GST Overview

‘One nation, one tax, one rate’ will be the new Identity of India. Goods and Service tax (GST) in India is hyped as the single largest tax reform since independence. It I estimated to boost GDP by 1.5 to 2%. The benefits of simplified compliance, technological backing and uniform process all over will contribute significantly the 'Ease of doing Business' while also bringing-in tax compliance and transparency. The current taxation system in effect is very complex with more than ten repetitive indirect taxes. In this taxation system neither manufacturers, nor ultimate consumers are benefitted. All the gains are pocketed by middle man.

The arrival of GST would be a significant step in the field of indirect tax reform in India. By combining the 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. It will pave the way for a common national market. For the consumers, the biggest gain would be in terms of reduction in the overall tax burden on goods, which is currently estimated at 25%-30%. Introduction of GST would also make products competitive in the domestic and international markets. The chances are that it would instantly spur economic growth. There may also be revenue gain for the Centre and the States due to widening of tax base, increase in trade volumes and improved tax compliance. Last but not the least, this tax, because of its transparent character, would be easier to administer.

GST Executive Summary

India is geared up to introduce a dual GST on a common taxing event of supply by central as well as state government. Keeping in mind that GST will be in effect from 1st of July, 2017. The Indian companies have begun pushing their IT vendors and tax advisors to upgrade their systems to be GST compliant. To meet this goal, both finance software companies as well as ERP vendors have made desired changes to accommodate the prescribed methodology of calculating GST. They are aligning their processes to accommodate GST in order to have a smooth transition from pre GST to post GST phase without causing inconvenience to their customers.

Introduction to GST

With the advent of Goods and Service tax (GST) in India proposed from July 1st 2017, the biggest and most impactful change in Indian indirect taxation is bound to happen. The GST will replace the existing indirect taxes on consumption and will be applied on both goods and services. For goods, it will be levied destination based, whereas for services, it will be levied consumption based.

Genesis of GST

The idea of moving towards the GST was first mooted in the Budget for 2006-07. The Empowered Committee of State Finance Ministers (EC) which had formulated the design of State VAT was requested to come up with a roadmap and structure for the GST. Joint Working Groups of officials having representation of the States as well as the Centre were set up to examine various aspects of the GST and draw up reports specifically on exemptions and thresholds, taxation of services and taxation of inter-State supplies. Based on discussions within and between it and the Central Government, the Empowered Committee released its First Discussion Paper on the GST in November, 2009. This spells out the features of the proposed GST and has formed the basis for discussion between the Centre and the States so far.

GST Model

GST structure is expected to have two components: One levied by the Centre - Central GST (CGST), and the other levied by the State - State GST (SGST). Both components would be applicable on all taxable transactions of goods and services. The Centre and the States would have simultaneous jurisdiction for all tax-payers in the value chain. The CGST and the SGST would be levied simultaneously on every transaction of goods and services, except for the services and goods which are beyond the purview of GST.

Exemptions: Custom Duty, Excise duty on Tobacco products, Specific cess, Taxes on liquor, Electricity cess, Property Tax, Toll Tax, and Stamp Duty are exempted as of now from the purview of GST but subjected to changes introduced by the government.
GST Tax Rates: A four-tier GST tax structure of 5%, 12%, 18% and 28%, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess is introduced. Essential items like food and basic necessities will be taxed at zero percent. (Tax rates subject to latest Annexure by the government). The returns will be filed in the prescribed format available on the government online portal. In the table below, we have provided details of all the returns which are required to be filed under the GST Law.

Return From What Do file? By Whom ? By When ?
GSTR - 1 Details of outward supplies of taxable goods and/or services effected Registered Taxable Supplier 10th of the next month
GSTR - 2 Details of inward supplies of taxable goods and/or services effected claiming input tax credit. Registered Taxable Recipient 15th of the next month
GSTR - 3 Monthly return on the basis of finalization of details of outward supplies and inward supplies along with the payment of amount of tax. Registered Taxable Person 20th of the next month
GSTR - 4 Quarterly return for compounding taxable person. Composition Supplier 18th of the month succeeding quarter
GSTR - 5 Return for Non-Resident foreign taxable person Non-Resident Taxable Person 20th of the next month
GSTR - 6 Return for Input Service Distributor Input Service Distributor 13th of the next month
GSTR - 7 Return for authorities deducting tax at source. Tax Deductor 10th of the next month
GSTR - 8 Details of supplies effected through e-commerce operator and the amount of tax collected. Details of supplies effected through e-commerce operator and the amount of tax collected. E-commerce Operator/Tax Collector 10th of the next month
GSTR - 9 Annual Return Registered Taxable Person 31st December of next financial year
GSTR - 10 Final Return Taxable person whose registration has been surrendered or cancelled. Within three months of the date of cancellation or date of cancellation order, whichever is later.
GSTR - 11 Details of inward supplies to be furnished by a person having UIN Person having UIN and claiming refund 28th of the month following the month for which statement is filed

All these returns are required to be filed digitally online through a common portal to be provided by GSTN, non-government, private limited company promoted by the central and state governments with the specific mandate to build the IT infrastructure and the services required for implementing Goods and Services Tax (GST).

Taxes to be subsumed

Following are the taxes, proposed to be subsumed under the dual component structure GST:

CGST Will Subsume: Central Excise Duty, Additional Excise Duties, Excise Duty levied under the Medicinal and Toiletries Preparation Act, Service Tax, Additional Customs Duty commonly known as Countervailing Duty (CVD), Special Additional Duty of Customs, Surcharges and Cesses.

SGST Will Subsume: VAT, Central Sales Tax (CST), Entertainment tax (unless it is levied by the local bodies), Luxury tax, State Cesses and Surcharges, Entry tax not in lieu of Octroi, Purchase Tax.