Understanding Goods & Services Tax (GST)

1. 1. GOODS AND SERVICES TAX (GST)

2. 2. GOODS AND SERVICES TAX Goods and Services Tax (GST) is a single tax rate levied
on the manufacture, sale and consumption of goods and services at a national level.
3. 3. 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.
4. 4. 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).
5. 5. 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.
6. 6. How is the GST different from current system?
7. 7. GOODS AND SERVICES TAX Current GST Nature of Regime A Combination of value
added tax (VAT) which is a destination-based tax and origin-based taxes such as excise
duties etc. Tax incidence at the point of sale Tax Base Goods & Services are taxed
separately, subject to some exemptions Comprehensive base of goods & services included
Multiplicity of tax rates Multiple tax rates Single tax rate Tax Cascading Incomplete set off
mechanism for tax paid in the supply chain (e.g. no set off available for VAT against service
tax or excise duty) Complete set-off should be available in the entire chain of production and
distribution to eliminate tax cascading effect
8. 8. GOODS AND SERVICES TAX Why is it considered a better system?
9. 9. 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 in goods and services. 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. GOODS AND SERVICES TAX
10. 10. What is the GST model India plans to adopt?
11. 11. Most countries have a 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.GOODS AND SERVICES
TAX
12. 12. What are the key benefits of implementing a GST?

13. 13. 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. 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. GOODS AND SERVICES TAX
14. 14. 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.GOODS AND SERVICES TAX
15. 15. 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 [Workers'
Remittances (unilateral), Hope you have now understood the concept of Goods and Services
Tax. Donations, Aids & Grants, Official, Assistance and Pensions etc]
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