GST in India | Goods and Service Tax in India

Goods and Service Tax (GST) is going to be the biggest taxation reform in India and it is all set to integrate central and state economies and boost overall growth. GST will create a single, unified Indian market to make the economy stronger. The implementation of GST will lead to the abolition of other taxes such as octroi, Central Sales Tax, State-level sales tax, entry tax, stamp duty, telecom licence fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services, thus avoiding multiple layers of taxation that currently exist in India.GST is expected to rollout in April 1st 2012.

What is GST? 
GST is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level. Experts say that GST is likely to improve tax collections and boost India's economic development by breaking tax barriers between States and integrating India through a uniform tax rate.GST is a consumer based tax and not origin based. Under this structure of GST, the tax will be collected by the states where the goods or services actually consumed. In India, due to federal structure, there is a proposal to introduce dual GST system.The rate is expected to be in the range of 14 to 16%. Once the total GST is determined, the central and states have to agree on Central GST and State GST rates.

What are the benefits of GST?
Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by increasing the tax base and minimizing exemptions. It is expected to help build a transparent and corruption-free tax administration. GST will be is levied only at the destination point, and not at various points (from manufacturing to retail outlets). Currently, a manufacturer needs to pay tax when a finished product moves out from a factory, and it is again taxed at the retail outlet when sold.

According to Adi Godrej, chairman of the R15,000-crore Godrej Group, once the GST is implemented, the price reduction in the FMCG space could be around 4 to 5% across categories. As the prices of consumer goods fall, consumption would increase considerably. The introduction of GST will lead to an incremental GDP growth of 1.5 to 2 percentage points. Once GST is introduced, India will have 10% GDP growth for ten years in a row. 

Goods and Services Tax bullets to your Exam Arsenal

  • GST is a value added tax
  • It will replace all indirect taxes levied on goods and services by the Indian Central and State governments.
  • Exports will be zero-rated and imports will be levied
  • 115th Constitutional Amendment Bill, 2011. Currently the Constitution of India does not provide concurrent powers of taxation to the Union and the States. The Bill proposes to amend the Constitution to empower the Union and States to frame laws for dual GST.
  • A major improvement over the pre-existing central excise duty at the national level and the sales tax system at the state level
  • More than 140 countries have introduced GST in some form.
  • World over, GST rates are typically between 14 per cent and 16 per cent.In India, it is likely to be the same.Currenly cunsumers are paying around 20% as indirect tax in India.
  • The tax-rate under the proposed GST would come down, but the number of assesses would increase by 5-6 times. Although rates would come down, tax collection would go up due to increased buoyancy.
  • It will lower the tax rate by broadening the tax base and minimising exemptions. It will reduce distortions by completely switching to the destination principle.
  • It will promote exports, employment and is expected to spur growth.

Latest News on GST

3 Aug, 2011 : Implementation of GST will boost India's growth: Assocham. The implementation of goods and services tax (GST) could boost the country's GDP by about 2 per cent annually, industry body Assocham said.Introduction of GST, which will subsume central and state taxes like excise, customs, service tax, sales tax and VAT, has been pending for years in the absence of political consensus. GST Constitution Amendment Bill is pending before Parliament.