Goods and services tax

Adam and Andrew are the two students they want to prepare for the exams now the adam bought
maths material , English material, and different materials for different subjects and the andrew the
smart guy bought all in one material. Most of you confusing why I am telling this, similarly when we look
into Goods and services tax and normal taxes. As we all know that Indian government implemented
Goods and services tax(GST) that effective from 1st July 2017. Now the question what exactly the GST
is?, How it works?, what is the impact of the GST on Indian economy? How much it impacts common
man?, What is the advantages and disadvantages of the GST? Does india only following the GST? Is the
GST is part of demonetization? Simply GST is tax levied on each and every value added, which means to
that tax can be imposed to value addition only. Let me explain about tax and then we can find more
about GST.

What is TAX?
A fee levied by a government on a product , income , or activity .

In India the standard tax rates introduced by the govt of India every assessment year as per income tax
Act. 1961. There are two types of taxes namely direct taxes and indirect taxes.

Direct taxes are tax is levied on personnel or corporate income. For example Income tax, most people
are paying this tax.

Indirect taxes are the tax is levied on the price of a good or service. For example Sales tax, all of us
paying the sales tax.

Now the question is why we need to consider corporate as direct tax, companies act., 1956 described
that corporate is an artificial person and I think I am clear now. Let me get into the GST.

What is GST?
GST stands for Goods and services tax is an indirect tax, it is the multi stage tax, that can be levied on
every value addition

Let us know about the definition means, GST is multi stage tax which means there are multiple
steps an item goes through from the manufacturer to wholesaler next it comes to retailer and finally it
reaches to End user.Now what really means Every value addition suppose manufacturer produced a
product he expects profit and he adds profit value with the manufactured value, there GST will take
place and now he delivers product to the wholesaler , now he expects the profit, and he adds profit
value with the purchased value and here also GST will takes place but tax can be levied for whatever the
value he added to the purchased value and same case with the retailer also. I am clear with my point
the tax can be levied for every value addition. Let me explain what is difference between the tax and
GST with an example.

Suppose Mr. Alex sells goods to Mr. Brenden and charges sales tax; then Mr. Brenden re-sells those
goods to Mr. Charless after charging sales tax. While Mr. Brendon was computing his sales tax liability,
he also included the sales tax paid on previous purchase, which is how it becomes a tax on tax This was
the case with the sales tax few years ago. At that time, VAT was introduced whereby every next stage
person gets credit of the tax paid at earlier stage. This means that when Mr. Bredon pays tax of Rs. 11,
he deducts Rs. 10 paid earlier.

So now Alex is the manufacturer , he decided to sell product at 100 + 10% of tax it becomes 110 and
Brendon is the wholesaler, he purchased at 110/- he adds 10 and 10% tax now it becomes
110+10(profit) +12 =132and he sold to Retailer Charless now Charless adds 132 + 10 profit + 10%
that is equals to 156. This is the calculations for 100 product where in the absence of the GST. Now let
me calculate same for GST also Alex produces a product and he decided to sell product at 100+ 10% tax
it becomes 110 and Brendon purchased at 110 he adds 10 now he need to pay for whatever value
he added, it means for 10 that is 110 + 10 and 10% on value addition that is equals to 121. Same case
with Charless also so now to total value of the product is 121+ 10 +1 = 133. I hope am I clear with my
example let us move to history of the GST. Where is exactly from?

History of GST
On 6th May 2015, the Lok Sabha passed the much-delayed Constitutional Amendment Bill to introduce
Goods and Service Tax (GST), paving the way for a new bill on the uniform tax regime, even as the
Congress Party staged a walkout in protest. But in 2000, the Vajpayee Government started discussion on
GST by setting up an empowered committee later that in 2006 , finance minister P.chidambaram moved
towards and added GST in his budget and empowered a committee aslo. However t he Government is
very confident to get the Bill cleared in the Monsoon Session and bring GST into effect by 1st July 2017.
Its is the history about the indian GST and when we eye into the world so may tax revolutions takes
place and similarly GST is part of revolution. And here let me answer for the question Does India only
following GST?

GST is not a new phenomenon. It was first implemented in France in 1954, and since then many
countries have implemented this unified taxation system to become part of a global whole. Now that
India is adopting this new tax regime, let us look back at the how and when of the Goods and Services
Tax and its history in the nation. France was the worlds first country to implement GST Law in the year
1954. Since then, 159 other countries have adopted the GST Law in some form or other. In many
countries, VAT is the substitute for GST, but unlike the Indian VAT system, these countries have a single
VAT tax which fulfills the same purpose as GST. So 159 countries following the GST tax system now
Indian added to this list.
How does GST work?
A nationwide tax reform cannot function without strict guidelines and provisions. The GST Council has
devised a fool proof method of implementing this new tax regime by dividing it into three categories.
Wondering how they work? Let our experts explain this to you in detail.

