Вы находитесь на странице: 1из 77

UNIVERSITY OF MUMBAI

A Study on Impact of GST on Indian Financial Market.

A project submitted to
University of Mumbai for partial completion of the degree of
BACHELOR OF COMMERCE
(FINANCIAL MARKETS)
By
ANKUSH RAMJEET UPADHYAY
ROLL NO 49
SEMESTER VI

Under the Guidance of


CS Swapnil Shenvi

M. L. DAHANUKAR COLLEGE OF COMMERCE


VILE PARLE EAST – 400 057

1
1. TOPIC OF PROJECT REPORT:

Financial Market

2. TITLE OF PROJECT REPORT:

A study on impact of GST on Indian Financial Market

3. STUDENT DETAILS:

Name : Ankush Ramjeet Upadhyay

Roll No. : 49

Course/ Stream : BFM

(Bachelor of Financial Markets)

Semester : VI

Project Guide Name : CS Swapnil Shenvi

College Name : M. L. Dahanukar College of Commerce

Academic Year : 2019-2020

2
M.L. DAHANUKAR COLLEGE OF COMMERCE

Dixit Road, Vile Parle, East, 400 057

CERTIFICATE

This is to certify that Mr. Ankush Ramjeet Upadhyay has worked and duly
completed his project for the degree of Bachelor in Commerce (Financial Market)
under the Faculty of Commerce in the subject of Financial Market and his project
is entitled “A study on Impact of GST on Indian Financial Market” under my
supervision.

I further certify that the entire work has been done by the learner under my
guidance and that no part of it has been submitted previously for any Degree or
Diploma of any university.

It is his own work and facts reported by his personal findings and investigations.

---------------------------------------
SEAL OF THE
COLLEGE
Project Guide

(CS Swapnil Shenvi)

Date of submission

3
DECLARATION

I the undersigned Mr. Ankush Ramjeet Upadhyay here by, declare that the work
embodied in this project work titled “A study on Impact of GST on Indian
Financial Market”, forms my own contribution to the research work carried out
under the guidance of CS Swapnil Shenvi is a result of my own research work and
has not been previously submitted to any other University for any other Degree/
Diploma to this or any other University. Wherever reference has been made to
previous works of others, it has been clearly indicated as such and included in the
bibliography. I, here by further declare that all information of this document has
been obtained and presented in accordance with academic rules and ethical
conduct.

Date:

Place:

-------------------------------------------------

Mr Ankush Ramjeet Upadhyay

Certified By,

---------------------------------------------

CS Swapnil Shenvi

4
ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are so numerous and the
depth is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance
to do this project.

I would like to thank my principal, Dr. Dnyaneshwar M. Doke for providing the
necessary facilities required for completion of this project. I take this opportunity
to thank our Coordinator Mr. Sarvottam Rege, for his moral support and
guidance.

I would also like to express my sincere gratitude towards my project guide CS


Swapnil Shenvi whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference
books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly
helped me in the completion of the project especially my Parents and Peers who
supported me throughout my project.

5
INDEX:

PARTICULARS PAGE NO.


1) Introduction: 06-12

Abstract 06-07

1.1 Introduction to the study 07-08

1.2 Objectives 09

1.3 Importance 10

1.4 Research methodology 11

1.5 Limitations 12

2) Review of literature: 13-21

2.1 Introduction 13

2.2 Literature review 14

2.3 Methodology 15

2.4 GST model 16

2.5 Conclusion 17

3) Impact of gst on various sectors: 22-63

3.1 Food sector 22-26

3.2 Fast moving consumer goods (FMCG) 26-29

3.3 E- commerce 30-34

3.4 Tele-communication sector 35-37

6
3.5 Automobile industry 38-41

3.6 It sector 42-45

3.7 Hospitality sector 46-50

3.8 MSME 51-54

3.9 Indian Economy 55-58

3.10 Agriculture sector 59-62

7
6
INTRODUCTION:

Abstract:

This paper is an analysis of the impact of GST (Goods and Services Tax) on Indian Tax
Scenario. The Good and services tax (GST) is the biggest and substantial indirect tax reform
since the year 1947. The main idea of GST is to take over existing taxes like value-added tax,
excise duty, service tax and sales tax. GST will be levied on manufacturing of sales and
consumption of goods and services and is expected to address the tumble effect of the existing
tax structure and result in uniting the country economically. Its main objective is to maintain a
plebeian between the basic structure and design of the CGST, SGST and SGST between states.

GST is a new story of VAT which gives a widespread setoff for input tax credit and contains
many indirect taxes from state and national level. The main aim of GST is to create a single,
unified market which will benefit in the development of country’s economy. India is a
democratic country and therefore the GST will be implemented parallel by the central and state
governments respectively. In this article, I have discussed GST and highlighted on the objectives
of it. Consequently, I also put a light on the possible challenges, threats, and opportunities that
GST brings to strengthen the free market economy. Finally, the paper examines and draws out a
conclusion.

Indian market new tax reformed scheme was introduced to generate government’s revenue
equally between the state and centre. This scheme was introduced by the centre government
because of the conflicts made by the state governments between the state and centre. Although, it
was necessary because of various types of tax were implemented by the state governments which
varies from one state to another state of the country. Earlier policy was like a tax upon tax
implemented on the goods and services and it was again between producer and consumers,
6
which we call it as one type of monopoly, broken by the centre government. This Goods and
Service Tax introducing in Indian markets reflects on the small scale and medium scale
manufacturing units. Generally, it was a slogan “One Nation, One Tax and One Market” and
finally termed as GST.

