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GST : An Overview | Accountancy Class 11 - Commerce PDF Download


1.1 Background of GST
The present structure of Indirect Taxes in India is based on three lists in Seventh Schedule to Constitution of India, which came into effect on 26-1-1950. These lists are mostly based on Government of India Act, 1935. The provisions were based on situation prevailing in 1935. That structure has become outdated due to changes in situations, technology etc.

World has moved towards common Goods and Services Tax (GST) long ago. However, so far as India is concerned, GST is the tax for twenty first century [It is rightly said that India is like elephant. It takes time to start, but once started, it is very difficult to stop it].

Barring unforeseen circumstances, GST is likely to come into effect on 1-7-2017.

1.1-1 Major defects in present structure of indirect taxes

Following can be summarized as major defects in present structure of indirect taxes :

  • Central Sales Tax (CST) is payable for every movement of goods from one State to other. If the sale is direct, CST is payable, Even in case of stock transfers or branch transfers, there is incidence of tax as input service credit (set off) of input taxes is not fully available.
  • Central Sales Tax is an orphan. Hence, if there is any difficulty, there is no authority to sort it out and find solutions. This creates numerous problems in CST.
  • Cascading effect of taxes cannot be avoided due to CST and Entry Tax.
  • Movement of goods in European Union (EU) is free across al l countries without any incidence of tax. However, in India, movement of goods from one State to other is not tax free.
  • India does not have a national market due to invisible barriers of central sales tax, Entry Tax and State Vat and visible barriers of check posts.
  • Mil lions of man-hours and truck hours are lost at check posts. Besides, huge corruption is involved.
  • Central Government cannot impose tax on goods beyond manufacturing level [CST though levied by Central Government is col lected and retained by State Government only].
  • State Government cannot impose service tax.
  • Over the years, distinction between goods and services has become hazy, due to which there is overlapping of State Vat and Central Service Tax on transactions like works contract, food rated services (restaurants, outdoor catering, mandap services), Software, IPR Related services, lottery, SIM cards, renting of movable property etc.
  • Same transaction is taxed both by Central and State Government which creates confusion, litigation and double taxation in many cases.

1.3 What is Goods and Services Tax?

Goods and Services Tax means a tax on supply of goods or services, or both, except taxes on supply of alcoholic liquor for human consumption [Article 366(12A) of Constitution of India inserted w.e.f. 16-9-2016]

Note that the word used is 'supply' and not 'sale'. Thus, stock transfers, branch transfers will also get covered under GST net.

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.

IGST will be payable on inter-state stock transfers and branch transfers [Though CGST Act and IGST Act have not been extended to J&K, IGST will be payable].

For stock transfers or branch transfer within the State (except J&K), SGST and CGST will be payable only where the taxable person has more than one GST registrations within the State. If there is single registration within State, 'Bill of Supply' (challan) will be sufficient.

Basic scheme of GST is as follows —

  • Goods and Services Tax (GST) will be on 'supply' of goods or services or both, in India except Jammu and Kashmir. Area upto 200 nautical miles inside sea is 'India' for purpose of GST.
  • For supplies within the State or Union Territory - (a) Central GST (CGST) will be payable to Central Government and (b) State GST (SGST) or UTGST (Union Territory GST) will be payable to State Government or Union Territory (as applicable). Area upto 12 nautical miles inside sea is part of State or Union Territory which is nearest.
  • For inter-state supplies (supply from one State or Union Territory to another State or Union Territory), Integrated GST (IGST) will be payable to Central Government. IGST is payable if supply is beyond 12 nautical miles but upto 200 nautical miles.
  • In addition, GST Compensation Cess of about 12% will be payable on pan masala, tobacco products, coal, aerated waters and motor cars.
  • Basic customs duty. Education Cess and Secondary and Higher Education Cess of Customs, IGST and GST Compensation Cess (on goods were Compensation Cess is applicable) will be payable on import of goods.
  • Distinction between goods and services will be mostly eliminated. This will eliminate problem of dual taxation presently faced by construction industry, works contract, food related services like restaurant and outdoor catering, leasing and hire services and software services.
  • GST is based on Vat concept of a lowing input tax credit of tax 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.
  • The rates of GST - (CGST + SGST/UTGST) -Nil, 3%, 5%, 12%, 18% and 28%. These rates will apply to IGST also.
  • Though tax is payable to both Central Government and State Government, control will be exercised by State Government Authorities on 90% of GSTN holder having supply upto rupees1.5 crore and 50% of GSTN holder having supply above Rupees 1.5 crore and Central Government Authorities on 10% and 50% respectively on random basis . For Fresh GSTN Holder ,one case will go to centre and other to state This will avoid dual control.
  • GST Council (Goods and Services Tax Council) is Apex Constitutional body which will determine policies of GST.

