Introducing GST
Ans. It is a destination based tax on
consumption of goods and services. It is proposed to be levied at
all stages right from manufacture up to final consumption with
credit of taxes paid at previous stages available as
setoff. In a nutshell, only value addition will be taxed
and burden of tax is to be borne by the final consumer.
Q 2. What exactly is the concept of
destination based tax on consumption?
Ans. The tax would accrue to the taxing
authority which has jurisdiction over the place of
consumption which is also termed as place of supply.
Q 3. Which of the existing taxes are proposed
to be subsumed under GST?
Ans. The GST would replace the following
taxes:
(i) taxes currently levied and collected by
the Centre:
a. Central Excise duty
b. Duties of Excise (Medicinal and Toilet Preparations)
c. Additional Duties of Excise (Goods of
Special Importance)
d. Additional Duties of Excise (Textiles and
Textile Products)
e.
Additional Duties of Customs (commonly known as CVD)
f. Special Additional Duty of Customs (SAD)
g. Service Tax
h. Central Surcharges and Cesses so far as
they relate to supply of goods and services
(ii) State taxes that would be subsumed under
the GST are:
a. State VAT
b. Central Sales Tax
c. Luxury Tax
d. Entry Tax (all forms)
e. Entertainment and Amusement Tax (except
when levied by the local bodies)
f. Taxes on advertisements
g. Purchase Tax
h. Taxes on lotteries, betting and gambling
i. State Surcharges and Cesses so far as they
relate to supply of goods and services
The GST Council shall make recommendations to
the Union and States on the taxes, cesses and
surcharges levied by the Centre, the States and the local bodies
which may be subsumed in the GST.
Q 4. What principles were adopted for
subsuming the above taxes under GST?
Ans. The various Central, State and Local
levies were examined to identify their possibility of
being subsumed under GST. While identifying, the following
principles were kept in mind:
(i) Taxes or levies to be subsumed should be
primarily in the nature of indirect taxes, either on the
supply of goods or on the supply of services.
(ii) Taxes or levies to be subsumed should be
part of the transaction chain which commences with
import/manufacture/ production of goods or provision
of services at one end and the consumption of goods and
services at the other.
(iii) The subsumation should result in free
flow of tax credit in intra and inter-State levels. The
taxes, levies and fees that are not specifically related to
supply of goods &
services should not be subsumed under GST.
(v) Revenue fairness for both the Union and
the States individually would need to be attempted.
Q 5. Which are the commodities proposed to be
kept outside the purview of GST?
Ans. Alcohol for human consumption, Petroleum Products viz. petroleum crude, motor spirit
(petrol), high speed diesel, natural gas and aviation
turbine fuel& Electricity.
Q 6. What will be the status in respect of
taxation of above commodities after introduction of GST?
Ans. The existing taxation system (VAT &
Central Excise) will continue in respect of the above
commodities.
Q 6A. What will be status of Tobacco and Tobacco products under the GST regime?
Ans. Tobacco and tobacco products would be
subject to GST. In addition, the Centre would have the
power to levy Central Excise duty on these products.
Q 7. What type of GST is proposed to be implemented?
Ans. It would be a dual GST with the Centre
and States simultaneously levying it on a common tax
base. The GST to be levied by the Centre on intra-State
supply of goods and / or services would be called the Central
GST (CGST) and that to be levied by the States would be
called the State GST (SGST). Similarly Integrated GST (IGST)
will be levied and administered by Centre on every
inter-state supply of goods and services.
Q 8. Why is Dual GST required?
Ans. India is a federal country where both
the Centre and the States have been assigned the powers to
levy and collect taxes through appropriate legislation. Both
the levels of Government have distinct responsibilities
to perform according to the division of powers
prescribed in the Constitution for which they need to raise
resources. A dual GST will, therefore, be in keeping with the
Constitutional requirement of fiscal federalism.
Q 9. Which authority will levy and administer
GST?