1.1 INTRODUCTION TO THE STUDY:

GST: Goods and service tax(GST) is an indirect tax which was introduced in India on 1st July
2017 and was applicable throughout India which replaced multiple cascading taxes levied by the
central and state governments. It was introduced as the constitution (One hundred and first
Amendment) Act 2017, following the passage of constitution 122ndAmendment Bill. The GST is
governed by a GST council and its chairman is the Finance Minister of India. GST was initially
proposed to replace a slew of indirect taxes with a unified tax and was therefore set to
dramatically reshape the country’s 2 trillion dollar economy. The rate of GST in India is between
double to four times that levied in other countries like Singapore.

The GST to be demanded by the centre of intra-state supply of products as well as


administrations would be known as the Central Goods and Services Tax (CGST) and that to be
imposed by the states would be known as the State Goods and Services Tax (SGST).
Correspondingly Integrated Goods and Services Tax (IGST) will be exacted and managed by
Centre on each between state supply of products and ventures. GST is utilization based duty i.e.
the duty ought to be gotten by the state in which the merchandise or administrations are devoured
and not by the state in which such products are made. IGST is intended to guarantee consistent
stream of information assess credit starting with one state then onto the next. One state needs to

7
bargain just with the Centre government to settle the expense sums and not with each other state,
in this manner making the procedure less demanding.

8
1.2 OBJECTIVES:

 To understand the impact on both Primary as well as Secondary market.


 To understand the impact on various sectors of market.
 To understand the benefits as well as the problems faced by both small scale and large
organizations.
 To compare the expected impact with the actual impact.
 To understand impact on pricing due to subsumed taxes.
 To study the short term and long term impact of GST on Indian financial markets.
 To study the challenges and benefits of implementation of GST.

9
1.3 IMPORTANCE:

 The deeper the understanding of Indirect tax, the earlier foothold can be made over the
competitor. Hence the study is very important.
 The deeper the understanding, the earlier companies can understand the relief they get for
procurement of raw material the earlier they get the cost advantage
 The study also helps the companies to understand the tax burden on consumers which
affects the sales.
 The study will also help the companies to understand the experience and expectation of
the consumers related to the price.

10
1.4 RESEARCH METHODOLOGY:

UNIVERSE

SAMPLING METHOD 1. SIMPLE RANDOM SAMPLING


METHOD
2. CONVENIENT SAMPLING
METHOD
SAMPLE SIZE 30

METHODS OF DATA COLLECTION 1. PRIMARY


2. SECONDARY
PRIMARY DATA 1. QUESTIONAIRE
2. OBSERVATION
SECONDARY DATA 1. JOURNALS
2. MAGAZINES
3. ARTICLES
METHODS OF DATA ANALYSIS PIE CHARTS & GRAPHS

11
1.5 LIMITATIONS:

Although the study was carried out with extreme enthusiasm and careful planning there are
several limitations which handicapped the research viz.

TIME CONSTRAINTS: The time stipulated for the project to be completed is less and thus there
are chances that some information might have been left out, however due care is taken to include
all the relevant information needed.

SAMPLE SIZE: Due to time constraints the sample size was relatively small and would
definitely have been more representative if I had collected information from more respondents

ACCURACY: It is difficult to know if all the respondents gave accurate information; some
respondents tend to give misleading information.

VALIDITY: GST rates may vary in future and the policies will keep changing so data does not
provide foresee of what the impact will be on the financial markets after the changes

12
1) REVIEW OF LITERATURE:

Abstract:
GST that is Goods and Service Tax is the latest kind of Indirect Tax which is proposed to be in
force from 1st July, 2017 which is already in force on many countries around the world and they
all were considering it as their sales Tax system. The GST will be the levied on the manufacture,
sale and the consumption of goods and services in India. It is said to be the biggest form of
reform in the indirect taxation aspect ever since 1947.The council of the GST will be headed by
the Union Finance Minister that is currently Arun Jaitley. The main purpose of GST is to bring
about the single tax system for the manufacture and the sale of goods at the both central and the
state level in the country. The GST is mainly implemented to remove all other taxes like VAT
(Value-Added Tax), Excise duty and Sales Tax. The Tax will be very much useful for the
consumers in the aspects of payment of Taxes that is, we all have to pay separate tax at state
level and at central level for the goods and services purchased and after the GST there will be
only one tax to be paid for the goods and services consumed which is the Goods and Services
Tax (GST). This paper brings out about the overview of the concepts of GST and its impact and
implications on the various Industries in the Indian Economy. Through this paper we can be in a
position to understand about the concepts, objectives, impact and the implications of the Goods
and Service Tax in India.
Keywords:
Indirect Taxation, Goods and Service Tax
3.1. INTRODUCTION

GST is the crucial form of Indirect Taxation which is said to be the indirect taxation reform ever
since our Independence. The GST is said to bring about the economic integration said by our
Union Finance Minister Arun Jaitley during the Budget speech at 2016. The Goods and Service
Tax is levied on the manufacture, sale and consumption of the goods and services. Through the
implementation of GST, all other taxes like Value-added Tax, Sales Tax will be removed and a
uniform tax system on goods and services will be followed.

