The soon-to-be launched Goods and Services Tax (GST) would bring in a significant change in doing business in India. In order to prepare for the implementation of GST, companies need to understand this new tax reform, the implications of GST and prepare a transition roadmap.1. What is GST and how does it work?
GST is a single tax on supply of goods and services. GST is one indirect tax for the whole nation, which will make India one unified common market. GST would be based on the principle of destination based consumption taxation as against the present principle of origin based taxation.
The final customer will thus bear only the GST charged by the last dealer in the supply chain, with set off benefits at all previous stages.
2. What are the taxes that GST replaces?
Following are the taxes, proposed to be subsumed under the dual component structure of 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 – 4% (SAD)
– Surcharges and Cess
SGST will subsume:
– VAT / Sales Tax
– Entertainment Tax (unless it is levied by the local bodies)
– Luxury Tax
– Taxes on lottery, betting and gambling
– State Cess and Surcharges related to supply of goods and services
– Entry Tax not in lieu of Octroi
Exclusions:
1. Basic Customs Duty, Octroi, Stamp Duty and Electricity duty may be kept outside the GST
2. Levies like the toll tax, environment tax and road tax will be outside the GST ambit, as these are user charges
3. A basket of petroleum products and natural gas are likely to be charged with GST and an additional levy by both the Centre and States
4. No input credit would be available on the additional levy. A similar treatment might be provided to alcohol and tobacco.