By Shravan B R

About Indirect TAX

A tax levied on goods and services rather than on
income or profits

An indirect tax is a tax that is paid to the

government by one entity in the supply chain, but it is
passed on to the consumer as part of the price of a
good or service.

The consumer is ultimately paying the tax by paying

more for the product.
 What is GST
• A single indirect tax regime applicable to the entire
nation – One India - One Tax – One Market.

• It is a tax levied when a consumer buys a good or

service - taxes collected at the point of consumption

• It is meant to be a single, comprehensive tax that will

subsume all the other smaller indirect taxes on
consumption like service tax, etc.
 Current indirect tax regime of
India
• The constitution divides taxation powers between
centre and states. Both levels of government have
some exclusive areas where they can levy tax.

• Generally speaking, indirect taxes levied on

manufacture of goods or provision of services are the
exclusive domain of central government.

• And, Taxes on consumption are the exclusive domain

of state governments.
 Current indirect tax regime of
India
Current Tax Structure

Central Taxes-
• Central Excise Duty [including additional excise duties, excise duty under the Medicinal and
Toilet Preparations (Excise Duties) Act, 1955]
• Service tax
• Additional Customs Duty (CVD)
• Special Additional Duty of Customs (SAD)
• Central Sales Tax ( levied by the Centre and collected by the States)
• Central surcharges and cesses ( relating to supply of goods and services)

State Taxes-
• Value Added Tax
• Octroi and Entry Tax
• Purchase Tax
• Luxury Tax
• Taxes on lottery, betting & gambling
• State cesses and surcharges
• Entertainment tax (other than the tax levied by the local bodies)
• Central Sales Tax ( levied by the Centre and collected by the States)
What is the problem with current
arrangement?
• Too many taxes to be levied, computed, paid,
credited.. – Too complicated procedures

• Different state tax regime in different states – One

country, but too many economies.

• Tax at the factory gate (central excise tax) which

adds to the cost of the goods and another tax on the
final price (VAT).

• Inter state transactions are vied as Imports and

Exports within our economy...!!
 No transparency today..
Do you know how much tax you are paying for goods or
service...?

If you get a bill after buying goods which gives the VAT you have
paid, it is an understatement of the actual tax you have paid.

Remember, well before goods reached the retail outlet, the central
government has collected excise duty....not mentioned in the bill...

It is reasonable to assume you have paid well over 20% tax for
most goods you buy.
 Benefits of GST
• Wider tax base, necessary for lowering the tax rates and
eliminating classification disputes

• Elimination of multiplicity of taxes and their cascading

effects

• Rationalization of tax structure and simplification of

compliance procedures

• Harmonization of centre and State tax administrations,

which would reduce duplication and compliance costs

• Automation of compliance procedures to reduce errors and

increase efficiency
 What GST brings with it?
A dual levy with State/Union territory GST and Central GST. Moreover,
inter–state supplies would attract an Integrated GST, which would be the
sum total of CGST and SGST/UTGST.
Four-tier rate structure
 GST Rate Slabs
Rate Goods/Services

0% Goods - Commodities such as food grains, rice, wheat are included (Basic
necessaries).
Services - Hotels and lodges with tariff below Rs 1,000.
5% Goods - Products of mass consumption are included such as spices, tea, mustard
oil, fish fillet, cream, skimmed milk powder, branded paneer, frozen vegetables,
coffee, pizza bread, rusk, sabudana, kerosene, coal, medicines, stent, lifeboats.
Services - Transport services (Railways, air transport), small restraurants.
12% Goods - Frozen meat products , butter, cheese, ghee, dry fruits in packaged form,
animal fat, sausage, fruit juices, Bhutia, Namkeen, Ayurvedic medicines, tooth
powder, Agarbatti, colouring books, picture books, umbrella, sewing machine,
cellphones.
Services - Non-AC hotels, business class air ticket, fertilisers, Work Contracts.
 GST Rate Slabs
Rate Goods/Services

18% Goods - Most items are under this tax slab which include flavoured refined sugar,
pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice
cream, instant food mixes, mineral water, tissues, envelopes, tampons, note books,
steel products, printed circuits, camera, speakers and monitors.
Services - AC hotels that serve liquor, telecom services, IT services, branded
garments and financial services.
28% Goods - Chewing gum, molasses, chocolate not containing cocoa, waffles and wafers
coated with choclate, pan masala, aerated water, paint, deodorants, shaving creams,
after shave, hair shampoo, dye, sunscreen, wallpaper, ceramic tiles, water heater,
dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum
cleaner, shavers, hair clippers, automobiles, motorcycles, aircraft for personal use.
Services - 5-star hotels, race club betting, and cinema.
28% + Sin products such as luxury cars, tobacco products, pan masala and aerated drinks
Cess are included. This cess would be applied by Centre, in a manner which allows higher
tax which is currently charged. For example, if some tobacco products attract 32%
tax currently, then GST regime, Centre will apply a cess charge of 4% besides 28%.
 What would be out of GST
• Levies on petroleum products
• Levies on alcoholic products
• Taxes on lottery and betting
• Basic customs duty and safeguard duties on import of goods
into India
• Entry taxes levied by Municipalities or Panchayats
• Entertainment and Luxury taxes
• Electricity duties/ taxes
• Stamp duties on immovable properties
• Taxes on vehicles
 Administration of GST
Keeping in mind the federal system in India, there will be 3
components of the GST

• Central GST – CGST – levied by central Government

• State GST – SGST – levied by state Government

• Integrated GST – IGST – levied on interstate transaction

Both Centre and State Governments levy GST Simultaneously

 Infrastructure
(GSTN)
For the purpose of implementation of GST a special purpose vehicle
is set by the Central and State Governments, which is a no-govt.
private ltd company, and provides IT infrastructure and services
Central and State Govt., tax payers, and other stakeholders.

Ownership of GSTN

24.5%
24.5% 10% 10%
State Govt and
Central Govt HDFC HDFC Bank
ECs

10% 11%
10%
NSE Strategic LIC Housing
ICICI Bank
Investment Co Finance Ltd
How Indian GST is differing from
GST of other countries
Other countries have a single GST system. But we have dual GST -
Three tier system.

In many countries having federal system, GST is levied by the

centre and then distributed to the state. In India both centre and
state have the power to levy GST.

In other countries GST covers all economic activities to be charged

with indirect tax. In India some major items are not covered by
GST.

In some countries just one GST rate applies to all activities. In

India we have 4 GST rates.