SHRI RAMSWAROOP MEMORIAL UNIVERSITY

LUCKNOW- DEVA ROAD, UTTAR PRADESH

RESEARCH REPORT

ON

GOODS & SERVICES TAX (GST)

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT

FOR THE AWARD OF DEGREE

OF

BACHELOR OF BUSINESS ADMINISTRATION (BBA)

TO

SHRI RAMSWAROOP MEMORIAL UNIVERSITY

(2017-18)

Under the Guidance of Submitted By:

Miss. Nancy Gupta Mirza Danish Baig

(Asst. Professor) Roll no: 201510702110078

Institute of Management, Commerce & Economics

SRMU, Lucknow
 TABLE OF CONTENT

CONTENT Page No.

Acknowledgement

Abstract

1. Introduction

2. Objectives of the study

3. Literature Review

4. Research Methodology

5. Suggestions/Recommendations

6. Conclusion

7. Limitations

8. Bibliography

2
 ACKNOWLEDGEMENT

Every work constitutes great deal of assistance and guidance from the people concerned and this

particular project is of no exception.

A project of the nature is surely a result of tremendous support, guidance, encouragement and

help.

Wish to place on record my sincere gratitude to Miss Nancy Gupta, Faculty Guide, SRMU,

Lucknow, for his valuable guidance. Without his support and guidance taking this would not

have been possible.

Also, wish to acknowledge enthusiastic encouragement and support extended to me by my

family members. At last, I would like to thank all the faculty of business management to help me

completing this project.

Im also thankful to my friends who provided me their constant support and assistance.

Mirza Danish Baig

Roll No.: 201510702110078

BBA – V Semester

3
 DECLARATION

I do hereby declare that the research report titled “Goods & Services Tax (GST)” submitted by

me in partial fulfillment of the requirement of Master of Business Administration exclusively

prepared and conceptualized by me and is not submitted to any other Institution or University or

published anywhere before for the reward of any Degree/Diploma/Certificate. It is the Original

work of mine and has not been obtained from any other part.

Mirza Danish Baig

Roll No.: 201510702110078

BBA – V Semester

4
 PREFACE
In India, there exist a number of indirect taxes that are either levied by the Central Government

or by the state government such as Excise Duty, Custom Duty, Service Tax, Sales tax, Stamp

Duty, Octroi and many more. There have been various attempts of reforming the indirect tax

structure for making tax system simple, stable and burdensome. In this process of reform we

have already implement vat and service tax. For further significant improvement the next logical

step towards a comprehensive indirect tax reforms in the country will be to implement Goods

and Services Tax (GST). GST is a tax on goods and services with comprehensive manner. It is a

multi-tier tax where ultimate burden of tax fall on the consumer of goods or services. It is called

as value added tax because at every stage tax is being paid on value addition.

The present research paper is an attempt to study concept of goods and service tax, how it works

and its advantages to Indian economy.

5
INTRODUCTION

6
 INTRODUCTION

Tax policies play an important role on the economy through their impact on both efficiency and

equity. A good tax system should keep in view issues of income distribution and, at the same

time, also endeavour to generate tax revenues to support government expenditure on public

services and infrastructure development.

The introduction of Goods and Services Tax (GST) would be a very 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, it would mitigate 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 a reduction in the overall tax burden on goods, which is currently estimated at 25%-

30%. Introduction of GST would also make our products competitive in the domestic and

international markets.

It will lead to the abolition of taxes such as Octroi, Central Sales Tax, State level Sales Tax,

Entry Tax, Stamp duty, Telecom License Fees, Turnover Tax, Tax on Consumption or Sale of

Electricity, etc. It will also improve government's fiscal health as the tax collection system would

become more transparent, making tax evasion difficult. CAG Mr. Vinod Rai in his inaugural

address to the National Conference on GST put forth the concept as "An integrated scheme of

taxation that does not discriminate between goods and services and is a part of the proposed tax

reforms that centre on evolving an efficient and harmonized consumption tax system in the

country."

GST stands for Goods and Service Tax. It was first initiated in 1986 by Vishwanath Pratap

Singh 7th Prime Minister of India. After that in 2007, the current government proposed to

implement GST and presented the same in Lok Sabha in 2011. In Dec 2014 GST again presented

7
in Lok Sabha and in same is passed in 2015. After approval of Rajya Sabha same is called as

101th amendment of the Constitution and is rolling out from 1 July 2017. After the passage of 25

years of economic reforms in the indirect taxes is going for a revolutionary change in the form of

GST.

GST is defined as the giant indirect tax structure designed to support and enhance the economic

growth of a country. More than 150 countries have implemented GST so far. However, the idea

of GST in India was mooted by Vajpayee government in 2000 and the constitutional amendment

for the same was passed by the Loksabha on 6th May 2015 but is yet to be ratified by the

Rajyasabha. However, there is a huge hue and cry against its implementation. It would be

interesting to understand why this proposed GST regime may hamper the growth and

development of the country.

8
 Objectives

 To understand the concept of goods and service tax

 To understand how GST will work in India
 To understand the benefits of GST over the current taxation system in India
 To understand effect of GST on Indian Economy

9
 GOODS AND SERVICES TAX (GST)

The Goods and Services Tax has revolutionized the Indian taxation system. The GST Act was

passed in the Lok Sabha on 29th March, 2017, and came into effect from 1st July, 2017.

Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that

will be levied on every value addition.

In simple words, GST is an indirect tax levied on the supply of goods and services. GST Law has

replaced many indirect tax laws that previously existed in India.

