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Goods and Services Tax (India)

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This article is about the tax. For legislation, see One Hundred and First Amendment of the Constitution of India.

Goods and Services Tax (GST) is an indirect tax which was introduced in India on 1 July 2017 and was applicable throughout India which replaced multiple cascading taxes levied by the central and state governments. It was introduced as The Constitution (One Hundred and First Amendment) Act 2017,[1] following the passage of Constitution 122nd Amendment Act Bill. The GST is governed by a GST Council and its Chairman is the Finance Minister of India. Under GST, goods and services are taxed at the following rates, 0%, 5%, 12% ,18% and 28%. There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold.[2] In addition a cess of 22% or other rates on top of 28% GST applies on few items like aerated drinks, luxury cars and tobacco products.[3] GST replaced a slew of indirect taxes with a unified tax and is therefore set to dramatically reshape the country's 2 trillion dollar economy.[4]

History

The reform process of India's indirect tax regime was started in 1986 by Vishwanath Pratap Singh, Finance Minister in Rajiv Gandhi’s government, with the introduction of the Modified Value Added Tax (MODVAT). Subsequently, Manmohan Singh,the then Finance Minister under P V Narasimha Rao, initiated early discussions on a Value Added Tax at the state level.[5] A single common "Goods and Services Tax (GST)" was proposed and given a go-ahead in 1999 during a meeting between the then Prime Minister Atal Bihari Vajpayee and his economic advisory panel, which included three former RBI governors IG Patel, Bimal Jalan and C Rangarajan. Vajpayee set up a committee headed by the then finance minister of West Bengal, Asim Dasgupta to design a GST model.[6]

The Ravi Dasgupta committee was also tasked with putting in place the back-end technology and logistics (later came to be known as the GST Network, or GSTN, in 2017) for rolling out a uniform taxation regime in the country. In 2002, the Vajpayee government formed a task force under Vijay Kelkar to recommend tax reforms. In 2005, the Kelkar committee recommended rolling out GST as suggested by the 12th Finance Commission.[6]

After the fall of the BJP-led NDA government in 2004, and the election of a Congress-led UPA government, the new Finance Minister P Chidambaram in February 2006 continued work on the same and proposed a GST rollout by 1 April 2010. However in 2010, with the Trinamool Congress routing CPI(M) out of power in West Bengal, Asim Dasgupta resigned as the head of the GST committee. Dasgupta admitted in an interview that 80% of the task had been done.[6]

In 2014, the NDA government was re-elected into power, this time under the leadership of Narendra Modi. With the consequential dissolution of the 15th Lok Sabha, the GST Bill – approved by the standing committee for reintroduction – lapsed. Seven months after the formation of the Modi government, the new Finance Minister Arun Jaitley introduced the GST Bill in the Lok Sabha, where the BJP had a majority. In February 2015, Jaitley set another deadline of 1 April 2017 to implement GST. In May 2016, the Lok Sabha passed the Constitution Amendment Bill, paving way for GST. However, the Opposition, led by the Congress, demanded that the GST Bill be again sent back to the Select Committee of the Rajya Sabha due to disagreements on several statements in the Bill relating to taxation. Finally in August 2016, the Amendment Bill was passed. Over the next 15 to 20 days, 18 states ratified the GST Bill and the President Pranab Mukherjee gave his assent to it.[7][8]

A 22-members select committee was formed to look into the proposed GST laws.[9] State and Union Territory GST laws were passed by all the states and Union Territories of India except Jammu & Kashmir, paving the way for smooth rollout of the tax from 1 July 2017.[10] There was to be no GST on the sale and purchase of securities. That continues to be governed by Securities Transaction Tax (STT).[11]

Launch

The Goods and Services Tax was launched at midnight on 1 July 2017 by the President of India, Pranab Mukherjee, and Prime Minister of India, Narendra Modi. The launch was marked by a historic midnight (30 June – 1 July) session of both the houses of parliament convened at the Central Hall of the Parliament. Though the session was attended by high-profile guests from the business and the entertainment industry including Ratan Tata, it was boycotted by the opposition due to the predicted problems that it was bound to lead to for the middle and lower class Indians. [12][13] It is one of the few midnight sessions that have been held by the parliament - the others being the declaration of India's independence on 15 August 1947, and the silver and golden jubilees of that occasion.[13]

Members of the Congress boycotted the GST launch altogether. They were joined by members of the Trinamool Congress, Communist Parties of India and the DMK. The parties reported that they found virtually no difference between the GST and the existing taxation system, claiming that the government was trying to merely rebrand the current taxation system. They also argued that the GST would increase existing rates on common daily goods while reducing rates on luxury items, and affect many Indians adversely, especially the middle, lower middle and poorer classes.[14]

Taxation scheme

Taxes subsumed

The single GST(goods and service taxes) replaced several former taxes and levies(love u shalu) which included: central excise duty, services tax, additional customs duty, surcharges, state-level value added tax and Octroi.[15][16] Other levies which were applicable on inter-state transportation of goods have also been done away with in GST regime.[17][18] GST is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of goods and/or services. India adopted a dual GST model, meaning that taxation is administered by both the Union and State Governments. Transactions made within a single state are levied with Central GST (CGST) by the Central Government and State GST (SGST) by the State governments. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government. GST is a consumption-based tax, therefore, taxes are paid to the state where the goods or services are consumed not the state in which they were produced. IGST complicates tax collection for State Governments by disabling them from collecting the tax owed to them directly from the Central Government. Under the previous system, a state would only have to deal with a single government in order to collect tax revenue.[19]

