The Constitution (122nd Amendment) (GST) Bill, 2014 [ Detailed Analysis (CA/GS) - Bills ]
The Constitution (122nd Amendment) (GST) Bill, 2014 was passed by Rajya Sabha on August 3, 2016. It will be significant and game changer economic reform for India. GST will simplify indirect tax structure, tax incidence, tax computation, tax payment, compliance, credit utilization, and reporting in India. It will be single indirect tax across the nation forming unified common market.
- GST will be come into force from April 2017 and all taxpayers will have to be GST compliant to test system changes in time.
- Now the Bill needs to be passed by Lok Sabha with minimum of 15 state assemblies before the President will approve it.
How GST Work
The main agenda of GST is unification of all the existing central and state indirect taxes into a single value added tax taken on all goods and services.
For example, let us take one example to get better idea about how GST will be beneficial compared to current Tax system.
Current Tax System
Cost of raw material
Tax on raw material
Value added by manufacturer
Tax payable by manufacturer
5 (10% of 50)
5 (10% of 50)
Cost of Retailer
Margin of Retailer
(10% of (330+50))= 38
(10% of 50)= 5
Current Tax System
In the current tax system tax is counted as
In the GST tax is counted as
GST is applicable on the supply of goods or services.
In the first phase GST will not apply to:
- Petroleum crude
- High speed diesel
- Motor spirit (petrol)
- Natural gas
- Aviation turbine fuel
Basic Difference between Current Tax System and GST
- The GST Council will decide when GST will be levied on above items.
- Tobacco and tobacco products as well as excise duty on tobacco will be included in GST.
- Parliament and state legislatures are authorized to make laws on the taxation of goods and services.
- The central government has the exclusive power to levy and collect GST on interstate trade or commerce, or on imports, which will be known as Integrated GST (IGST).
- Center will imposed extra 1% Tax on the supply of goods on inter-state trade or commerce, which is collected by center and assigned to states from where the supply originates.
- The GST Council recommended imposing this tax for two years, or for a longer period. Central government may release certain goods from such additional tax.
- The law of Parliament will determine the place of origin from where the supply of such goods takes place
Benefits of GST
- GST will be efficient tax system and will make both online and offline business easier. It will be more beneficial for online businesses. The advantages of GST are:
- Effective tax rates will be lower
- Easy remedial of tax disputes
- Multiplicity taxes and their cascading effects will be eliminated
- Tax structure and compliance procedures will be simplified
- Center and State tax administrations will work in coordination so that duplication and compliance costs will reduce
Which indirect taxes will subsume into GST?
- Central Excise Duty
- Additional Excise Duty
- Service Tax
- Additional Customs Duty (also known as Countervailing Duty)
- Special Additional Duty of Customs.
- State Value Added Tax (VAT) or Sales Tax
- Octroi and Entry tax
- Purchase Tax
- Luxury tax
- Taxes on lottery, betting and gambling
- Entertainment Tax (other than the tax levied by the local bodies)
- Central Sales Tax (levied by the Centre and collected by the States)
Impact of GST on Business
- Published on: September 22, 2016