So, before Goods and Service Tax, the pattern of tax levy was as follows:

Under the GST regime, tax will be levied at every point of sale.

Now let us try to understand “GST is a comprehensive, multi-stage, destination-based tax that

will be levied on every value addition.”

10
MULTI-STAGE

There are multiple change-of-hands an item goes through along its supply chain : from

manufacture to final sale to consumer.

Let us consider the following case:

 Purchase of raw materials

 Production or manufacture

 Warehousing of finished goods

 Sale of the product to the retailer

 Sale to the end consumer

Goods and Services Tax will be levied on each of these stages, which makes it a multi-stage tax.

Value Addition

The manufacturer who makes shirts buys yarn. The value of yarn gets increased when the yarn is

woven into a shirt.

11
The manufacturer then sells the shirt to the warehousing agent who attaches labels and tags to

each shirt. That is another addition of value after which the warehouse sells it to the retailer.

The retailer packages each shirt separately and invests in the marketing of the shirt thus

increasing its value.

GST will be levied on these value additions i.e. the monetary worth added at each stage to

achieve the final sale to the end customer.

DESTINATION-BASED

Consider goods manufactured in Rajasthan and are sold to the final consumer in Karnataka.

Since Goods & Service Tax (GST) is levied at the point of consumption, in this case Karnataka ,

the entire tax revenue will go to Karnataka.

12
HISTORY OF GST IN INDIA

The reform process of India's indirect tax regime was started in 1986 by Vishwanath Pratap

Singh, Finance Minister in Rajiv Gandhi’s government, with the introduction of the Modified

Value Added Tax (MODVAT). Subsequently, Manmohan Singh,the then Finance Minister

under P V Narasimha Rao, initiated early discussions on a Value Added Tax at the state level. A

single common "Goods and Services Tax (GST)" was proposed and given a go-ahead in 1999

during a meeting between the then Prime Minister Atal Bihari Vajpayeeand his economic

advisory panel, which included three former RBI governors IG Patel, Bimal Jalan and C

13
Rangarajan. Vajpayee set up a committee headed by the then finance minister of West

Bengal, Asim Dasgupta to design a GST model.

The Ravi Dasgupta committee was also tasked with putting in place the back-end technology and

logistics (later came to be known as the GST Network, or GSTN, in 2017) for rolling out a

uniform taxation regime in the country. In 2002, the Vajpayee government formed a task force

under Vijay Kelkar to recommend tax reforms. In 2005, the Kelkar committee recommended

rolling out GST as suggested by the 12th Finance Commission.

After the fall of the BJP-led NDA government in 2004, and the election of a Congress-

led UPA government, the new Finance Minister P Chidambaram in February 2006 continued

work on the same and proposed a GST rollout by 1 April 2010. However in 2010, with

the Trinamool Congress routing CPI(M) out of power in West Bengal, Asim Dasgupta resigned

as the head of the GST committee. Dasgupta admitted in an interview that 80% of the task had

been done.

In 2014, the NDA government was re-elected into power, this time under the leadership

of Narendra Modi. With the consequential dissolution of the 15th Lok Sabha, the GST Bill –

approved by the standing committee for reintroduction – lapsed. Seven months after the

formation of the Modi government, the new Finance Minister Arun Jaitley introduced the GST

Bill in the Lok Sabha, where the BJP had a majority. In February 2015, Jaitley set another

deadline of 1 April 2017 to implement GST. In May 2016, the Lok Sabha passed the Constitution

Amendment Bill, paving way for GST. However, the Opposition, led by the Congress, demanded

that the GST Bill be again sent back to the Select Committee of the Rajya Sabha due to

disagreements on several statements in the Bill relating to taxation. Finally in August 2016, the

14
Amendment Bill was passed. Over the next 15 to 20 days, 18 states ratified the GST Bill and the

President Pranab Mukherjee gave his assent to it.

A 22-members select committee was formed to look into the proposed GST laws. State and

Union Territory GST laws were passed by all the states and Union Territories of India except

Jammu & Kashmir, paving the way for smooth rollout of the tax from 1 July 2017. There was to

be no GST on the sale and purchase of securities. That continues to be governed by Securities

Transaction Tax (STT).

15
ADVANTAGES OF GST

16
WHY DO WE NEED GST

Despite the success of VAT, there are still

certain shortcomings in the structure of

VAT, both at the Centre and at the State

level.

Justification at the Center Level

 At present excise duty paid on the

raw material consumed is being allowed as input credit only. For other taxes and duties

paid for post-manufacturing expenses, there is no mechanism for input credit under the

Central Excise Duty Act.

 Credit for service tax paid is being allowed manufacturer/ service provider to a limited

extent. In order to give the credit of service tax paid in respect of services consumed, it is

necessary that there should be a comprehensive system under which both the goods and

services are covered.

 At present, the service tax is levied on restricted items only. Many other large numbers of

services could not be taxed. It is to reduce the effect of cascading of taxes, which means

levying tax on taxes.

17
Justification at the State Level

 A major defect under the State VAT is that the State is charging VAT on the excise duty

paid to the Central Government, which goes against the principle of not levying tax on

taxes.

 In the present State level VAT scheme, Cenvat allowed on the goods remains included in

the value of goods to be taxed which is a cascading effect on account of Cenvat element.

 Many of the States are still continuing with various types of indirect taxes, such as luxury

tax, entertainment tax, etc.

