Goods And Services Tax

Goods and Services Tax (GST) is an indirect tax which was introduced in India on July 1, 2017 and is applicable throughout India, paving the way for a common national market. GST has replaced as many as 17 cascading taxes levied by the central and state governments.

GST was introduced in parliament as The Constitution (One Hundred and First Amendment) Act 2017, following the passage of Constitution 122nd Amendment Act Bill. The GST is governed by a GST Council which includes finance minister of India and state finance ministers. Finance minister of India is the designated chairman of GST council.

GST is the biggest tax reform in India, tremendously improving ease of doing business and increasing the taxpayer base in India by bringing in millions of small businesses in India. By abolishing and subsuming multiple taxes into a single system, tax complexities would be reduced while tax base is increased substantially. Under the new GST regime, all entities involved in buying or selling goods or providing services or both are required to register for GST. Entities without GST registration would not be allowed to collect GST from a customer or claim input tax credit of GST paid or could be penalised. Further, registration under GST is mandatory once an entity crosses the minimum threshold turnover of starts a new business that is expected to cross the prescribed turnover.

Under GST, goods and services are taxed at the following rates, 0%, 5%, 12%, 18% and 28%. There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold. In addition a cess of 22% or other rates on top of 28% GST applies on few items like tobacco products, aerated drinks and luxury cars.

GST is a destination-based tax that will be levied on value addition at every stage, as against the earlier principle of origin-based taxation. The new tax regime follows a multi-stage tax collection mechanism wherein tax is collected at every stage and credit of tax already paid at the previous stage (input tax credit) is available as a set-off at the next stage of transaction thus eliminating the tax-on-tax also known as the cascading impact of taxes.

Businesses with annual turnover below Rs 20 Lakh (Rs 10 Lakh for special category states) are exempt from GST. Some businesses with annual turnover below Rs 1 Crore can opt in for Composition Scheme. In case of Himachal Pradesh and North-Eastern States, this limit is Rs 75 Lakh. Under Composition Scheme, GST rate of 1% is applicable on traders (goods), 2% on manufacturers and 5% on suppliers of food or non-alcoholic drinks for human consumption Regulatory Compliance & Tax Compliance in India.

Some petroleum products such as petrol, diesel and aviation turbine fuel as well as alcohol and real estate have been kept out of the GST regime as of now. A decision by GST council about these items is expected in future.

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