India is notorious for its complex tax system. For new businesses and startups, it becomes impossible to navigate through various direct and indirect taxes. Constant changes to taxes like Service Tax are making things even worst. But now, the things are set to change with new Goods and service tax – commonly known as GST.
Lets understand what is GST, how it is different from other taxes, GST applicability, GST rates, its impact on your business and latest updates about GST bill. To make things easy to understand, I will start with an example..
Mr. Sharma is a businessman who wants to start a business. For this he needs various raw materials which have to be imported from China and will need to be brought to Gurgaon – where he has his factory – by road through various states. Once he gets down on the process of estimating his costs he is a little troubled.
First, he needs to pay a customs duty for importing the materials on top of the shipping charges. This is fine but there are a lot of other taxes which he seems to be unable to comprehend. Also he finds out that when he has his final product ready he will have paid the Central and State Governments at least 10 different taxes not all of which are exclusive of each other. On diving deeper he finds many cases where a tax is also taxed by the government.
Petrol prices are the perfect example. The price charged to dealers by the Oil Marketing Companies is Rs. 25.46 currently for a litre of petrol. Now Excise Duty is collected at Rs. 21.48 per litre by the Central Government and adding the dealer commission the price now is Rs. 49.22. This is not the end and Value Added Tax is now charged at 27% which takes the final price to Rs. 62.51 in Delhi. At first it may seem fair that both the Governments tax the product but it is not that innocuous. There is a tax on a tax here! The State Government charges 27% of the final amount in which Central Excise Duty has already been borne by the businessman.
The Goods and Services Tax promises to alleviate this problem among many others. It is being hailed as the game changer for India’s economy and is being labelled as the biggest change in the Constitution since India’s independence. The Goods and Services tax or commonly referred to as the GST will replace the indirect taxes levied by the Central and State Governments and provide for a single and streamlined process. It presents India as a unified market to business owners and also aims at bringing a lot of black money back into the mainstream economy. The tax will be implemented at every step of value creation.
Example Of GST Calculation
Let us assume that the GST is set at 20%. Suppose that the manufacturing cost of a Product A is 100 and assuming a GST of 20% the total amount is Rs. 120. The next step of taxation would be when the Product is sold to consumers, let’s say at a price of 150. So the GST will charge another 20% on just the difference of Rs. 150 and Rs. 120 i.e. only 20% on Rs. 30 which is equal to Rs. 6. So the final price is Rs. 150 + Rs. 6. Unlike the case of petrol pricing there is no tax on a tax now. This eliminates the cascading effect of taxes which is very prevalent in our economy and has been simplified to an elemental level in the example.
Since the GST will be applied at every step of value creation it will be very difficult for black money owners to participate anywhere in the value chain with the GST without accounting for all other transactions. The GST is estimated to provide an immediate boost of 0.9% – 1.4% of the GDP.
10 Frequently Asked Questions About GST Bill.
1) What are final GST rate slabs?
The Goods and Services Tax (GST) will be levied at multiple rates ranging from 0 per cent to 28 per cent. GST Council finalised a four-tier GST tax structure of 5%, 12%, 18% and 28%, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess.
Service Tax will go up from 15% to 18%. The services being taxed at lower rates, owing to the provision of abatement, such as train tickets, will fall in the lower slabs.
In order to control inflation, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate.
The lowest rate of 5% would be for common use items. There would be two standard rates of 12 per cent and 18 per cent, which would fall on the bulk of the goods and services. This includes fast-moving consumer goods.
Highest tax slab will be applicable to items which are currently taxed at 30-31% (excise duty plus VAT).
Ultra luxuries, demerit and sin goods (like tobacco and aerated drinks), will attract a cess for a period of five years on top of the 28 per cent GST.
The collection from this cess as well as that of the clean energy cess would create a revenue pool which would be used for compensating states for any loss of revenue during the first five years of implementation of GST.
Finance minister said that the cess would be lapsable after five years.
The structure to agreed is a compromise to accommodate demand for highest tax rate of 40% by states like Kerala.
While the Centre proposed to levy a 4% GST on gold but the final decision on this was put off. During a press conference, finance minister Mr. Jaitley said, “GST rate on gold will be finalised after the fitting to the approved rates structure of all items is completed and there is some idea of revenue projections”.
The principle for determining the rate on each item will be to levy and collect the GST at the rate slab closest to the current tax incidence on it.
The GST will subsume the multitude of cesses currently in place, including the Swachh Bharat Cess, the Krishi Kalyan Cess and the Education Cess. Only the Clean Environment Cess is being retained, revenues from which will also fund the compensations.