 As tax is being levied on inter-state transfer of goods, there is no provision for taking

input credit on CST leading to additional burden on the dealers.

18
WHAT ARE THE COMPONENTS OF GST?

There are 3 applicable taxes under GST: CGST, SGST & IGST.

CGST: Collected by the Central Government on an intra-state sale (Eg: Within Karnataka)

SGST: Collected by the State Government on an intra-state sale (Eg: Within Karnataka)

IGST: Collected by the Central Government for inter-state sale (Eg: Karnataka to Tamil Nadu)

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

TRANSACTION NEW REGIME OLD REGIME

Revenue will be shared

Sale within the VAT + Central
CGST + SGST equally between the Centre
State Excise/Service tax
and the State

There will only be one type of

tax (central) in case of inter-

Sale to another Central Sales Tax + state sales. The Center will
IGST
State Excise/Service Tax then share the IGST revenue

based on the destination of

goods.

19
Illustration:

A dealer in Maharashtra sells goods to a consumer in Maharashtra worth Rs. 10,000. The GST

rate is 18% : comprising CGST of 9% and SGST 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 Maharashtra had sold the goods to a dealer in Gujarat worth Rs.

10,000.

The GST rate is 18% comprising of only IGST. In such case, the dealer has to charge Rs. 1800 as

IGST. This IGST revenue will go to the Central Government.

WHAT CHANGES DOES GST BRING IN?

Before GST, tax on tax was calculated and tax was paid by every purchaser including the final

consumer. The taxation on tax is called the Cascading Effect of Taxes.

GST avoids this cascading effect as tax is calculated only on the value add. at each transfer of

ownership. Understand what the cascading effect is and how GST helps by watching this simple

video:

GST will improve the collection of taxes as well as boost the development of Indian economy by

removing the indirect tax barriers between states and integrating the country through a uniform

tax rate.

Illustration:

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.

20
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, let’s 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.

Action Cost 10% Tax Total

Buys Raw Material @ 100 100 10 110

Manufactures @ 40 150 15 165

Adds value @ 30 195 19.5 214.5

Total 170 44.5 214.5

21
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

latter’s 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.

22
 Action Cost 10% Tax Actual Liability Total

Buys Raw Material 100 10 10 110

Manufactures @ 40 140 14 4 154

Adds Value @ 30 170 17 3 187

Total 170 17 187

In the end, every time an individual was able to claim input tax credit, the sale price for him

reduced and the cost price for the person buying his product reduced because of a lower tax

liability. The final value of the shirt also therefore reduced from Rs. 214.5 to Rs. 187, thus

reducing the tax burden on the final customer.

23
PROBLEMS IN IMPLEMENTATION OF GST

Vat or sales tax is levied and collected by the state government. Different state government

charge different rate of taxes on different kind of goods traded within their respective territorial

limits under the extreme power provided to the state under state list of the Constitution. Whereas

CST central sales tax is levied by the central government and collected by the state government

as per the concurrent list of the Constitution. Same the EXCISE duty as per central excise act

1944 and service tax as per finance act 1994 is levied and collected by the central government

through the extreme power provided under the union list of the Constitution.

Due to this distribution of power under the Constitution, no state government wants to losses the

revenue source called VAT or Sales tax. GST is the subject matter of union list and no state

agrees to bifurcate their income to the central government but now as the same political party is

in majority in the state and central. All state government agreed to the proposal, as a result, GST

Rollout.

24
LITERATURE REVIEW

25
 LITERATURE REVIEW

India is a federal country and both Centre and States have their own rights to collect taxes. Each

state is independent in levying and collecting taxes. The taxation powers are defined clearly in

the Indian Constitution. Centre collects all the direct taxes (income tax, corporate taxes etc)

along with the Indirect taxes like Service Tax, Excise duty and Customs duty. The States collect

indirect taxes like VAT on goods, CST and Local Taxes. These revenues states keep with

themselves. Earlier instead of VAT, States had sales taxes on various goods. Now states have

replaced sales taxes with VAT. Each state has adopted its own structure of VAT with different

duties and structure.

In an earlier taxation system, people paid taxes at various levels. There was no system of getting

a rebate on the taxes paid previously while paying the inputs. This is also called as cascading

effect. Ideally the taxes should be based on value addition and the producer should pay taxes on

whatever value he adds to the product. In the absence of such a system, producers ended up

paying much higher taxes. Higher taxes are a barrier for business and discourage business

activity. The businesses instead spend time trying to save taxes leading to distortions and a

parallel economy. A large number of enterprises prefer to stay out of the taxation system and

avoid paying taxes. High taxes also lead to lobbying activities where producers of a certain

sector ask the government to lower/waiver taxes for their sector. This also leads to multiple

taxation rates for multiple products and further increases inefficiency in the system.

A Value Added Taxation system is seen as a way to negate this cascading effect. VAT taxes goods

at each stage and on the value addition done by the enterprise.

26
GST is an extended version of Value Added Tax (VAT) and aims to cover all goods and services.

VAT covers mostly goods and GST covers all goods and services. GST is an attempt to get rid of

weaknesses in the VAT structure.

With a GST in place, all these indirect taxes should be merged into one tax. Ideally, these taxes

will be collected by the Centre which will then be transferred to the States via a rule/formula.

