Goods and Services Tax (GST) | Meaning, Advantages and Characteristics

 ​    Table of Contents 1. Meaning … Continue reading “Goods and Services Tax (GST) | Meaning, Advantages and Characteristics”
The post Goods and Services Tax (GST) | Meaning, Advantages and Characteristics appeared first on Taxmann Blog. 

Table of Contents

1. Meaning of Goods and Services Tax

2. Major defects in the earlier structure of indirect taxes

3. Objectives and Advantages of Goods and Services Tax

4. Characteristics of Goods And Services Tax

5. Types of Goods And Services Tax

In India, Goods and Services Tax, (GST), came into effect on July 1, 2017. Goods and Services Tax was introduced to avoid the cascading effect of indirect tax. GST Council was constituted to fix the rates of Goods and Services Tax. Union Finance Minister is the Chairman of the GST Council. Other members of the GST Councils are:

(i) Union Minister of State-in-charge of Revenue or Finance, and
(ii) Minister-in-charge of Finance or Taxation or any other minister nominated by each state Government and Union Territory.

1. Meaning of Goods and Services Tax (GST)

As per Article 366 (12A) of the Constitution of India, Goods and Services Tax means a tax on supply of goods or services, or both, except taxes on supply of alcoholic liquor for human consumption. For the time being, GST is not levied on petroleum products.

It is an indirect tax levied on supply of goods and services, except on exempted goods and services. The word used in Article 366(12A) is ‘supply’ and not ‘sale’. Thus, stock transfers, branch transfers will also get covered under GST net.

GST is a consumption or destination based tax. It is payable in the State in which goods and services are finally consumed. Most of the indirect taxes have merged into Goods and Services Tax.

States can levy tax on sale, within the state of alcoholic liquor for human consumption and on petroleum products.

Every registered person/tax payer who makes supply of goods or services or both which were leviable to tax and his aggregate turnover in a financial year exceeds the prescribed limit is required to register himself in the State or Union Territory where he makes a taxable supply.

Goods and Service Tax is chargeable by a registered person/tax payer at the prescribed rates until goods and/or services reach their final destination, i.e. the consumer. After reaching the final destination, i.e., the consumer, they are not further supplied.

2. Major defects in the earlier structure of indirect taxes

Following were the major defects in the earlier structure of indirect taxes:

Central Sales Tax was payable for every movement of goods from one state to another. Even in case of stock transfers and branch transfers, there was incident of tax and input tax credit was not fully available. (Note:Input tax credit has been explained later in this chapter). Thus, cascading effect of taxes could not be avoided due to Central Sales Tax.
Millions of man-hours and truck-hours used to be lost at check costs.
The Central Government could not impose tax on goods beyond manufacturing level. Central Sales Tax was collected by the Central Government and retained by the State Government only.

3. Objectives and Advantages of Goods and Services Tax

To make tax rate uniform throughout the country: Only of the main objective of GST is to have uniformity of indirect tax rates throughout the country. GST rates are same throughout the country. Earlier there were different rates of Sales Tax/Value Added Tax in the States. Its motto is One Nation, One Market. The main objective or advantage of GST is single tax structure right the manufacturing.
To remove cascading effect of Taxes: Cascading effect of taxes means levy of tax on tax. GST is levied only towards the net value added portion and not towards the full portion of value as the taxpayer enjoys input tax credit. Goods and services will cost less due to removal of cascading effect of taxes. Due to input tax credit, GST would be finally paid by the consumer for the goods and services purchased.
To Simplify Taxation Process: GST is a comprehensive indirect tax. The taxes which have been subsumed in GST include:

(i) Central Excise Duty (except on petroleum products),
(ii) Service Tax,
(iii) Value Added Tax levied by the State Government,
(iv) Central Sales Tax,
(v) Additional Customs Duties,
(vi) Entry Tax,
(vii) Entertainment Tax,
(viii) Luxury Tax,
(ix) Tax on Lotteries, etc.

Thus, GST has integrated different tax line and it prevents multiple tax layers imposed on goods and services.
GST reduces the burden of taxes and ensure compliance of tax payment. The number of compliances is lesser. Thus, GST simplifies taxation process and helps in ease of doing business. This is a huge benefit for the business enterprises.