2) What are CGST, SGST and IGST?
India is a federal democracy that is one which has clear demarcation of powers, responsibility and revenue collection between the states and the centre in its constitution. For example law and order falls under the state’s jurisdiction while the nation’s defence is the centre’s responsibility. The GST too needs to have clear provisions on what areas the centre and the state are allowed to collect revenue from taxation to prevent an overlapping.
The Central GST or CGST is the areas where the centre has the powers and State GST where the State has taxation capabilities. The IGST or Integrated GST is for movement of goods within the states of the Indian union. This will be collected by the union however will be transferred over to the states. Thus it is essential that if and when the GST comes out it is rolled over in the entire nation simultaneously.
3) What are the differences between the UPA’s GST and the NDA’s GST?
Below are the primary differences:
- Petroleum sector has been kept out of the ambit of GST
- Liquor for human consumption is exempt however tobacco and tobacco products will fall under GST.
- There is a 1% tax on top of the GST for inter-state movement of goods and services.
4) What are the taxes that GST replaces?
The GST replaces numerous different indirect taxes such as:
- Central Excise Duty
- Service Tax
- Countervailing Duty
- Special Countervailing Duty
- Value Added Tax (VAT)
- Central Sales Tax (CST)
- Octroi
- Entertainment Tax
- Entry Tax
- Purchase Tax
- Luxury Tax
- Advertisement taxes
- Taxes applicable on lotteries.
5) What will be the short-term impact of GST?
The GST will fuel inflation for the short term. The GST rate starts at 5% and 18% taxation services such as restaurants, movies etc. are bound to increase prices. Another problem with the GST that many pundits feel is not including liquor and petroleum under GST’s ambit. These are major revenue sources for the government and experts feel this is being done due to a few crony capitalists who need some time to funnel away their black money as the GST promises to widen the tax paying population.
Also read – Impact on GST on E-Commerce
6) When will GST be implemented?
Government may not be able to meet the initial GST implementation date of 1st April 2017. Its widely assumed that GST rollout will start only after 1 July 2017.
Keep checking the article for latest updates.
7) What is a constitutional amendment?
A Constitutional Amendment as the name suggests is any change in the Constitution. A democracy like India derives all its rules and laws from the Constitution and hence any change in the Constitution is a change in the fundamental fabric of the country. The GST is the One Hundred and Twenty Second such proposed amendment and hence is named The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014.
In simple terms bills other than the Constitution Amendment Bill are just modifications to topics that area already mentioned in the constitution. The introduction of a few new IITs is a perfect example. All these require are a simple majority in both the houses and the President’s Approval. However the GST requires a Constitution Amendment Bill which is a direct change in the Constitution and requires two-thirds of the votes in both Lok Sabha and Rajya Sabha.
8) What are the finer points in the implementation of the bill?
Several committees were setup to evaluate the feasibility and implementation of the GST. Some fine points which were considered are:
- The problem of separating the taxation powers of the state and the centre which resulted in CGST and SGST.
- Exemptions from the GST which currently includes Petroleum and Liquor for human consumption.
- GST will be applicable on imports too along with the Basic Customs Duty which has not been scrapped.
- The GST will be applicable at the point of sale. In comparison the Value Added Tax is a destination based tax while excise duties are taxed at the origin.
- The workings in the implementation of IGST.
9) What is the Empowered Committee?
The Empowered Committee is a committee of the Finance Ministers of the states. It was set up by the Vajpayee Government to look into the Value Added Tax model. The committee has had an influential hand in shaping and structuring of the GST.
10) What will become costlier and cheaper?
According to experts, these items could become costlier:
- Cigarette prices likely to go up as GST rate for tobacco will be higher than current duties
- Commercial vehicles such as trucks will become costlier
- Mobile phone calls may get costlier as service tax will go up
- Textile and branded jewellery may become costlier
And these could become cheaper:
- Auto: Prices of entry-level cars, two-wheelers, SUVs may fall
- Car batteries likely to get cheaper
- Paint, cement prices likely to fall
- Movie ticket prices likely to fall as entertainment tax will come down
- Electronics items like fans, lighting, water heaters, air coolers, etc. will get cheaper
Effective date of GST will be 1st July 2017 once the bill is passed in Rajyasabha. For further reading you can refer to Ministry of Finance. Here is the complete draft of GST.
