GOODS AND SERVICES TAX (GST)

GOODS AND SERVICES TAX

Goods and Services Tax
(GST) is a single tax rate
levied

on

the

manufacture,

sale

consumption

of

and

services

national level.

and

goods
at

GOODS AND SERVICES TAX

In this system, GST is levied only on the value-added at every
stage of production. This will ensure that there is no cascading
effect of taxes (tax on tax paid) on inputs that are used in
manufacturing of goods.

GOODS AND SERVICES TAX

For example: If a tax of 15% is levied on Rs. 2 lakhs at the first
stage, the tax outflow would be Rs. 30,000. At the next stage when
the same goods are sold for Rs. 2.5 lakhs the tax would have been
Rs. 37,500 (Rs. 2.5 Lakhs x 15%) but since there is a set off of Rs.
30,000 available, the actual tax at that stage will be Rs. 7,500 (Rs.
37,500 Rs. 30,000).

GOODS AND SERVICES TAX

Simply

put,

when

the

final tax is calculated, the

tax

already

paid

on

input / raw material is

deducted and then tax is
levied only on the cost of
the goods produced.

How is the GST

different from
current system?

GOODS AND SERVICES TAX

Nature
of
Regime

Current
A Combination of value added tax
(VAT) which is a destination-based
tax and origin-based taxes such as
excise duties etc.
Tax Base Goods & Services are taxed
separately, subject to some
exemptions
Multiplic Multiple tax rates
ity of tax
rates
Tax
Incomplete set off mechanism for
Cascadin tax paid in the supply chain (e.g. no
g
set off available for VAT against
service tax or excise duty)

GST
Tax incidence at the point
of sale

Comprehensive base of
goods & services included
Single tax rate

Complete set-off should be

available in the entire
chain of production and
distribution to eliminate
tax cascading effect

GOODS AND SERVICES TAX

Why is it considered
a better system?

GOODS AND SERVICES TAX

Currently, there are multiple indirect taxes Central

taxes

such

as

excise

duty,

service

tax

and

countervailing duty, and State taxes, such as VAT,

entertainment tax and luxury tax. This results in high
tax

rates.

Accordingly,

GST

seeks

to

eliminate

multiplicity of taxes, rates, exemptions and such

exceptions to achieve uniformity of taxes across the
country. Further, it would provide greater certainty
and transparency of taxes.

Also,

the

differences

across

states

fragment

the

national market along state boundaries. GST is likely

to replace all these taxes with a simple levy, lowering
effective tax on goods and creating a national market

What is the GST

model India plans
to adopt?

GOODS AND SERVICES TAX

Most

countries

have

unified

GST

system.

However, India has opted for a dual GST system

prevalent in Brazil and Canada. Under this model,
both the Centre and states have the right to levy
and collect tax on the sale of goods and services.

What are the key

benefits of
implementing a
GST?

GOODS AND SERVICES TAX

GST will simplify India's tax structure, broaden the

tax base, and create a common market across
states. This will lead to increased compliance and
will support India's GDP growth.

It will be beneficial for India Inc. as the average tax

burden on companies will fall due to transparent
set-off mechanism and elimination of cascading
taxes leading to reduced production costs and
increased export competitiveness.

GOODS AND SERVICES TAX

Implementation of GST may lead to a fall in costs in

many cases making several products competitive
leading to benefits for the manufacturers and also
making some of them competitive on the world
stage. Over a period of time the consumer will reap
the benefits of the process through lower costs.

CURRENT
ACCOUNT
DEFICIT
GOODS AND
SERVICES
TAX
Let us see the formula of the Current Account Balance (CAB)
CAB = X - M + NI + NCT
X = Exports of goods and services
M = Imports of goods and services
NI = Net income abroad

[Salaries paid or received,

credit / debit of income from
FII & FDI etc.]

NCT = Net current transfers

Hope
Aids &
Assistance and

[Workers' Remittances
(unilateral),
you
haveDonations,
now

Grants,
understood
theOfficial,
concept of
Pensions etc]

Goods and Services Tax.

Please give us
your feedback at
professor@tataamc.co
m

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and do not construe to be any investment, legal or taxation advice.
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