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What is Goods and Service Tax (GST) Bill?

As the Goods and Service Tax (GST) bill, has been passed now, everyone is interested to know about it. There are questions like what is GST Bill, how will it benefit us etc. in our mind. This article will provide you everything you need to know about this bill.
The full form of GST is Goods and Service tax. So, it is also called as Good and Service Tax bill. This bill is one of the remarkable changes in India’s Indirect tax since the beginning of the economy. GST is levied when consumer buys any good or service. There are three components of GST-
  • Central GST (CGST) – It will be Levied by Central Government
  • State GST (SGST) – It will be levied by State Government
  • Integrated GST (IGST) – It will be levied by Central Government on Interstate supply of Good and Services
Remarkable thing about GST is that it avoids “cascading of taxes”. Many Taxes have been subsumed under GST which are as under:

How GST is different from other taxes?

Currently there are many indirect taxes. We all know about Service Tax, Vat, Luxury tax etc. You can see these taxes whenever you check out from a hotel and whenever you pay the bill at restaurant. The bill they offer to you contains these taxes.
  • Now, what GST does is that it combines all these taxes into one, i.e. subsumes all other indirect taxes. It is done for all the Central level and State level taxes.
  • The nature of GST is that it taxes only the final customer. Hence the cascading of taxes is avoided and production costs are cut down.
Following is the list of the taxes that are subsumed by GST –

Central Taxes to be subsumed: 

  1. Central Excise Duty
  2. Additional Excise Duty
  3. The Excise Duty levied under the Medicinal and Toiletries Preparation Act
  4. Service Tax
  5. Additional Customs Duty, commonly known as Countervailing Duty (CVD)
  6. Special Additional Duty of Customs-4% (SAD)
  7. Cesses and surcharges in so far as they relate to supply of goods and services.

State Taxes to be subsumed: 

  1. VAT/Sales Tax
  2. Central Sales Tax (levied by the Central and collected by the States)
  3. Entertainment Tax
  4. Octroi and Entry Tax (all forms)
  5. Purchase Tax
  6. Luxury Tax
  7. Taxes on lottery, betting and gambling
  8. State cesses and surcharges in so far as they relate to supply of goods and services.
So, this means that GST clubs almost all indirect taxes together that are levied by Central and State Governments.

How to Adjust the Credit?

Set off IGST, CGST & SGST will be as follows in the below mentioned chronological order only.
Credit Of
To be Adjusted With
  • IGST
  • CGST
  • SGST
  • IGST
  • CGST
  • IGST
  • SGST

Let Us  Take an example To Understand this clearly

Present Tax System And GST System
In the above example, you can note that the tax paid on sale within state can be claim against CGST  but both Credits  can be taken against tax paid on sale outside  state in GST System, which is not in present tax  system. The credit of CGST cannot be taken against SGST and credit of SGST can not be taken against taken CGST ,but both credit can be taken against IGST.

What are the Advantages of GST?

As the Rajya Sabha prepares to pass the constitutional amendment paving the way for the Goods and Services tax(GST). The reform is expected to bump up GDP by point or even more.
  1. GST is a transparent tax and reduce number of indirect taxes. With GST implemented a business can show the tax applied in the sales invoice. Customer will exactly know how much tax they are paying on the product they bought or services they consumed.
  2. GST will not be a cost to registered retailers therefore there will be no hidden taxes and the cost of doing business will be lower. This in turn will help export being more competitive.
  3. GST can also help to diversification of income sources for Government other than income tax and petroleum tax.
  4. Under Goods and Services tax, the tax burden will be divided equally between manufacturing and services. This can be done through lower tax rate by increase tax base and reducing exemptions.
  5. In GST system both Central GST and State GST will be charged on manufacturing cost and will be collected on point of sale. This will benefit people as prices will come down which in turn will help companies as consumption will increase.
  6. Biggest benefit will be that multiple taxes like octroi, central sales tax, state sales tax, entry tax, license fees, turnover tax etc. will no longer be present and all this will be brought under the GST. Doing business now will be easier and more comfortable as various hidden taxation will not be present.
In the amended bill a cap of 18% GST will be applicable on Goods and Services through the country. Because of this prices of those goods and services on which we used to pay taxes below 18% will be increased.
For example, right now we pay around 4-5% Tax on packaged foods. But after GST the total tax on these products will go up which will increase its retail price. Similarly, jewelry, mobile bill, credit card bill, services rates will also go up.
And prices of those goods and services on which we used to pay taxes above 18% will be reduced.
For example taxes will be reduced on Mini SUV for which we are paying 30-40% Tax right now. After GST, it will be reduced to 18%. Similarly, Consumer goods like AC, refrigerator and transportation cost will also go down.
More than 150 Countries have implemented GST and each of them faced rise in inflation for next 3-5 Years.

What are the Drawbacks of GST?

  • The disadvantage of GST registration is the administrative burden that comes with discharging the duties and responsibilities of GST registration.
  • One must either study the intricacies of GST or pay an accountant to undertake this work which in some cases can be a reasonably high cost.
  • Being GST registered effectively increases your selling price by 7%. Your customers who are not GST registered would not be able to recover the GST you charge. So although your costs are reduced because you can recover GST, your customers might not be too pleased.
  • GST can be a burden to lower income groups, especially during times of high inflation when the 7% tax is paid on the increasing price of daily essentials.
  • Critics say that GST would impact negatively on the real estate market. It would add up to 8 percent to the cost of new homes and reduce demand by about 12 percentage.
  • Some Economist says that CGST, SGST and IGST are nothing but new names for Central Excise/Service Tax, VAT and CST and hence GST brings nothing new for which we should cheer.

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