GST

GST would bring in significant change in doing business in India. Advocacy for best practices,
gearing up for changes in processes, training teams and developing IT systems for being GST
compliant are the key areas to be assessed.
The Government is committed to introduce GST by April 2017. Tax payers need to be GST compliant
to be able to test system changes in time. Depending on the operating geographies, size and sector,
the changes would be substantial and may require proactive planning with a time-bound action plan.
In order to prepare for the implementation of GST, companies need to understand GST policy
development and its implications for scenario planning and transition roadmap preparation.

Sourcing

Inter-state procurement could prove viable

May open opportunities to consolidate suppliers/vendors
Additional duty/CVD and Special Additional duty components of
customs duty to be replaced

Distribution

Changes in tax system could warrant changes in both procurement

and distribution arrangements
Current arrangements for distribution of finished goods may no
longer be optimal with the removal of the concept of excise duty on
manufacturing
Current network structure and product flows may need review and
possible alteration

Pricing and
profitability

Tax savings resulting from the GST structure would require

repricing of products
Margins or price mark-ups would also need to be re-examined

Cash flow

Removal of the concept of excise duty on manufacturing

could result in improvement in cash flow and inventory costs as GST would
now be paid at the time of sale/supply rather than at the time or removal of
goods from the factory

System changes and

transaction
management

Potential changes to accounting and IT systems in areas of master

data, supply chain transactions, system design
Existing open transactions and balances as on the cut-off date
need to be migrated out to ensure smooth transition to GST
Changes to supply chain reports (e.g., purchase register, sales
register, services register), other tax reports and forms (e.g., invoices,
purchase orders) need review
Appropriate measures such as training of employees, compliance
under GST, customer education, and tracking of inventory credit are
needed to ensure smooth transition to the GST regime

The key imperatives for companies are:

Understand key areas of impact in their business

Prepare different scenarios for the design and application of GST

Continually track policy development regarding GST and update prepared scenarios

Identify any areas of adverse impact and prepare contingency measures

Identify issues and concerns requiring representation to authorities and develop a strategy
for effective advocacy

Viewpoint on GSTs impact on various sectors

Pharma companies must remodel their supply chain

GST is likely to have a far-reaching impact on several aspects of business, including pricing
of products and services, supply-chain, IT systems, accounting, tax-compliance framework &
re-skilling of talent.
The pharma industry will look forward to continuation of exemption for certain life-saving
drugs and Active Pharmaceutical Ingredients used in manufacture of life saving drugs.
(Reuters)
GST is a tax triggered business transformation which is expected to be a game changing
reform for the Indian economy. It will develop a common Indian market and reduce the
cascading effect of tax on the cost of goods and services. It will result in a complete overhaul
of the Indian indirect tax system with wide ranging implications including tax structure, tax
incidence, computation, payment, compliances, credit utilisation and reporting.
Where does GST stand today and roadmap thereafter
After a long wait, the Constitution Amendment Bill (GST Bill) was finally cleared in both the
Houses of Parliament, paving the way for Presidential reference and for ratification by 50% of
the state assemblies. The GST Council would come into existence within 60 days from the
date of enactment of the GST Bill by the President. It would have a key role in recommending
taxable base and exempt products, principles of levy of GST, apportionment of Integrated
Goods and Services Tax (IGST), principles governing place of supply, threshold limit, rates
including floor rates with bands of GST and most important, date of application of GST to
petroleum products.
The eagerness of the Government to meet the target GST roll out date of April 1, 2017 is
quite evident from its proposed move to advance the winter session of Parliament by a
fortnight. This would enable an early passage of supporting legislations, in turn leaving
sufficient time for the implementation of the said reform. However, a section of industry
seems to have doubts about its own preparedness for the same and may need at least six to
eight months after the GST Council has frozen its decisions.
Key watch out areas for the Pharmaceutical sector
The rate of GST applicable on pharmaceutical formulations is yet to be finalised, but it is
expected that the said goods could be covered the under lower tax bracket of around 12%
GST, thereby ensuring that the cost of medicines to the patients could be construed as status
quo given that the generic rate applicable under the current law is typically around the same
range. The pharma industry will look forward to continuation of exemption for certain lifesaving drugs and Active Pharmaceutical Ingredients used in manufacture of life saving drugs.
The Model GST law released in the public domain specifically provides for refund of
accumulated credit resulting out of increased rate for inputs vis-a-vis reduced rate of output.
This is positive news for the pharma industry, which has been struggling with a high amount
of blocked credit in the current regime. Also, special provisions for duty-free movement of
goods under job work model, which is prevalent in the pharmaceutical industry and
fundamental to its operations, have been provided in the Model GST law.
The Model GST law provides seamless transition of entire credit balance as on the cut over
date under the present indirect tax laws into the GST regime. This is beneficial for the
industry.

