GST

Concept of GST

GST is a value added tax levied on manufacture, sale and consumption of goods and services.
GST offers continuous chain of tax credits
GST removes cascading of taxes ( tax on tax)

Need for GST

Deficiencies in the previous tax system led to introduction of GST.

The previous tax system involved multiple taxes, complex compliance procedures, and intervention by several
State and Central tax divisions. This made it highly difficult to set up and run a business in India.
Under the GST regime, instead of applying taxes on the total value of the product at each stage, the GST only
imposes tax on value addition. Since it provides credit for the input tax paid at each previous stage of a supply
chain, this method considerably reduces the overall cost of manufacturing and selling goods.

Framework of GST

Legislative framework: It includes the following Constitutional amendments for GST

a) Introduced Article 246 A: - States and centre to levy tax on goods and services in the Union. On
interstate supply only state can levy tax
b) Introduced Article 269A:- IGST will be distributed between centre, state and UT
c) GST council to be constituted by President of India. Union FM, Union Ministers of State and State FM
to be its members

Dual GST: -India is a federal country, where both Centre and States have powers to levy and collect taxes
under respective legislation. Hence, a dual GST model is implemented in India. Under the dual model, the
power to levy taxes is distributed between Centre and States

Principles of GST

Destination Principle: It states that the supply of goods and services would be taxed at the point of
consumption. This means that GST replaces source based tax system with destination based tax regime.

‘Value Added Principle’: This principle states that the tax shall be collected on value-added to goods or
services at each stage of the supply chain. Right from the original producer or service provider to the ultimate
consumer, GST will be collected on value added at every stage of the supply chain.

Classification of Goods and Services:

HSN ( Harmonized System of Nomenclature) code is used for classifying the goods under the GST

Goods and Services Tax Network (GSTN)

It is a non-Government, private limited company. It provides Technology backbone for GST in India. GST
being a destination based tax, the inter- state trade of goods and services (IGST) would need a robust
settlement mechanism amongst the States and the Centre. This is possible only when there is a strong IT
Infrastructure and Service back bone which enables capture, processing and exchange of information amongst
the stakeholders (including tax payers, States and Central Governments, Accounting Offices, Banks and RBI).
As a result Goods and Services Tax Network (GSTN) has been set up.

GST Council
The GST Council shall consist of Union Finance Minster as a Chairperson, Union Minister of State in charge of
Finance as a member, the State Finance Minister or State Revenue Minister or any other Minister nominated
by each State as a member of the Council. The GST Council shall select one of them as Vice Chairperson of
Council.

Functions of the GST Council: GST Council will make recommendations to the Central Government and the
State Governments on 1. tax rates, 2. exemptions, 3. threshold limits, 4. dispute resolution, 5. GST legislations
including rules and notifications etc.

GST Road map In India

Year Activity
2004 Kelkar committee recommends introduction of GST to replace all indirect Taxes
2006 Finance Minister P Chidambaram in his budget speech proposes to introduce
GST from 2010
2007 Gradual reduction of CST
2008 GST implementation roadmap submitted to the Government
2011 Constitutional amendment bill introduced in Lok sabha for introduction of GST
2012 Government convenes a meeting of all state Finance ministers to discuss GST
2014 Arun Jaitley reintroduces constitutional amendment bill of GST
2015 GST bill successfully passed in Lok Sabha, but could not be passed in Rajya
sabha
2016 GST bill passed in Rajya Sabha
2017 GST finally passes all the tests – passed on 1/7/2017

Taxes subsumed under GST

The GST laws have been framed in such a manner that a multitude of taxes have been replaced by one tax.
The details of the taxes subsumed under GST are as under.
(A) Taxes related to Centre:
i. Central Excise duty v. Additional Duties of Customs (commonly known
as CVD)
ii. Duties of Excise (Medicinal and Toilet
Preparations) vi. Special Additional Duty of Customs (SAD)
iii. Additional Duties of Excise (Goods of Special vii. Service Tax
Importance)
viii. Central Surcharges and Cesses so far as they
iv. Additional Duties of Excise (Textiles and Textile relate to supply of goods or services.
Products)

(B) Taxes related to State

i. State VAT vi. Taxes on advertisements
ii. Central Sales Tax vii. Purchase Tax
iii. Luxury Tax viii. Taxes on lotteries, betting and gambling
iv. Octroi and Entry Tax (all forms) ix. State Surcharges and Cesses so far as they
relate to supply of goods or services.
v. Entertainment and Amusement Tax (except when
levied by the local bodies)
 Taxes Which are not subsumed under GST

1. Custom Duty
The Countervailing Duty (CVD) and Special Additional Duty (SAD) will subsume under GST, but the Basic
Customs Duty (BCD) will be charged according to current law only and not GST.

