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GST:Theillustrativeguidetohowtransactionswilltakeplaceaftertaxreform
MadhuchandaDey

MoneycontrolResearch

TheIndianindirecttaxsystempresentlyhasmyriadtaxes.TheGoodsandServiceTax(GST)thatisslatedtocomeintoforcefromJuly1willsubsumeallthese
taxesintoone.Beforedelvingintodetail,letusunderstandthevarioustaxesthatwillcollapseintoGST.

CentralExciseDuty

ServiceTax

CountervailingDuty

SpecialCountervailingDuty

ValueAddedTax(VAT)

CentralSalesTax(CST)

Octroi

EntertainmentTax

EntryTax

PurchaseTax

LuxuryTax

Advertisementtaxes

Taxesapplicableonlotteries.

Alltransactionssuchassale,transfer,barter,lease,orimportationofgoodsand/orservicesmadeforconsiderationwillattractGST.

HowwillGSTactuallywork?

IndiashalladoptaDualGSTmodel,whichmeansthattheGSTwouldbeadministeredbyboththeCentralandtheStateGovernments.ThedualGSTmodel
andthetaxesleviedoneachkindoftransactioncanbeseenasbelow:

TheGSTtobeleviedbytheCentreonintrastatesupplyofgoodsand/orservicesisCentralGST(CGST)andthatbytheStatesisStateGST(SGST).

Oninterstatesupplyofgoodsandservices,IntegratedGST(IGST)willbecollectedbyCentre.IGSTwillalsoapplyonimports.

GSTisaconsumptionbasedtaxi.e.thetaxshouldbereceivedbythestateinwhichthegoodsorservicesareconsumedandnotbythestateinwhichsuch
goodsaremanufactured.IGSTisdesignedtoensureseamlessflowofinputtaxcreditfromonestatetoanother.OnestatehastodealonlywiththeCentre
governmenttosettlethetaxamountsandnotwitheveryotherstate,thusmakingtheprocesseasier.

IllustrationI:Sellingwithinthestate

SupposeamanufacturerinPunesellsgoodstodealerinNasikworthRs10,000.TheGSTrateis18%comprisingofCGSTrateof9%andSGSTrateof9%.The
taxcollectedisRs.1800Rs.900willgotothecentralgovernmentandRs.900willgototheMaharashtragovernment.Nowthedealersellsthegoodsto
customersinMumbaiforRs15,000.HereagainCGSTat9%andSGSTat9%willbelevied.Thesalepriceincreasesandsodoesthetaxliability.Incaseof
resale,thecreditofinputCGST(Rs900)andinputSGST(Rs900)isclaimedasshown,andtheremainingtaxesgototherespectivegovernments.
IllustrationII:Sellingwithinthestateandthenoutsidethestate

SupposeamanufacturerinPunesellsgoodstodealerinNasikworthRs10,000.TheGSTrateis18%comprisingofCGSTrateof9%andSGSTrateof9%,in
suchcase,thetaxcollectedisRs.1800Rs.900willgotothecentralgovernmentandRs.900willgototheMaharashtragovernment.Nowthedealersells
thegoodstocustomersinBangaloreforRs15,000.TheapplicableGSTnowwillbeIGSTat18%(IGSTwillbethesumofCGSTandSGST)thiswillwork
outtoRs2700.ButthedealerwillbeabletotaketheinputtaxcreditCGST(tothetuneofRs900)andSGST(tothetuneofRs900).

AgainstIGST,boththeinputtaxesaretakenascredit.ButweseethatalthoughSGSTneverwenttothecentralgovernment,thecreditisstillclaimed.Thisis
thecruxofGST.SincethisamountstoalosstotheCentralGovernment,thestategovernmentcompensatesbytransferringthecredittoCentralGovernment.

IllustrationIII:Sellingoutsidethestateandthenwithinthestate

SupposeamanufacturerinPunesellstoadealerinBangalore,goodsworthRs10,000.TheapplicableGSTisIGSTattherateof18%.Themanufacturer
collectsRs1800andthiswillgototheCentralgovernment.NowthedealersellsittocustomersinMysoreforRs15,000.TheapplicableGSTwillnowbeCGST
(at9%)andSGST(at9%).
AgainstCGSTandSGST,50%oftheIGSTthatis,Rs.900istakenasacredit.ButweseethatalthoughIGSTneverwenttothestategovernment,thecredit
isstillclaimedagainstSGST.Sincethisamountstoalosstothestategovernment,theCentralGovernmentcompensatesthestategovernmentbytransferring
thecredittothestategovernment.

Howshouldoneavailofthetaxcredit?

AvailabilityofInputTaxCredit(ITC)atvariouslevelsisoneofthemostimportantfeaturesofGST.

ForclaimingoftheITC,billionsofbuyerandsellerinvoiceswillhavetobeuploadedandmatchedeverymonth.TheCommonGSTPortalwhichhasbeen
developedbyGSTN(GoodsandServicesTaxNetwork)willhandlethistaskonthebasisofinvoiceleveldatafiledaspartofreturnbyallthetaxpayers.

InthecaseofInterstatesupplieswheregoodsorserviceswillbesuppliedfromthestateoforigintothestateofconsumption,thetaxationwillbedone
accordingly,asGSTisadestinationbasedtax.TheclaimofIGSTandtheutilisationofcreditwillbedoneonthebasisofthereturnsfiledontheGSTportal.

SoeveryentitywithanannualturnoverofgreaterthanRs20lakhswillhavetoberegisteredandeverytransactiondetailwillhavetobeuploadedintheportal.

SoifagoodorserviceisprocuredfromanentitywithannualturnoveroflessthanRs20lakhsGSThasintroducedareversechargemechanismthe
buyeristheresponsiblepersontopaytheGSTtaxbecausetheregistrationwasnottakenfromthedepartmentbytheseller.

HerethebuyershouldnotclaimanyinputtaxcreditbutGSTwillbecollectedfromhimonhissale.

Whathappenstosmallerentities?

AstheabovementionedprocesshighlightsGSTwillentailsignificantamountofcomplianceworktostartwith.Hence,companieswillhavetohiretheright
kindofskillsetandbereadywiththeITinfrastructurepriortotherollout.

Smallbusinessesneednotfret.TheGSTSystemwillhaveaG2BportalfortaxpayerstoaccesstheGSTSystems.However,thatwouldnotbetheonlywayfor
interactingwiththeGSTsystemasthetaxpayermaychoosethirdpartyapplications,whichwillprovidealluserinterfacesandconvenienceviadesktop,mobile,
otherinterfaces,tointeractwiththeGSTsystem.Allsuchapplicationsareexpectedtobedevelopedbythirdpartyserviceproviderswhohavebeengivena
genericname,GSTSuvidhaProviderorGSP.

(ThisisthefirstofatwopartseriestomakeourreadersunderstandthebasicsofGST)

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