At present, many companies engaged in manufacture of pharmaceutical products have set

up their manufacturing units at locations where the central government and the state
governments have offered indirect tax exemptions/incentive schemes (such as Baddi, Northeastern states, Jammu & Kashmir, etc.). Continuity of the said area-based indirect tax
benefits under the GST regime is critical as this may also indirectly impact the cost of
medicines and ultimate price to be paid by the patients.
Since GST on inter-state sale of goods would be creditable, there is an opportunity to
remodel current supply chain structure to ensure lower logistics cost and bring in significant
operational efficiency which should have a positive impact on the profitability of the
companies.
The industry would be looking forward for ease in procedural compliances and upfront clarity
on tax positions. The need of the hour is to have clarity on tax positions on transactions such
as valuation of inter-state transfer of goods within the same entity, free supplies, patient
assist programmes, supplies for destruction etc.
Way forward
GST is likely to have a far-reaching impact on several aspects of business including pricing of
products and services, supply chain, IT systems, accounting, tax compliance framework &
re-skilling of talent.
It is advisable for the industry to plan its transition to the GST regime in advance to enable
the three key objectives-(i) no business disruption as on the cut over date, (ii) 100%
compliance of all legal and procedural requirements under the new law, and (iii) managing
opportunities effectively to generate business value by plugging leakages in the current
indirect tax law.

Will GST benefit the telecom sector?

Telecom faces several issues under the current indirect tax regime and, therefore, the sector
has high hopes from the proposed GST regime.
Touted as Indias most transformative tax reform in decades, the goods and services Tax
(GST) has the potential to add as many as 2 percentage points to the GDP, while also
improving the ease of doing business. When implemented, GST is expected to usher in a
harmonised national market of goods and services, and lead to a simplified, assesseefriendly tax administration system. However, there are sector-specific issues arising from
aspects of the model GST law that are required to be addressed by the government before
the introduction of the final law.
Telecom is one of the most basic and critical infrastructure services and has a massive
outreach to more than a billion subscribers across geographical boundaries. Telecom faces
several issues under the current indirect tax regime and, therefore, the sector has high hopes
from the proposed GST regime. However, the model GST law does not appear to bring an
end to the issues being faced by the telecom sector.