This will require changes in the constitution as Centre can only tax goods at production stage and

on Services. The States can only tax sale of goods. Hence, States cannot tax services and Centre

cannot tax sales of goods. The States cannot also tax imports. All this needs to be changed with

the GST and hence would require amendments in the Indian Constitution. That is the reason why

the 115th Constitution Amendment Bill has been introduced

Hence, implementation of GST was always seen as a concern for States as they surrender their

powers to tax. This is a very difficult issue and as a result numbers of discussions have followed

between the stakeholders.

27
BRIEF HISTORY ABOUT GST IN INDIA

The idea of moving towards the GST was first mooted by the then Union Finance Minister Shri

P. Chidambaram in his Budget for 2006-07. Initially, it was proposed that GST would be

introduced by 1st April, 2010.

The Empowered Committee of State Finance Ministers (EC) which had formulated the design of

State VAT was requested to come up with a roadmap and structure for the GST. Joint Working

Groups of officials having representation of the States as well as the Centre were set up to

examine various aspects of the GST and draw up reports specifically on exemptions and

thresholds, taxation of services and taxation of inter-State supplies. Based on discussions within

and between it and the Central Government, the EC released its First Discussion Paper (FDP) on

the GST in November, 2009. This spells out the features of the proposed GST and has formed the

basis for discussion between the Centre and the States

Since then, discussion being held between Central and State Government to consensus on certain

conflicting issues. However, till today no final agreement has been made between Central and

State Government.

However, Central Government in view of implementing GST from 1 st April, 2016 all over India

by agreeing all the States by making certain modifications in proposed GST.

28
What is GST?

GST is a comprehensive indirect tax on manufacture, sale and consumption of goods and

services at national level. The GST is expected to replace all the indirect taxes in India. At the

centre's level, GST will replace central excise duty, service tax and customs duties. At the state

level, the GST will replace State VAT. Integration of goods and services taxation would give

India a world class tax system and improve tax collections. It would end the long standing

distortions of differential treatments of manufacturing and service sector.

Why GST?

GST is similar to VAT in terms of the value-added approach. The question that comes to mind is

-India already has VAT then why should someone go for GST? Moreover, it seems to be very

complicated and a difficult exercise, then what are the reasons? The key problems of current

taxation system for Goods and Service in India are as follows:

Taxation at manufacturing:

CENVAT is levied on goods manufactured or produced in India which gives rise to definitional

issues as to what constitutes manufacturing, and valuation issues for determining the value on

which the tax is to be levied.

Exclusion of Services from state taxation:

Exclusion of Services from state taxation has posed difficulties in taxation of goods supplied as

part of a composite works contract involving a supply of both goods and services, and under

leasing contracts, which entail a transfer of the right to use goods without any transfer of their

ownership.

29
Tax Cascading:

Oil and gas production and mining, agriculture, wholesale and retail trade, real estate

construction, and range of services remain outside the ambit of the CENVAT and the service tax

levied by the Centre. The exempt sectors are not allowed to claim any credit for the CENVAT or

the service tax paid on their inputs. Similarly, under the State VAT, no credits are allowed for the

inputs of the exempt sectors, which include the entire service sector, real property sector,

agriculture, oil and gas production and mining. Another major contributing factor to tax

cascading is the Central Sales Tax (CST) on inter-state sales, collected by the origin state and for

which no credit is allowed by any level of government.

Interstate Sales Tax (CST):

Though it is an important source of revenue for states it is seen as very burdensome by

businesses. The companies make goods in one state but on distribution inside the country, end up

paying taxes in each state. They are supplying goods within the country and should just be taxed

at one place.

Inclusion of Services in VAT system:

Production of goods is because of both physical production and services. But Services are taxed

only by Centre and that too is done selectively. The Services need to be taxed at State level and

integrated with the Goods.

International Standard:

GST is becoming an international standard and it is important India also has one. There are many

factors before international companies while choosing a country for its business and taxation

system is one very important factor. With other countries having GST and India not having one,

the companies are likely to opt for former ahead of India for locating their businesses. Likewise

30
Indian companies may also prefer to increasingly set their bases in other countries where tax

system is more efficient.

Silent features of GST

The GST system is based on the same concept as VAT. Here, set-off is available in respect of

taxes paid in the previous level against the GST charged at the time of sale. The GST model has

some aspects which are as follows:

Two Components:

GST will be divided into two components, namely, Central Goods and Service Tax and State

Goods and Service Tax. However, the basic features of law such as chargeability, definition of

taxable event and taxable person, measure of levy including valuation provisions, basis of

classification etc. would be uniform across these statutes as far as practicable.

Merger of various taxes:

GST will lead merger of various taxes levied by Central and State Governments. The

taxes that merged into GST are as follow:

Central Taxes State Taxes

 Central excise duty  Value Added Tax/ Sales tax
 Additional excise duties,  Entertainment tax (unless it is
 Service tax, levied on local bodies)
 Excise duty under Medicinal &  Tax on lottery, betting and
Gambling
Toiletries Preparation Act  Luxury tax
 Countervailing duties (on imports in  Entry tax not in lieu of Octroi
 State surcharges and cesses in so far
lieu of excise duty)
 Additional duty of Customs (levied as they relate to supply of goods and

on imports in lieu of value added tax service

 Entry tax in lieu of Octroi
or central sales tax) (Included in revised bill)

Dual GST:

31
 The Central GST and the 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.

Rate:

There will be two tax rates for SGST– lower rate for necessary and basic importance

items and a standard rate for all other goods. Further, there will be a special rate for precious

metals and a list of exempted items. Rates charged across all states and the central level will be

uniform along with the regulations, definitions and classifications. However, as per latest

development, it has been agreed to include a floor rate with bands to allow States the freedom to

have a high or low rate.