2. Stamp Duty
The buyer has to the pay stamp duty for the registration of the property, and GST will not cover Stamp duty
and will be subsumed as per the tax levied by the government.

3. Vehicle Tax
GST does not cover road tax, so the Vehicle Tax will not be charged under GST, and will remain under
the Motor Vehicle Act.

4. Excise on Liquor
For the time being, Liquor has been kept outside the GST. Alcohol needs a constitutional amendment to be
brought under the ambit GST. Though Industry Experts suggest, the GST will impact the sector negatively in
the future.

5. Tax on Sale and Consumption of Electricity

GST will not affect the Electricity Bills as of now, and the existing tax system of VAT and Central Excise will
prevail on Electricity Bills. The state will charge the VAT and Centre will levy the Central Excise.

6. Entry Taxes and Toll

GST will not cover the Toll Tax as such taxes like road tax, toll tax, environment tax and others are directly paid
by users and will be levied by States directly.

7. Entertainment Tax (Levied by Local Bodies)

The imposition of the extra tax by local bodies is not covered under GST. Hence, in addition to 28 per cent
GST, the local body extra tax will lead to Double Tax. This will indirectly lead to a sharp increase in the price of
the tickets.

8. Road Tax
GST will not cover the Road Tax as such taxes like toll tax, road tax, environment tax and others are directly
paid by users and will be levied by States directly.

Merits and Demerits of GST

GST is undoubtedly one of the biggest tax reforms since India opened its gates to the world economy in 1991.
However, there are a number of disadvantages of GST too that make it challenging to implement the tax.
Advantages of GST
 Upcoming of common national market
 Elimination of cascading effect of taxes as a host of taxes get subsumed
Small traders or service providers exempt from paying tax as threshold for registration increased to Rs 20
Lakhs
 Small businesses to benefit from the composition scheme as it eases the compliance burden for them
 Reduced tax compliance as number of tax returns to be filed under GST has come down
 The final price of goods and services to come down as the benefit of the input tax credit gets passed on
to the final consumer
 Registration and filing returns under GST made simple as everything is done online
 Unorganized businesses would now be regulated as input tax credit can be availed only when supplier
accepts the amount.

Disadvantages of GST
 Compliance under GST is very high as there are three tax returns to be filed every month
 Challenging for smaller businesses to adapt to the online system under GST
 GST does not adhere to ‘One Nation One Tax’ . Currently, there are 31 legislations governing and
regulating GST law
 Instead of single or dual rate GST system, there are 7 standard tax rates as well as multiple rates
of CESS
 Hurried implementation of GST which has lead to confusion among professionals and businesses
 Increased cost for businesses as they either have to update current software or invest in new one

Supply Under GST:

Taxable event under GST is SUPPLY. The essential conditions of Supply under GST are as follows:

Supply should of goods and services

Supply should be made for a consideration
Supply should be made in the course or business
Supply should be made by a taxable person
Supply should be a taxable supply

Negative List under GST ( Activities or transactions which shall be treated neither as supply of goods nor
supply of services)

Services by an employee to the employer in the course of employment

Services by a court
Functions performed by MPs, MLAs, MLCs
Services of funeral, burial. Crematorium or mortuary
Sale of land, building

Composite and mixed supply:

Composite supply consists of two or more supplies , bundled: - For ex:- Gas lighter supplied along with gas
stove, supply of breakfast and dinner with accommodation.
Mixed Supply: - Consists of 2 or more supplies – not bundled: - A gift pack consisting of chocolates, candles,
sweets and balloons

Time of Supply of Goods

Time of supply of goods is earliest of:
1. Date of issue of invoice
2. Last date on which invoice should have been issued
3. Date of receipt of advance/ payment*.
For example:
Mr. X sold goods to Mr. Y worth Rs 1,00,000. The invoice was issued on 15th January. The payment was
received on 31st January. The goods were supplied on 20th January.
Let us analyze and arrive at the time of supply in this case.
Time of supply is earliest of –
1. Date of issue of invoice = 15th January
2. Last date on which invoice should have been issued = 20th January
3. Date of receipt of payment 31 st January
Thus the time of supply is 15th January.
What will happen if, in the same example an advance of Rs 50,000 is received by Mr. X on 1st January?
The time of supply for the advance of Rs 50,000 will be 1st January (since the date of receipt of advance is
before the invoice is issued). For the balance Rs 50,000, the time of supply will be 15th January.