Compliance: Under the GST regime, states get the power to levy tax on services also and,
therefore, requiring a service provider to take state-wise GST registration instead of a
centralised service tax registration under the current regime. The multiple state-wise
registration would tremendously increase efforts and cost of compliance for telecom
companies (telcos). In fact, telcos would be required to file at least three returns on a monthly
basis per registration (i.e. state-wise registration) under GST, unlike single centralised
registration on a pan-India basis and merely 2-3 returns per year under the current indirect
tax regime.
Exclusion of petroleum products: Another major impact on the telecom sector is on account
of deferment of applicability of GST on petroleum products. The telecom sector has to
maintain round the clock uninterrupted supply of services, which necessitates the use of
power generators. Given that the applicability of GST on petroleum products has been
deferred, the same would continue to attract central excise duties and states sale taxes. This
would result in massive cascading impact on the telecom sector.
Non-alignment of circles with states: The telecom sector is regulated by the Telecom
Regulatory Authority of India (Trai) and various licences required to provide telecom services
are granted by the Department of Telecommunications (DoT). Telcos are required to obtain
circle-wise licences from DoT for providing some telecom services such as mobile telephony.
Whereas for services like national long distance (NLD) services and international long
distance (ILD) services, licences are obtained on a pan-India basis. Circle-wise licences are
not aligned with the geographical boundaries of states and one circle may cover multiple
states. For instance, the Delhi NCR circle covers the local areas served by Delhi, Ghaziabad,
Faridabad, Noida and Gurgaon telephone exchanges, i.e., covers Delhi and parts of Haryana
and Uttar Pradesh. Currently, telcos maintain circle-wise accounting to account for circlewise revenue for payment of licence fee. Whereas, under the GST regime, the accounting
would be required to be maintained state-wise.
Further, there exist various disparities between telecom regulations (governed by Trai) and
GST provisions. For instance, in case of roaming recharges for prepaid mobile
telecommunication services, subscriber of one circle (i.e. home circle) buys recharge in the
roaming circle. As per place of supply provisions under the model GST law, the place of
supply would be the roaming circle. Whereas as per the regulatory requirement, such
charges are required to be accounted in the home circle. Also, as mentioned earlier, certain
circles comprise of multiple states (like Delhi NCR) and also certain cities of the same state
fall under different circles (like Mumbai and Maharashtra and Goa). In such scenarios,
certain intra-circle supplies as per regulatory requirement would be considered as inter-state
supplies under GST and vice-versa. These disparities between telecom regulations and GST
provisions would lead to complexities in accounting and these complexities would further
increase if GST rates across states vary.
Self-supplies such as intra-circle termination and intra-circle roaming services for the same
operator, especially in case of multi-state circles, may become taxable under GST. Currently,
telcos do not have any mechanism to track intra-circle termination and roaming supplies.
Thus, this would also increase complexities for telcos under the GST regime, including the
valuation of such self-supplies.

So, due to variance in regulatory requirements and GST provisions including non-alignment
of circle areas, undertaking compliance and reconciliation would be massive and complex
task for telcos.
The above mentioned issues and complexities would necessitate telcos to make massive
technological changes in the IT and accounting systems to maintain state-wise accounting.
The model GST law provided a specific place of supply for telecom services; however, the
same entails various complexities.
In case of B2B supplies of leased circuit services (NPLC, IPLC, etc) and fixed line services
(being the place where the leased circuit/telecommunication line is installed), it would be
difficult to apportion the value of such services where lump-sum consideration is charged for
multiple state locations.
For prepayment services where payment is made through recharge vouchers or e-top ups
(other than e-payment), place of supply is the location where prepayment is received or
recharge vouchers are sold. Prepaid vouchers, etc, are sold by telcos through a distribution
channel consisting of a large number of distributors and retailers. Given the distribution chain
involved in the sale of recharge vouchers, the location where prepayment is received for
recharge vouchers could be different from the location where such recharge voucher is sold.
For instance, the telco received R45 as a consideration (prepayment) at its head office in
Delhi for a voucher having MRP R50 from a distributor located in Noida. In this case, it is not
clear how to determine the place of supply as prepayment is received in Delhi, but the
voucher is sold to a distributor in Noida. Accordingly, this could result in ambiguity with regard
to value of supply and tax liability for the distribution chain.
In view of the above complexities in determination of place of supply of telecom services, it is
recommended that the place of supply should be aligned to the general rule, i.e., the address
of the service recipient as per records of the service provider. Having said that, the place of
supply being the service recipients address would burden telcos to keeping their database
updated on a real-time basis.
These issues for the telecom sector should be taken into consideration by the government
while finalising the GST law, to ensure that the same are adequately addressed.

GST does not give confidence to exporting community

GST will be a game-changing reform for the Indian economy which promises a common
Indian market and reduction of cascading effect of tax on the cost of goods and services.
GST will have a far-reaching impact on almost all aspects of business operations in the
country; for instance, impact on pricing of products and services, supply-chain optimisation,
IT systems, policies and processes, accounting and tax compliance systems, etc. More
specifically, in the context of indirect taxes, GST will impact tax structure, incidence,
computation, payment, compliance, credit utilisation and reporting leading to a complete
overhaul of the current indirect tax system of any organisation operating in India.

