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Overview of Goods and Services Tax (GST)


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Q 1.   What   is   Goods   and   Services   Tax (GST)?

Ans.   It is a destination based tax on consumption of goods and services.  It is proposed to be levied at all stages right from manufacture up to final consumption with credit of taxes  paid at  previous stages  available  as  setoff.    In  a nutshell, only value addition will be taxed and burden of tax is to be borne by the final consumer.

Q 2.   What exactly is the concept of destination based tax on consumption?

Ans.   The tax would accrue to the taxing authority which has jurisdiction  over the place of consumption  which is also termed as place of supply.

Q 3.   Which of the existing taxes are proposed to be subsumed under GST?

Ans.   The GST would replace the following taxes:

(i)      taxes currently levied and collected by the Centre:

a.     Central Excise duty

b.     Duties    of    Excise    (Medicinal     and    Toilet Preparations)

c.     Additional Duties of Excise  (Goods of Special Importance)

d.     Additional Duties of Excise (Textiles and Textile Products)

e.     Additional Duties of Customs (commonly known as CVD)

  f.      Special Additional Duty of Customs (SAD)

 g.     Service Tax

h.    Central Surcharges and Cesses so far  as they relate to supply of goods and services

(ii)    State taxes that would be subsumed under the GST are:

a.     State VAT

b.     Central Sales Tax c.     Luxury Tax

d.     Entry Tax (all forms)

e.     Entertainment and AmusementTax(exceptwhen levied by the local bodies)

f.      Taxes on advertisements

g.     Purchase Tax

h.     Taxes on lotteries, betting and gambling

i.      State Surcharges and Cesses sofar as they relate to supply of goods and services

The GST Council shall make recommendations to the Union and States on the taxes, cesses and surcharges levied by the Centre, the States and the local bodies which may be subsumed in the GST.

Q 4.   What  principles  were adopted  for subsuming the above taxes under GST?

Ans.   The v ar i ou s C entr al , St at e an d L oc al le v ie s w ere examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind:

(i)      Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services.

(ii)     Taxes  or  levies to  be  subsumed should be part  of the transaction chain which commences with import/ manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other.

(iii)    The subsumation  should result in free flow of tax credit in intra and inter-State levels. The taxes, levies and fees that are not specifically related to supply of goods & services should not be subsumed under GST

(v)     Revenue fairness for both the Union and the States individually would need to be attempted.

Q 5.   Which are the commodities proposed to be kept outside the purview of GST?

Ans.  Article  366(12A)  of  the Constitution  as  amended  by

101st Constitutional Amendment Act, 2016 defines the Goods and  Services  tax  (GST)  as  a  tax  on  supply  of  goods  or services or both, except supply of alcoholic liquor for human consumption. So alcohol for human consumption is kept out of GST by way of definition of GST on constitution. Five petroleum products viz.   petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel have temporarily been kept out and GST Council shall decide the date from which they shall be included in GST. Furthermore, e lectricity has been kept out of GST.

Q 6.   What will be the status in respect of taxation of above commodities after introduction of GST?

Ans.   The existing taxation system (VAT & Central Excise) will continue in respect of the above commodities.

Q 7.   What  will  be  status  of  Tobacco  and  Tobacco products under the GST regime?

Ans.   Tobacco and tobacco products would be subject to GST. In addition, the Centre would have the power to levy Central Excise duty on these products.

Q 8.   What    type    of    GST    is    proposed    to    be implemented?

Ans.   It would be a dual GST with the Centre and States simultaneously levying it on a common tax base. The GST to be levied by the Centre on intra-State supply of goods and / or services would be called the Central GST (CGST) and that to be levied by the States/ Union territory would be called the State GST (SGST)/ UTGST. Similarly, Integrated GST (IGST) will be levied and administered by Centre on every inter-state supply of goods and services.

Q 9.   Why is Dual GST required?

Ans.    India is a federal country where both the Centre and the States have been assigned the powers to levy and collect taxes t h r o u g h  a p p r o p r i a t e  l e g i s l a t i o n .   Both the l e v e l s  of  Government  have  distinct  responsibilities  to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal federalism.

Q 10.  Which  authority  will   levy  and  administer GST?

Ans.   Centre will levy and administer CGST & IGST while respective  states  /UTs  will  levy  and  administer  SGST/ UTGST.

Q 11.   Why  was  the Constitution  of  India amended recently in the context of GST?

Currently, the fiscal powers between the Centre and the States are clearly demarcated in the Constitution with almost no overlap between the respective domains. The Centre has the powers to levy tax on the manufacture of goods (except alcoholic liquor for human consumption, opium, narcotics etc.) while the States have the powers to levy tax on the sale of goods. In the case of inter-State sales, the Centre has the power to levy a tax (the Central Sales Tax) but, the tax is collected and retained entirely by the States. As for services, it is the Centre alone that is empowered to levy service tax.