Threshold limit:

Threshold exemption is built into a tax regime to keep small traders out of tax net. This has

three-fold objectives:

a) It is difficult to administer small traders and cost of administering of such traders is very

high in comparison to the tax paid by them.

b) The compliance cost and compliance effort would be saved for such small traders.
c) Small traders get relative advantage over large enterprises on account of lower tax

incidence.

32
The present threshold prescribed in different State VAT Acts below which VAT is not applicable

varies from State to State. The existing threshold of goods under State VAT is Rs. 5 lakhs for a

majority of bigger States and a lower threshold for North Eastern States and Special Category

States. A uniform State GST threshold across States is desirable and, therefore, the Empowered

Committee has recommended that a threshold of gross annual turnover of Rs. 10 lakh both for

goods and services for all the States and Union Territories may be adopted with adequate

compensation for the States (particularly, the States in North-Eastern Region and Special

Category States) where lower threshold had prevailed in the VAT regime. Keeping in view the

interest of small traders and small scale industries and to avoid dual control, the States

considered that the threshold for Central GST for goods may be kept at Rs.1.5 crore.

Applicability:

GST will be applicable to all Goods and Services sold or provided in India, except from the list

of exempted goods which fall outside its purview.

33
Payment:

GST will be charged and paid separately in case of Central and State level.

No Inter System Tax Input Credit:

The facility of Input Tax Credit at Central level will only be available in respect of Central

Goods and Service tax. In other words, the ITC of Central Goods and Service tax shall not be

allowed as a set-off against State Goods and Service tax and vice versa.

Inter-state GST:

The Empowered Committee has accepted the recommendations of the Working Group of

concerned officials of Central and State Governments for adoption of IGST model for taxation of

inter-State transaction of Goods and Services. The scope of IGST Model is that Centre would

levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and

services. The inter-State seller will pay IGST on value addition after adjusting available credit of

IGST, CGST, and SGST on his purchases. The Exporting State will transfer to the Centre the

credit of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while

discharging his output tax liability in his own State. The Centre will transfer to the importing

State the credit of IGST used in payment of SGST. The relevant information will also be

submitted to the Central Agency which will act as a clearing house mechanism, verify the claims

and inform the respective governments to transfer the funds.

GST on Imports:

The GST will be levied on imports with necessary Constitutional Amendments. Both CGST and

SGST will be levied on import of goods and services into the country. The incidence of tax will

follow the destination principle and the tax revenue in case of SGST will accrue to the State

34
where the imported goods and services are consumed. Full and complete set-off will be available

on the GST paid on import on goods and services.

PAN linked Taxpayer Identification Number:

Each taxpayer would be allotted a PAN linked taxpayer identification number with a total of

13/15 digits. This would bring the GST PAN-linked system in line with the prevailing PAN-

based system for Income tax facilitating data exchange and taxpayer compliance. The exact

design would be worked out in consultation with the Income-Tax Department.

Need of compensation during implementation of GST:

Despite the sincere attempts being made by the Empowered Committee on the determination of

GST rate structure, revenue neutral rates, it is difficult to estimate accurately as to how much the

States will gain from service taxes and how much they will lose on account of removal of

cascading effect, payment of input tax credit and phasing out of CST. In view of this, it would be

essential to provide adequately for compensation for loss that might emerge during the process of

implementation of GST for the next five years. This issue may be comprehensively taken care of

in the recommendations of the Thirteenth Finance Commission. The payment of this

compensation will need to be ensured in terms of special grants to be released to the States duly

in every month on the basis of neutrally monitored mechanism.

35
How does GST work?

Suppose there is a Paper manufacturer. He purchases raw materials and machinery on which he

pays certain percentage of tax.

Purchase
Particulars Tax Rate (%) Tax (In Rs Lakh)
(In Rs Lakh)
Raw Material 200 10% 20
Machinery 400 10% 40
Total Input Tax paid 60

Now suppose he produces Papers worth Rs 800 lakh and adds Rs 200 lakh as profit. He sells all

the goods to sole distributor in India. The manufacture will have to pay taxes on selling his

papers. Now in a traditional system, he would pay the tax on the entire Rs 1000 Lakh and get no

input credit. So he pays a total tax of Rs 160 Lakh – Rs 60 Lakh on Input and Rs 100 Lakh on

Sales. This is called cascading effect and a producer pays the tax on each economic transaction.

The end result is much higher taxes by the producer leading to lack of incentives by the producer.

However with a GST system, the producer gets an input tax credit of Rs 60 Lakh. As he had paid

Rs 60 Lakh on the inputs, it gets deducted from the tax bill. On net basis, the Producer pays Rs

100 Lakh of taxes.

Sale Tax Rate Without GST With GST

Particulars
(In Rs Lakh) (%) Tax (In Rs Lakh) Tax (In Rs Lakh)
Sales
1000
(Cost 800 + Profit 200)
Total Output Tax 10% 100 100
Less: Input Tax 0 60
Tax Paid 100 40
Total Tax paid (Input
160 100
Tax + Output Tax)

36
Now let us see the books of the all India distributor. Let’s say he pays Rs 50 lakh to the transport

provider for transporting goods from manufacturer to the distributors’ godown. He pays service

tax on the same. Hence total value of his goods becomes Rs 1050 Lakh. His input tax payable is

Rs 105 Lakh.