The Model GST Law released on June 14 has attempted to address indirect tax disputes
currently prevailing in the technology sector.
Foremost, it has attempted to address the historical dispute of levy of dual indirect taxes (VAT
vis-a-vis service tax) on right to use intangibles such as IT software, trademarks, etc.
Service has been defined to include intangible property and the definition of goods
excludes intangibles. Additionally, the transfer of right to use any goods has been defined as
a deemed service. This clear articulation should put to rest the historic dual treatment of
software and other intangibles as both goods and services. While doing so, ambiguity still
persists where intangibles are supplied on a tangible medium which could be a point of
representation by the industry.
Further, the place of supply for B2B transactions being linked to the location of service
recipient with no exceptions being carved for IT/ITeS services, online information and
database access services, intermediary services and performance-based services (like IT
maintenance and testing services) is another welcome move from service exporters
perspective.
Zero-rating has been rightly preserved for export of goods and services. However, it
appears that no scheme for upfront GST exemption/zero-rating is in the offing for supply of
goods and services to exporters of services (i.e. STP, SEZ, EHTP and EOU units engaged in
exports), leading to additional working capital requirement for such units. As things stand, it
seems that these units would be given the same treatment as a DTA exporter and will be
required to claim refund of the unutilised input GST credits. Hence, it is worthwhile for the
industry to represent on such discontinuance of benefits.
As regards the IT hardware sector, discontinuation of concessional duty benefits currently
available to manufacturers of mobile phones, tablets, etc, could have a tax-cost impact. The
good news is that, with various taxes which were currently not available as credit (like CST)
being subsumed into GST, this would help unlock the cascading impact in the value-chain
and, thereby, reduce the impact of incremental tax rates on such final product, if any.
Moreover, the apprehension of a decentralised registration and compliances in each state of
operation appears to be confirmed by the Model GST Law. Consequently, service providers
may need to value and discharge GST in each state of operation in respect of services
delivered under a single contract (like multi-state contracts) from multiple offices across the
country. Also, splitting the contract or contract value state-wise can entail practical
challenges in monetising the value of services delivered from each location. GST could also
entail for careful planning of the supply chain to ensure that GST credits are not accumulated
or lost.
The Model GST law has attempted to address various issues plaguing the technology sector.
However, it does not seem to inspire required level of confidence to the exporting community,
particularly export-oriented units set up basis a promise of tax and duty exemptions. Given
that the Revenue-Neutral Rate report suggests a lower rate for merit/essential goods, it
remains to be seen whether the expectations of the IT industry for a merit rate are met.
Since the rolling out of GST seems to be closer to reality with a target date of April 1, 2017,
companies have already commenced working towards the transition to GST, and for the ones
that have not yet started, would need to have a plan to address the challenges of crash-

landing into the GST regime. Given the far-reaching impact of GST across the business
organisation and its value-chain across businesses, as part of the process towards effective
GST transition, companies may need to adopt a comprehensive business transformation
approach. This would involve a business impact analysis, reviewing business delivery and
supply-chain models, engaging with the government on issues of representation, preparing
IT systems to be GST-compliant, reviewing and aligning the policies, processes and controls
across the business organisation to GST requirements, and plan an effective change
management programme. This would ensure zero business disruption and 100% GST
compliance.

