SEPTEMBER


‘10


UNDERSTANDING
GST
–
A
SUMMARY


SWATHI
R

#187

SECTION
‘D’



Introduction
Goods and Services Tax (GST) is part of tax reforms proposed by the Govt. of India to replace
multiple indirect taxes - Central excise duty, Service tax, Additional customs duty and Surcharge and
cesses of Centre and Value added tax /Sales tax, Entry, Entertainment, Luxury tax, Taxes on lottery
and State cesses and surcharges. Stamp duty, taxes on vehicle, goods and passengers, electricity and
octroi may also be brought under the single GST model. However the customs duty would be outside
the ambit of GST and imports would be subject to both customs and GST as is based on the principle
of destination. Exports would be zero-rates.

GST in brief
 GST is a value added tax, levied at all points in the supply chain
 Neutral in Application and equitably distributional
 Applicable to both goods and services
 Credit allowed for tax paid on inputs acquired for making supply
 Levied concurrently by Central (CGST) and States (SGST)
 Both CGST and SGST levied on the principle of destination
 More efficient tax system

GST – Components, Administration and Legislation

Central GST and State GST are to be administered by Centre and States.
Inter-State GST levied on inter-state trade and administered by Centre.
A separate legislation would be drafted for CGST. Each state would have separate legislation without
affecting the commonality of the basic features.

Advantages of GST
♦ Wider tax base
♦ Simpler – eliminating classification disputes
♦ Eliminating multiple indirect taxes and cascading effects
♦ A single unified tax is clearly understood with cascading effects on the Trade
♦ To bring desirable impact on Trade and economy, lowering the rate possible
♦ Efficient tax collection system – reduction of collection costs.
♦ Simplification of compliance procedures
♦ Harmonization of Centre and State Tax Administration

Impact
The new tax structure would have impact on all manufacturers, traders, suppliers, retailers, middle-
men, consumers as well Service providers for the services rendered. This will impact product pricing
and the margin. The logistic, accounting and IT systems also need to be revamped to tailor the
changes.

Design features
The 13th Finance Commission set up a task force on GST to discuss the design features such as Tax
Rate, Threshold Limit, inter-state transactions and exemptions. The Empowered committee of State
Finance Ministers gave their views on the same.

Input Credit Mechanism:

Full input credit system is available at all points in the supply chain. The consumer bears GST
charged by the last retailer with no input credit available to him. Cross-utilization input tax credit
between CGST and SGST would not be permissible.

Conclusion
The success of the tax reform depends upon effective legislation and implementation.