Particulars In Rs Lakh Tax Rate (%) Tax (In Rs Lakh)

Goods Purchase 1000 10% 100
Transportation
50 10% 5
Charge
Total Input Tax paid 105

The Distributor sells the papers to the consumers. The same input tax output tax calculation

applies here as well. Without a GST system he pays a total of Rs 235 Lakh as taxes. With a GST

system he pays Rs 130 Lakh as total taxes, a total saving of Rs 51 lakhs.

Without GST With GST

Purchase
Particulars Tax Rate (%) Tax (In Rs Tax (In Rs
(In Rs Lakh)
Lakh) Lakh)
Sales (Cost 1050+
1300
Profit 250)
Total Output Tax 10% 130 130
Less: Input Tax 0 105
Tax Paid 105 25
Total Tax paid
(Input Tax + 235 130
Output Tax)
Benefits of GST

The implication of GST assures a single taxation system in the entire country for all goods and

services making tax compliance easier and more effective. The belief that trade and industry will

benefit from implementation of GST is widely accepted. Because the GST will give more relief

to industry, trade and agriculture through a more comprehensive and wider coverage of input tax

37
set off and service tax in subsuming of several Central and State taxes in the GST and phasing

out CST. The transparent and complete chain of set-off which will result in widening of tax base

and better tax compliance may also lead to lowering of tax burden on an average dealer in

industry, trade and agriculture. It will also boost up economic unification of India. The major

benefits of implementation of GST as follows:

To Economy:

It will simplify India's tax structure, broaden the tax base, and create a common market across

states. This will lead to increased compliance and increase India's tax-to gross domestic product

ratio. According to a report by the National Council of Applied Economic Research, GST is

expected to increase economic growth by between 0.9 per cent and 1.7 per cent. Exports are

expected to increase by between 3.2 per cent and 6.3 per cent, while imports will likely rise 2.4-

4.7 per cent.

To Corporate:

It will be beneficial for India Inc. as the average tax burden on companies will fall. Reducing
production costs will make exporters more competitive.
To Exporters:
The subsuming of major Central and State taxes in GST, complete and comprehensive setoff of

input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of

locally manufactured goods and services. This will increase the competitiveness of Indian goods

and services in the international market and give boost to Indian exports.

To Industry:

Manufacturing sector in India is one of the highly taxed sectors in the world. A complex and high

taxation structure has the tendency to render products uncompetitive in the international market

or consume large portions of the cost arbitrage available in manufacturing set-ups in low cost

38
economies such as India. GST when enforced would eliminate complexities in the present

taxation structure and consequently prevent the loss of nearly 50% of the advantage of lower

manufacturing costs that India has over the western nations.

To Centre and State:

Approximately Rs 900 billion a year of profits are predicted by the government with the

implementation of GST as it is speculated to bring about raise in employment, promotion of

exports and consequently a significant boost in overall economic growth.

To Common Consumer:

With the introduction of GST, all the cascading effects of CENVAT and service tax will be more

comprehensively removed with a continuous chain of set-off from the producer’s point to the

retailer’s point than what was possible under the prevailing CENVAT and VAT regime. Certain

major Central and State taxes will also be subsumed in GST and CST will be phased out. Other

things remaining the same, the burden of tax on goods would, in general, fall under GST and that

would benefit the consumers.

39
CHALLENGES IN IMPLEMENTATION OF GST

The actual challenge before the Finance Minister is not of drafting a model GST but of its proper

implementation and smooth transition from the prevailing system. The challenges which the

Government has to face in introducing GST are as follows:

Legislative Challenge:

The Constitution provides for delineation of power to tax between the Centre and States. While

the Centre is empowered to tax services and goods upto the production stage, the States have the

power to tax sale of goods. The States do not have the powers to levy a tax on supply of services

while the Centre does not have power to levy tax on the sale of goods. Thus, the Constitution

does not vest express power either in the Central or State Government to levy a tax on the

‘supply of goods and services’. Moreover, the Constitution also does not empower the States to

impose tax on imports. Therefore, it is essential to have Constitutional Amendments for

empowering the Centre to levy tax on sale of goods and States for levy of service tax and tax on

imports and other consequential issues.

Inclusion of Goods and Services:

The first issue major issue of implementation of GST is to the inclusion of taxes within the ambit

of GST. The bone of contention relates to inclusion of purchase taxes on food grain, taxes on

motor spirit and high-speed diesel (GSD), and octroi or entry tax in lieu thereof. The foodgrain

surplus states have been levying the purchase tax, the burden of which is exported to non-

residents.

The states are reluctant to bring motor spirit and high speed diesel within the ambit as presently

the tax is levied at a floor rate of 20% and the states derive about 35% of their sales tax

collections from these petroleum products.

40
Rationalization of GST rate:

Another issue to be decided is the rates of central and state GSTs to be levied. It is expected that

the tax rates would be revenue neutral. This implies that in the short term, there would not be any

revenue loss or gain, but over time the revenue productivity is expected to increase due to better

compliance of the tax and increased productivity of the economy.

Rates charged across all states and the central level will be uniform along with the regulations,

definitions and classifications for effective implementation of GST However, due to dispute

between Central and State Government, it has been agreed to include a floor rate with bands to

allow States the freedom to have a high or low rate.

Rationalization of threshold and exemption limits:

To get the full benefits of GST, it is necessary to rationalize threshold limit and exemption limits.

However, there are dispute between Central Government and State Government regarding

finalizing of threshold limit. State Governments are in view of to keep the threshold limit at as

low as possible to avoid revenue loss to state.