Ans. Centre will levy and administer CGST
& IGST while respective states will levy and administer
SGST.
Q 10. Why was the Constitution of India
amended recently in the context of GST?
Currently, the fiscal powers between the
Centre and the States are clearly demarcated in the
Constitution with almost no overlap between the respective
domains. The Centre has the powers to levy tax on the
manufacture of goods (except alcoholic liquor for human
consumption, opium, narcotics etc.) while the States have
the powers to levy tax on the sale of goods. In the case
of inter-State sales, the Centre has the power to levy a tax
(the Central Sales Tax) but, the tax is collected and
retained entirely by the States. As for services, it is the
Centre alone that is empowered to levy service tax. Introduction of the GST required amendments
in the Constitution so as to simultaneously empower
the Centre and the States to levy and collect this tax.
The Constitution of India has been amended by the Constitution
(one hundred and first amendment) Act, 2016 recently for
this purpose. Article 246A of the Constitution empowers the
Centre and the States to levy and collect the GST.
Q 11. How a particular transaction of goods
and services would be taxed simultaneously under Central GST (CGST) and State GST (SGST)?
Ans. The Central GST and the State GST would
be levied simultaneously on every transaction of supply
of goods and services except the exempted goods and
services, goods which are outside the purview of GST and the
transactions which are below the prescribed threshold
limits. Further, 8 both
would be levied on the same price or value unlike State VAT which is levied on the value of the
goods inclusive of CENVAT. While the location of the supplier
and the recipient within the country is immaterial
for the purpose of CGST, SGST would be chargeable only when
the supplier and the recipient are both located within the
State.
Illustration I: Suppose hypothetically that
the rate of CGST is 10% and that of SGST is 10%. When a
wholesale dealer of steel in Uttar Pradesh supplies steel bars
and rods to
a construction company which is also located
within the same State for, say Rs. 100, the dealer would
charge CGST of Rs. 10 and SGST of Rs. 10 in addition to
the basic price of the goods. He would be required to deposit
the CGST component into a Central Government account
while the SGST portion into the account of the
concerned State Government. Of course, he need not actually
pay Rs. 20 (Rs.10 + Rs. 10 ) in cash as he would be entitled
to set-off this liability against the CGST or SGST paid on
his purchases (say, inputs). But for paying CGST he would
be allowed to use only the credit of CGST paid on his
purchases while for SGST he can utilize the credit of SGST
alone. In other words, CGST credit cannot, in general, be
used for payment of SGST. Nor can SGST credit be used for
payment of CGST.
Illustration II: Suppose, again
hypothetically, that the rate of CGST is 10% and that of SGST is 10%.
When an advertising company located in Mumbai supplies advertising services to a company
manufacturing soap also located within the State of Maharashtra
for, let us say Rs. 100, the ad company would charge
CGST of Rs. 10 as well as SGST of Rs. 10 to the basic
value of the service. He would be required to deposit
the CGST component into a Central Government account
while the SGST portion into the account of the
concerned State Government. Of course, he need not again
actually pay Rs. 20 (Rs. 10+Rs. 10) in cash as it would be
entitled to set-off this liability against the CGST or
SGST paid on his purchase (say, of inputs such as
stationery, office equipment, services of an artist etc). But
for paying CGST he would be allowed to use only the
credit of CGST paid on its purchase while for SGST he can
utilise the credit of SGST alone. In other words, CGST
credit cannot, in general, be used for payment of SGST. Nor
can SGST credit be used for payment of CGST.
Q 12. What are the benefits which the Country
will accrue from GST?
Ans. Introduction of GST would be a very
significant step in the field of indirect tax reforms in India.