3.1.1 Need of the Study

GST is the concept of bringing about the uniformity in the taxation system of a country since, it
has-been in operation on many countries this is somewhat new to India. So, this enables a person
to clearly understand the concept of GST and its impact on the price of various products. This
study focus is to make a common man to have a basic idea about the Goods and Service Tax.

3.2. LITERATURE REVIEW

13
Monika Sehrawat et al. (2015) have studied about the various features and the challenges
associated with Goods and Service Tax well known as GST. They have found out that the legal
procedures in implementing, consent from all the states, proper literacy on the concept of GST
are the challenges associated with the implementation of GST.Akanksha Kurana et al. (2016)
have made a research work about the impact of GST on Indian economy. They have found out
that the GST will improve the input tax credit to the manufacturers which would result in
reduced cost of goods. They have suggested that the government must provide awareness about
the concepts of GST to the public .Garg et al. (2014) and Kumar et al. (2014) have said that the
GST has positive impact on the present scenario of Indian economy. The Indirect Taxes
Committee of Institute of Chartered Accountants of India (ICAI) has said that the Goods and
Service Tax have positive impact on Indian Tax System.

3.2.1 Research Gap


All the above Studies in GST have said only about the legal procedures and their General impact
on the Indian Consumer market as a whole. But in the Current study, the GST’s impact on
certain selected industries has been shown in specific.

3.2.2 Objectives of the Study


 This study is based on the following objectives.1.

 To study about the concepts of GST.2.

 To study about the need and the Importance of the Goods and Service Tax to the Indian
economy.3.

 To study about the impact of GST on Various sectors in Indian economy.4.

 To provide suggestions and recommendations regarding GST

3.3. METHODOLOGY

14
This study is descriptive in nature and it used the exploratory technique. The data for the study
were gathered from the secondary sources such as journals, articles published online and offline
on various newspapers and websites.
3.3.1 Legislative History of GST Bill in India
The GST Bill was initially proposed by the committee under the then Prime Minster Atal Bihari
Vajpayee during the year 2000 which headed by Asim Dasgupta, the Finance Minister of West
Bengal. Later on2004, The Kelkar Task force which was instrumental in the implementation of
Fiscal Responsibility and Budget Management Act (FRBM) Act, 2003 suggested about the
implementation of GST under the principle of VAT. On 2006, the then Finance Minister of
Union P.Chidambaram, announced the target date for the implementation of GST in India as 1st
April, 2010. During 2007, an empowered committee was formed by the finance ministers of
each state to submit the roadmap for GST and they have submitted it. On 2008, that Empowered
Committee submitted a report entitled “A Model and Roadmap for Goods and Services Tax
(GST) in India” containing the roadmap for the implementation of GST in India. They also made
some suggestions with regard to that report. Later on November 2009, the EC submitted the first
paper and conducted a debate with regard to gather the opinion of all stakeholders. In 2010, the
then finance minister Pranab Mukarjee assured that effective implementation of GST Billon
April 1, 2011. And on 2011 the 115 Amendment Bill was passed in Lok Sabha in order to
implement the GST Bill for certain goods and services and it was sent to the standing committee.
In 2013 the standing committee submitted its report. But later it was lapsed due to some political
discrepancies. On 2014, Union Finance Minister Arun Jaitley has passed a 122 Amendment on
December 17, 2014.Later, on the budget the Finance Minister said that the Bill will be passed on
1 st April 2016, and which could not happen and as of during the budget of 2016, Arun Jaitley
said that the GST bill will be implemented through the One Hundred and One Amendment Bill
officially known as The Constitution (One Hundred and One) Amendment Act 2016 will be in
force from 1st
July, 2017.Since, then though there were many changes in the GST date of implementation But,
the Government finalized its implementation from the July 1, 2017.

3.3.2 Concept Overview - GST at a glance


Goods and Service Tax – Explained

The GST is the proposed Indirect tax system which is levied on the manufacture, sale and the
consumption of goods and services. It will replace all the indirect tax systems such as sales tax
and value added tax. The main purpose of GST is to bring about the single uniform system of
taxation in the manufacture, sale and the consumption of goods and services in India. The GST is
said to reduce the level of Tax evasion and the corruption and it also reduces the tax burden of
the public.

15
3.3.3 Objectives of GST
1. To remove the cascading effect of taxes that is through this Single taxation system (GST)
the tax on taxes will be removed easily.
2. To reduce the Tax evasion and Corruption.
3. To bring about the consumption based tax instead of manufacturing.
4. To absorb various Indirect taxes and to bring a single system of taxation.
5. To remove the prices of goods by having an uniform system of taxation over the country..
6. To increase the GDP by the exclusion of cascading effects of Taxation.

3.4. GST MODEL


The GST model consists of three components. They are as follows Central GST, State GST,
Dual GST
Central GST
Goods and Service Tax to be levied at the centre
State GST
GST levied at the state level
Dual GST
GST to be levied at the State and Centre concurrently
3.4.1 Proposed GST Rate
The rate of the proposed Goods and Services Tax for the certain goods and services are laid
down by the government which is as follows.

1. For Goods the Total GST rate is 20 % in which 12% of the tax is levied by Central while
remaining 8%will be levied by the state
2. For Services the Total GST is 16% out of which 8% is for the Central and 8% is for the
state.3.
3. For the essential Goods the GST is levied at 12% in which is divided equally that is 6% for
Centre and6% for state.