GST the road ahead for the auto industry

GST: can be a big positive for FMCG

The unanimous passing of the Constitutional Amendment Bill in the Rajya Sabha has paved
the way for the biggest tax reform in India since independence India is now well and truly
on track to witness the implementation of GST in India. The dream of One country-One tax
and India becoming one market from an indirect tax perspective is just around the corner.
Historically, indirect taxes paid throughout the value chain from procurement, manufacturing,
processing sales, advertisement, promotion had a bearing on the pricing of the products. A
fundamental shift from the current indirect tax system to the GST regime should have a
positive impact on pricing of the product, subject to the decision of GST rate of the products.
For instance, a typical consumer product such as a perfume or a hair oil, and white goods
such as air conditioner typically attracts excise duty at 12.5% and VAT ranging from 12.5% to
15% depending on the state which makes it an effective rate around 26% to 28%. If the
standard GST rate is agreed by the centre and states at 18%, there could be a reduction in
the tax on sales of said goods, which should typically be beneficial to the customers if the tax
benefits are passed on.
Additionally, for consumer products manufacturers, there could be tax savings on
procurements on account of discontinuance of Central Sales tax, State entry taxes and
reduction in non creditable taxes such as excise duty and Countervailing duty paid on traded
products, VAT input tax retentions, CENVAT credit reversals on account of trading turnover.
Manufacturers, on the other hand, could pass on the benefits on account of tax savings on
procurements and reduction in taxes on sales to the final consumer by reducing prices, or
maintain prices and retain the benefits with the company. Various factors such as
competitors pricing strategy, current market share, ability of the consumers to absorb the tax
burden, would have a bearing on the pricing decisions to be taken by companies.
Many FMCG companies also have manufacturing units in Excise free zones located in
Himachal Pradesh, Uttar Pradesh, North East States which currently enjoy excise holidays.
While, at present, no decision has been taken on the treatment of excise free zone units
under the GST regime, there is a possibility that the excise exemption schemes could be
converted in to refund schemes. The tax treatment of excise free zones would be an area to
watch out for and could have an impact on the FMCG sector.

Almost all manufacturing companies have warehousing on a State-wise basis on account of

VAT laws. The stock transfer model has been adopted by companies in the FMCG industry to
save on the CST costs applicable on interstate sale of goods which is not available as a
credit to the customer. Stock transfer of goods which currently do not attract VAT / CST (if
despatched against Form F), will attract IGST under the GST regime. While the IGST is
available as a credit at the consignee location, there would be a working capital impact on
account of the IGST paid on stock transfers for the inventory holding period. As an alternate
model, in case of direct interstate sale of goods from factory to customers, IGST would be
payable which would be creditable to customers. Hence, companies would need to reexamine the existing distribution network in order to optimise the tax costs, working capital
impact, whilst maintaining the customer service levels.
Introduction of GST will also warrant upgradation and modification in the IT systems of the
companies in terms of recording of transactions, changes in IT masters, tax coding systems,
invoicing formats, formats of sales and purchase register in order to ensure that the
information captured is in line with the statutory requirements under the GST law including
registration requirements, invoicing, computation of taxes, filing of returns, maintaining
statutory records, and generating reports and data required for assessments and audits
undertaken by the tax authorities.
Only time will tell what pricing strategies are adopted and how companies leverage the
benefits that GST bring to the table. One thing is for sure eventually, the consumers should
stand to benefit. It should be case of sooner or later.

Long road for financial services to GST readiness

The draft model GST law is in public domain since June 2016. Central Governments
approach to solicit feedback on same from all quadrants of the industry exudes its
confidence in making GST a reality in early part of fiscal 2017-18 though the timelines are
ambitious. The implementation, of course, hinges on the constitution amendment, which got
the impetus by the upper house clearing the bill in the ongoing monsoon session. The
government also remains confident of closure of the balance amendment process over short
run and that makes GST a serious business to deal with, more than ever before.
While the effect of GST on varied sectors is driven by the operational models each one
follows, at a broad level, there are efficiencies in times to come. Although this, the GST
narrative for financial services looks not just unique but also challenging. This emanates from
the fact that this industry encompasses economic services to particularly hold, advance &
manage money and related personal/ commercial risks and is a highly regulated sector.
Under service tax, the financial services sector enjoys certain significant exemptions (like
interest) and compliance exceptions (like invoicing). The same is witnessed in the treatment
of banking and financial services under various other VAT regimes internationally. While the
model law adopts various existing concepts from to be subsumed tax regimes, in the current
form, it is not fully addressing the question of whether the outcomes would be similar or
materially different in the new regime.

