We have understood in the last article that GST will consolidate all the indirect taxes levied by State as well as Central Government.
There are so many problems or hindrances in the existing tax system. They creates hurdles for any business to grow. Some of them are as under :
- VAT is being charged by each state government at different rates for same product.
- We can’t take tax credit of Excise against VAT.
- There is also tax on tax as VAT is being also charged on Excise amount.
- In case of Inter-state transactions CST is being levied. The credit of the same can also not be taken in the existing tax system.
So, it is very difficult for any business to grow in India. There is also a very complex tax system of indirect taxes. The compliance of taxes are also varied from state to state. After implementation of GST there will be only one tax rate for one product. So, there will be One Nation One Tax. The advantages of the GST are as under :
- One Nation and One Tax on all product categories
- As there is only one tax called GST so, there is no question of cascading effect of tax
- In case of inter-state transaction or purchase from manufacturer, full tax credit can be availed by the buyer.
- All the indirect taxes are integrated to GST. So lesser complication and compliance as compared to present system.
Now, we will understand with an example how the GST is different or beneficial from current indirect tax structure.
Example :
| Current System : | Under GST if within state transaction | ||
| Particulars | Amt(Rs.) | Particulars | Amt(Rs.) |
| Basic Price of Product : | 100 | Basic Price of Product : | 100 |
| Excise Duty : | 12.50 | SGST @ 9% | 9 |
| Sub total : | 112.50 | CGST @ 9% | 9 |
| VAT @ 12.5% : | 14.06 | Total : | 118 |
| Add. VAT @ 2.5% : | 2.82 | ||
| Total : | 129.38 |
If we see in the above example for current tax system, excise duty levied on the product can’t be utilized for the payment of VAT. Moreover, VAT is also chargeable on excise duty. It is called cascading effect as there is tax on tax. However, in case of GST, there is no cascading effect of tax and there is no complexity of taxation.
The Government recently decided Tax rate for 98 categories of goods and also for services. The tax rates for various categories are fixed at any of these four rates, i.e., 5%, 12%, 18% and 28%. Government is very keen to implement the new tax system from 1st Jul, 2017.
Link of GST rate for services
http://www.cbec.gov.in/resources//htdocs-cbec/gst/Schedule%20of%20GST%20rates%20for%20services.pdf
Link of GST rate for goods
http://www.cbec.gov.in/resources//htdocs-cbec/gst/chapter-wise-rate-wise-gst-schedule-18.05.2017.pdf
By CA Jigar Patel