Saturday, April 29, 2017

Frequently Asked Questions on GST (Goods and Services Tax) - Part I

FAQ on GST (Goods and Services Tax) - Part I
FAQ on GST (Goods and Services Tax) - Part II
FAQ on GST (Goods and Services Tax) - Part III
FAQ on GST (Goods and Services Tax) - Part IV
FAQ on GST (Goods and Services Tax) - Part V
FAQ on GST (Goods and Services Tax) - Part VI
FAQ on GST (Goods and Services Tax) - Part VII

This Question and Answers are prepared by Apex Training Institute Under Central Board of Excise and Customs(CBEC) with some inputs from National Academy of Customs, Excise and Narcotics (NACEN).

Below mentioned Q&A are derived from above document with modifications.

Five Tier GST Taxation System

1. 0% Taxation - Commodities such as food grains, rice, wheat are included.
2. 5% Taxation - The first slab is 5% tax. Products of mass consumption such as spices, tea and mustard oil are included here. What is further beneficial is that if the credits on procurement are fully available to these suppliers, then rates may go down further.
3. 12% Taxation - Processed food items.
4. 18% Taxation - Items such as soaps, oil, toothpaste, refrigerator, and smartphones have been included. Right now, these products are taxed more than 25% tax rates, which would go down after GST is implemented. Most of the remaining goods and services might get itemised here.
5. 28% Taxation
a) Tier 1: Flat 28% - Under this, white goods and cars are included. Currently, whatever products are included in the 27-31% would be included in this tax bracket.
b) Tier 2: 28% + cess - sin :) products such as luxury cars (Considered as Sin product!!!), tobacco products, pan masala and aerated drinks are included.
Current tax on tobacco products is 32%. Under GST, Centre will apply a cess of 4% besides 28% as finalized.

1. What is Goods and Services Tax (GST)? 

A destination-based tax on consumption of goods and services. It is proposed to be levied at all stages, right from manufacture up to final consumption with credit of taxes paid at previous stages available as the setoff. Only value addition will be taxed and burden of tax is to be borne by the final consumer.

2. What exactly is the concept of a destination-based tax on consumption? 

The tax would accrue to the taxing authority which has jurisdiction over the place of consumption which is also termed as place of supply.

3. Which of the existing taxes are proposed to be subsumed under GST? 

The GST would replace the following taxes:

(i)Taxes currently levied and collected by the Centre:
a. Central Excise duty.
b. Duties of Excise (Medicinal and Toilet Preparations)
c. Additional Duties of Excise(Goods of Special Importance)
d. Additional Duties of Excise(Textiles and Textile Products)
e. Additional Duties of Customs(CVD)
f. Special Additional Duty of Customs(SAD)
g. Service Tax
h. Central Surcharges and Cesses so far as they relate to supply of goods and services

(ii) State taxes that would be subsumed under GST are:
a. State VAT
b. Central Sales Tax.
c. Luxury Tax.
d. Entry Tax (all forms).
e. Entertainment and Amusement Tax(except when levied by the local bodies).
f. Taxes on advertisements.
g. Purchase Tax.
h. Taxes on lotteries, betting and gambling.
i. State Surcharges and Cesses so far as they relate to supply of goods and services

The GST Council shall make recommendations to Union and States on taxes, cesses and surcharges levied by Centre, States and local bodies which may be subsumed in the GST.

4. What principles were adopted for subsuming the above taxes under GST? 

(i) Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services.
(ii) Taxes or levies to be subsumed should be part of the transaction chain which commences with import/ manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other.
(iii) The subsumption should result in the free flow of tax credit in intra and inter-State levels. The taxes, levies and fees that are not specifically related to supply of goods & services should not be subsumed under GST.
(v)  Revenue fairness for both the Union and the States individually would need to be attempted.

5. Which are the commodities proposed to be kept outside the purview of GST? 

Alcoholic liquor for human consumption. Five petroleum products - petroleum crude, motor spirit (petrol), high-speed diesel, natural gas and aviation turbine fuel have temporarily been kept out and GST Council shall decide the date from which they shall be included in GST. Furthermore, electricity has been kept out of GST.

6. What will be the status in respect of taxation of above commodities after the introduction of GST?

The existing taxation system (VAT & CentralExcise) will continue in respect of the above commodities.

7. What will be the status of Tobacco and Tobacco products under GST regime? 

Tobacco and tobacco products would be subject to GST. In addition, the Centre would have the power to levy Central Excise duty on these products.

8. What type of GST is proposed to be implemented? 

It would be a dual GST with the Centre and States simultaneously levying it on a common tax base. The GST to be levied by the Centre on the intra-State supply of goods and/or services would be called the Central GST (CGST) and that to be levied by the States/Union territory would be called the State GST (SGST)/ UTGST. Similarly, Integrated GST (IGST) will be levied and administered by Centre on every interstate supply of goods and services.

9. Why is Dual GST required? 

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 have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources.

10. Which authority will levy and administer GST? 

Centre will levy and administer CGST & IGST while respective states/UTs will levy and administer SGST/UTGST.

11. Why was the Constitution of India amended recently in the context of GST? 

Currently, the fiscal powers between the Centre and the States are clearly demarcated in the Constitution with almost no overlap between the respective domains. The Centre has the powers to levy tax on the manufacture of goods (except alcoholic liquor for human consumption, opium, narcotics etc.) while States have powers to levy the tax on the sale of goods. In the case of inter-State sales, the Centre has the power to levy a tax (the Central Sales Tax) but, the tax is collected and retained entirely by the States. As for services, it is the Central one that is empowered to levy service tax.

The introduction of the GST required amendments in the Constitution so as to simultaneously empower the Centre and the States to levy and collect this tax. The Constitution of India has been amended by the Constitution(101th amendment) Act, 2016 for this purpose. Article 246A of the Constitution empowers the Centre and the States to levy and collect the GST.

12. How a particular transaction of goods and services would be taxed simultaneously under Central GST (CGST) and State GST (SGST)? 

The Central GST and 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.

e.g.2: Assume that the rate of CGST is 10% and that of SGST is 10%. When an advertising company located in Mumbai supplies advertising services to a company manufacturing soap (located within the State) for, let us say Rs 100, the ad company would charge CGST of Rs 10 as well as SGST of Rs 10 to the basic value of the service. He would be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government.

He need not again actually pay Rs 20 (10 + 10) in cash as it would be entitled to set-off this liability against the CGST or SGST paid on his purchase (say, of inputs such as stationery, office equipment, services of an artist etc.). But for paying CGST he would be allowed to use only the credit of CGST paid on its purchase while for SGST he can utilise the credit of SGST alone.CGST.

13 What are the benefits which the Country will accrue from GST? 

This is a significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax and allowing set-off of prior-stage taxes, it would mitigate ill effects of cascading and pave the way for a common national market.

For consumers, the biggest gain would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%. The introduction of GST would also make our products competitive in the domestic and international markets. Studies show that this would instantly spur economic growth. There may also be revenue gain for the Centre and the States due to the widening of the tax base, increase in trade volumes and improved tax compliance. Transparent character of GST would make it easier to administer.

14. What is IGST? 

Under GST regime, an Integrated GST(IGST) would be levied and collected by the Centre on the inter-State supply of goods and services (Constitution Article 269A). Such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the GST Council.

15. Who will decide rates for levy of GST? 

Jointly decided by the Centre and States. The rates would be notified on the recommendations of the GST Council.


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