When Goods and Services Tax is implemented, there will be 3 kinds of applicable Goods and Services
Taxes :

CGST: where the revenue will be collected by the central government

SGST: where the revenue will be collected by the state governments for intra-state sales

IGST: where the revenue will be collected by the central government for inter-state sales

In most cases, the tax structure under the new regime will be as follows.

If the transaction type is Sale within the state now we need to pay CGST + SGST and if the transaction
type is Sale to another State we need to pay IGST. Let me explain this with an example.

Example
A dealer in Rajasthan sold goods to a consumer in Rajasthan worth Rs. 10,000. The Goods and Services
Tax rate is 18% comprising CGST rate of 9% and SGST rate of 9%. In such cases the dealer collects Rs.
1800 and of this amount, Rs. 900 will go to the central government and Rs. 900 will go to the
Maharashtra government.

Now, let us assume the dealer in Rajasthan had sold goods to a dealer in Gujarat worth Rs. 10,000. The
GST rate is 18% comprising of CGST rate of 9% and SGST rate of 9%. In such case the dealer has to
charge Rs. 1800 as IGST. This IGST will go to the Centre. There will no longer be any need to pay CGST
and SGST.

GST and Common man

Now the big question is The GST is benefit for the common man. And let us see in different views
somewhere it is benefit and somewhere it is not. To understand this, let us first understand what is
Input Tax Credit. It is the credit an individual receives for the tax paid on the inputs used in
manufacturing the product. So, if there is a 10% tax that the individual must submit to the government,
he can subtract the amount he has paid in taxes at the time of purchase and submit the balance amount
to the government.

Lets Say a shirt manufacturer pays Rs. 100 to buy raw materials. If the rate of taxes is set at 10%, and
there is no profit or loss involved, then he has to pay Rs. 10 as tax. So, the final cost of the shirt now
becomes Rs (100+10=) 110.
At the next stage, the wholesaler buys the shirt from the manufacturer at Rs. 110, and adds labels to it.
When he is adding labels, he is adding value. Therefore, his cost increases by say Rs. 40. On top of this,
he has to pay a 10% tax, and the final cost therefore becomes Rs. (110+40=) 150 + 10% tax = Rs. 165.

Now, the retailer pays Rs. 165 to buy the shirt from the wholesaler because the tax liability had passed
on to him. He has to package the shirt, and when he does that, he is adding value again. This time, lets
say his value add is Rs. 30. Now when he sells the shirt, he adds this value (plus the VAT he has to pay
the government) to the final cost. So, the cost of the shirt becomes Rs. 214.5 Let us see a breakup for
this:

Cost = Rs. 165 + Value add = Rs. 30 + 10% tax = Rs. 195 + Rs. 19.5 = Rs. 214.5

So, the customer pays Rs. 214.5 for a shirt the cost price of which was basically only Rs. 170 (Rs 110 + Rs.
40 + Rs. 30). Along the way the tax liability was passed on at every stage of transaction and the final
liability comes to rest with the customer. This is called the Cascading Effect of Taxes where a tax is paid
on tax and the value of the item keeps increasing every time this happens.

In the case of Goods and Services Tax, there is a way to claim credit for tax paid in acquiring input. What
happens in this case is, the individual who has paid a tax already can claim credit for this tax when he
submits his taxes.

In our example, when the wholesaler buys from the manufacturer, he pays a 10% tax on his cost price
because the liability has been passed on to him. Then he adds value of Rs. 40 on his cost price of Rs. 100
and this brings up his cost to Rs. 140. Now he has to pay 10% of this price to the government as tax. But
he has already paid one tax to the manufacturer. So, this time what he does is, instead of paying Rs (10%
of 140=) 14 to the government as tax, he subtracts the amount he has paid already. So, he deducts the
Rs. 10 he paid on his purchase from his new liability of Rs. 14, and pays only Rs. 4 to the government. So,
the Rs. 10 becomes his input credit.

When he pays Rs. 4 to the government, he can pass on its liability to the retailer. So, the retailer pays Rs.
(140+14=) 154 to him to buy the shirt. At the next stage, the retailer adds value of Rs. 30 to his cost price
and has to pay a 10% tax on it to the government. When he adds value, his price becomes Rs. 170. Now,
if he had to pay 10% tax on it, he would pass on the liability to the customer. But he already has input
credit because he has paid Rs.14 to the wholesaler as the latters tax. So, now he reduces Rs. 14 from his
tax liability of Rs. (10% of 170=) 17 and has to pay only Rs. 3 to the government. And therefore, he can
now sell the shirt for Rs. (140+30+17) 187 to the customer.