Currently, it is collected in the form of VAT which is 26.5% that is Central Value Added Tax is
14%and State VAT is 12.5%.The above mentioned percentage of Goods and Service Tax is just
a proposed value it may subject to change as per the revisions make up by the Executive
Committee and the government.

16
3.4.2. Need and Importance for GST
 To bring about the uniformity in the System of Indirect taxation.
 To remove the cascading effects of Tax.
 To bring about the economic integration. Generally, the Taxes are imposed at various
rates among various states in India. So there is a huge loss of revenue to the central as
well as state government. Through GST a uniform tax rate is followed all over the
country and so that there will no such loss of revenue.
 Reduces complexities and increases more number of economic transactions.
 The GST brings about a competitive pricing. As all the products are taxed uniformly
across the country, the various forms of indirect taxes will remove and which in turn will
reduce the tax burden of the consumers. This will reduce the prices of the products and
increases the consumption which in turn will be more beneficial for the companies.
 Generally, the main aim of GST is to bring about the single tax system which will reduce
the cost of production for the manufacturers, So that it will be a big boost for those
producers who made their products at lower cost and involves in international trade that
is exports.
 As it is the Single Tax system, the tax burden for starting industrial units will be reduced;
As a result when more industries were created it will ultimately result on more
employment.
 Through GST the government receives more amount of Tax revenue which will be
utilized for the services to the public
 As there is more transparency in the system of GST and since it is a system of single
taxation, the chances of corruption will be very low.
 The Country is said to have one market economy, as through GST the number of
numerous markets divided by various tax will be avoided. To avoid the Tax burden of the
common consumers and the public by making it into a single tax system.

3.4.3 Impact of GST on Various Sectors


The GST is said to have a positive impact on the economy as a whole. But when it comes to
sectoral-wise classification, the GST have both positive as well as negative impact on each of the
sectors. Here are some sectors given and its GST is given below
1. Technology (Information technology and ITeS)

The GST system of indirect taxation has made the duty on the manufacturing goods from 14% to
18-20%. As a result, the prices of the software products will be at high which will give either a
neutral or slightly negative impact on the Technology Sector as a whole. But they will be

17
benefited through the reduction of tax and benefits of other industries and can somewhat mitigate
it.
2. Telecommunications

The telecommunications sector is presently paying the tax at the rate of 14% which is expected
to be increased during the GST regime. And, it is assumed to be around 18% which will be
expected to be passed over to the customers and this gives a picture that GST will adversely
affect this sector. Through the GST regime there will be huge changes in the telecom industry.
3. Pharmaceuticals

Presently, the Pharmacy companies are paying taxes around 15-20%. Since, there is no clear
picture of tax treatment for Pharmacy if it is less than 15% it would be a positive impact on the
Sector but if it is above 15%then it will cause some slight negative impact.
4. Automobiles

The Automobile industry is currently paying a tax rate of a range between 30-45%. And it is
expected that after GST the rate will be around 18% which will be a huge positive for the
automobile industry and which will be profitable to both the Manufacturers/ dealers and the
ultimate consumers. The standard and the social status of the consumers get uplifted. There will
be a huge boom in the Automobile Industry as a result of implementation of Goods and Services
Tax.
5. Financial Services

The Financial services such as banking, Stock Trading firms are currently paying 14.5% as VAT
which is likely to be increased to 18 to 22% in the near future under the GST regime. And the
services are likely to be costlier.
6. Textiles

Currently, the Textile industry is paying the tax at the rate of nearly 12.5% plus surcharges and
which varies upon the MRP of the products. Since there is no clear idea about the tax rate of this
industry under the regime of GST it is expected at the rates of 15% which will be having a
moderate impact on the industry. This moderate impact may either be neutral or slightly negative
when compared to the other present system of taxation. But they will be benefited through the
reduction of cost in transportation, savings etc.
7. Media and Entertainment

The tax rate for the Media is around 22% as of now and since the authority for the levy of taxes
remains to be the right of the local bodies, it is expected that the cinema fares are expected to
come down after the GST regime and the cost of DTH and cable television services are likely to
become costlier. There is somewhat either neutral or slightly negative impact of GST on the
Media and Entertainment Industry.

18
8. Consumer durables

The current of tax rate of this industry is around the range between 23- 25 percent. And under the
GST regime it is considered to be lower around 15

18% which will be positive impact to this industry.
9. Cement

The cement industry currently pays the tax at the rate of 25% currently. And, after the GST
regime, it is expected to be fixed at the rate of 18 to 20%. This will be a major relief for the
companies of that industry. And the logistics tax also is to be reduced; it would be a double
benefit for all the industries involved in manufacturing.
10. Real estate

Real estate contributes about nearly 7.3% of India’s GDP and it is the generator of employment
immediately after IT. Real estate is said to get a positive impact under the GST regime
immediately after its implementation. It is expected that since there is a single system of
Taxation under GST, all other forms of indirect taxation will be removed which results on
reduction of property prices and the cost of construction. Thus, we can have a positive impact of
GST on the Real estate sector.
3.4.4 Problems in Implementing GST
There are certain challenges and problems in implementing the GST in India. Some of them are
as follows.
1. There is no such clear picture about the GST both to the government and to the general
public.
2. There is no cooperation between the Central government and the state government in
implementing the GST. Even though, if implemented the levy of Tax remains on the part
of the state.
3. The State government generally refuses to accept it. As the states levy taxes on the
Destination principle i.e. (the state in which the product or service is sold or rendered), so
in order to lose the revenue they were avoiding it
4. The Revenue Neutral Rate (RNR) is the key factor responsible for the effective
implementation of GST. But under GST, we could not say that the revenue remains same
as that of the current system of taxation.
5. Loss of revenue to the state. If we buy any product the VAT @ 14.5% is included
towards it, after the GST regime, there will be no VAT then it results on the loss of
revenue to the state.
6. Even though the government said that they will pay the loss of revenue to the state
government, it will be again imposed on the general people in some other forms.

