The salient features of GST are as under:
GST would be applicable on supply of goods or services as against the present concept of tax on the manufacture of goods or on sale of goods or on provision of services.
GST would be a destination based tax as against the present concept of origin based tax. Place of supply will be the place of taxation. In below example though service provided from west Bengal, Delhi and Rajasthan but it will taxable in Delhi as Place of Supply.
It would be a dual GST with the Centre and the States simultaneously levying it on a common base.
The GST levied by the Centre would be called Central GST (CGST) and,
The GST levied by the States would be called State GST (SGST).
An Integrated GST (IGST) would be levied on;
inter-State supply (including stock transfers) of goods or services and,
Import of goods and services,
This would be collected by the Centre so that the credit chain is not disrupted.
Import of goods or services would be treated as inter-State supplies and would be subject to IGST in addition to the applicable customs duties.
For an initial period of two years or as further extended on the recommendation of the GST Council,
a non-vatable Additional Tax not exceeding 1% on inter-State supply of goods would be levied,
Additional Tax will be collected by the Centre and assigned to the originating State.
The Select Committee of the Rajya Sabha has recommended that this tax should be levied only when the supply is made for a consideration.
(there is possibility of removing this additional tax from proposed Act).
CGST, SGST & IGST would be levied at rates to be mutually agreed upon by the Centre and the States under the aegis of the GST Council.
GST would replace the following taxes currently levied and collected by the Centre:
Central Excise duty
Duties of Excise (Medicinal and Toilet Preparations)
Additional Duties of Excise (Goods of Special Importance)
Additional Duties of Excise (Textiles and Textile Products)
Additional Duties of Customs (commonly known as CVD)
Special Additional Duty of Customs (SAD)
Cesses and surcharges so far they relate to supply of goods or services
State taxes that would be subsumed within the GST are:
a) State VAT
b) Central Sales Tax
c) Purchase Tax
d) Luxury Tax
e) Entry Tax (All forms)
f) Entertainment Tax (not levied by the local bodies)
g) Taxes on advertisements
h) Taxes on lotteries, betting and gambling
i) State cesses and surcharges so far they relate to supply of goods or services
GST would apply to all goods and services except Alcohol for human consumption, Electricity and Real Estate.
GST on petroleum products would be applicable from a date to be recommended by the Goods & Services Tax Council.
Tobacco and tobacco products would be subject to GST. In addition, the Centre would continue to levy Central Excise duty.
A common threshold exemption would apply to both CGST and SGST. Taxpayers with a turnover below it would be exempt from GST. A compounding option (i.e.to pay tax at a flat rate without credits) would be available to small taxpayers below a certain threshold. The threshold exemption and compounding scheme would be optional.
The list of exempted goods and services would be kept to a minimum and it would be harmonized for the Centre and the States as far as possible.
Exports would be zero-rated.
Existing HSN Codes are likely to be used for classification of goods.
Present Accounting codes likely to be used for Services.
Credit of CGST paid on inputs may be used only for paying CGST on the output and the credit of SGST paid on inputs may be used only for paying SGST.
In other words, the two streams of input tax credit (ITC) cannot be cross utilised, except in specified circumstances of inter-State supplies, for payment of IGST.
The credit would be permitted to be utilised in the following manner:
ITC of CGST allowed for payment of CGST
ITC of SGST allowed for payment of SGST
ITC of CGST allowed for payment of CGST & IGST in that order
ITC of SGST allowed for payment of SGST & IGST in that order
ITC of IGST allowed for payment of IGST, CGST & SGST in that order.
ITC of Additional Tax would not be permitted, same like CST payment in current structure. There are discussion for scrapping this proposed additional Tax.
Accounts would be settled periodically between the Centre and the State to ensure that the credit of SGST used for payment of IGST is transferred by the Exporting State to the Centre.
Similarly the IGST used for payment of SGST would be transferred by the Centre to the Importing State.
The laws, regulations and procedures for levy and collection of CGST and SGST would be harmonized to the extent possible. So that business does not suffered and revenue does not get stuck.
Expected GST tax rates will be between 16% to 20%.
However State government has been given power within certain range to impose higher rate of SGST, therefore rate of SGST may differ in different states.
Procedural compliance is likely to be increase as different branch of same service provider will have to furnish separate return for separate status. For e.g. Say A Bank has branches in 29 states, presently Bank is registered Centrally for the payment of service tax say Mumbai, post GST The Bank will have to obtain separate registration for all 29 states. Which will increase records maintenance, credit management, assessment and auditors handling.
Threshold exemption limit for manufacturing/ dealer and service provider: It is expected that common threshold will apply to manufacturing/ dealer and service provider , which may result in reduction of current exemptions available.
Whether available Cenvat credit prior to GST will be allowed to carry forward?
It is believed that Cenvat credit available prior to GST will be carried forward in implementation phase, after GST company will be required to obtain registration of Branches in different states, so how allocation of Centralized credit will be made available for distribution that is not yet clarified, it may be in various state or centralized location.
Restriction on Credit utilization of CGST and SGST
Credit of Central GST will be available only against CGST liability and similarly Credit SGST can we utilized only against SGST.
Cross utilization of credit between Goods and Service will be allowed.
Cross Credit of CGST can be utilized between goods and service both, similarly the cross credit facility will be available for SGST also.