1.3-1 Broad definition of 'service'
'Services' means anything other than goods [Article 366(26A) of Constitution of India inserted w.e.f. 16-9- 2016].

Definition of 'service' is risky. As it is presently worded, it can cover even immovable property. However, sale of land and fully constructed and completed buildings have been excluded from purview of GST.

The definition of 'service' is so broad that practically ,there is no limit for imposing any tax by Union or State Governments.

1.3-2 Dual GST for supply of goods and services within State
There will be dual GST - State GST (SGST) and Central GST (CGST) on supply of goods and services within the State [Article 246A of Constitution of India inserted w.e.f. 16-9-2016].

Territorial waters (i.e. 12 nautical miles inside the sea) will be part of State so far as GST is concerned.

SGST will also apply in Union Territories having legislature. These are - Delhi and Puducherry.

Both CGST and SGST will be on supply of goods and services within the State.

1.3-3 Union Territory Goods and Service Tax (UTGST)
In case of Union Territories which do not have legislature, UTGST (Union Territory Goods and Services Tax
will be payable. These are as follows [section 2(8) of UTGST Act and section 2(114) of CGST Act—
(a) the Andaman and Nicobar Islands;
(b) Lakshadweep;
(c) Dadra and Nagar Haveli;
(d) Daman and Diu;
(e) Chandigarh; and
(f) other territory.

For the purposes of CGST Act and UTGST Act, each of the territories specified in sub-clauses (a) to (f) shall be considered to be a separate Union territory.

Delhi and Puducherry have their own legislatures and they will pass their own SGST Act.

'Other Territory' - "Other territory" includes territories other than those comprising in a State and those referred to in sub-clauses (a) to (e) of section 2(114) - section 2(81) of CGST Act.

This will cover Exclusive Economic Zone (except territorial waters). Thus, 'other territory' means area inside sea between 12 nautical miles to 200 nautical miles inside the sea.

UTGST will apply for supply of goods and services within that area.

'Other Territory' will not cover Jammu and Kashmir and CGST Act and IGST Act have not been extended to J&K [see section 1(2) of IGST Act and section 1(2) of CGST Act].

1.3-4 IGST for interstate transactions
In case of Inter State supply of goods and services, there will be integrated GST (IGST) imposed by Government of India [Article 269A(1) of Constitution of India inserted w.e.f. 16-9-2016].

Equivalent IGST (CVD) will also be imposed on imports [Explanation to Article 269A(1) of Constitution of India]

The IGST Rate is double the CGST rate.

IGST and CGST rates will be same allover India and will not vary from State to State. Otherwise there will be utter chaos.

Revenue from IGST will be apportioned among Union and States by Parliament on basis of recommendation of Goods and Service Tax Council [Article 269A(2) and Article 270(1A) of Constitution of India inserted w.e.f. 16-9-2016].

This apportionment will be required as input tax credit of IGST can be used for SGST and vice versa.

Since IGST will be on 'supply of goods or services', IGST will be payable on inter-state stock transfers, branch transfers etc.

However, CGST, SGST, UTGST or IGST will not be payable if goods are sent for job work outside the factory.

