What is Goods & Service Tax (GST)?
It is a destination based tax on consumption of goods and/or services where burden of tax is to be borne by the final consumer. Concept is similar to the existing taxation system (VAT & Central Excise).
Types of Goods & Service Tax
Central GST to be administered by Centre
Integrated GST to be administered by Centre and
State GST to be administered by State
Applicability of Goods & Service Tax
It is applicable to whole of India including Jammu & Kashmir.
What are the taxes to be subsumed in Goods & Service Tax?
Central Tax subsumed under GST:
- All component of Excise
- Service Tax
- Custom- CVD & ACD
- All type Surcharge & Cess
State Tax subsumed under GST:
- VAT
- CST
- Entertainment Tax
- Luxury Tax
- Entry Tax
- Purchase Tax
- Taxes on advertisement, Lottery, betting
- Surcharge & Cess
Taxes not Subsumed under Goods & Service Tax
Basically taxes, levies and fees that are not specifically related to supply of goods & services are not covered under GST. However, Following Goods & Services are out of ambit of GST:-
- Alcohol for human consumption,
- Petroleum Products viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel
- Electricity
- Taxes levied by local bodies like municipal corporation, Panchayat
- Labour Cess
- Royalty on use of natural mineral resources like sand, quarries
Concept of Destination Based Tax
- The tax would accrue to the taxing authority which has jurisdiction over the place of consumption/ place of supply.
- State which is consuming more goods/services will have higher share of tax.
For example:-
| Particulars | Scenerio 1 | Scenerio 2 |
| Example | Mr X in West Bengal supplied goods/services to Mr Y in West Bengal | Mr X in west Bengal supplied goods/services to Mr Y in Uttar Pradesh |
| Tax Accrual- Where | Tax will accrue in West Bengal | Tax will accrue in Uttar Pradesh |
| Taxes | CGST & SGST will be charged | IGST will be charged |
| Set of Input Tax Credit | Output CGST & SGST will be adjusted first with available input IGST & balance with input CGST & SGST. No interchange of input allowed between CGST & SGST. | Output IGST will be adjusted with available input IGST & balance with CGST/SGST. |
| Share of Tax | CGST by Centre & SGST by State | IGST will be apportioned between the Union and the States in the manner as recommended by GST Council. |
Codification of Goods & Services
For HSN code for Goods & SAC code for Services
- Turnover < 5 Cr 4 digit HSN/SAC Code
- Turnover ≥ 5 cr 6 digit HSN/SAC Code
Exemption Threshold Limit- Divided into 3 categories as under:
- For Extreme North East state Mizoram, Manipur, Nagaland and Tripura for Goods & Services (Turnover ≤ 10 lacs per annum).
- For Arunachal Pradesh, Meghalaya, Sikkim, Telangana, Uttarakhand and Puducherry for Goods & Services and all other States & Union Territories for Services (Turnover ≤ 20 lacs per annum).
- For all other States & Union Territories for Goods except as mentioned above (Turnover ≤ 40 lacs per annum).
- In case of interstate supply of goods, exemption is not available even if turnover is below threshold limit.
- Turnover= all taxable and non-taxable supplies/Services+ exempt supplies/ services + exports of goods/services+ interstate transfer between unit+ outward supply of goods/services under reverse charge – taxes (on all India basis)
Registration:
Any person who carries on any business at any place in India and whose aggregate turnover exceeds threshold limit as prescribed in a year is liable to get himself registered.
Following categories of person is compulsorily required registration:-
- On inter-State taxable supply of Goods;
- Casual taxable persons;
- Person receiving goods/services which are liable to tax under reverse charge. However, person specifically supplying outward supply of goods/services which are coming under reverse charge is exempted from registration requirement;
- Non-resident taxable persons;
- Persons who are required to deduct tax (WCTDS);
- Dealer, Agent;
- Input service distributor(ISD);
- Every electronic commerce operator;
- An aggregator who supplies services under his brand name or his trade name; and
- Such other person or class of persons as may be notified by the Central Government or a State Government on the recommendations of the Council.
- Registration should be taken by persons within thirty days from the date on which it becomes liable for registration
- Every person who is liable to take a Registration will have to get registered separately for each of the States where it has a business operation.
- a person does not require separate registration where multiple business verticals situated in same State. However, he may obtain a separate registration for each business vertical, if desired so.
Example: – X Company is having 3 units (A, B &C) in West Bengal, 1 unit each (D&E) in Bihar & Jharkhand.
| Unit Name | State | Separate Registration required | Mandatory/ Optional |
| A | W.B | No | Combined Registration can be taken in the name of either A or B or C. However, X can voluntary take separate registration for A, B &C. |
| B | W.B | No | |
| C | W.B | No | |
| D | Bihar | Yes | Mandatory |
| E | Jharkhand | Yes | Mandatory |
- There will be PAN based registration number for each person. It means PAN is mandatorily required for registration.
- However, a non-resident taxable person may be granted registration on the basis of any other document as may be prescribed and a unique identification number (UIN) will be granted to them instead of GST number.
- A unique identification number (UIN) will also be granted to Govt Department for inter unit movement of goods/services where no sale is involved.
- Casual Taxable Person means a person who occasionally (ranging from few days to maximum 90 days) undertakes transactions in a taxable territory where he has no fixed place of business.
- Example: – Mr. X having fixed place of business in Kolkata got an opportunity to participate in a trade fare in Jaipur. The fare will continue for a month.
In the normal course of business, Mr X would have to charge IGST if would have done billing from Kolkata. However, In this scenario, Mr X needs to do local billing & has to charge CGST & SGST instead of IGST. So, Mr X has to apply for GST registration in Jaipur as Casual Taxable person since fare would not last for more than 90 days.
- Separate registration is required for ISD where office is not treated as business vertical
Exemption from registration
- A person supplying only Goods/services which are either not taxable or exempted
- an agriculturist shall not be considered as a taxable person and shall not be liable for registration.
- Any other person as notified by government.
Taxpayers with an aggregate turnover in a financial year up to Rs. 1.5 cr for supply of goods (for north east states & Himachal Pradesh limit is 75 lacs) shall be eligible for composition levy. However, for supply of service, this limit is 50 lakhs irrespective of state.
Under the scheme, a taxpayer shall pay tax as a percentage of his turnover during the year ranging between 1% & 6% depending on goods/services.
A tax payer opting for composition levy shall not collect any tax from his Customers.
- Following categories of persons not eligible for composition scheme:
- Person making inter- state supplies or paying tax on reverse charge basis
- Manufacturer of ice cream, pan masala, or tobacco
- Casual taxable person or non-resident taxable person
- Supplier supplying goods through an e-commerce operator
- A tax payer opting for composition levy shall not avail input tax credit.
- This scheme is optional
- This scheme is applicable for all business vertical of the organization. It means that if one unit avails composition scheme, other unit will automatically falls under composition scheme subject to turnover criteria.
Treatment of import
- Imports of Goods and Services will be treated as inter-state supplies and IGST will be levied on import of goods and services into the country.
- Apart from IGST, Basic custom duty & surcharge thereon will be charged at the time of import since BCD is out of GST.
Treatment of Export
- Like present taxation system, no tax will be payable on exports of goods or services.
- However, credit of input tax credit will be available and same will be adjusted with output tax/ refunded to the exporters.
Concluding Note
GST is still in an evolving stage even after four years of implementation from 2017. However, from the above article, I have tried to give an overview of what is GST and how does it works? Though Government has taken care of lot of pain area but I feel there is scope of improvement & simplification. Hope, this will be taken care in coming days & we will be progressed one more step in achieving target of 3 trillion economy.
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