HSN code in GST

HSN (Harmonized System of Nomenclature) is an 8-digit code for identifying the applicable rate of GST on different products as per CGST rules. If a company has turnover up to RS. 1.5 Crore in preceding financial year then they need not to mention HSN code while supplying goods on invoices, if a company has turnover more than 1.5 Cr but up to 5 Cr then they need to mention 2 digit HSN code while supplying goods on invoices and if turnover cross 5 Cr then they shall mention 4 digit HSN code on invoices.[20]

Rates

The GST is imposed at variable rates on variable items. The rate of GST is 2% for soaps and 28% on washing detergents. GST on movie tickets is based on slabs, with 18% GST for tickets that cost less than Rs. 100 and 28% GST on tickets costing more than Rs.100 and 5% on readymade clothes.[21] The rate on under-construction property booking is 12%.[22] Some industries and products were exempted by the government and remain untaxed under GST, such as dairy products, products of milling industries, fresh vegetables & fruits, meat products, and other groceries and necessities.[23]

Checkposts across the country were abolished ensuring free and fast movement of goods.[24]

The Central Government had proposed to insulate the revenues of the States from the impact of GST, with the expectation that in due course, GST will be levied on petroleum and petroleum products. The central government had assured states of compensation for any revenue loss incurred by them from the date of GST for a period of five years. However, no concrete laws have yet been made to support such action.[25] GST council adopted concept paper discouraging tinkering with rates.[26]

Goods and Services Tax Network (GSTN)

As per the government website on GST, "Goods and Services Tax" Network (GSTN) is a nonprofit organisation proposed to be formed for creating a website / platform for all the concerned parties related to the GST, namely stakeholders, government and taxpayers to collaborate on a single portal. When up and running, the portal is supposed to be accessible to the central government which allows it to track down every transaction on its end while taxpayers are advertised to have the ability of connecting this to their tax returns. However its efficacy and efficiency is yet to be tested. The known authorised capital of GSTN is ₹10 crore (US$1.2 million) in which Central Government holds 24.5 percent of shares while the state government holds 24.5 percent and rest with private banking firms for smooth running of the transactions.[27]

See also

References

  1. ^ THE CONSTITUTION (ONE HUNDRED AND FIRST AMENDMENT) ACT, 2016 (PDF) (Amendment 101). 8 September 2016. Retrieved 30 June 2016.
  2. ^ "All your queries on GST answered". The Hindu. Retrieved 30 June 2017.
  3. ^ "GST: Cars, durables face 28% rate; luxury vehicles to attract 15% cess", Business Standard, 18 May 2017
  4. ^ "Film theatres in Tamil Nadu to begin indefinite strike against GST". The Hindu. 2 July 2017. Retrieved 3 July 2017.
  5. ^ "Looking back at GST's journey: How an idea is now near reality", Indian Express, 31 March 2017
  6. ^ a b c "GST: A 17-year-old dream, 17 phases towards creating history", India Today, 29 June 2017
  7. ^ "Goods and Services Tax: History of India's biggest tax reform and people who made it possible", India TV, 29 June 2017
  8. ^ "GST: Meet the men behind India's biggest tax reform that's been in making for 17 years", India Today, 29 June 2017
  9. ^ Nair, Remya (8 June 2015), "Rajya Sabha panel to hear GST concerns on 16 June", Live Mint
  10. ^ "GST rollout: All except J-K pass State GST legislation", The Indian Express, 22 June 2017
  11. ^ "GST draft makes it must for companies to pass tax benefit to consumers", The Times of India, 27 November 2016
  12. ^ "GST Rollout Attendees", Financial Express, 30 June 2017
  13. ^ a b "GST launch: Times when the Parliament convened for a session at midnight", The Hindustan Times, 30 June 2017
  14. ^ "Congress To Boycott GST Launch, Arun Jaitley Suggests Broader Shoulders", NDTV, 29 June 2017
  15. ^ "What is GST, how is it different from now: Decoding the indirect tax regime", Business Standard, 17 April 2017
  16. ^ "GST may swallow all taxes but cess", Business Standard, 20 September 2016
  17. ^ "On Notes Ban, Firm Warning From West Bengal To Centre: GST Now At Risk", NDTV, 30 November 2016
  18. ^ "Finance minister Arun Jaitley may hike service tax to 16-18% in Budget", The Times of India, 30 January 2017
  19. ^ "GST: The illustrative guide to how transactions will take place after tax reform". Money Control.
  20. ^ "Understanding HSN Codes Under GST". Masters India.
  21. ^ Mehra, Puja (27 June 2017). "GST, an old new tax". The Hindu - Opinion. Retrieved 3 July 2017.
  22. ^ "What is the GST impact on real estate?", The Indian Express, 5 July 2017
  23. ^ "GST rollout: List of items exempted from taxation". The Indian Express. 30 June 2017. Retrieved 30 July 2017.
  24. ^ "22 states scrap checkposts for smooth GST rollout", The Times of India, 4 July 2017
  25. ^ "'States on Board, GST Launch from April '16'". newindianexpress.com.
  26. ^ Sikarwar, Deepshikha (9 October 2017). "GST council adopts concept paper discouraging tinkering with rates". The Economic Times. Retrieved 9 October 2017.
  27. ^ "About Us – GSTN". www.gstn.org.
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