GST Laws In India

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The milestone goods and services tax (GST), which was launched on 1st July 2017, has been completed for four years. The one-nation, the one-tax revolution has seen a few hiccups, but it’s settling down and benefits should start to flow sooner rather than later.

GST is known as the Goods and Services Tax. It is an indirect tax that has replaced many indirect taxes in India such as excise duty, VAT, services tax, etc. The Goods and Service Tax Act was passed in Parliament on 29th March 2017 and came into effect on 1st July 2017.

In other words, Goods and Service Tax (GST) is levied on the supply of goods and services. Goods and Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition. GST is a single domestic indirect tax law for the entire country.

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A detailed system of how GST works

Manufacturer: The manufacturer will have to pay GST on the raw material that is purchased and the value that has been added to make the product.

Service Provider: Here, the service provider will have to pay GST on the amount that is paid for the product and the value that has been added to it. However, the tax that has been paid by the manufacturer can be reduced from the overall GST that must be paid.

Retailer: The retailer will need to pay GST on the product that has been purchased from the distributor as well as the margin that has been added. However, the tax that has been paid by the retailer can be reduced from the overall GST that must be paid.

Consumer: GST must be paid on the product that has been purchased.

Types of GST

GST is primarily categorized into three different types, i.e., CGST, SGST, IGST & UGST.

Central Goods and Services Tax

The Central Government collects CGST tax on the intra-state supply of products and services. The introduction of the Central GST led to the abolition of central taxes such as Central Excise Duty, Customs duty, Service Tax, etc.

State Goods and Services Tax

SGST is applicable to goods and services that are sold within the state (intra-state). SGST replaced several other taxes, including Value Added Tax (VAT), Entertainment Tax, Entry Tax, State Sales Tax, and any applicable surcharges. Revenue collected through SGST is directed toward the State Government.

Integrated Goods and Services Tax

Integrated GST is charged on products and services that are transacted inter-state. The revenue from IGST is distributed among all the states. IGST was implemented to streamline the tax process and ensure that each state only transacts with the Union Government.

Union Territory Goods and Services Tax

UTGST is applicable to the goods and services supplied within the union territories of Chandigarh, Andaman, and the Nicobar Islands, Daman and Diu, Dadra and Nagar Haveli, and Lakshadweep. UTGST is collected along with CGST.

Tax Laws before GST

In the earlier tax regime, many indirect taxes were levied by both state and central governments. The states mainly collected taxes in the form of Value Added Tax (VAT). Every state had a different set of rules and regulations. The center taxed Inter-state sale of goods. CST (Central State Tax) was applicable for the inter-state sale of goods. These indirect taxes, such as the entertainment tax, octroi, and local tax, were levied together.

The following is the list of indirect taxes that were applicable in the pre-GST regime:

• Central Excise Duty
• Duties of Excise
• Additional Duties of Excise
• Additional Duties of Customs
• Special Additional Duty of Customs
• Cess
• State VAT
• Central Sales Tax
• Purchase Tax
• Luxury Tax
• Entertainment Tax
• Entry Tax
• Taxes on advertisements
• Taxes on lotteries, betting, and gambling.
• Taxes like CGST, SGST, and IGST have replaced all the above taxes.

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Legislative Basis Of GST

In India, the GST Bill was first introduced in 2014 as The Constitution (122nd Amendment) Bill.

This got approval in 2016 and was renumbered in the statute by Rajya Sabha as The Constitution (101st Amendment) Act, 2016. Its provisions:

Central GST to cover Excise duty, Service tax, etc, State GST to cover VAT, luxury tax, etc.

Integrated GST to cover inter-state trade. IGST per se is not a tax but a system to coordinate state and union taxes.

Article 246A – states have the power to tax goods and services.

GST Council

Article 279A - GST Council to be formed by the President to administer & govern GST. Its Chairman is the Union Finance Minister of India with ministers nominated by the state governments as its members.

The council is devised in such a way that the center will have 1/3rd voting power and the states have 2/3rd.

The decisions are taken by the 3/4th majority.

The GST Advantages

• GST is a transparent tax and also reduces the number of indirect taxes.
• GST will not be a cost to registered retailers therefore there will be no hidden taxes and the cost of doing business will be lower.
• Benefit people as prices will come down which in turn will help companies as consumption will increase.
• There is no doubt that in the production and distribution of goods, services are increasingly used or consumed and vice versa.
• Separate taxes for goods and services, which is the present taxation system, require division of transaction values into value of goods and services for taxation, leading to greater complications, administration, including compliance costs.
• In the GST system, when all the taxes are integrated, it would make it possible for the taxation burden to be split equitably between manufacturing and services.
• GST will be levied only at the final destination of consumption based on the VAT principle and not at various points (from manufacturing to retail outlets). This will help in removing economic distortions and bring about the development of a common national market.
• GST will also help to build a transparent and corruption-free tax administration.
• Presently, a tax is levied when a finished product moves out from a factory, which is paid by the manufacturer, and it is again levied at the retail outlet when sold.
• GST is backed by the GSTN, which is a fully integrated tax platform to deal with all aspects of GST.

GST Disadvantages

• Some Economists say that GST in India would impact negatively on the real estate market. It would add up to 8 percent to the cost of new homes and reduce demand by about 12 percent.
• Some Experts say that CGST(Central GST), and SGST(State GST) are nothing but new names for Central Excise/Service Tax, VAT, and CST. Hence, there is no major reduction in the number of tax layers.
• Some retail products currently have only a four percent tax on them. After GST, garments, and clothes could become more expensive.
• The aviation industry would be affected. Service taxes on airfares currently range from six to nine percent. With GST, this rate will surpass fifteen percent and effectively double the tax rate.
• Adoption and migration to the new GST system would involve teething troubles and learning for the entire ecosystem. 

Conclusion

GST is a very good step toward shifting the Indian economy from an informal to the formal one. But, both the Center and States have to understand the limitations associated with Indirect Taxes and move towards the inclusion of people into the Direct tax bracket. But, to revive GST Regime back on track India needs some radical steps such as an extension of revenue guarantee to States, restricting cesses, and above all respecting the need of State governments' fiscal problems. The law is still a ‘work-in-progress’ and the process of evolution, in such a complex journey, cannot be eliminated. The Government should continue to take measures to deliver on its promise of a ‘Great & Successful Tax’ in the times to come.

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