Time of Supply for Services

Time of supply of services is earliest of:
1. Date of issue of invoice
2. Date of receipt of advance/ payment.
3. Date of provision of services (if invoice is not issued within prescribed period)
Let us understand this using an example:
Mr. A provides services worth Rs 20000 to Mr. B on 1st January. The invoice was issued on 20th January and
the payment for the same was received on 1st February.
In the present case, we need to 1st check if the invoice was issued within the prescribed time. The prescribed
time is 30 days from the date of supply i.e. 31st January. The invoice was issued on 20th January. This means
that the invoice was issued within a prescribed time limit.
The time of supply will be earliest of –
1. Date of issue of invoice = 20th January
2. Date of payment = 1st February
This means that the time of supply of services will be 20th January.

Place of supply
It is very important to understand the term ‘place of supply’ for determining the right tax to be charged on the
invoice.
Here is an example:

Location of Service Place of supply Nature of GST

Receiver Supply Applicable

Maharashtra Maharashtra Intra-state CGST + SGST

Maharashtra Kerala Inter-state IGST

Place of Supply of Goods

Usually, in case of goods, the place of supply is where the goods are delivered.
So, the place of supply of goods is the place where the ownership of goods changes.
What if there is no movement of goods
In this case, the place of supply is the location of goods at the time of delivery to the recipient.
For example: In case of sales in a supermarket, the place of supply is the supermarket itself.
Place of supply in cases where goods that are assembled and installed will be the location where the
installation is done.
For example, A supplier located in Kolkata supplies machinery to the recipient in Delhi. The machinery is
installed in the factory of the recipient in Kanpur. In this case, the place of supply of machinery will be Kanpur.

Place of Supply for Services

Generally, the place of supply of services is the location of the service recipient.
In cases where the services are provided to an unregistered dealer and their location is not available the
location of service provider will be the place of provision of service.
In case of services related to immovable property, the location of the property is the place of provision of
services.
Example 1:
Mr. Anil from Delhi provides interior designing services to Mr. Ajay(Mumbai). The property is located in
Ooty(Tamil Nadu).
In this case, place of supply will be the location of the immovable property i.e. Ooty, Tamil Nadu.
Example 2:
A registered taxpayer offers passenger transport services from Bangalore to Mumbai. The passengers do not
have GST registration. What will be the place of supply in this case?
The place of supply is the place from where the departure takes place i.e. Bangalore in this case.
Mr. M of Maharashtra supplied goods/services for Rs.35,000 to Mr. P of Pune. Mr. M purchased goods/services for
Rs.23,600 (inclusive of IGST 18%) from Mr. C of Tamil Nadu. SGST and CGST rate on supply of goods and services is 9%
each. Find the following: (i) Total price charged by Mr. M for supply of goods/services and (ii) Who is liable to pay GST?
(iii) Net liability of GST.

A makes intra state supply of goods valued at 50,000 to B within the state of Karnataka. B makes inter state supply to X
( located in Punjab) after adding 10% margin on cost. Thereafter X sells it to Y ( Intra state sales) after adding 10% margin
on cost.
Assuming GSt rate is 18% ( CGST 9% and SGST 9%) and IGST rate 18%, calculate tax payable at each stage after availing
ITC.

GST is a __________________ based tax. (A) origin (B) destination (C) territory (D) None of the above

In IGST, I stands for (A) Integrated (B) International (C) Inter-State (D) Indian

Mrs. Lakshmi of Bangalore, furnishes the following information pertaining to the period upto 31.07.2019:
Intra-State supplies of taxable goods 24,00,000
Intra-State supplies of exempt services 4,00,000
Export sales 13,00,000
Supplies made as agent of a principal 2,00,000
Ascertain the aggregate turnover. She wants to know whether she should get herself registered for GST purposes. You
are required to help her. Further, what will be the GST payable by her, if the GST rate for taxable goods supplied is 18%?

Ans: Aggregate turnover( total of all supplies made) 43 lakhs

Since the limit of 40 lakhs is crossed se should get herself registered for GST purposes
GST payable by her will be only on taxable goods of 24 lakhs ( SGST 9%, CGST 9%)

What are the taxes levied on an intra-State supply? (a) CGST (b) SGST (c) CGST and SGST (d) IGST