GST

The genesis of the introduction of GST in the country was laid down in
the historic Budget Speech of 28th February 2006, wherein the then
Finance Minister laid down 1st April, 2010 as the date for the
introduction of GST in the country.

Thereafter, there has been a constant endeavour for the introduction of

the GST in the country whose culmination has been the introduction of
the Constitution (122nd Amendment) Bill in December, 2014.
 Why GST?
A common refrain in the popular discussions is what is the need for the
introduction of GST? To answer that question, it is important to
understand the present indirect tax structure in our country.

Earlier the Central Government levies tax on manufacture (Central

Excise duty), provision of services (Service Tax), interstate sale of
goods (CST levied by the Centre but collected and appropriated by the
States) and the State Governments levy tax on retail sales (VAT), entry
of goods in the State (Entry Tax), Luxury Tax, Purchase Tax, etc.

It is clearly visible that there are multiplicities of taxes which are being
levied on the same supply chain.
There is cascading of taxes, as taxes levied by the Central Government
are not available as setoff against the taxes being levied by the State
governments.
Even certain taxes levied by State Governments are not allowed as set
off for payment of other taxes being levied by them.
Further, a variety of VAT laws in the country with disparate tax rates
and dissimilar tax practices, divides the country into separate economic
spheres.
Creation of tariff and non- tariff barriers such as Octroi, entry Tax,
Check posts etc. hinder the free flow of trade throughout the country.
Besides that, the large number of taxes creates high compliance cost
for the taxpayers in the form of number of returns, payments etc.
 What is GST

All the taxes mentioned earlier are proposed to be subsumed in a single

tax called the Goods and Services Tax (GST) which will be levied on
supply of goods or services or both at each stage of supply chain starting
from manufacture or import and till the last retail level.

So basically any tax that is presently being levied by the Central or State
Government on the supply of goods or services is going to be converged
into GST.
GST is proposed to be a dual levy where the Central Government will
levy and collect Central GST (CGST) and the State will levy and collect
State GST (SGST) on intra-state supply of goods or services.

The Centre will also levy and collect Integrated GST (IGST) on inter-state
supply of goods or services.

Thus GST is a unifier that is going to integrate various taxes being levied
by the Centre and the State at present and provide a platform for
forging an economic union of the country.
This tax reform will lead to creation of a single national market,
common tax base and common tax laws for the Centre and States.
Another very significant feature of GST will be that input tax credit will
be available at every stage of supply for the tax paid at the earlier stage
of supply.
This feature would mitigate cascading or double taxation in a major
way.
This tax reform will be supported by extensive use of Information
Technology [through Goods and Services Tax Network (GSTN)], which
will lead to greater transparency in tax burden, accountability of the tax
administrations of the Centre and the States and also improve
compliance levels at reduced cost of compliance for taxpayers.
Studies indicate that introduction of GST would instantly spur economic
growth and can potentially lead to additional GDP growth in the range
of 1% to 2%.
 Advantages of GST for the government:
• Will help to create a unified common national market for
India, giving a boost to foreign investment and “Make in
India” campaign;
• Will mitigate cascading of taxes as Input Tax Credit will be
available across goods and services at every stage of supply;
• Harmonization of laws, procedures and rates of tax between
Centre and States and across States;
• Improved environment for compliance as all returns are to be
filed online, input credits to be verified online, encouraging
more paper trail of transactions at each level of supply chain;
• Similar uniform SGST and IGST rates will reduce the
incentive for evasion by eliminating rate arbitrage between
neighbouring States and that between intra and inter-state
sales;
• Common procedures for registration of taxpayers, refund of taxes,
uniform formats of tax return, common tax base, common system of
classification of goods and services will lend greater certainty to
taxation system;
• Greater use of IT will reduce human interface between the taxpayer
and the tax administration, which will go a long way in reducing
corruption;
• It will boost export and manufacturing activity, generate more
employment and thus increase GDP with gainful employment leading
to substantive economic growth;
• Ultimately it will help in poverty eradication by generating more
employment and more financial resources.
 Advantages to Trade and Industry:

• Simpler tax regime with fewer exemptions;

• Increased ease of doing business;
• Reduction in multiplicity of taxes that are at present governing our indirect
tax system leading to simplification and uniformity;
• Elimination of double taxation on certain sectors like works contract,
software, hospitality sector;
• Will mitigate cascading of taxes as Input Tax Credit will be available across
goods and services at every stage of supply;
• Reduction in compliance costs - No multiple record keeping for a variety of
taxes - so lesser investment of resources and manpower in maintaining
records;
• More efficient neutralization of taxes especially for exports thereby
making our products more competitive in the international market
and give boost to Indian Exports;
• Simplified and automated procedures for various processes such
as registration, returns, refunds, tax payments, etc;
• Average tax burden on supply of goods or services is expected to
come down which would lead to more consumption, which in turn
means more production thereby helping in the growth of the
industries manufacturing in India.
 Advantages to Consumers:

• Final price of goods is expected to be transparent due to seamless flow

of input tax credit between the manufacturer, retailer and service
supplier;
• Reduction in prices of commodities and goods in long run due to
reduction in cascading impact of taxation;
• Relatively large segment of small retailers will be either exempted from
tax or will suffer very low tax rates under a compounding scheme -
purchases from such entities will cost less for the consumers;
• Poverty eradication by generating more employment and more financial
resources.
 Advantages to States:

• Expansion of the tax base as they will be able to tax the entire supply
chain from manufacturing to retail;
• Power to tax services, which was hitherto with the Central Government
only, will boost revenue and give States access to the fastest growing
sector of the economy;
• GST being destination based consumption tax will favour consuming
States;
• Improve the overall investment climate in the country which will
naturally benefit the development in the States;
• Largely uniform SGST and IGST rates will reduce the incentive for
evasion by eliminating rate arbitrage between neighbouring States and
that between intra and inter-state sales;
• Improved Compliance levels of the tax payers will contribute greatly in
improving the revenue collection of the States.
 Current status
• In order to implement this tax reform, Constitutional
(122nd Amendment) Bill (CAB for short) was introduced in the
Parliament and passed by Rajya Sabha on 03rd August, 2016 and Lok
Sabha on 08th August, 2016.
• The CAB was passed by more than 15 states and thereafter Hon’ble
President gave assent to “The Constitution (One Hundred And First
Amendment) Act, 2016” on 8th of September, 2016. Since then the
GST council and been notified bringing into existence the
Constitutional body to decide issues relating to GST.
• On September 16, 2016, Government of India issued notifications
bringing into effect all the sections of CAB setting firmly into motion
the rolling out of GST. This notification sets out an outer limit of time
of one year, that is till 15-9-2017 for bringing into effect GST.
• The Central Goods and Services Tax Bill, Integrated Goods and
Services Tax Bill, Union Territories (without legislature) Goods and
Services Tax Bill and Goods and Services Tax (Compensation to
States) Bill have been passed by the Lok Sabha on 29.03.2017 and by
the Rajya Sabha on 06.04.2017.These Acts have been notified on
12th April, 2017 after the assent of the President.
GST Council
 Functions of the GST Council

• The GST council will be supposed to make recommendation to the Union

and State on the following matters :-
• On subsuming of various taxes, cess, and surcharge in GST.
• Details of services and goods that will be subjected to GST or which will be
exempted from GST.
• On Threshold limit below which services and goods will be exempted from
GST.
• On GST rates including floor rate with bands of GST and any special rate for
time being to arrange resources to face any natural calamity.
• Making special provisions for the following states: Arunachal Pradesh,
Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland,
Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
• On model law on GST, Principal of levy of GST and the principals which will
govern the place of Supply.
 Role of GST Council

• A GST Council would comprise the Union Finance Minister (who will
be the chairman of the Council), the Minister of State (Revenue) and
the State Finance/Taxation Ministers to make recommendations to
the Union and the States on
• (i) the taxes, cesses and surcharges levied by the Centre, the States and the
local bodies which may be subsumed under GST;
• (ii) the goods and services that may be subjected to or exempted from the
GST;
• (iii) the date on which the GST shall be levied on petroleum crude, high
speed diesel, motor sprit (commonly known as petrol), natural gas and
aviation turbine fuel;
• (iv) model GST laws, principles of levy, apportionment of IGST and the
principles that govern the place of supply;
• (v) the threshold limit of turnover below which the goods and services may
be exempted from GST;
• (vi) the rates including floor rates with bands of GST;
• (vii) any special rate or rates for a specified period to raise additional
resources during any natural calamity or disaster;
• (viii) special provision with respect to the North-East States, J&K,
Himachal Pradesh and Uttarakhand; and
• (ix) any other matter relating to the GST, as the Council may decide.
 Power of GST council only recommendatory in nature:

• As per Article 279A (4), the Council will make recommendations to

the Union and the States on important issues related to GST, like
• a) The goods and services that may be subjected or exempted from
GST.
• b) Principles that govern Place of Supply.
• c) Threshold limits.
• d) GST rates including the floor rates with bands, special rates for
raising additional resources during natural calamities/disasters
or RNR
• e) Special provisions for certain States, etc.
• f) Transition Provisions
 GST Impact on India
• (a) Increased FDI: The flow of Foreign Direct Investments may
increase once GST is implemented as the present complicated/
multiple tax laws are one of the reasons foreign Companies are wary
of coming to India in addition to widespread corruption.
• (b) Growth in overall revenue: It is estimated that India could get
revenue of $15 billion per annum by implementing the Goods and
Services Tax as it would promote exports, raise employment and
boost growth. Over a period, the dilution of the principles may see
that only part of this is accruing.
• (c) Single point taxation: Uniformity in tax laws will lead to single
point taxation for supply of goods or services all over India. This
increases the tax compliance and more assesses will come into tax
net.
• (d) Simplified tax laws: This reduces litigation and waste of time of the
judiciary and the assessee due to frivolous proceedings at various
levels of adjudication and appellate authorities. Present law appears
to be much worse and an amalgam of the bad parts of VAT/ ST/ CE.
• (e) Increase in exports and employment- GST could also result in
increased employment, promotion of exports and consequently a
significant boost to overall economic growth and factors of
production -land labour and capital.
 Impact of GST on Indian Economy

• Reduce tax burden on producers and foster growth through more

production. This double taxation prevents manufacturers from producing
to their optimum capacity and retards growth. GST would take care of this
problem by providing tax credit to the manufacturer.
• Various tax barriers such as check posts and toll plazas lead to a lot of
wastage for perishable items being transported, a loss that translated into
major costs through higher need of buffer stocks and warehousing costs
as well. A single taxation system could eliminate this roadblock for them.
• A single taxation on producers would also translate into a lower final
selling price for the consumer.
• Also, there will be more transparency in the system as the customers
would know exactly how much taxes they are being charged and on what
base.
• GST would add to government revenues by widening the tax base.
• GST provides credits for the taxes paid by producers earlier in the
goods/services chain. This would encourage these producers to buy
raw material from different registered dealers and would bring in
more and more vendors and suppliers under the purview of taxation.
• GST also removes the custom duties applicable on exports. Our
competitiveness in foreign markets would increase on account of
lower cost of transaction.
• The proposed GST regime, which will subsume most central and
state-level taxes, is expected to have a single unified list of
concessions/exemptions as against the current mammoth exemptions
and concessions available across goods and services
The introduction of Goods and Services Tax would be a very
noteworthy step in the field of indirect tax reforms in India. By
amalgamating a large number of Central and State taxes into a single
tax, it would alleviate cascading or double taxation in a major way and
pave the way for a common national market. From the consumer point
of view, the biggest advantage would be in terms of reduction in the
overall tax burden on goods and services. Introduction of GST would
also make Indian products competitive in the domestic and
international markets. Last but not the least, this tax, because of its
transparent character, would be easier to administer. However, once
implemented, the system holds great promise in terms of sustaining
growth for the Indian economy.
 Goods and Service Tax Network
• Goods and Service Tax Network (GSTN) is a one stop solution for all
your indirect tax requirements.
• It is a Section 25, not for profit organisation owned by government
and private players jointly.
• GSTN has been entrusted with the responsibility of building Indirect
Taxation platform for GST to help you prepare, file, rectify returns and
make payments of your indirect tax liabilities.
• Just because it will be a one stop solution for all indirect tax
requirements, business will be able to manage tax easily.
• Unlike current indirect tax, where there are multiple sites backed by
provisions and compliances, it will become lot easier for the assesse
and government to track the status of returns and payments with the
help of GSTN
GST IT Strategy: Role assigned to GSTN
• Creation of common and shared IT infrastructure for functions facing
taxpayers has been assigned to GSTN and these are filing of
registration application, filing of return, creation of challan for tax
payment, settlement of IGST payment (like a clearing house),
generation of business intelligence and analytics. All statutory
functions to be performed by tax officials under GST like approval of
registration, assessment, audit, appeal, enforcement etc. will remain
with the respective tax departments. The diagram below shows the
work distribution.
 Role of GSTN in Payment of GST by Taxpayers
Under GST, all challans will have to be prepared by taxpayers on the GST
portal only. This has been done to ensure that bank tellers do not enter
wrong TIN number from hand written challans as happens sometimes today.
Once Challan is created with GSTIN, name of taxpayer, amount under various
tax heads and sub-heads, the taxpayer has following two options to pay the
tax:
• He can choose online option under which, he will have to choose one of the
agency banks (i.e. banks authorized by RBI to collect GST on their behalf)
from the dropdown menu and after that he will be taken to the website of
chosen bank to make payment by providing user ID and password of bank.
After completion of payment, he will be brought back to GST portal from
where he can download the paid challan, which is generated by GST System
on confirmation from the Bank.
• The other option of tax payment is to print the challan and present the
same in the relevant bank for ‘Over the Counter Payment’ (OTC). The bank
after realising the payment will transfer the money to RBI and send
confirmation of payment to GST Portal for accounting.
At the end of the day, the GST portal will prepare a summary of all
payment confirmations received by it from Banks and share the same
with RBI and accounting authorities for reconciliation. No tax money
will ever come to GSTN in any manner. GSTN will only get
conformation of payment from the Banks.
Role of GSTN with respect to Filing of Returns
• Under GST, there will be common return for CGST, SGST and IGST,
eliminating the need to file separate tax returns with Central and
state GST authorities. Checking of claim of Input Tax Credit (ITC) is one
of the fundamental pillars of GST, for which data of Business to
Business (B2B) invoices have to be uploaded and matched. The
Common GST Portal created and managed by GSTN will do this
matching on the basis of invoice level data filed as part of return by all
taxpayers. Similar exercise will be done for inter-state supplies where
goods or services will move from the state of origin to the state of
consumption and so will the taxes. The claim of IGST and its
utilization will be settled based on returns filed at the Common GST
portal.
 Role of GSTN with respect to Registration Application