19
7. It involves massive cost on the training of the staff of the Taxation department.
8. Lack of political support. The Bill must be passed in the Rajya Sabha for its successful
implementation.
9. IT is the backbone of GST which would connect the various stakeholders through the
Virtual platform. So, government must show keen interest on the development of portal
for GST and successfully achieves it.
10. There is a large debatable question in implementing the GST such as whether the small
entrepreneurs and small firms will be helpful through the GST regime? , whether the
government and the Public ready for such a change? Are some of the questions which are
highly in confused dilemma?

3.4.5 Suggestions and Recommendations


To provide literacy and awareness about the GST Effective spending on efficient Tax
administration staff Well maintenance and frequent follow ups of GSTN (Goods and Service Tax
Network) portal for better relationship with various stakeholders.In order to avoid the
unnecessary loss of revenue to the state government, the central government may think about the
considerable percentage of GST which will be helpful for all stakeholders of GST. Consent from
all states and suggestions from every state for betterment of GST and the source of Tax revenue.
The government should take care about the RNR which should not affect the tax revenue to any
government either central or state. The loss of Tax revenue should be managed and compensated
properly through proper diversification of funds without burden to anyone. The Central and the
State government should be in proper understanding and cooperative with each other for the
successful implementation of GST. All the Tax Professionals and general merchants involved in
the Business should be given training and basic knowledge about the Goods and Services Tax.

3.5. CONCLUSION
The GST is very crucial tax reform since independence of India, so it must be better handled
with utmost care and analyzed well before implementing it. And, the government both central
and state have to conduct awareness programmes and various literacy programmes about GST to
its various stakeholders.

3.5.1 Limitations of the Study


1. The study is completely based on the secondary sources
2. No Quantitative data were collected.
3. The Study is not based on the research.

3.5.2 Directions of Future Research

20
This study provides way for the future researchers, students and academicians to have an
understanding of the concept of the GST and through this any researcher can identify, analyze
the changes in the GST future rates with that of the present rates.

3.5.3 Implications of the Study


The Study shows a clear understanding about the rates of the GST which is proposed to have a
different impact on the future days to come. But, through this study a common understanding
have been made to the public on understanding the concept of GST.

2) IMPACT OF GST ON VARIOUS SECTORS:

3.1 Food sector:


The Indian restaurant business nowadays, is price a staggering INR 247,680 crores and is
developing at a yearly rate of 11 November – calculable to hit INR 408,040 crores by 2018.
National restaurant Association of India Food Service Report 2016 estimates that by 2021
restaurant industry will alone contribute 2.1% to the GDP of India. The total food service market
today stands at INR 3.09 lakh crores and has grown at 7.7% since 2013. This is projected to
grow to INR 4.98 lakh crores at CAGR of 10% by 2021. This year alone the Indian restaurant
sector will create direct employment for 5.8 million people and contribute a whooping INR
22,400 crores by way of taxes to the Indian economy. Post GST, the government is seeing the

21
chance to come up with an extra assortment of INR 17,000 – 26,000 crores through nearer
monitoring of tax levy and assortment from the unorganized section. In short, the restaurant
business is clearly a hot section, and this needs an in depth insight on the impact of GST on
restaurants and also the associated stakeholders – both owners, yet as food-lovers across the
nation who step out to dine once in an exceedingly while. GST tax system would affect the
restaurants and food service business in many ways such as:
 Before GST implementation the hospitality and restaurant industry was overwhelmed
by multiple taxes (Service tax, VAT and luxury tax). In Food and beverages bills,
service tax is applied on 40% of the bill or 5.8% apart from VAT. In case of social
functions the applicable service tax rate after 30% abatement is 10.15%.
 Under GST, uniformity of tax rates and applicability of single rate is the single
largest advantage. GST helps in better utilization of input credit and it also benefits to
end user in terms of lower prices. GST helps restaurants industry in attracting more
and more customers and also leads to enhanced revenues to the government.
 With the growing organized food services industry and coming up of new food
ordering and delivery start-ups, the market is worth 2.5 Lakh crore and would
contribute significantly to the revenues of the country.
 Goods and Services Tax would be collected at every stage of selling and buying of
goods or services based on the input tax credit method. This method will allows GST-
registered businesses to claim tax credit to the value of GST they paid on buying of
goods or services as part of their normal viable activity.
 Taxable product and services aren’t distinguished from each other and are taxed at
one rate during a provide chain until the products or services reach the buyer.
Administrative responsibility would typically rest with one authority to levy tax on
product and services. Exports would be zero-rated and imports would be levied
constant taxes as domestic product and services adhering to the destination principle.

The introduction of goods and Services Tax (GST) would be a major step within the
reform of indirect taxation in India. Amalgamating many Central and State taxes into one
tax would mitigate cascading or double taxation, facilitating a standard national market.

