Goods and Services Tax (GST) is the largest fiscal reform in India. It is an attempt to bring all the indirect taxes under one umbrella and form a single unified tax. GST is, therefore, one major tax that substitutes all other prevailing indirect taxes levied both by the Central and State Governments.
The Goods and Services Tax Act was passed in the parliament on the 29th of March, 2017. It finally came into effect on the 1st of July of the same year. GST is a Value Added Tax (VAT) that is levied on the sale of goods and services meant for domestic day-to-day consumption.
The Goods and Services Tax (GST) is a large source of revenue for the Government of India.
Given the fact that GST is a ground-breaking fiscal policy in India, there are several FAQs related to the Goods and Services Tax (GST). Some of these questions are addressed below in this article.
What was the pre-GST Tax framework?
Before the implementation of the Goods and Services Tax (GST), the Central and the State Governments had their own tax laws and calculations for charging taxes on commodities and services. The taxation system was a multi-staged one which meant that the tax was collected at every step of the supply chain, beginning from the manufacturer to the final consumer. More elaborately, the taxes were levied firstly at the manufacturer end, after that at selling to a wholesaler, then at the retailer and finally at the consumer end.
The tax rates also varied under the pre-GST tax framework. The tax percentages varied from one state to another. Each and every product was subjected to variable taxes depending upon the destination and stages the product has been through. This led to a “tax-on-tax” effect or the “cascading” effect. As a result of this effect, the tax calculation process became complex and the prices of products were inflationary. The previous tax regime meant a higher amount of taxes paid. The consumer had to bear this amount in the form of product prices.
Why was GST implemented in India?
The Goods and Services Tax (GST) was introduced in India to improve the tax collection procedure and bring transparency in the system. It is an attempt to introduce a uniform and simple tax structure. Previously, there were seventeen indirect taxes, some of which are namely – Central Excise Duty, Entry Tax, Entertainment Tax, Luxury Tax, Value Added Tax (VAT). The entire tax collection procedure was very complex.
The implementation of GST has simplified the tax framework. There are four bills passed under GST by the Government of India: Goods and Services Tax Bill, Compensation Goods and Services Tax Bill, Integrated Goods and Services Tax Bill and Union Territory Goods and Services Tax Bill.
What are the GST rates in India?
The Goods and Services Tax (GST) Council has different tax rates assigned for different types of goods. Some goods can be bought without GST, whereas for other products the rates are:
1. Tax Slab of 5%
Some of the goods attracting 5% taxation under GST are skimmed milk powder, frozen vegetables, coffee, cola, tea, pizza bread, spices, fertilizers, kerosene, ayurvedic medicines, insulin, cashew nuts, handmade carpets, and textiles, etc. They are mostly everyday consumption items. Services such as served liquor, transports- railways, airways, takeaway food, hotel rooms come under the 5% tax slab.
2. Tax Slab of 12%
Items such as frozen meat, butter, sausages, cheese, gadgets- cell phones and sewing machines, handbags, mirrors, etc. are taxed 12% GST. Services such as business class air tickets, movie tickets come under the 12% GST rate.
3. Tax Slab of 18%
Most of the items come under this tax slab. Some items among them are- cornflakes, refined sugar, pasta, cakes, detergents, safety glass, glassware, mirrors, deodorants, chocolate, etc. Among services, IT and Telecom services, branded garments and financial services are taxed at 18%.
4. Tax Slab of 28%
Luxury items such as motorcycles, vacuum cleaners, dishwashers, automobiles come under the 28% GST slab. Five-star hotels, racing, betting in casinos also come under this tax slab.
What is the impact of GST?
Evaluation of GST Indian Economy will reveal that there have been more merits than demerits after the implementation of the Goods and Services Tax (GST). GST has eliminated the tax-on-tax effect which previously led to inflationary prices of goods and services. The GST is levied only on the last stage of the supply chain as a result of which, the overall prices of goods have gone down.
Apart from that, there are fewer compliances and the threshold is much higher for the registration under GST. The threshold limit is 20 lakhs or above which means that small service providers or small traders are not liable to GST.
The process of registration and tax return filings was much more complex before the implementation of GST. These processes can now be fulfilled online. People do not have to run from pillar to post to file tax returns. It requires minimal technical knowledge and any layman can register for GST and file returns hassle-free online.
The Goods and Services Tax (GST) was introduced with the intention of reducing the prices of goods in the long run and simplifying the tax framework in India. These targets have been fulfilled. However, the GST is still in its nascent stage. It has increased the ease of doing business, especially for small and medium enterprises, start-ups and small traders. With the help of flexible parameters for taxes, there is a minimal requirement of interactions with tax officials. A business owner has maximum independence under GST.
GST is also much easier for the government to administer. In the past two years, GST has given a boost to the Indian market by increasing competitiveness. India is now an international and common market. The industries are much more competitive now and there are more uniform and common tax structures and rates all across the country.
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