GST – Goods and Services Tax

What is Goods and Service Tax?

Goods and Services Tax (GST) means a tax on supply of goods or services, or both, except taxes on supply of alcoholic liquor for human consumption. It will replace most Central and State level indirect taxes like Excise, Service tax, VAT etc.

GST will be payable on free supplies made to related persons. GST will not be payable to free gifts and free samples to unrelated person, but input tax credit in respect of such goods will have to be reversed.

Silent features of GST India:

  • Distinction between goods and services will be mostly eliminated.  This will eliminate the problem of dual taxation presently faced by construction industry, work contract, food related service like restaurant and outdoor catering, leasing and hire services and software services.
  • GST is based on VAT concept of allowing input tax credit of ta paid on inputs, input services and capital goods, for payment of output tax.  This will avoid cascading effect of taxes.
  • GST is consumption based tax i.e. tax is payable in the State where goods or services or both are finally consumed.  IGST will ensure seamless movement of goods across the country (except J&K) as taxes will move along will goods.
  • The expected rates of GST are Nil, 0.5%, 3%, 5%, 12%, 18% and 28%.
  • Broad definition of ‘Services’, which means anything other than goods.  The Definition of ‘service’ is so broad that practically sky is the limit for imposing any tax by Union or State Government.
  • Dual GST for supply of goods and services within State i.e. State GST (SGST) and Central GST (CGST).
  • In case of Inter State supply of goods and services, there will be Integrated GST (IGST).
  • Equivalent to IGST, CVD will also be imposed on imports.
  • The IGST rates are expected to be double the CGST rates and IGST and CGST rates will be same all over India and will not vary from State to State.
  • IGST will be payable on interstate stock transfers, branch transfers etc.  However, no GST will be payable if goods are sent for job work outside the factory.
  • The credit of input tax credit of IGST paid in one State will be available to the receiver of goods or services in another State.
  • Finance cost will be increased and blocked, as IGST will be payable on inter-state branch transfers and stock transfers and interest burden of dealers having inter-state transactions will increase considerably.

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