Place of Supply:

One of the main challenges in introducing in GST is defining the place of supply in respect of

certain services and intangible properties. In the existing tax regime, place of supply is not a big

issue because service is taxed by the Centre and the place of levy does not affect revenue

receipts. In GST, however, the place of supply will have to be clearly defined to avoid disputes

among states in case of interstate transactions.

41
Time of Supply:

Time of supply will explain the point at which tax would be levied invoice date, due date or

payment date. Currently, different taxes are levied by the Centre and the states at various stages.

These variations will be eliminated in GST.

Rapid increase in Assesses:

The dual GST model will widen the tax net by taxing every economic supply in the distribution

network. This will lead to rapid increase in assesses. It will require some of the businesses to

restructure their distribution network to reduce additional tax burden on the consumer with a

view to be price competitive. Though it will generate revenue in a neutral and transparent way,

the Government will have to ensure that the ultimate consumer is not burdened with tax beyond

his capacity.

In addition to above Government have to decide regarding

 Dispute settlement procedure and machinery

 Building IT (Information technology) infrastructure to capture the full benefits of GST
 Training of tax administrators and assesses
 Protecting and balancing the present and future revenues of the Centre and the States
 Safeguarding the interests of less developed states with lower revenue potential

42
 Impact of GST on Indian Economy

The studies assessing impact of GST are limited as the design of GST was not clear till the First

Discussion Paper. Thirteenth Finance Commission has undertaken a study with NCAER, a Delhi

based think-tank on cost-benefit analysis of GST regime in India. The highlights of the report

were:

Medium term gains:

GST could to increase India’s GDP somewhere within a range of 0.9% to 1.7%. The comparable

dollar value increment is estimated to be between $9.5 billion and $18.6 billion respectively.

Long term gains:

The additional gain in GDP, originating from the GST reform, would be earned during all years

in future over and above the growth in GDP which would have been achieved otherwise. It

estimates present value of total gain in GDP between $325 billion and $637 billion. This is

nearly 30-60% of the size of Indian economy currently!

Export gains:

GST will lower the overall tax inputs in supply chain of goods and services leading to lower

prices of Indian goods and services. This will increase the competitiveness of Indian goods and

services in the international market and give boost to Indian exports. The uniformity in tax rates

and procedures across the country will also go a long way in reducing the compliance cost. These

gains are expected to vary between 3.2 % - 6.3% with corresponding absolute value range

between $5.4 billion - $10.7 billion, respectively. Imports are expected to gain somewhere

between 2.4 and 4.7% with corresponding absolute values $6.9 billion and $13.6 billion,

respectively.

43
Others:

GST would lead to efficient allocation of factors of production. The overall price level would go

down. It is expected that the real returns to the factors of production would go up. NCAER

results show gains in real returns to land ranging between 0.42 and 0.82 per cent. Wage rate gains

vary between 0.68 and 1.33%. The real returns to capital would gain somewhere between 0.37

and 0.74%. Kelkar adds that GST could help add productive employment of as much as 4 to 5

million. Barring impact on economy, GST could help the consumers as well. The lower taxation

will lead to lower prices of goods and services.

However, going by the above international experiences there could be two additional problems.

Inflation:

Most of the international case studies show an inflation spurt in initial months of GST

implementation. In main reason for spurt in prices of goods which consumers thought would

become expensive after the GST. Much of blame for inflation is accorded to the various

regulatory bodies and uncertainty over the new tax regime. The inflation situation stabilizes as

implementation gains pace and is understood by consumers and producers. In India’s case

inflation could be critical as unlike developed countries, India has far more inefficiencies in

supply chain in local markets. The Indian GST reform is far larger in scale compared to above

economies of developed countries. These rigid inefficiencies along with higher information

asymmetry on probable impact of GST could push inflation higher in initial days of

implementation. Indian economy is already plagued with persistent high inflation and this new

reform could further test inflation further.

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Tax Revenue Shortfall:

RBI in the State Finances Report (2010-11) said the revenue implications of GST are likely to

vary across states. The Centre and the States are still discussing various aspects of GST like

taxation rates, revenue sharing model between Centre and States etc. As there is still uncertainty

over the final blueprint of GST, it is difficult to estimate the impact of GST on state finances. The

report points that VAT led to improvement in tax revenue for most states. However, just like VAT

there could be some short-falls in revenues in some states over a short term.

The central government has already proposed a Rs 50,000 Cr fund to help the states which suffer

from the short-fall. However, a higher shortfall could lead to both Centre and States to borrow

more from the markets. This will be critically watched as it has further ramifications on fiscal

deficits, interest rates and inflation.

45
OBJECTIVES & SCOPE

OF THE STUDY

46
 OBJECTIVES & SCOPE OF THE STUDY

 To know about the tax system in India.

 To get information about the Income Tax in India

 To know about the Income Tax filling

 To know about the Tax audit and law related to tax audit.

 To know about the Goods and Services Tax (GST)

 To know the perception of tax payers regarding the tax filling, auditing and GST.

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 RESEARCH METHODOLOGY

Research methodology’ is a way to systematically solve the research problem. It is a science of

studying how research is done scientifically. In it, we study the various steps that are generally

adopted by a researcher in studying his/her research problem along with the logic behind them.

It includes:

 Research Design

 Data Collection

 Data Analysis

a) RESEARCH DESIGN:

Analyticale Research has been used.

b) SOURCES OF DATA COLLECTION:

In this research, I have used two types of data.