Introduction of the GST required amendments in the Constitution so as to simultaneously empower the Centre and the States to levy and collect this tax. The Constitution of India has been amended by the Constitution (one hundred and first amendment) Act, 2016 for this purpose. Article 246A  of  the  Constitution  empowers the  Centre and  the States to levy and collect the GST.

Q 12.   How  a  particular  transaction  of  g o o d s a n d   services   would   be   taxed   simultaneously under Central GST (CGST) and State GST (SGST)?

Ans.     The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services  except  the  exempted goods  and  services,  goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, both would be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of CENVAT. While the location of the supplier and the recipient within the country is immaterial for the purpose of CGST, SGST would be chargeable only when the supplier and the recipient are both located within the State.

Illustration I: Suppose hypothetically that the rate of CGST is 10% and that of SGST is 10%. When a wholesale dealer of steel in Uttar Pradesh supplies steel bars and rods to a construction company which is also located within the same State for, say Rs. 100, the dealer would charge CGST of Rs. 10 and SGST of Rs. 10 in addition to the basic price of the goods. He would be required to deposit the CGST component i n t o  a  C e n t r a l  G o v e r n m e n t  a c c o u n t w h i l e the SGST portion into the account of the concerned State Government. Of course, he need not actually pay Rs.

20 (Rs. 10 + Rs. 10) in cash as he would be entitled to set- off this liability against the CGST or SGST paid on his purchases (say, inputs). But for paying CGST he would be allowed  to  use   only  the   credit  of   CGST   paid   on   his purchases while for SGST he can utilize the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.

Illustration II: Suppose, again hypothetically, that the rate of CGST is 10% and  that  of  SGST  is  10%.  When an advertising company located in Mumbai supplies advertising services to a company manufacturing soap also located within the State of Maharashtra for, let us say Rs. 100, the ad company would charge CGST of

Rs.  10 as well  as SGST  of Rs.  10 to the basic value of the service. He would be required to deposit the CGST component into a Central Government account while the SGST  portion  into the  account of the  concerned State Government. Of course, he need not again actually pay Rs. 20 (Rs. 10+Rs. 10) in cash as it would be entitled to set-off this liability against the CGST or  SGST paid on his purchase (say, of inputs such as stationery, office equipment,  services  of  an  artist  etc.).    But  for  paying CGST he would be allowed to use only the credit of CGST paid on its purchase while for SGST he can utilise the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.

Q 13.   What are the benefits which the Country will accrue from GST?

Ans.   Introduction of GST would be a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax and allowing set-off of prior-stage taxes, it would mitigate the ill effects of cascading and pave the way for a common national market. For the consumers, the biggest gain would be in terms of a reduction in the overall tax burden on goods, which  is  currently  estimated  at  25%-30%.  Introduction of GST would also make our products competitive in the domestic and international markets. Studies show that this would instantly spur economic growth. There may also be revenue gain for the Centre and the States due to widening of the tax base, increase in trade volumes and improved tax compliance. Last but not the least, this tax, because of its transparent character, would be easier to administer.

Q 14.   What is IGST?

Ans.   Under  the  GST  regime,  an  Integrated  GST  (IGST) would be levied and collected by the Centre on inter-State supply of goods and services. Under Article 269A of the Constitution, the  GST on supplies in the course of inter- State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.

Q 15.   Who will decide rates for levy of GST?

Ans.   The CGST and SGST would be levied at rates to be jointly decided by the Centre and States. The rates would be notified on the recommendations of the GST Council.

Q 15.   What would be the role of GST Council?

Ans.    A GST Council would be constituted comprising the Union Finance Minister (who will be the Chairman of the Council), the Minister of State (Revenue) and the State Finance/Taxation Ministers to make recommendations to the Union and the States on

(i)    the taxes, cesses and surcharges levied by the Centre,  the  States  and the  local  bodies which may be subsumed under GST;

(ii)  the goods and services that may be subjected to or exempted from the GST;

(iii) the date on which the GST shall be levied on petroleum crude, high speed diesel, motor sprit (commonly known as petrol), natural gas and aviation turbine fuel;

(iv) model GST laws, principles of levy, apportionment of IGST and the principles that govern the place of supply;

(v)  the threshold limit of turnover below which the goods and services may be exempted from GST;

(vi) the rates including floor rates with bands of GST;

(vii) any special rate or rates for a specified period to raise additional resources during any natural calamity or disaster;

(viii) special provision with respect to the North- East States, J&K, Himachal Pradesh and Uttarakhand; and

(ix) any other matter relating to the GST, as the Council may decide.

Q 16.   What is the guiding principle of GST Council?