By amalgamating a large number of Central and State taxes
into a single tax and allowing set-off of prior-stage taxes, it
would mitigate the ill effects of cascading
and pave the way for a common national market. For the consumers, the biggest gain
would be in terms of a reduction in the overall tax burden on
goods, which is currently estimated at 25%-30%. Introduction of GST would also make our products competitive in the domestic and international markets. Studies show that
this would instantly spur economic growth. There may also be revenue gain for the Centre and the States due to
widening of the tax base, increase in trade volumes and improved 10 tax compliance. Last
but not the least, this tax, because of its transparent character, would be easier to administer.
Q 13. What is IGST?
Ans. Under the GST regime, an Integrated GST (IGST) would be levied and collected by the Centre on
inter-State supply of goods and services. Under Article 269A of the Constitution, the GST on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.
Q 14. Who will decide rates for levy of GST?
Ans. The CGST and SGST would be levied at rates to be jointly decided by the Centre and States. The rates would be notified on the recommendations of the GST Council.
Q 15. What would be the role of GST Council?
Ans. A GST Council would be constituted comprising the Union Finance Minister (who will be the Chairman of the Council), the Minister of State (Revenue) and the State Finance/Taxation Ministers to make recommendations to the Union and the States on
(i) the taxes, cesses and surcharges levied by the Centre, the States and the local bodies which may be subsumed under GST;
(ii) the goods and services that may be subjected to or exempted from the GST;
(iii) the date on which the GST shall be levied on petroleum crude, high speed diesel, motor sprit (commonly known as petrol), natural gas and aviation turbine fuel;
(iv) model GST laws, principles of levy, apportionment of IGST and the principles that govern the place of supply;
(v) the threshold limit of turnover below which the goods and services may be exempted from GST;
(vi) the rates including floor rates with bands of GST;
(vii) any special rate or rates for a specified period to raise additional resources during any natural calamity or disaster;
(viii) special provision with respect to the North- East States, J&K, Himachal Pradesh and Uttarakhand; and
(ix) any other matter relating to the GST, as the Council may decide.
Q 16. What is the guiding principle of GST Council?
Ans. The mechanism of GST Council would ensure harmonization on different aspects of GST between the Centre and the States as well as among States. It has been provided in the Constitution (one hundred and first amendment) Act, 2016 that the GST Council, in its discharge of various functions, shall be guided by the
need for a harmonized structure of GST and for the development of a harmonized national market for goods and services.
Q 17. How will
decisions be taken by GST Council?
Ans. The Constitution (one hundred and first amendment) Act, 2016 provides that every decision of the GST Council shall be taken at a meeting by a majority of not less
than 3/4th of the weighted votes of the Members present and voting. The vote of the Central Government shall have a weightage of 1/3rd of the votes cast and the votes of all
the State Governments taken together shall have a weightage of 2/3rd of the total votes cast in that meeting. One
half of the total number of members of the GST Council shall constitute the quorum at its meetings.
Q 18. Who is liable to pay GST under the proposed GST regime?
Ans. Under the GST regime, tax is payable by the taxable person on the supply of goods and/or services. Liability
to pay tax arises when the taxable person crosses the
threshold exemption, i.e. Rs.10 lakhs (Rs. 5 lakhs for NE States)
except in certain specified cases where the taxable person is
liable to pay GST even though he has not crossed the threshold limit. The CGST / SGST is payable on all intra-State
supply of goods and/or services and IGST is payable on all
inter-State supply of goods and/or services. The CGST /SGST and IGST are payable at the rates specified in the Schedules
to the respective Acts.
Q 19. What are the benefits available to small tax
payers under the GST regime?
Ans. Tax payers with an aggregate turnover in a financial year up to [Rs.10 lakhs] would be exempt from tax. [Aggregate turnover shall include the aggregate value of all taxable and non-taxable supplies, exempt supplies and exports of goods and/or services and exclude taxes viz. GST.] Aggregate turnover shall be computed on all India basis. For NE States and Sikkim, the exemption threshold shall be [Rs. 5 lakhs]. All taxpayers eligible for
threshold exemption will have the option of paying tax with input tax credit (ITC) benefits. Tax payers making inter-State supplies or paying tax on reverse charge basis shall not
be eligible for threshold exemption.