1.3-4A GST is consumption based tax based on Vat principle
GST is consumption based tax, i.e. tax will be payable in the State in which goods and services are finally consumed. GST will be based on Vat system of a lowing input tax credit for payment of tax on output supply.

The States from which goods are supplied will not get any tax as goods are consumed in another State.

In case of inter-state supplies, IGST will be payable. Input Tax Credit of IGST paid in one State will be available to receiver of goods or services in another State.

1.3-5 Input Tax Credit
Allowability of input tax credit for payment of output tax is one of the key features of GST. This will avoid cascading effect of taxes.

IGST will ensure seamless movement of goods across the country (except J&K) as taxes will move along with goods.

1.3-6 Finance Cost will increase
Since IGST will be payable on inter-state branch transfers and stock transfers, finance will be blocked and interest burden of dealers having inter-state transactions will increase considerably.

1.3-7 Central Excise duty on petroleum and tobacco products
Central Excise duty will continue on petroleum products and tobacco products [Entry 84 of List I (Union List) of Seventh Schedule to Constitution of India as amended w.e.f. 16-9-2016].
Tobacco products will be subject to excise duty plus GST.

1.3-8 Sales tax on petroleum products and alcoholic liquor within State
States will have powers to impose sales tax on sale within the State on petroleum products and alcoholic liquor for human consumption [Entry 54 of List II (State List) of Seventh Schedule to Constitution of India as amended w.e.f. 16-9-2016].

Thus, petroleum products will be presently out of GST.

Petroleum Products means petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.

Petroleum products will be brought in GST network at a later stage on recommendation of GST Council - section 5(2) of IGST Act.

1.3-9 Tax on entertainment only by Municipalities, panchayat, regional council and district council
Municipality, Panchayat, Regional Council and District Council will have powers to impose tax on entertainment and amusement [Entry 62 of List II (State List) of Seventh Schedule to Constitution of India as amended w.e.f. 16-9-2016]

District Councils for administration of Tribal Areas in States of Assam, Meghalaya, Tripura and Mizoram will have powers to impose entertainment tax [paragraph 8(3)(d) of Sixth Schedule to Constitution of India inserted w.e.f. 16-9-2016].

The document GST : An Overview | Accountancy Class 11 - Commerce is a part of the Commerce Course Accountancy Class 11.
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FAQs on GST : An Overview - Accountancy Class 11 - Commerce

1. What is GST and how does it work?
Ans. GST stands for Goods and Services Tax. It is a consumption-based tax levied on the supply of goods and services in India. GST is implemented at every stage of the supply chain, from the manufacturer to the consumer. It replaces multiple indirect taxes such as excise duty, service tax, and VAT, streamlining the taxation system.
2. What are the benefits of GST?
Ans. GST brings several benefits to the economy and taxpayers. It eliminates the cascading effect of taxes, reduces the tax burden on businesses, and promotes ease of doing business. GST also ensures better compliance, as it is a technology-driven system with a unified tax structure, making it easier for businesses to file returns and claim input tax credit.
3. How does GST impact the prices of goods and services?
Ans. GST aims to bring transparency in the tax system and eliminate hidden taxes. While it may lead to an increase or decrease in prices depending on the goods or services, the overall impact of GST is expected to be neutral. Some essential goods and services are exempted or taxed at a lower rate, while certain luxury goods and services attract higher tax rates.
4. What is the GST Council and what is its role?
Ans. The GST Council is a constitutional body comprising the Finance Minister of India and the Finance Ministers of all the states. Its role is to make recommendations on various aspects of GST implementation, including tax rates, exemptions, and thresholds. The Council also plays a significant role in resolving any disputes that may arise between the center and the states.
5. How does GST impact small businesses and traders?
Ans. GST has a mixed impact on small businesses and traders. While it simplifies the tax compliance process and reduces the burden of multiple taxes, it may also require them to adopt technology for filing returns and maintaining records. The threshold for GST registration is set at a certain turnover limit, which exempts small businesses from registering under GST if their turnover is below the threshold. However, if they wish to claim input tax credit, they can voluntarily register under GST.
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