Information on GST or Goods and Services Tax, India – Part 1

What is GST?

GST or the Goods and Services Tax is implemented in India now. Although GST is a tax reform, it is going to have a profound impact on all businesses, regardless of size, age, and type. It is one of the largest taxation reforms administered countrywide since India’s independence in 1947! GST will merge 16 different taxes (including excise duty, service tax, and VAT) and transform India’s multi-faceted taxing system into a single string operation. It will also relieve multiple taxations of goods and services and help limit the magnifying final pricing structure for the consumers.

What are the benefits of GST?

PM Modi proclaimed that American business schools can actually study India’s implementation of the “complex” GST—it is such a vast reform that the Government is executing. The start may seem difficult and will affect most small to medium businesses. The industrial giants will feel the ripples too and must look at reconsidering their business decisions taken until now. However, once the GST will be set in process, it will offer several benefits.

For businesses:

  • Compliance and Risks—Built on a strong information technological platform, the GST system will have all taxable services, like registrations, returns, payments, etc., available online to the taxpayers, with proper guidance and transparency in communication.
  • Uniform Structure and Rates for Tax—GST will warrant indirect tax structures and rates are common across the country. This will make business interactions and transactions in the country tax neutral, irrespective of the place(s) chosen for commencing with the business.
  • Cascading Taxes Removed—GST is designed to ensure marginal cascading of taxes levied on all good and services under various sections by both, the State and the Central Governments. It will play a key role in reducing and even removing hidden costs and taxation.
  • Promote Healthy Competition—Now, with the reduction of heavy taxes, the prices are going to go down and this is sure to have a positive impact on the market and competition among businesses.
  • Beneficial to Manufacturers and Exporters—GST will subsume major Central and State Government taxes and will offer a seamless, comprehensive taxation process that will increase the affordability of Indian goods and services in the international market and boost Indian exports trade.

For the Central and the State Governments:

  • Simple Administration—Most of the indirect taxes at the Central and State levels will be substituted by GST which is much simpler and easier to operate since the backbone of the structure is a strong end-to-end information technology system.
  • Improved Spillage Control—Since GST is built on a completely computerized infrastructure, it offers a smooth transfer of input tax credits from one level to another in the value addition chain. It makes being tax compliant an inherent quality of Indian traders.
  • Efficiency in Revenue Collection—At both levels of the Government, the Central and the State, GST will be responsible for decreasing the cost of collection of tax revenues and as a result will improve the efficiency in revenue collection.

For the Consumer:

  • One-time Tax Payment—GST aims at relieving consumers from the burden of double taxation—meaning, all-inclusive tax at the time of purchase will include a composite amount for both, Central and State taxes.
  • Transparent Taxation Structure—Under the GST regulation, there will be only one tax, levied at a certain percentage of the cost by the Governments (both Central and State) from the manufacturer to the consumer.

List of Taxes subsumed into GST:

Central Government Taxes:

  • Central Excise Duty,
  • Additional Excise Duty,
  • Service Tax,
  • Additional Customs Duty (also known as Countervailing Duty), and
  • Special Additional Duty of Customs.

State Government Taxes:

  • Subsuming of State Value Added Tax/Sales Tax,
  • Entertainment Tax – (excluding tax levied by the local bodies and Central Sales Tax which is levied by the Centre and collected by the State),
  • Octroi and Entry tax,
  • Purchase Tax,
  • Luxury tax, and
  • Taxes on the monetary amount for a lottery, betting, and gambling.

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