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Also Read:
GST Registration Process
Levy And Exemptions Under GST
Tax Payments Under GST
Why You Need A Good Accounting Software
20 Tax Saving Tips For Businesses
Top 12 FREE Software For Small Businesses
sir just know i change non-core fileds in gst (mobile & email Id) then i recived otp and filed. after that i submit the oct gst 3b but otp goes to old mobile and email id
1. If there is a bill for purchasing a minigrade supplier, then that tax calculation is taxed or not
2. In the situation of selling, IGST tax calculate in which situation.
Sir agr maine apna new gst no issue krvaya hai or use use me nehi leta or 1 bhi month ki return file nehi krta to mera gst no band ho jayga kya and mujje kuch charges to pay nehi krne pdege .
Plesae sir help me
We were buying accessories, tyres, Batteries, Lubricants locally at Hyderabad with VAT Invoices. My doubt is stock of local items purchased with pure VAT Invoice (Not excise duty Invoice), can be taken for TRANS 1 and if yes what is the rate of abatement?
hi sir,
can you please let me know, if one student is going to purchase for laptop for his education purpose, he want to pay including GST amount to GST register seller or he need to pay net amount to GST register seller,
Please suggest sir
Hi Harshal,
I need some help to understand how GST applicable in property related transactions?
I have booked property in Thane and registration done in month of June, bank disbursed loan amount with check dated 30th June 2017 in favor of builder.
Builder says loan amount got credited in month of July so I’ve to pay GST as per government rule.
I’m not aware how it works with back dated checks as I mentioned check dated 30th June 2017 from bank, does GST apply to me?
Please help me understand this, your help would be highly appreciated.
Hello sir i need information. Can i sale multiple category in 1 gst number
Dear sir,
I have a small CANTEEN & it’s turnover is less than 20 lakh PA
Do I want to collect tax from customer & need I get the gist registration please reply on it.
Thank you
a B2b Registered Customer is registered on 18Aug17 & I have billed him on 10 Jul 17, & also filed the GSTR1 with the Invoice details
What should I do now
How we show in return under Gst , import goods from out side of India which we recd from Indian supplier through HSS purchase . Now at the time of clearing from customs they take duty , CVD, and IGST . Please assist .
Is it mandatory to have GSTIN Number, if I were to buy goods from a Company Firm from other states and transported by road or air? Will I still need WayBill for Goods to enter another State? but I learned from above that GST has eliminated Entry Tax.
question is if mall is generate electric bill for tenant of shop , so please advice me we take GST on electric bill ?
dear sir
we want to but CCTv for our society one of contactor given quote but he is charging us GST on his sale amount i.g. He quote us cameras 7400.oo and he is charging us 18% of his sale value does this method is corret please reply.
what will be customs on 8 kg of of whey protein or gst will be applicable
What is the effect on the purchase of material, before and after GST? ( What are the main changes in the purchase of any goods? How it is affecting on the cost of goods ?)
Thanks sir because like me there are so many who still don’t know about GST impact and stuff.
Glad you liked the article.
If your revenue is more than 20L per year, you should consider getting a GST number.
Is it mandatory for everyone to take GSTIN Number?
I HAVE A ONLINE READYMADE GARMENTS SITE SUPPLING PAN INDIA BUT SALES ARE VERY LESS…LESS THAN 10000/- PM OR SOME MONTHS HAVE NO SALES…DO I NEED TO REGISTER FOR GST AND HOW DO I SUBMIT MONTHLY RETURNS..
The custom process of how to ship a retail e-commerce item is not clear.
As per the new GST rules, to validate an export sale following documents are required.
1. Bond/ Lut from the exporter
2. Commercial Invoice/Packing List
3. Customs Shipping Bill. ( to validate Export)
4. FIRC from the payment bank.
However in case of retail export, a single retail shipment goes via courier and the only document to validate an export is the airway bill generated by the courier company.
How can retail exporters of small value goods under Rs 25000 validate their export sales?
An artisan who sells his wares for $100 cannot afford to get his shipments cleared through a commercial shipping bill system which attracts clearance charges up to Rs2500 (clearing agent charges) for one invoice. Retail export is a very much growing business and needs the government’s clear policies towards validating their sales as export sales.
Want to work with you, sir
I am a publisher, i have to pay gst on paper & printing but as book is a exempted good, i can’t charge gst to my customers, how can i get setoff of gst ? Is it compulsory to apply for gst for publisher?
I had my GSTIN number but, I need to EDIT my given information(to TURN composition ON).what should i do?
Hi Sir,
We are based in Gujarat India.
And we done business Outside of india…i explain….
Means We purchase product from Dubai and sell to USA , but not IMPORT and EXPORT from /TO India. Means my Dubai supplier directly ship to my USA Customer.In Banking language called Merchant Trading.
Then we are how to Calculate GST.
