There are many differences between the current taxation system and the new GST taxation system. One of these is the taxable events which call for tax imposing.
In the current tax regime, there are three main types of taxable events, which are:
Sale of Goods– on which VAT is levied.
Removal of Excisable Goods– on which Central Excise is levied.
Provision of Taxable Services– on which Service Tax is levied.
In GST, however, there is just one taxable event, which is the “Supply of Goods and Services”, and the current taxes, viz. VAT, Central Excise, and Service Tax are all subsumed under one single GST tax.
However, the “supply” can be further divided into sub-categories, some of which are:
Deemed supply is when no consideration is received for the supply of goods and/or services. Some examples of this are as follows:
- Putting services to a non-business use
- Transferring or disposing of business assets
- Giving away free merchandise to customers
- Dispensing shopping coupons to employees
Mixed supply is the supply of multiple goods, multiple services, or both of these. When multiple items are supplied as one item, then as per GST it will be considered as the supply of that item which has the highest tax rate. For instance, if a package containing chips and aerated drinks is supplied, then since the tax on the latter is higher it will be considered a supply of aerated drinks.
Exempt supply is the supply of those goods and/or services that are not taxable under the GST regime. These could be either exempt from the payment of tax under section 10 of the GST Act or are specified in the Act otherwise.
Continuous supply is the supply of goods on a continuous or a recurrent basis for a period exceeding three months. Also, in this situation, an invoice has to be created within 30 days from the date when each event that requires the receiver to make a payment is completed.
To bring more clarity to the system, the Model GST Law has given a proper definition to what constitutes as a supply under the clause (a) to section 3(1). According to this, a supply must have the following aspects:
- It should be made in the course or for the growth of a business
- It should be made for consideration
- It can be in any form- sale, exchange, barter, lease, rental, transfer, or disposal.
Time of “Supply”
The current regime levies tax at the point of taxation, which is the point in time when the deemed goods or services are supplied. However, GST will replace that with the time of “supply” of goods or services. The time of supply of goods/services is determined by either of the following (whichever is earlier):
- The date when the invoice is issued or the last date by which it should have been issued
- The date when payment is received
By eliminating the redundant elements from the current taxation system GST will certainly improve the efficiency of the business industry. However, the businesses must prepare accordingly and get a clear idea how the changes will be implemented.