Q 20. How will the goods and services be classified under GST regime?
Ans. HSN (Harmonised System of Nomenclature) code shall be used for classifying the goods under the GST
regime. Taxpayers whose turnover is above Rs. 1.5 crores but
below Rs. 5 crores shall use 2 digit code and the taxpayers
whose turnover is Rs. 5 crores and above shall use 4 digit
code. Taxpayers whose turnover is below Rs. 1.5 crores are not required to mention HSN Code in their invoices. Services will be classified as per the Services
Accounting Code (SAC)
Q 21. How will imports be taxed under GST?
Ans. Imports of Goods and Services will be treated as inter-state supplies and IGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue
in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on
the GST paid on import on goods and services.
Q 22. How will Exports be treated under GST?
Ans. Exports will be treated as zero rated supplies. No
tax will be payable on exports of goods or services, however credit of input tax credit will be available and same
will be available as refund to the exporters.
Q 23. What is the scope of composition scheme under
GST?
Ans. Small taxpayers with an aggregate turnover in a financial year up to [Rs. 50 lakhs] shall be eligible
for composition levy. Under the scheme, a taxpayer shall pay tax as a percentage of his turnover during the year without the benefit of ITC. The floor rate of tax for
CGST and SGST shall not be less than [1%]. A tax payer opting for composition levy shall not collect any tax from his customers. Tax payers making inter- state supplies or paying tax on reverse charge basis shall not be eligible
for composition scheme.
Q 24. Whether the composition scheme will be optional or compulsory?
Ans. Optional.
Q 25. What is GSTN and its role in the GST regime?
Ans. GSTN stands for Goods and Service Tax Network (GSTN). A Special Purpose Vehicle called the GSTN has been set up to cater to the needs of GST. The GSTN shall
provide a shared IT infrastructure and services to
Central and State Governments, tax payers and other stakeholders for implementation of GST. The functions of the GSTN
would, inter alia, include:
(i) facilitating
registration;
(ii) forwarding the returns to Central and State authorities;
(iii) computation and settlement of IGST;
(iv) matching of tax payment details with banking network;
(v) providing various MIS reports to the Central and the
State Governments based on the tax payer return information;
(vi) providing analysis of tax payers’ profile; and
(vii) running the matching engine for matching, reversal and reclaim of input tax credit.
The GSTN is developing a common GST portal and applications for registration, payment, return and MIS/reports. The GSTN would also be integrating the common GST portal with the existing tax administration IT
systems and would be building interfaces for tax payers. Further, the GSTN is developing back-end modules like assessment, audit, refund, appeal etc. for 19 States and UTs (Model II States). The CBEC and Model I States (15 States) are themselves developing their GST back-end systems. Integration of GST front-end system with back-end systems will have to be completed and tested well in advance for making the transition smooth.
Q 26. How are the disputes going to be resolved under the GST regime?
Ans. The Constitution (one hundred and first amendment) Act, 2016 provides that the Goods and Services Tax
Council shall establish a mechanism to adjudicate any dispute
(a) between the Government of India and one or more States; or
(b) between the Government of India and any State or States on one side and one or more other
Sates on the other side; or
(c) between two or more States, arising out of the recommendations of the Council or
implementation thereof.
Q 27. What are the other legislative requirements for introduction of the GST?
Ans. Suitable legislation for the levy of GST (Central
GST Bill, Integrated GST Bill and State GST Bills) drawing powers from the Constitution would need to be passed by the Parliament and the State Legislatures. Unlike the Constitutional Amendment which requires 2/3rd majority, the GST Bills would need to be passed by a simple
majority. Obviously, the levy of the tax can commence only after
the GST law has been enacted by the Parliament and respective Legislatures.
[source - Finance Ministry GoI]
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