By Team Legal Helpline India, June 16, 2017

A brief writeup on GST by team of our experts.

GST introduction in the Indian economic system is a major change being brought in the economic system of the country and is considered to be a major tax reform since Independence. It is more of a business reform rather than a tax reform as it will change the present style of business. It will not only amagamate the entire indirect tax system but will also simplify and unify the indirect tax system of the country.

(1) GST would replace the following 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) Cesses and surcharges in so far as they relate to supply of goods or services.

State taxes that would be subsumed within the GST are:

  • a) State VAT;
  • b) Central Sales Tax;
  • c) Purchase Tax;
  • d) Luxury Tax;
  • e) Entry Tax (All forms);
  • f) Entertainment Tax (except those levied by the local bodies);
  • g) Taxes on advertisements;
  • h) Taxes on lotteries, betting, and gambling;
  • i) State cesses and surcharges in so far as they relate to supply of goods or services.

(2)Though above-mentioned taxes are to be subsumed in GST, the major taxes being subsumed are Central Excise, Service Tax, and VAT.

(3)The concept of manufacture in Central Excise, rendition of service in Service Tax and sale in VAT is being replaced by the term supply in GST. It will amalgamate all these taxes into one tax thereby simplifying as well as unify the entire indirect tax system of the country.

(4)GST is based on the principle of destination based consumption taxation as against the present principle of origin-based taxation.

(5) It would be a dual GST with the Centre and the States simultaneously levying it on a common base. The GST to be levied by the Centre wouldbe called Central GST (CGST) and that to be levied by the States and UTs would be called State GST (SGST). Union territories without legislature would levy Union territory GST (UTGST).

(6) An Integrated GST (IGST) would be levied on inter-State supply (including stock transfers) of goods or services. This would be collected by the Centre so that the credit chain is not disrupted.

(7) Import of goods would be treated as inter-State supplies and would be subject to IGST in addition to the applicable customs duties.

(8) Import of services would be treated as inter-State supplies and would be subject to IGST.

(9) CGST, SGST / UTGST & IGST would be levied at rates as decided and recommended by GST Council having representatives of Centre and all States.

(10) GST would apply to all goods and services except Alcohol for human consumption.

(11) GST on five specified petroleum products (Crude, Petrol, Diesel, ATF & Natural gas) would be applicable from a date to be recommended by the GST Council.

(12) A common threshold for obtaining registration would apply to both CGST and SGST. Taxpayers with an annual turnover of Rs. 20 Lac (Rs. 10 lac for specialcategory States as specified in Article 279A of the Constitution) would not be required to obtain registration under GST. A compounding option (i.e. to pay tax at a flat rate without credits) would be available to small taxpayers (including to specified category of manufacturers and service providers) having an annual turnover of up to Rs. 75 lacs. The compounding scheme would be optional.

(13) Exports and supply to SEZ Units and/or Developer would be zero-rated.

(14) The credit of CGST paid on inputs may be used only for paying CGST on the output and the credit of SGST/UTGST paid on inputs may be used only for paying SGST/UTGST. Simply speaking, the two streams of input tax credit (ITC) cannot be cross-utilized, except in specified circumstances of inter-State supplies for payment of IGST. The credit would be permitted to be utilized in the following manner:

  • a) ITC of CGST allowed for payment of CGST & IGST in that order;
  • b) ITC of SGST allowed for payment of SGST & IGST in that order;
  • c) ITC of UTGST allowed for payment of UTGST & IGST in that order;
  • d) ITC of IGST allowed for payment of IGST, CGST & SGST/UTGST in that order.
  • ITC of CGST cannot be used for payment of SGST/UTGST and vice versa.

(15)Input Tax Credit (ITC) would it available in respect of taxes paid on any supply of goods or services or both used or intended to be used in the course or furtherance of business.

(16) Returns to be filed by a different class of persons at different prescribed dates. Minimum 37 returns in a year.

(17) Various modes of payment of tax available to the taxpayer including internet banking, debit/ credit card and National Electronic Funds Transfer (NEFT) / Real Time Gross Settlement (RTGS).

(18) Obligation on certain persons including government departments, local authorities and government agencies, who are recipients of supply, to deduct tax at the rate of 1% from the payment made or credited to the supplier where total value of supply, under a contract, exceeds two lakhs and fifty thousand rupees (Rs. 2.5 lac).

(19) Refund of tax to be sought by the taxpayer or by any other person who has borne the incidence of tax within two years from the relevant date. Provisional refund of 90% is permitted immediately subject to conditions.

(20) The obligation on electronic commerce operators to collect tax at source, at such rate not exceeding one percent. (1%) of the net value of taxable supplies, out of payments to suppliers supplying goods or services through their portals.

(22) Limitation period for demand of tax is three (3) years from the due date of filing of annual return or from the date of erroneous refund for raising demand for short-payment or non-payment of tax or erroneous refund and its adjudication in normal cases.(no allegation of suppression, fraud etc.)

(23) Limitation period for the demand of tax is five (5) years from the due date of filing of the annual return or from the date of erroneous refund for raising demand for short-payment or non-payment of tax or erroneous refund and its adjudication in case of fraud, suppression or wilful misstatement.

(24) Arrears of tax to be recovered using various modes including detaining and sale of goods, movable and immovable property of defaulting taxable person.

(25) Provision for penalties for contravention of the provision of the proposed legislation has been made.

(26) An anti-profiteering clause has been provided in order to ensure that business passes on the benefit of reduced tax incidence on goods or services or both to the consumers.

(27)Elaborate transitional provisions have been provided for the smooth transition of existing taxpayers to GST regime and to protect the interests of non-registered persons in the present tax system.

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