Primary Source.
Secondary Source.

Primary source includes:-

Discussion with experts

Discussion with tax payers.

Secondary source includes:-

Various books related to GST.

Web sites were used as the vital information source

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c) TYPE OF DATA COLLECTION

i. PRIMARY DATA:

Questionnaire method was chosen for fulfillment of basic objective. The primary sources

were GST Taxpayers in Lucknow city.

ii. SECONDARY DATA:

a. Internet

b. Magazine and Newspapers.

c. Notifications related to GST.

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 LIMITATIONS

Although all efforts have been taken to make the results of survey as accurate as possible but the

survey suffers from following limitations -:

1) The possibility of respondent’s responses being biased cannot be ruled out.

2) Limited access to secondary data pertaining to Income Filling is selected region only.

3) Most of the times people don’t give appropriate information.

4) Mostly respondents don’t want to give accurate information and act rudely.

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CONCLUSION

51
 CONCLUSION

Tax policies play an important role on the economy through their impact on both efficiency and

equity. A good tax system should keep in view issues of income distribution and, at the same

time, also endeavour to generate tax revenues to support government expenditure on public

services and infrastructure development.GST will give more relief to industry, trade and

agriculture through a more comprehensive and wider coverage of input tax set-off and service

tax set-off, subsuming of various Central and State taxes in the GST. The transparent and

complete chain of set-offs which will result in widening of tax base and better tax compliance

may also lead to lowering of tax burden on an average dealer in industry, trade and agriculture.

The subsuming of major centre and state taxes would reduce the cost of locally manufactured

goods and services. This is likely to increase the competitiveness of Indian goods and services in

the international market and to boost Indian exports.

GST is expected to bring many benefits to the Indian economy. Though, all these benefits are

based on the assumption that overall taxation structure is less bureaucratic and cumbersome than

present. The implementation is going to be crucial so that the promised benefits are realized.

The Government also needs to be weary of inflation spurts in initial implementation phase of

GST as pointed by experiences from international economies. Ideally, one should be first easing

all these state-wide inefficiencies and then implement GST. However given the challenges in

India, the policymakers are hoping GST will help ease these inefficiencies and eliminate them

over a period of time.

Implementation of GST is one of the best decision taken by the Indian government. For the same

reason, July 1 was celebrated as Financial Independence day in India when all the Members of

Parliament attended the function in Parliament House. The transition to the GST regime which is

52
accepted by 159 countries would not be easy. Confusions and complexities were expected and

will happen. India, at some point, had to comply with such regime. Though the structure might

not be a perfect one but once in place, such a tax structure will make India a better economy

favorable for foreign investments. Until now India was a union of 29 small tax economies and 7

union territories with different levies unique to each state. It is a much accepted and appreciated

regime because it does away with multiple tax rates by Centre and States. And if you are doing

any kind of business then you should register for GST as it is not only going to help Indian

government but will help you also to track your business weekly as in GST you have to make

your business activity statement each week.

The taxation of goods and services in India has, hitherto, been characterized as a cascading and

distortionary tax on production resulting in misallocation of resources and lower productivity and

economic growth. It also inhibits voluntary compliance. It is well recognized that this problem

can be effectively addressed by shifting the tax burden from production and trade to final

consumption. A well designed destination-based value added tax on all goods and services is the

most elegant method of eliminating distortions and taxing consumption. Under this structure, all

different stages of production and distribution can be interpreted as a mere tax pass-through, and

the tax essentially ‘sticks’ on final consumption within the taxing jurisdiction.

A ‘flawless’ GST in the context of the federal structure which would optimize efficiency, equity

and effectiveness. The ‘flawless’ GST is designed as a consumption type destination VAT based

on invoicecredit method.

53
 SUGGESTIONS &

RECOMMENDATIONS

54
 SUGGESTIONS & RECOMMENDATIONS

 Tax payers, need to be educated more about the GST.

 Standardization of systems and procedures.

 Well defined procedures in case of Job works

 Uniform dispute settlement machinery.

 Adequate training for both tax payers and tax enforcers.

 Re-organization of administrative machinery for GST implementation.

 Building information technology backbone – the single most important initiative for GST

implementation.

 Uniform Implementation of GST should be ensured across all states (unlike the staggered

implementation of VAT) as many issues might arise in case of transactions between states

who comply with GST and states who are not complying with GST.

55
BIBLIOGRAPHY

56
 BIBLIOGRAPHY

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http://www.cbec.gov.in/deptt_offcr/gst-status-18032014.pdf

http://www.empcom.gov.in/content/188_1_PhasingoutofCST.aspx

Abisheka Rastogi (2009), Illustrated Guide to Goods and Services Tax (GST)

http://www.taxmanagementindia.com/wnew/detail_rss_feed.asp?ID=1226

www.goodsandservicetax.com

M.Govinda Rao (2014), GST in India: Challenges and prospects, extracted from

http://www.livemint.com /Opinion/ FtsFwtT50bMOc9HjHlJOLJ/ GST-in-India-Challenges-and-

prospects.html

Sherry (2007), Goods & Service Tax (GST) in India - A move towards tax reforms, Service Tax

Today

Verma A(2008), Goods and Service Tax: eagerly awaited in India, Service Tax Today

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41374977_1_servicestax-state-gst-goods-and-services/2

WEBSITES:-

 http://www.businessalligators.com/gst-impact-rates-type-conclusion/

 https://www.omicsonline.org/open-access/a-research-paper-on-an-impact-of-goods-and-

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