Goods & Service Tax (GST) is being seen as the most important tax reform in the country in decades. There has been a strong buzz in the media about the GST Bills being passed by the Parliament and also signed by the President.
Even while it is just a tax change, it is expected to affect a lot many sectors and impact the pricing, margins, supply chains etc. Therefore, it is expected to change the way business decisions are indeed taken.
Here are 5 things you must know about Goods & Service Tax (GST):
What is GST?
GST is one indirect tax for the whole nation, aimed at making India one unified market. It will be one single tax moving across the value chain from the manufacturer to the ultimate consumer. The credit of input taxes paid is available to the purchaser and hence, effectively the tax is levied for the value addition at each level.
What happens to the existing taxes like Excise, Service Tax, VAT etc.?
GST will replace multiple taxes like:
- excise duty which is charged on the manufacture of goods
- sales tax/ Value Added Tax (VAT) which is charged on the sale of goods
- service tax which is charged on the provision of services
- entertainment tax which is charged on entertainment services like movies etc.
- entry tax which is charged on the entry of goods in a particular state
This will, therefore, result in simplification of the tax structures in the country.
How does it affect me?
It is expected to provide a uniform and simplified way of taxes on goods & services. If you have ever gone through your food bill, you must have noticed that both VAT and service taxes have been levied in the bill, thereby leading to a multiplicity of taxes. There will be two additional taxes in it namely Krishi Kalyan Cess & Swachh Bharat cess. Under GST, all such taxes will get replaced into one tax – GST. It will remove all barriers across states and make the country a common market.
What are the implementation challenges?
India is adopting dual GST, Central GST and State GST. Hence, the main challenge under GST is conceived to be the coordination and dispute resolution among the states and also between the States and the Centre.
Are states losing out on revenues due to GST?
Since the incidence of taxes will be shifting from producing states to consuming states, there might be some states losing and some states gaining under the new GST regime. However, the GST bill provides for compensation to the States for loss of revenue arising on account of implementation of the GST for a period of five years.
GST is expected to be implemented from July 1 this year and now that you are aware of the basics of GST, be ready to welcome GST with open hands.
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