To make Indirect Tax Management Effective: The State Government and Central Government has to administer now mainly one indirect tax, i.e.,GST after implementation of GST. Therefore, administration of GST will be more effective. As a result, tax evasion is likely to reduce. Previously, management of indirect taxes was a complicated tax for the Government.
To attract more Foreign Direct Investment: Goods and Services Tax helps in ease of doing business. Therefore, it will attract more Foreign Direct Investment.
Simple and Easy online Procedure: GST returns are filed online. The online procedure is simple and easy. Online filing of GST returns helps in making tax administration corruption free.
Composition Scheme for Small Businesses: Composition Scheme is a simple and easy scheme under GST for small tax payers as they can get rid of GST formalities and pay GST at a fixed rate of turnover. This scheme can be opted by small tax payer whose turnover is less than the prescribed limit and is not engaged in making inter-State supplies.
Enhanced Productivity of Logistics: After abolition of octroi and entry tax restriction on inter statement movement of goods has reduced. This has increased the productivity of logistics companies.
Creation of Common National Market: GST has given a boost to India’s tax to Gross Domestic Product ratio which helps in promoting economic efficiency and long-term growth. GST has led to uniform tax law and it has formed a common national market.
Regulation of Unregulated and Unorganised Sector under GST: GST has brought unregulated and unorganised sectors such as textiles and construction under regulation.

4. Characteristics of Goods and Services Tax

Comprehensive Indirect Tax: GST is a comprehensive indirect tax. It has subsumed 17 indirect taxes levied by the State Governments and the Central Government under the earlier indirect tax regime. GST has integrated various taxes on goods and services into one unified tax. Thus, GST has brought about unified tax regime.
Consumption or Destination Based Tax: GST is payable in the state in which goods and services are finally consumed. Thus, it is a consumption or destination based tax.
Same GST Rates throughout the country: The motto of GST is One Nation One Tax One Market. Under the GST regime, the GST rates are same throughout the country. Earlier, the rates of VAT/Sales Tax were different in the States.
Tax on Supply of Goods and Services: GST is a tax on supply of goods and services, or both, except taxes on supply of alcoholic liquor for human consumption. At present petroleum products will be out of GST. Petroleum products can be brought into the GST network if the GST Council so decides. Petroleum products means petroleum crude, high speed diesel, motor spirit, i.e., petrol, natural gas and aviation turbine fuel.
The word used is “Supply” as against the earlier concept of tax on the manufacture of goods or on sale. Therefore, stock transfers and branch transfers will also come under the GST net. GST is charged by the registered person/tax payer from the purchaser of goods and services.
No Tax on due to Input Tax credit: Goods and Services Tax belongs to family of Value Added Tax. GST is levied on the incremental value of the goods. Further, Input Tax Credit (in short, ITC) is allowed which avoid cascading effect of taxes. Every registered taxable person who carries on business at any place in India is entitled to credit of tax on inputs admissible to him which will be credited to the electronic credit ledger of such person in the records of the Government. Thus, there is no tax on tax.
Collection of GST by Registered Person/Tax payer: GST can be collected only by a person/tax payer who is registered under the Central Goods and Services tax Act, 2017.
Person includes:
(a) an individual;
(b) Hindu Undivided Family;
(c) a company;
(d) a firm;
(e) a Limited Liability Partnership;
(f) an association of persons;
(g) any corporation established by or under any Central Act, State Act or a Government Company;
(h) any body corporate;
(i) a cooperative society;
(j) a local authority;
(k) Central Government or State Government;
(l) trust.
GST Collected is Payable to the Government: GST is collected on supply of goods and services. GST collected on supply of goods and/or services, after deduction of GST paid on purchases of good and/or services, is payable to the Government.
Multiple Rate Structure: GST has multiple rate structure. GST rates for goods include 5%, 12%, 18%, 28% and 3%. GST rates for services are 5%, 12%, 18% and 28%.

5. Types of Good and Service Tax (GST)

There are four types of tax leviable on supply of goods and services.

These are as follows:

Types of Tax
Leviable on Supply of Good or Services or Both
Levied by

State GST (SGST)
In case of supply within the State
Respective State Government

Union Territory GST (UTGST)
In case of supply within the Union Territory where there is no legislature
Central Government

Central GST  (CGST)
In case of Supply within the State or Union Territory
Central Government

Integrated GST (IGST)
In case of inter State supply, i.e., on supply outside the state
Central Government

It means that on supply of goods and services within the State/Union Territory both CGST and SGST/UTGST are levied.

Integrated GST is distributed between the Central Government and the States as per the recommendation of the GST Council.

The post Goods and Services Tax (GST) | Meaning, Advantages and Characteristics appeared first on Taxmann Blog.

 GST & Customs Archives – Taxmann Blog Read More 

Leave a Reply