One Example :-
We buy Product from Dubai – $1000 USD
We sell product to USA – $1200USD
Our Profit Margin is India – $200USD.
Then what is our GST Cost.
Again said Dubai supplier directly ship to my USA customer…Product not come in India.
Please help i am very confuse.
What’s the differences between GST rates, before till now?
Please help me out and i think people somewhere don’t know about this.
What is rate of tax for ready made dresses like unform etc
GST Return mandatory for Food Grain Business (0%)?
I am running a yoga class. How much GST should I pay?? As no tax on health services and 18% on Gym.
Our company is providing healthcare services through professionals at home. Whether our company will be covered under GST.
Sir, who is liable to pay GST on Transportar
Sir, In GSt Invoiceing Is there be different rate for same product on ex factory Basis for different dealer in same reason
Sir, we raised invoices with Bhilai steel plant and paid service tax also. Now due to some reason the invoice are not able to submit and they are objecting as cut off date for submission of bills is over.
We want to know whether the service tax will be reimbursed by govt or not.
Hello Admin, Please guide me on this. thanks!
I applied for a training starting from 15th July & I made a payment today. The coaching center Fee applies GST. Is it fine from their end to ask for GST tax when the possibility of its rollout from 1st July is tentative?
Whether a NON AIR CONDITIONED RESTAURANT has to pay GST the annual turnover is less than Rs.20 lakhs per annum has to remit GST?
A NON AIR CONDITIONED RESTAURANT having a licensed AIR CONDITIONED BAR facility has to pay what percentage of GST for restaurant and bar?
Whether the air conditioned restaurant having a turnover of less than Rs. 20 lakhs per annum has to remit GST?
If so what is the percentage?
Sir, Our basic job work (rent) for machine . we are machine transfer through transporter other states with note for sale delivery challan (other requirement document Machine purchase invoice ,Insurance, transporter bilti and state way bill). Our same machine different different states work.
So pl guide under GST rules transfer machine documents and forms required ?
I think we will have to as only recognised courses are exempted , i also provide services to schools
how a tobacco dealer is migrated in gst?
We are providing services to Educational Institutions and at present levy Service Tax. Since Educational Intitutions are exempted from GST should we charge GST or we can raise invoice without GST
What would be the GST rate for booking a banquet hall post July 2017 and what is the difference from current Tax structure.
gst enrolled with wrongly director pan how to with company pan enrolled, how can change please give a suggetion
Hi,
I own and operate a small business in New Delhi whereby I import and sell musical instruments to businesses and directly to customers. I also host and organize music clinics and music shows and provide music consultation services.
A) Musical Instruments
The current base import duty rate on musical instruments is 10% and after applying Counter Vailing Duty (CVD) and other slabs, the total import duty imposed is approximately 29.5%. The Delhi VAT rate applicable is 12.5%.
Under CST, musical instruments will be taxed at 28%.
Question 1 – What would be the total tax burden (in USD) on me to import a product worth $100, on which shipping paid is $10?
Question 2 – Currently, if I need to sell a product to a Delhi based business, all I need to do is acquire the business’s VAT No. and issue a tax invoice. Similarly, if I need to buy a product from a Delhi based business I need to provide my VAT number to the supplier and can later avail the credit. Interstate purchases and sales are done using C-Forms
How would local and interstate sales and purchases work under GST?
B) Entertainment Tax
Currently for hosting and organizing events, different rate of Entertainment Tax is applicable in different states.
Question – What would be the applicable rate(s) of entertainment tax under GST?
C) Music Consultation Services
Question – What would be the applicable rate of tax on music consultation services?
Any help provided will be much appreciated.
Thanks, Sanyam
sir i have a business of readymade store , and my turn over is only 10 to 15 lacs yearly then what i do ? and i have tin no. should i take gst no. or no
DEAR RAVINDER JI
AGAR AP TAXABLE PERSON SE PURCHASE KARTE HO TO APKO GST NO LENA PDEGA,
Si, I have business of Photography and Zerox copy in UT of DAMAN and Diu and i have to purchase all raw materials like paper, ink, developing of photos from other state. but sale in only my home state. i have yearly turn over is not more than 5 lakh. so my question is that I am applicable for GST ? muje GST number lena chahiye ke nahi. agar aapka jawab Yes hai to Kyu lena chahiye… agar aapka jawab NO he to kyu lena nahi chahiye.. i requesyt you to kindly give me proper information regarding my question. in Hindi Please.
It was really insightful …. keep posting such good stuff..!!
Thanks for sharing this article. It is really very helpful… But I want to know about the impacts of GST on Trvel Industry…