There are no two ways about the fact that GST will change the course of the Indian economy. Not only it will make taxation a lot simpler and easier, it will also help prevent tax evasion. But how exactly will it change the current taxes regime? Let’s find out.
The Goods and Service Tax will follow a dual taxation system in which there will be just two kinds of taxes:
- SGST (State GST): Levied by the State Government
- CGST (Central GST): Levied by the Central Government
The Central GST will subsume the following taxes:
- Service Tax
- Central Excise Duty
- Additional Excise Duty
- Countervailing Duty (CVD)
- Additional duty of customs
- Education and Secondary/Higher Secondary cess, surcharge
The State GST will subsume the following taxes:
- Sales Tax/VAT
- Entertainment Tax
- Luxury Tax
- Lottery, betting, and gambling tax
- Purchase Tax
- State surcharge and cesses
GST 4-Tier Tax Structure-
Although GST is all about “One Country One Tax”, or in other words- it will ensure that the same tax is applied in every Indian state, it will follow a 4-tier tax structure.
There will be four different rates under GST viz. 5%, 12%, 18%, and 28%. The lower rates will be levied on essential everyday items, while the higher rates will be implemented on luxury items and demerit goods. In fact, the latter will also attract an additional cess, as decided by the GST council.
Zero Tax Rate:
Keeping affordability in mind, it has been decided that about half of the items belonging to the consumer price index basket like food items such as rice, wheat etc. will be levied a zero-rate tax.
The majority of mass consumption items such as tea, mustard oil, spices, etc. will be levied a 5% tax under GST.
12% and 18% GST:
The 12% and 18% slab will be more of a standard rate and cover the majority of items consumed by an average individual. Examples include toothpaste, soaps, electronics, etc.
The 28% tax slab is reserved for the luxury and non-essential items consumed by the people. These items will also attract an additional cess levied by the Central Government. Examples of some items that will be covered under it include luxury cars, tobacco products, gold, etc.
Taxes Under Composition Scheme
Small businesses whose annual turnover is less than Rs50,000 will be eligible for the composition scheme under GST. Under this scheme, they will have to pay smaller taxes- rates 2%, 1% and 5% for small manufacturers, small traders, and small restaurants, respectively. However, on the downside- they won’t be able to claim ITC (Input Tax Credit).
Taxing of Inter-State Transactions of Goods and Services
The Centre will levy and collect a special form of GST called the Integrated Goods and Services Tax (IGST) for inter-state transactions. This will be the sum of CGST and SGST. Thus:
Taxing of Imported Goods Under GST
The taxes Special Additional Duty (SAD) and Countervailing Duties (CVDs) that are being applied on imported under the current regime will be subsumed under GST. Thus, instead, IGST will be levied on them. This will be beneficial for the importers in India as they will be able to claim their share of the IGST paid on the goods, as opposed to the current regime in which there is no such provision.
It goes without saying that there will be a slew of changes in the current taxation system once GST is implemented. However, by preparing in advance the businesses will be able to adjust with the transition easily.