The principal issue being presently only fee based income falls within the tax net and the
income from fund based activities like interest, discount, etc are largely excluded. The draft
GST law, however, does not carve out such exception in any form thus exposing all financial
services (fee based or fund based) to tax. A similar situation also ascends due to recognition
of securities as goods and actionable claims as services though without hinting exclusion
of sale/ purchase thereof from the ambit of GST. I expect that exemptions to interest,
securities and other fund based transactions should be announced in the next round of
documents shared by the government, but the point is that these are significant, and
therefore their possible eventual absence could majorly impact the sector.
It is noted that a few issues also stand resolved with advent of GST like the existing double
taxation of leasing transactions under VAT/ service tax laws, at parallel. Likewise, merger of
numerous taxes and avoidance of cascading not only would lower costs but also widen the
input tax credit base. Non-prescription of the 50% rule for claiming credits however, could
impact the sector. As of now, the sector does not face any challenge of determining what is
my exempt turnover. This question is very hard to answer given that interest is earned
(which likely to be exempt) but that is funded by money on which interest is paid, or there are
treasury operations, or foreign exchange dealings, or derivative products, or proprietary
investments. Measuring the exempt value of these transactions would be extremely
challenging (if not impossible). Any adhoc rule to measure the exempt value has the potential
of being arbitrary (and therefore not aligned to reality of each player in the sector). Therefore,
a similar rule (like 50% credit) is, in my view, a must!
Further, in some cases the tax today is collected/ payable on a presumptive and not median
rate basis. Forex buying/ selling, bundled insurance cum investment product, etc are
examples. I expect a similar regime to continue in GST.
Moving on, GST requires every transaction to belong to a particular state such that a portion
of taxes on same could flow to the state so identified. This will be determined basis the place
of supply norms. The norms deal with insurance services, account linked & non-account
linked services, stock broking services in particular and everything else in general. In this
regard (1) the scope of the term account and phrase account linked services is not known;
(2) place of non-account linked services is tagged to location of supplier of service. This
could illustratively result in an additional tax burden on service provided to customers outside
India as they would typically not have an account with the bank/ institution in India. The same
is contrary to how other economies of the world operate in similar cases and hence, makes
India less competitive, etc.
Also, no exception on issuance of invoices has been allowed to sector implying bundles of
invoices will have to be printed and sent to customer in GST regime, while the purpose today
is served merely by the periodic statement.
Separately, centralized compliance for pan-India operations is characteristic of the sector
although GST warrants a breakdown at the State level. This impacts two aspects, firstly
triggering the need to establish robust infrastructure and resources that could attend
compliances in each state; and secondly, discouraging penetration of players in new states
unless a significant market opportunity exists since the cost of compliance could far outweigh

the low profitability models when implemented at small scale. In my view, the sector has a
strong case to pitch for centralized registration for GST purposes.
A connected aspect that emanates from the discussion above is that the dynamics of the law
when interposed on the scale of financial services sector would further pose a two-fold
challenge of (a) not being able to handle compliances manually and (b) certainly not being
able to do it on real time basis unless supported by seamless technology.
Thus, an overall strategy for GST transition would also warrant investment in quality
technology assets that captures business in a way more superior than current, processes it
with multiple conditions that are surfacing courtesy the GST law and throw an output that
could match the GSTN templates! Though the said investment decision would vary
depending upon size and offerings of business in each group or entity. Hence, the qualitative
aspects of the said technology decision should be consulted with all stake holders in
business and compliance.
It is thus a long road that the financial services sector has to cover over a short time frame
coping with both unique propositions as well as uncertainties.
Roadmap

A GST Council consisting of representatives from the Centre as well as State will be formed
within 60 days of the enactment of the Bill. The Council will make recommendations to the
Union and the States on model Goods & Service tax laws, rates including floor rates with
bands of goods & service tax,, Place of Supply rules and any other matter relating to GST as
the Council may decide.

Reports of Joint Committee constituted by Empowered Committee of the State Finance

Ministers on business processes of payment, registration refund and return under GST have
been released and put in the public domain for suggestions.

