Saturday, 21 November 2015


1. The GST will cut down the large number of taxes imposed by the central government and states and will lead to the creation of a unified market, which would facilitate seamless movement of goods across states and reduce the transaction cost of businesses.

2. While the existing central taxes include excise duty, service tax and additional customs duties, the state taxes comprise of entertainment tax, luxury tax, lottery taxes, electricity duty, central sales tax, octroi, value added tax (VAT). The GST will dissolve all the taxes into one making India a single, unified national market.

3. For consumers, GST will reduce prices of goods and services in the long run, and will improve the efficiency of goods and services being delivered to them. They will pay one tax.

4. GST will help corporates by simplifying taxation - it will reduce tax on tax, reduce tax compliance burden, and there will be more transparency and efficiency as it will reduce corruption and increase competitiveness.

5. For consumers, GST will reduce prices of goods and services in the long run, and will improve the efficiency of goods and services being delivered to them. They will pay one tax.

6. While liquor has been completely kept out of the GST, petroleum products like petrol and diesel will be part of the new regime from a date to be decided at a future date by the GST Council, which will have two-third of its members from states.

7. As per the Bill, the states where goods originate can levy 1 per cent additional tax over GST to make up for any revenue loss for the first two years.

8. The bill on GST was introduced in the Lok Sabha in December last year and its roll-out has missed several deadlines because of lack of consensus among states. GST is in force in 150 countries.

9. The Centre and states have been working on a new Revenue Neutral Rate (RNR), which is currently pegged at 27 per cent. RNR is one at which there will be no revenue loss to states after GST implementation.

10. The re-calculation of RNR is necessary as at present it does not take into account the taxation of petroleum products as also the 1 per cent additional tax which states can levy as part of the GST Bill.

TOP-10 Questions and Answers related to GST

 Q.1: What is the GST?
Ans: GST or the Goods and Services Tax is an indirect tax that brings together most of the taxes that are imposed on all goods and services (except a few) under a single banner. This is in contrast to the current system, where taxes are levied separately on goods and services.
          The GST, however, is a comprehensive form of tax based on a uniform rate of tax for both goods and services. However, the GST is payable only at the final point of consumption.

Q.2: How will it work in India?
Ans: The GST was first mentioned in India during the 2006-2007 budget and the latest budget too includes the need to take steps to make the implementation possible by April 1, 2010. Given the federal nature of the country, GST in India is expected to take the form of a dual GST including both a Central and a state GST.
          The Empowered Committee of the State Finance Ministers has been given the responsibility for creating a model and a roadmap for the GST. While there is very little clarity at present, it is expected that the central GST will subsume excise duty and service tax and the state GST may replace the VAT.

Q.3: What are the benefits of the GST?
Ans: At the simplest level, the GST reduces the number of instances where taxes need to be paid thus reducing the possibility of manipulation on the part of tax authorities and is hence assumed to be a much transparent mode of administering taxes. It will alleviate the burden of cascading taxes for individuals. It is also expected to boost revenue collection in certain states and to reduce the prices of goods.

Q.4: What are the difficulties involved?
Ans: The fundamental problem involved is the decision of a revenue-neutral rate for the GST that will be acceptable to all those involved and also whether there will be a single rate or two rates at state and Central level. The federal nature of the country also accounts for its own share of complications and delays. For the Centre to be able to impose tax at the retail level and for states to be able to tax services will require constitutional amendments, which will further need to be passed by the Parliament and state legislatures.

Q.5: What are the salient features of the proposed GST model?
Ans: The salient features of the proposed model are as follows:

  • Consistent with the federal structure of the country, the GST will have two components: one levied by the Centre (hereinafter referred to as Central GST), and the other levied by the States (hereinafter referred to as State GST). This dual GST model would be implemented through multiple statutes (one for CGST and SGST statute for every State). However, the basic features of law such as chargeability, definition of taxable event and taxable person, measure of levy including valuation provisions, basis of classification etc. would be uniform across these statutes as far as practicable.
  • The Central GST and the State GST would be applicable to all transactions of goods and services except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits.
  • The Central GST and State GST are to be paid to the accounts of the Centre and the States separately. Since the Central GST and State GST are to be treated separately, in general, taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST.
  • Cross utilisation of input tax credit (ITC) between the Central GST and the State GST would, in general, not be allowed. To the extent feasible, uniform procedure for collection of both Central GST and State GST would be prescribed in the respective legislation for Central GST and State GST.
  • The administration of the Central GST would be with the Centre and for State GST with the States.
  • The taxpayer would need to submit periodical returns to both the Central GST authority and to the concerned State GST authorities. Each taxpayer would be allotted a PAN linked taxpayer identification number with a total of 13/15 digits. This would bring the GST PAN-linked system in line with the prevailing PAN-based system for Income tax facilitating data exchange and taxpayer compliance. The exact design would be worked out in consultation with the Income-Tax Department. 
  • Keeping in mind the need of tax payer’s convenience, functions such as assessment, enforcement, scrutiny and audit would be undertaken by the authority which is collecting the tax, with information sharing between the Centre and the States.

Q 6: Why is Dual GST required?
Ans: India is a federal country where both the Centre and the States have been assigned the powers to levy and collect taxes through appropriate legislation. Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal federalism.

Q.7: How would a particular transaction of goods and services be taxed simultaneously under Central GST (CGST) and State GST (SGST)?
Ans: The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, both would be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of CENVAT. While the location of the supplier and the recipient within the country is immaterial for the purpose of CGST, SGST would be chargeable only when the supplier and the recipient are both located within the State.

Q.8. Which Central and State taxes are proposed to be subsumed under GST?
Ans: The various Central, State and Local levies were examined to identify their possibility of being subsumed under GST. The Empowered Committee has recommended that the following Central Taxes should be, to begin with, subsumed under the Goods and Services Tax:
A. Central Excise Duty        
B. Additional Excise Duties
C. The Excise Duty levied under the Medicinal and Toiletries Preparation Act
D. Service Tax
E. Additional Customs Duty, commonly known as Countervailing Duty (CVD)
F. Special Additional Duty of Customs - 4% (SAD)
G. Surcharges and Cesses.

The following State taxes and levies would be, to begin with, subsumed under GST:
A. VAT / Sales tax
B. Entertainment tax (unless it is levied by the local bodies).
C. Luxury tax
D. Taxes on lottery, betting and gambling.
E. State Cesses and Surcharges in so far as they relate to supply of goods and services.
F. Entry tax not in lieu of Octroi.

Q.9: How will imports be taxed under GST?
Ans: With Constitutional Amendments, both CGST and SGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import on goods and services.

Q.10: Why does introduction of GST require a Constitutional Amendment?
Ans: The Constitution provides for delineation of power to tax between the Centre and States. While the Centre is empowered to tax services 52 and goods upto the production stage, the States have the power to tax sale of goods. The States do not have the powers to levy a tax on supply of services while the Centre does not have power to levy tax on the sale of goods. Thus, the Constitution does not vest express power either in the Central or State Government to levy a tax on the ‘supply of goods and services’. Moreover, the Constitution also does not empower the States to impose tax on imports. Therefore, it is essential to have Constitutional Amendments for empowering the Centre to levy tax on sale of goods and States for levy of service tax and tax on imports and other consequential issues.
As part of the exercise on Constitutional Amendment, there would be a special attention to the formulation of a mechanism for upholding the need for a harmonious structure for GST along with the concern for the powers of the Centre and the States in a federal structure. 

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