22
The simplicity of the tax ought to cause easier administration and enforcement. From the
buyer point of view, the most important advantage would be in terms of a reduction within the
overall tax burden on product, that is presently calculable at 25%-30%, free movement of
products from one state to a different without stopping at state borders for hours for payment
of state tax or entry tax and reduction in paperwork to an oversized extent.

3.1.1. Pre-GST Mechanism of Restaurants and Food Service Businesses:

Before implementation of GST, Value Added Tax (VAT) system was applied in all the
sectors of the economy. Value Added Tax (VAT) is levied on things that are sold-out in an
improved form, where value is added to an item before it’s sold-out to you. One has to pay
VAT on product and services at varied stages of their production, distribution and sale. In
restaurants, VAT isn’t indictable on pre-packaged things like drinkable, bottled alcohol and
food. However it’s applicable on food and drinks prepared within the restaurant kitchens.
VAT varies from state to state, and even inside the states, it differs based on the sort of
product. It could be anywhere between 5 to 20

 VAT is leviable @5% on cooked foods and snacks provided by a restaurant.


 VAT is leviable @20% on Cold drinks and @14% on alternative non food items.
 Entry Tax is additionally payable @1% on staple and incidental product utilized in the
manufacture of cooked food.
 Luxury Tax is additionally payable by out of doors caterers @10% underneath LEAT
Act with the sale price being deducted on that tax is vulnerable to be duly submitted
under MPVAT Act here hospitals and academic institutions are exempted.
 Under MP VAT Act tax on sale of alcoholic liquor to customers is levied @ 5%

Service tax is charged 14% and in tandeur with Swachh India cess of 0.5% the amount
adds up to 14.5% for us. With addition to Krishi Kalyan Cess of 0.5% from 1 June 2016 to
this would create overall 15 % of the service tax. Ideally, service tax ought to be
obligatory solely on 400th of the value of the bill that is assumed to be the quality service
expense, as opposed to the remaining 60 minutes that’s the staple of the food and
beverages ordered by the client. This implies that the service tax is indictable solely on

23
400th of the bill and not on the complete quantity. Thus on the complete bill, the service
tax chargeable are 5.8% (6% from June 1).

A dealer with turnover up to `1 crore per year elect composition scheme under preview of
MPVAT and susceptible for payment of composition money @ 3% on cooked food
manufactured turnover while not the facility of input tax rebate facility. Composite dealers are
not entitled to input tax rebate.

3.1.2 Post-GST Mechanism of Restaurants and Food Service Businesses:

This new tax regime divides the product into 5 categories those that are excluded from tax,
5%, 12%, 18% and 28%. Dinning at a restaurant was much simpler prior to GST enrolment.
There we’ve got our food, we have a tendency to pay the bill and we leave. Back then, we had
to pay 3 further charges: the service charge, Service tax and value added tax (VAT). However,
lack of data regarding GST, given a chance for restaurant owners to dupe any customers by
making them pay additional. To lead on smarter front here’s what customers ought to
understand.

Firstly the charge collected as service charge isn’t a tax. The restaurants do not levy service
charge by government order, they conduct it on their own. However if customer don’t wish to
pay, they don’t need to. It’s utterly customer’s decision whether or not they wish to pay the
charge or not. If restaurants forcing a customer to pay service charge it is susceptible for being
sued under a consumer court.

On the tax front, you’ve got to pay two taxes: service tax and value added tax. GST has
subsumed both of these taxes and replaced them. For eating in Non-AC restaurant, tax of pay
12%is to be paid. This 12% comprises of 6% as Central GST and 6% State GST. Local
delivery restaurants are under the same rates. However, if you’re in an AC restaurant,
irrespective of the fact that alcohol is served or not, a total of 18% of the tax is paid.

All pre-processed and packaged food/snack sold out from restaurant seek 12% tax from
customers. The restaurants having license to serve liquor (with full ITC) can levy a tax of 18

24
per cent, whereas those not having the facility of air-conditioning or heating system at any
time throughout the year and not having license to serve liquor (with full ITC) can levy tax of
12 per cent. The 5-star hotels can come back under the highest slab of 28 per cent GST. The
6% service tax on liquor across segments has been effectively withdrawn.

Under GST, the restaurant business shall be susceptible for tax payment on provides from
persons without registration under mechanism (RCM) because the restaurant owners need to
create lots of provides from unregistered persons. Under the VAT purchases made of
unregistered persons the composite holder aren’t susceptible to pay tax. For the real profit, `75
lakh for composition is too low. Under VAT with higher limits the restaurants are enjoying
lower tax rates. Hoteliers and Restaurant service suppliers are to face a hard time under GST
regime as outward supplies suspected to higher burden of taxation. There will even be
problems with GST regime regarding compliances, wherever the supplier is expected to
maintain accounts and documents systematically to say Input tax credit and conjointly suits
the various specifications of GST laws.

3.2. Impact of GST on FMCG:

25
After Demonetization, GST has been one of the biggest transformations that India has seen in
years. Amidst the hustle bustle going around the nation, GST became a game changer for the
Indian Economy, certainly affecting the “Aam Aadmi” to the Business Entrepreneurs as well.
From boosting up the consumer goods-industry (FMCG Industry) to bring forth varied benefits
to the economy, the new Goods and Services Tax (GST) regime can make the market go up
within the shortest time.

