stage and destination- based tax. GST will eliminate various indirect taxes like service tax, surcharges, state value added charge or central excise duty. Other taxes like inter transportation good tax will soon be subsumed by the GST.
The list of following taxes that will be replaced by GST:
- Tax applicable on lotteries
- Entry tax
- Advertisement tax
- Entertainment tax
- Luxury tax
- Central excise duty
- Sevice tax
- Value added tax
- Purchase tax
- Countervailing duty
GST will be imposed on transactions such as sale, purchase, transfer, barter, lease or import of goods and services. GST will soon witness a dual model system i.e. it will be governed by both central and the state government.
What is CGST, SGST AND IGST?
Sundial being a federal democracy there is a proper distribution of power and responsibility over the collection of taxes. There should be a proper allocation of the power between state government and central government to avoid over lapping of the collection of taxes and revenues to avoid further disputes and misunderstanding between the two.
- The transaction made within the single state will be handled by central GST (CGST) and the state GST (SGST) of that state.
- The transaction related to inter -state or import of goods and services will handled by the integrated GST (IGST).
Importance of GST
Currently taxes are divided into two parts:
Under the rule of Direct tax liability cannot be passed to someone else other than the consumer for example the person earning the income has to directly pay the money of the tax without passing on to someone else. This is known as income tax on the other hand under indirect tax the person can pass on the liability for example, the shopkeeper paying the VAT on his purchase of raw material can pass on to the customer . Due to this the customer not only pays the price of the product, but also pays the VAT that has to be deposited to the government, thus customer being under higher burden.
Hence this problem will be addressed in the implementation of GST. GST carries a system of Input tax credit, which allows the customer to claim back the tax already paid enabling them to decrease their burden.
- India witnesses regular budding society regular budding industries and business either within the nation or across the globe by the people. At the start up stage setting up new business becomes terrifically tough job as it has to penetrate via various levels and types of tax systems. Navigating through various direct and indirect taxes becomes a cumbersome job for the new business startups. On the top of it constant changes in service tax make the case even worse. GST being an alternative of all the taxes makes it easier for the business world.
- Since after the roll in of GST, there will be an ease for the startup company to bud in India, which will grow industrialization and further increase in job opportunities. More and more factories and offices would be there which will increase the soaking power of the country in context of jobs thus enabling to remove unemployment by the next few years.
- The biggest concern of India was its high tax rates, especially for the services. It was proposed to be around 18% higher than its competitor countries like Thailand and Malaysia. The government doesn’t want to cap even this.
Effects of GST on India and its economy
- At the time of implementation and being charged GST will be nominal or zero rated. The government has ensured to protect the losses of the states from the implementation of GST; they have ensured the compensation of revenue losses to the state for the losses from the time GST has been implemented till the period of five years.
- Once GST has been implemented it is believed that the flow of foreign direct investment would increase in India. It was the complex and various tax systems which enables the foreign company to set up in India along with the corrupt system.
- As there will be growth in employment and exports it is believed that there would be overall growth in the revenue of the country. Sweeping in of $15 million is expected once GST has been rolled in.
- The existing double taxation system prevents manufacturers to produce at its full potential, thus GST will ensure to give them tax credit which would automatically increase their manufacturing capacity.
- Various tax barriers during the time of transportation like a checkpost or toll plaza increases the damage of perishable goods that are either exported or imported. Further losses are added to the cost of storage and warehousing. This single tax system will eliminate this road blockage.
- GST will lead to transparency as the costumer will be aware of what they are paying and on what basis.
- It will further remove the custom duty on the goods exported which will improve the competition level with foreign countries.
- Not only the local citizens but also the government would be benefited with GST by getting more revenues due to increase in tax base.
- The introduction of the Goods and Services Tax will be a very noteworthy step in the field of indirect tax reforms in India. By merging a large number of Central and State taxes into a single tax, GST is expected to significantly ease double taxation and make taxation overall easy for the industries
What are the drawbacks of GST on shopkeepers?
- If any shopkeeper has not been registered under the existing tax system then he or she has to immediately do so under the new system if there average turnover crosses the threshold limit. The existing threshold limit set by GST is Rs. 20 lakhs except for the north eastern hilly region where it is Rs. 10 lakhs.
The following suppliers have to get themselves registered even if they are not at the threshold limit:
- Input service distributer
- E- commerce suppliers of goods and services
- Non – resident person
- Casual Taxation person
- Person engaged in inter- state supply of goods and services
- Involved in supply of Data management services
- Since GST is new budding system and very less information has been circulated in the public, thus small business set ups and shopkeepers enable to understand it fully.
- Everything related to GST will be done online, thus many shopkeepers who are not comfortable with technologies will face the problem. Further adding internet connection and computers can be a costly affair for them.
The list of goods and services getting cheaper with GST are:
- Two wheelers
- SUVs and luxury cars
- Entry level sedan
- With entertainment tax replaced by GST the movie tickets and theatre tickets are likely to get cheap
- In most states dinning in restraints will become pocket friendly
The list of goods and services likely to rise are:
- Courier services
- Residential rent
- School fees
- Heath care
- Commutation by the metro
- Mobile bills
- Banking and investment management services
Various Tax slab under GST
( Source: www.myloancare.in/tax/gst/gst-rates-slabs-tax-rate-india/)
|Gold, Silver and Processed Diamonds||3%|
|Parma (Lifesaving drugs)||5%|
|Footwear up to Rest. 500||5%|
|Cotton and natural fiber||5%|
|Packaged foods like pickles, tomato sauce, mustard sauce and fruit preserves||12%|
|Ayurveda and homeopathy medicines||12%|
|Fruit juices, live animals, meats, butter & cheese||12%|
|Footwear above Rest. 500||18%|
|All FMCG goods like hair oil, soaps, toothpaste and shampoos; chemical and industrial use intermediaries||18%|
|LPG stoves, military weapons, electronic toys||18%|
|Pastries, cakes, pasta, ice creams, soups||18%|
|Manmade fiber and yarn||18%|
|White and brown goods like TV, refrigerator, AC, washing machines, microwave ovens; soft drinks and aerated beverages||28%|
|Perfumes, revolver, pistols||28%|
|Chocolates, chewing gum, waffles containing chocolate||28%|
|Luxury and de-merits goods and sin category items e.g. tobacco, pan masala||28% +|
|Small cars – petrol driven||28% +|
|Small cars – diesel driven||28% +|
|Luxury cars||28% +|
|Heavy bikes, Luxury yachts, private jets|
GST rates for Services
|Outsourcing (in industries such as gems and jeweler, textiles)||5%|
|Restaurants with annual turnover less than Rest. 50 lakhs||5%|
|Cab aggregators like Ola, Umber||5%|
|Hotels with tariff Rest. 1,000 – 2,500||12%|
|Non-AC restaurants without liquor license||12%|
|Real estate (Work contracts)||12%|
|Airlines (Business class)||18%|
|Telecom, financial service||18%|
|Hotel room tariff Rest. 2,500 – 5,000||18%|
|AC restaurants with liquor license||18%|
|Movie tickets below Rest. 100||18%|
|Movie tickets above Rest. 100||28%|
|5 star hotels||28%|