The draft model GST Law was released and put in public domain in June 2016.

GST Network, an IT backbone of GST, which will facilitate online registration, tax payment
and return filing, will be launched.

States will frame their respective GST Legislations to enable them to implement GST. It will
be in line with the Central GST Legislation.
Salient features of the proposed Indian GST system

The power to make laws in respect of supplies in the course of inter-state trade or commerce
will be vested only in the Union Government. States will have the right to levy GST on intrastate transactions, including on services.

The Centre will levy IGST on inter-state supply of goods and services. Import of goods will be
subject to basic customs duty and IGST.

GST is defined as any tax on supply of goods and services other than on alcohol for
human consumption.

Central taxes such as Central Excise duty, Additional Excise duty, Service tax, Additional
Custom duty and Special Additional duty as well as state-level taxes such as VAT or sales
tax, Central Sales tax, Entertainment tax, Entry tax, Purchase tax, Luxury tax and Octroi will
subsume in GST.

Petroleum and petroleum products, i.e., crude, high speed diesel, motor spirit, aviation
turbine fuel and natural gas, shall be subject to GST - date to be notified by the GST Council.

Provision will be made for removing imposition of entry tax /Octroi across India.

Entertainment tax,, imposed by states on movie, theatre, etc., will be subsumed in GST, but
taxes on entertainment at panchayat, municipality or district level will continue.

GST may be levied on the sale of newspapers and advertisements. This would
mean substantial incremental revenues for the Government.

Stamp duties, typically imposed on legal agreements by states, will continue to be levied.

Administration of GST will be the responsibility of the GST Council, which will be the apex
policy making body for GST. Members of GST Council comprise Central and State ministers
in charge of the finance portfolio.

Understanding GST

GST is a value-added tax levied at all points in the supply chain with credit allowed for any tax paid
on input acquired for use in making the supply. It would apply to both goods and services in a
comprehensive manner, with exemptions restricted to a minimum.
In keeping with the federal structure of India, it is proposed that GST will be levied concurrently by
the Centre (CGST) and the states (SGST). It is expected that the base and other essential design
features would be common between CGST and SGST across SGSTs for individual states. Both
CGST and SGST would be levied on the basis of the destination principle. Thus, exports would be
zero-rated, and imports would attract tax in the same manner as domestic goods and services. Interstate supplies within India would attract an Integrated GST (aggregate of CGST and the SGST of the
destination State).
In addition to the IGST, in respect of supply of goods, an additional tax of up to 1% has been
proposed to be levied by the Centre. Revenue from this tax is to be assigned to origin states. This
tax is proposed to be levied for the first two years or a longer period, as recommended by the GST
Council.
Benefits of GST
GST has been envisaged as an efficient tax system, neutral in its application and distributionally
attractive. The advantages of GST are:

Wider tax base, necessary for lowering tax rates and eliminating classification disputes

Elimination of multiplicity of taxes and their cascading effects

Rationalization of tax structure and simplification of compliance procedures

Harmonization of center and state tax administrations, which would reduce duplication and
compliance costs

Automation of compliance procedures to reduce errors and increase efficiency

Destination principle
The GST structure would follow the destination principle. Accordingly, imports would be subject to
GST, while exports would be zero-rated. In the case of inter-state transactions within India, State tax
would apply in the state of destination as opposed to that of origin.
Taxes to be subsumed
GST would replace most indirect taxes currently in place such as:

Central Taxes
Central Excise Duty [including additional
excise duties, excise duty under the Medicinal and
Toilet Preparations (Excise Duties) Act, 1955]
Service tax
Additional Customs Duty (CVD)
Special Additional Duty of Customs (SAD)

State Taxes
Value-added tax
Octroi and Entry tax
Purchase tax
Luxury tax
Taxes on lottery, betting and gambling

Central Sales Tax ( levied by the Centre and

collected by the States)
Central surcharges and cesses ( relating to
supply of goods and services)

State cesses and surcharges

Entertainment tax (other than the tax levied
by the local bodies)
Central Sales tax ( levied by the Centre and
collected by states)