It is quite evident that GST has made a visible change in the Indian Economy and FMCG, fourth
largest sector in the economy, is amidst one of them to witness the same. The fact is undeniable
that FMCG is one of the fastest growing sectors of the Indian Economy. VAT, Service Tax,
Excise duty, Central sales tax etc have to be paid by the FMCG Sector under the current GST
Regime. The Consumer Packed Goods or we can say the FMCG (Fast Moving Consumer
Goods) current tax rate is nearly 22-24%; though the expected rate is 18-20%, which would be
highly greeted by the major FMCG industry players. For CST, CVD, and SAD there was no
credit available under the current tax regime; contrary to that, GST would include the input
credit for all the GST payments made in the course of business.

3.2.1 Fall in the Logistics Cost:

26
The benefit under the GST Regime would be visible and considerable saving amount of expenses
on logistics can be seen in FMCG Industry. The total cost of the distribution of the FMCG
industry sums up to 2-7%, which might fall to 1.5% after the complete implementation of GST.
A huge impact and change will be seen in terms of cost reduction owing to the payment of tax,
smoother supply chain management, removal of CST, claiming input credit, under the GST
Scenario. The result will lead to cheaper consumer goods.

3.2.2. Warehouse:

27
Many of the companies, according to their convenience and to enjoy a lot of tax
benefits/holidays/exemptions, under the current tax regime set up their warehouses in the states
like Himachal Pradesh and Uttaranchal. The dilemma is still there, to whether all the tax
holidays, benefits and exemptions would be there or not, once GST is implemented. Since the
costing is one of the major parts of any company, thus, major companies like ITC, Hindustan
Unilever, Nestle, Dabur & Cadbury are still anxious regarding the migration of Tax
holidays/exemptions.

3.2.3 Inflation in the Effective Tax Rate:

Aerated beverages have been given the highest rate slab of 28% under GST, with an additional
tax of 12%. According to the varied Beverage companies, 40% is the effective tax rate for the
sweetened aerated water and flavored water, which is not in line with the stated policy of
maintaining uniformity with the existing weighted average tax that is below 40%. This has been
very disappointing for varied companies like Coca-Cola India, Dabur India Ltd, Red Bull India
Pvt. Ltd, Pepsi Co India Holdings Pvt. Ltd, and Pearl Drinks Ltd, as stated by the Indian
Beverages Association (IBA).

Estimates by Euro ministers International, a market research firm, states that Carbonated
Beverages in Indian Market is projected to grow by 3.7% every year between 2017 and 2021. A
different study shows by research firm Nielsen, a consumption of 5.9 billion liters of soft drinks
was seen in the year 2015.

28
3.2.4 GST Beneficiaries

The products that are widely consumed inclusive of toothpaste, hair oil, soaps, all have been
enclosed in the 18% slab, which is lower than the 22-24% tax rate. Keeping the Frozen
Vegetables and Branded Cheese have been under the 5% rate list that are largely neutral with the
previous rates were around 3-4%. Cereals have been exempted, so are likely to become more
affordable. Being already in the bracket of 4-6%, Coffee, Tea, and Sugar have not seen any
impact on the prices. Most of all items are in the 18% tax bracket or might be below that. The
minor category falls in the 28% tax slab.

29
3.3 Impact of GST on E commerce:

As per the study conducted by the Internet and Mobile Association of India, the e-commerce
market is estimated to have crossed Rs. 211,005 Crore in December 2016, followed by a report
that online retail revenue of $100 billion is expected to be generated by the year 2020.

The pace, with which the Electronic Commerce in India has grown, resulted in the conception of
online marketplaces. An e-commerce platform owned by the E-commerce Operator inclusive of
the Flipkart, Snapdeal and Amazon are included in the marketplace. Scroll down to see some of
the features of a marketplace model:

 Allows Third-party Sellers to register and simultaneously selling online on their platform.

 Benefit for the third-party sellers as they gain access to larger customer base that are
registered with the marketplace.

 Items purchased by the customers on such platforms/marketplaces are either shipped by


the third party seller /merchant or through the well-curated fulfilment centre managed by
the Marketplace Operator.

 Such marketplaces charge a subscription fee on the sale value from listed sellers.

 Customers gain access to varied sellers and prices for desired products.

30
An initiative taken by government to allow foreign direct investments under this kind of model
to promote the e-commerce marketplace business:

The emerging dominance of the marketplaces has provided retailers with an additional channel
of sales and reaches which was beyond belief for an offline user. A huge section of sellers along
with the millions of Stock Keeping Units (SKUs) are affiliated with the marketplaces. Specific to
this section, GST has come up with its own rules and regulations as well, since there is a
significant increase in the number of sellers and their business.

3.3.1 Issues That are been Faced in the GST Scenario

Key Issues

Higher Compliance Costs:

With the introduction of the Model GST Law, the same casts an obligation on every electronic
commerce operator for the collection of tax at source and deposit applicable GST when the
payments are to be made to the suppliers. These scenarios will surly increase the responsibility
and the burden on electronic commerce operators owing to their large vendor base. Since, the
current GST regime considers the e-commerce players as services providers and thus are
required to comply with one central services tax -legislation. Under GST, additional compliances

31
will also be required by the electronic commerce operators, in the state where the supplier is
located.

Availability of Credit only when Tax is paid:

The Credit can only be claimed on taxes that have to be paid to the credit of the government.