So essentially, Goods & Services Tax is going to have a two-pronged benefit. One, it will reduce the
cascading effect of taxes, and second, by allowing input tax credit, it will reduce the burden of taxes and,
hopefully, prices.

Impact of GST on Indian economy

So many revolutions like Nationalisation , FERA Act., Foreign investment policy , Liberalisation
privatization, Globalisation(LPG) boosted Indian economy very well but now we want see the impact of
GST on economy. I hope it will definitely help to strengthen the economy, inflation to come down as GST
rates for most goods have been fixed at a lower rate. It will bring small companies to be taxed and it
helps add extra income to the Indian govt. Corporates are planning to restructure their operations to
passing at lower taxes, Inflation may remain low I have no doubt that inflation will remain low as GST
rates on essential goods such as food grain, household consumer items and essential services have been
either exempt or kept lower. Economic growth may not jump immediately, GST implementation will be
disruptive as there will be a major change in the supply chain, but added the tax reform will be
beneficial to the economy in the medium to long term.

Advantages and disadvantages

A coin had a two faces similarly GST bill having advantages and disadvantages is well, let
me begin with the advantages Apart from full allowance of credit, there are several other advantages of
introducing a GST in India

There is a possibility of reduction in prices, manufacturers or traders do not have to include

taxes as a part of their cost of production, which is a very big reason to say that we can see a
reduction in prices. However, if the government seeks to introduce GST with a higher rate, this
might be lost.
Increase in Government Revenues, it might seem to be a little vague. However, even at the time
of introduction of VAT, the public revenues actually went up instead of falling because many
people resorted to paying taxes rather than evading the same.
Less comprocedural cost instead of maintaining big records, returns and reporting under various
different statutes, it will be reduced. It should be noted that the are, nevertheless, required to
keep record of CGST, SGST and IGST separately.
Healthcare and education services will continue to be exempted from tax under the GST.

It will create corruption free tax system. May be no chance to currupt on this GST system.

Disadvantages

Even small business have pay taxes, it is very difficult survive for the small scale business they
need to face large scale industries as well.
Start-ups may face difficulties to start, it seems that young entrepreneurs may face financial
problems to start their business.
It is having high impact on the logistics so the charges will be high.

It would create confusion and it seems to be double taxation system.

 What are the charges in tax rates?

GST or goods and services tax changed the indirect tax landscape of the country
from July 1 by subsuming over a dozen of state and central taxes. Since GST is meant to
eliminate "tax on tax", experts say overall tax burden on goods is expected to fall over time.
Many essential goods such as unpacked food grains, gur, milk, eggs and salt won't attract any
tax under GST. Some services will get costlier as banking and financial services have been put in
the 18 per cent rate slab under GST, from 15 per cent earlier.
"However, going forward, it is expected that due to reduced cost because of availability of GST
credit on items hitherto not available, the price of services will also come down which will
benefit the consumer. Let me explain this in table I can start with my favorite item Cheese.

Item Earlier (%) GST (%)

Cheese and butter 5 14.5 12

Perfumes 17.5 - 27 18

Cosmetics 17.5 - 27 28

Glucometers 11 20.5 12

Tableware - Metal 11 12

X-Ray Apparatus (for medical, dental & veterinary) 17.5 - 27 12

Footwear (below Rs. 500) 14.41 5

Footwear (Above Rs. 500) 14.41 18

Readymade garments (below Rs. 1000) 5-6 5

Readymade garments (above Rs. 1000) 18.5 12

 Biscuits 11.89 16.0 9 18

Corn-flakes 9.86 18

Wrist watches 20.68 28

Small Cars (<4m <1200 cc petrol) 25-27 28+1(Cess)

Cars with 1500 cc & larger engines 41.5-44.5 28+15(Cess)

Motorcycles 23-35 28

Television 25-27 28

Stationary 11-27 18

Digital Cameras 25-27 28

Iron Ore 17-18 5

Renewable energy devices 17-18 5

Music Instruments (Other than Handmade) 25-27 28

Cell phones 6 18

Luxury hotels 28 25

Cool drinks 18 28

Telecom 5 18
Conclusion

Let me conclude this shortly but not saying bye, GST definitely strengths the economy and
helpful to reduction in prices in some increment in some, however it will definitely damages to
the small scale industries. The GST journey started in 2000 but it taken 17 long years to
implement, finally and finally it would be effective from 1st July 2017 under the 122 amendment
of the constitution. It seems that one nation and one tax, which means all indirect taxes
replaced with GST, its better to a word merged all taxes with GST than the replaced. Not only
India but also 159 countries implemented GST on their preferences and standard of living of
people. Tax rates are upgrade but what about our income?

Written by
Venkatesulu Gorrepati