Ans. The mechanism of GST Council would ensure harmonization on different aspects of GST between the Centre and the States as well as among States.  It has been p r o v i d e d   in   t h e   C o n s t i t u t i o n   ( one  h u n d r e d a n d  first amendment) Act, 2016 that the GST Council, in its discharge of various functions, shall be guided by the need  for  a  harmonized structure  of  GST  and  for  the development of a harmonized national market for goods and services.

Q 17.   How will decisions be taken by GST Council?

Ans.   The Constitution (one hundred and first amendment) Act, 2016 provides that every decision of the GST Council shall be taken at a meeting by a majority of not less than 3/4th of the weighted votes of the Members present and voting. The vote of the Central Government shall have a weightage of 1/3rd of the votes cast and the votes of all the State Governments taken together shall have a weightage of 2/3rd of the total votes cast in that meeting. One half of the total number of members of the GST Council shall constitute the quorum at its meetings.

Q 18.   Who is liable to pay GST under the proposed GST regime?

Ans.   Under the GST regime, tax is payable by the taxable person on the supply of goods and/or services. Liability to pay tax arises when the taxable person crosses the turnover threshold  of  Rs.20  lakhs  (Rs.  10  lakhs  for  NE & Special Category States) except in certain specified cases where the taxable person is liable to pay GST even though he has not crossed the threshold limit. The CGST / SGST is payable on all intra-State supply of goods and/or services and IGST is payable on all inter- State supply of goods and/or services. The  CGST  /SGST  and  IGST  are  payable  at  the  rates specified in the Schedules to the respective Acts.

Q 19.   What are the benefits  available to small tax payers under the GST regime?

Ans.   Tax payers with an aggregate turnover in a financial year up to [ Rs.20 lakhs & Rs.10 Lakhs for NE and special category states] w o u l d be e x e m p t f r o m  tax. Further, a person whose aggregate turnover in the preceding financial year is less than Rs.50 Lakhs can opt for a simplified composition scheme where tax will payable at a concessional rate on the turnover in a state.

[Aggregate turnover shall include the aggregate value of all taxable supplies, exempt supplies and exports of goods and/or services and exclude taxes viz. GST.] Aggregate turnover  shall  be  computed  on  all  India  basis.  For  NE States  and  special  category  states,  the exemption threshold shall be [Rs. 10 lakhs]. All taxpayers eligible for threshold exemption  will  have  the  option  of  paying  tax with  input tax credit (ITC) benefits. Tax payers making inter-State supplies or paying tax on reverse charge basis shall not be eligible for threshold exemption.

Q 20.   How will the goods and services be classified under GST regime?

Ans.    HSN ( Harmonised  System of N omen cl atu re ) code shall be used for classifying the goods under the GST regime.

Taxpayers whose turnover is above Rs. 1.5 crores but below Rs. 5 crores shall use 2-digit code and the taxpayers whose turnover is Rs. 5 crores and above shall use 4-digit code. Taxpayers whose turnover is below Rs. 1.5 crores are not required to mention HSN Code in their invoices. Services will be classified as per the Services Accounting

Code (SAC)

 

Q 21.   How will imports be taxed under GST?

Ans.     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. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import on goods and services.

Q 22. How will Exports be treated under GST?

Ans.   Exports will be treated as zero rated supplies. No tax will be payable on exports of goods or services, however credit of input tax credit will be available and same will be available  as  refund  to  the  exporters.  The  Exporter  will have an option to either pay tax on the output and claim refund of IGST or export under Bond without payment of IGST and claim refund of Input Tax Credit (ITC).

Q 23. What is the scope of composition scheme under GST?

Ans.     Small taxpayers with  an aggregate turnover  in a preceding financial year up to [Rs. 50 lakhs] shall be eligible   for   composition   levy.      Under   the   scheme,   a taxpayer shall pay tax as a percentage of his turnover in a state during the year without the benefit of ITC. The floor rate  of tax for CGST  and SGST/UTGST  shall not be less than [1% for manufacturer & 0.5% in other cases; 2.5% for specific services as mentioned in para 6(b) of Schedule II viz Serving of food or any other article for human consumption].  A  tax  payer  opting  for  composition  levy shall not collect any tax from his customers. The government may increase the above said limit of 50 lakhs rupees to up to one crore rupees, on the recommendation of GST Council.

Tax   payers   making   inter-   state   supplies   or   making supplies through ecommerce operators who are required to   collect   tax   at   source   shall   not   be   eligible   for composition scheme.

Q 24.   Whether the composition   scheme will  be optional or compulsory?

Ans.   Optional.

Q 25.  What is GSTN and its role in the GST regime?