• Under GST, the registration of taxpayers will be common under

Central and State GST and hence one place of filing application for the
same i.e. the Common GST portal. The application so received will be
checked for its completeness by the GST portal, which will also carry
out validation of data like PAN from CBDT, CIN/DIN from MCA and
Aadhaar of promoters, if provided, from UIDAI. After completion of
validation, the registration application will be shared with respective
central and state tax authorities. Query of tax authorities, if any and
their final decision will be communicated to GST portal which in turn
will communicate the same to the taxpayer.
• The Common GST Portal, as explained in brief above, will be the
single interface for all taxpayers from any part of the country. Only in
case where a taxpayer is picked up for scrutiny or audit, and such
cases are expected to be small in number, he will interface with the
respective tax authority issuing the notice under the Act. For all other
cases, which is expected to be around 95%, the Common GST Portal
will be the only taxpayer interface.
 Access to Data
• The design of GST systems is based on role based access. The
taxpayer can access his own data through identified applications like
registration, return, view ledger etc. The tax official having
jurisdiction, as per GST law, can access the data. Data can be accessed
by audit authorities as per law. No other entity can have any access to
data.
 Vision
To become a trusted National Information Utility (NIU) which provides reliable, efficient and robust IT
Backbone for the smooth functioning of the Goods & Services Tax regimen enabling economic agents to
leverage the entire nation as One Market with minimal Indirect Tax compliance cost.

Mission
• Provide common and shared IT infrastructure and services to the Central and State
Governments, Tax Payers and other stakeholders for implementation of the Goods & Services Tax
(GST).
• Provide common Registration, Return and Payment services to the Tax payers.
• Partner with other agencies for creating an efficient and user-friendly GST Eco-system.
• Encourage and collaborate with GST Suvidha Providers (GSPs) to roll out GST Applications for
providing simplified services to the stakeholders.
• Carry out research, study best practises and provide Training and Consultancy to the Tax
authorities and other stakeholders.
• Provide efficient Backend Services to the Tax Departments of the Central and State Governments
on request.
• Develop Tax Payer Profiling Utility (TPU) for Central and State Tax Administration.
• Assist Tax authorities in improving Tax compliance and transparency of Tax Administration
system.
• Deliver any other services of relevance to the Central and State Governments and other
stakeholders on request.
 PRINCIPLES OF TAX SUBSUMPTION
• The various Central, State and Local levies were examined to identify their
possibility of being subsumed under GST. While identifying, the following
principles were kept in mind:
• 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.
• 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.
• The subsumption should result in a 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.
GST would replace the following 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 (commonly known as CVD)
• f) Special Additional Duty of Customs(SAD)
• g) Service Tax
• h) Cesses and surcharge in so far as they relate to supply of goods and
services.
State taxes that would be subsumed within the GST are:-
• a) State VAT
• b) Central Sates Tax
• c) Purchase Tax
• d) Luxury Tax
• e) Entry Tax (All forms)
• f) Entertainment Tax and Amusement Tax (except those levied by the local
bodies)
• g) Taxes on advertisements
• h) Taxes on lotteries, betting and gambling
• i) State cesses and surcharges in so far as they relate to supply of goods and
services.
 TAXES WHICH ARE NOT SUBSUMED
GST may not subsume the following taxes within its ambit:
• Basic Customs Duty: These are protective duties levied at the time of
Import of goods into India.
• Exports Duty: This duty is imposed at the time of export of certain goods
which are not available in India in abundance.
• Road & Passenger Tax: These are in the nature of fees and not in the nature
of taxes on goods and services.
• Toll Tax: These are in the nature of user fees and not in the nature of taxes
on goods and services.
• Property Tax
• Stamp Duty
• Electricity Duty