Ans.   GSTN  stands  for  Goods  and  Service  Tax  Network (GSTN).    A Special Purpose Vehicle called the GSTN has been set up to cater to the needs of GST. The GSTN shall provide a shared IT infrastructure and services to Central and State Governments, tax payers and other stakeholders for  implementation  of  GST.  The  functions  of  the  GSTN would, inter alia, include: (i) facilitating registration; (ii) forwarding the returns to Central and State authorities; (iii)  computation  and settlement of  IGST; (iv) matching of   tax   payment   details   with   banking   network;   (v) providing various MIS reports to the Central and the State Governments based on the tax payer return information; (vi)  providing  analysis  of  tax  payers’  profile;  and  (vii) running the matching engine for matching, reversal and reclaim of input tax credit.

The GSTN is developing a common GST portal and applications for  registration,  payment, return  and MIS/ reports. The GSTN would also be integrating the common GST portal with the existing tax administration IT systems and would be building interfaces for tax payers. Further, the GSTN is developing back-end modules like assessment, audit, refund, appeal etc. for  19 States and UTs (Model II States). The CBEC and Model I States (15 States) are themselves developing their GST back-end systems. Integration of GST front-end system with back-end systems will have to be completed and tested well in advance for making the transition smooth.

Q 26.   How a r e th e disputes g oin g to be r e s ol v e d under the GST regime?

Ans.   The Constitution (one hundred and first amendment) Act, 2016 provides that the Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute-

(a)     between the Government of India and one or more States; or

(b)     between the Government of India and any State or States on one side and one or more other Sates on the other side; or

(c)     between two or more States, arising out of the recommendations of the Council or implementation thereof.

Q 27. What   is   the   purpose   of   Compliance   rating mechanism?

Ans.  As per Section 149 of the CGST/SGST Act, every registered person shall be assigned a compliance rating based on the record of compliance in respect of specified parameters. Such ratings shall also be placed in the public domain. A prospective client will be able to see the compliance ratings of suppliers and take a decision as to whether to deal with a particular supplier or not. This will create healthy competition amongst taxable persons.

Q 28. Whether actionable claims liable to GST?

Ans.      As   per   section   2(52)   of   the   CGST/SGST   Act actionable claims are to be considered as goods. Schedule III read with Section 7 of the CGST/SGST Act lists the activities or transactions which shall be treated neither as supply of goods nor supply of services. The Schedule lists actionable claims other than lottery, betting and gambling as one of such transactions. Thus only lottery, betting and gambling shall be treated as supplies under the GST regime.   All the other actionable claims shall not be supplies.

Q 29. Whether transaction in securities be taxable in GST?

Ans.     Securities have been specifically excluded from the definition of goods as well as services. Thus, the transaction in securities shall not be liable to GST.

Q 30. What is the concept of Information Return?

Ans.     Information return is based on the idea of verifying the compliance levels of registered persons through information procured from independent third party sources. As per section 150 of the CGST/SGST Act, many authorities who are responsible for maintaining records of registration or   statement   of   accounts   or   any   periodic   return   or document containing details of payment of tax and other details of transaction of goods or services or both or transactions related to a bank account or consumption of electricity or transaction of purchase, sale or exchange of goods or property or right or interest in a property under any law for the time being in force, are mandated to furnish an  information  return  of  the  same  in  respect  of  such periods, within such time, in such form and manner and to such authority or agency as may be prescribed. Failure to do so may result in penalty being imposed as per Section 123.

Q 31. Different  companies  have  different  types  of accounting software packages and no specific format are mandated for keeping records. How will department   be   able   to   read   into   these complex software?

Ans.      As per  Section  153 of the CGST/SGST  Act,  having regard to the nature and complexity of a case and in the interest of revenue, department may take assistance from an expert at any state of scrutiny, inquiry, investigation or any other proceedings.

Q 32. Is there any provision in GST for tax treatment of goods returned by the recipient?

Ans.  Yes, Section 34 deals with such situations. Where the goods   supplied   are   returned   by   the   recipient,   the registered person (supplier of goods) may issue to the recipient a credit note containing the prescribed particulars.     The  details  of  the  credit  note  shall  be declared by the supplier in the returns for the month during which such credit note was issued but not  later than  September  following the end of the year in which such supply was made or the date of filing of the relevant annual  return, whichever  is  earlier.  The  details  of  t he credit  note  shall  be  matched  with  the  corresponding reduction in claim for input tax credit by the recipient in his   valid   return   for   the   same   tax   period   or   any subsequent tax period and the claim for reduction in output tax liability by the supplier tha t matches with the corresponding reduction in claim for ITC by the recipient shall be finally accepted and communicated to both parties.

Q 33.   What is Anti-Profiteering measure?

Ans.   As  per  section  171  of  the  CGST/SGST  Act,  any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. An authority may be constituted by the government to examine whether input tax credits availed by any registered person  or the reduction  in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.

 

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