Tax on the Stock Transfers:

With the implementation of GST, under this model, some of the specific transactions without the
considerations would also be treated as supplies. Subject to GST, the Intra-state and inter-state
stock transfers, amidst the branches/warehouses of a single e-commerce unit, would be deemed
to be supplies; though the tax paid would be available as credit to the entity, hence resulting in
cash flow blockages.

Discounts on Pre-Supply:

Discounts at the time of supply or even before that, which are permitted in the normal course of
trade practice and reflected in invoices will not be a part of the transaction value.

32
Discounts on Post-Supply:

Discounts on after effective supply are included in the 'transaction value' only in cases where
such post-sale discount, as per agreement, is known at or before the time of supply, and
specifically linked to relevant invoices. Under the VAT Regime, VAT authorities are focused on
insisting to include these discounts in the assessable value and e-commerce retailers in general,
so as to avoid disputes on the charge VAT on non-discounted price.

With the introduction of the regulations requirements, the online seller community has
compelled the same to embrace GST regime. Scroll down to check the compliance:

 No threshold for GST registration

 No Benefit under Composition Scheme

 Tax Collection at Source by Marketplace Operator

The government has taken steps to simplify the tax constitution by the introduction of GST &
promoting trade followed by keeping a check on tax evasion. Scroll to know how
Implementation of GST will impact E-commerce marketplaces:

 Standard Pricing with Standard taxes

 Blocked Working Capital issue faced by Online marketplaces

33
 Separating out Unregistered merchants from e-commerce

 Compliance issue in case of returns and refunds

Winding Up:

GST may bring greater compliances for e-commerce players, along with this comes significant
benefits. The removal of restrictions on cross utilization of credits will show a significant gain in
the e-commerce sector. At present, the credit of service tax paid on input services such as
warehousing, logistics and commission of marketplace has been denied by the traders,
simultaneously the claim credit of VAT paid on goods that are used for providing output services
has not been allowed by the service providers. The cascading effect results in a significant
blocked unit tax cost for this sector due to the fact that VAT is applicable on the output side,
while most input costs are services. But flipping the coin, this will surely result in the reduction
of cascading effect of taxes.

In the present scenario, there are differential rates of VAT in different states even for the same
products along with the further fragmenting of VAT Rate as well. However, the rates at Central
and State Level are expected to be uniform that would ultimately reduce the disputes.

34
3.4 Impact of GST on telecom sector:

India's telecom industry has created nothing short of a revolution when it comes to connecting
the country. India had 1 billion active mobile connections in January 2018 and as per a survey
conducted by IMAI-Kantar IMRB, mobile internet users are expected to reach 500 million by
June 2018.

However, over the last few years, the industry has been hit with a double whammy. First, the
entry of Reliance's Jio led to a shakeout with several small players exiting the business and a
squeeze on operator margins. More recently, the introduction of the Goods and Services Tax in
2017 led to collective groans as the GST rate on the telecom industry was set at 18%, 3% more
than the 15% paid under the previous tax regime. While the headline rate is high, Central
Telecom Minister Manoj Sinha had stated that the tax rate after accounting for input credits will
be closer to 16%. Telecom operators have so far been compelled to absorb the costs due to the
aforementioned hypercompetitive conditions. The additional compliance load on the service
providers is also quite extensive for the players to be unenthusiastic about the new tax regime.

35
The Effect of GST on the Telecom Industry can be mainly classified under additional monetary
costs and compliance procedures.

3.4.1 Monetary Impact

Fuel not under GST

India's 75% of cell towers are still run on diesel. Diesel attracts taxes of ~100% and hence is a
huge component of the fuel costs. Since fuel has been kept outside the ambit of GST, India's
telecom infrastructure companies cannot set-off their tax liabilities against the taxes paid on fuel.

Liabilities due to Reverse Charge Mechanism (RCM)

As per the GST provisions on RCM, if a registered dealer purchases goods or services of more
then Rs 5,000 per day from an Unregistered Dealer (URD) within the state, the registered dealer
is liable to pay GST on behalf of the URD. While this provision has been suspended up to 30th
June 2018, if implemented, it puts a substantial monetary and compliance cost on large registered
dealers and especially for telcos as they regularly employ services of small dealers for the
maintenance of cell towers.

Compliance Impact

Circle vs. State

Telcos are required to acquire licenses from the Department of Telecom for providing various
services. While International Long Distance (ILD) and National Long Distance (NLD) licenses
are provided on a pan-India basis, some telephone licenses are provided on a circle basis. These

36
circles may include several states or parts of them. For example, Mumbai city is one circle while
Maharashtra & Goa (ex-Mumbai) is a separate circle. Companies so far have maintained circle-
wise accounts to accurately account for license charges, fees, etc. To comply with the GST tax
filing rules, they have had to change their accounting and apportion costs and fees.

Filing Tax Returns in Every State of Operations

Previously, each telecom operator had one central tax registration number and filed returns 2-3
times a year. However, under the GST norms, telecom operators are required to obtain a GST
Registration Number for each of the states they have operations in and file 2-3 returns in every
state per month.

Disparities between TRAI and GST

There are some disparities in certain Trai provisions and the GST law. For Example, if a prepaid
customer buys a recharge card outside his 'home' circle, as per GST, the service is deemed to be
provided in the 'roaming' circle and should be accounted there. However, as per the Telecom
Regulatory Authority of India (TRAI), the service should be recognized in the 'home' circle. This
lack of clarity in addition to the overlap in states and circles mentioned above is a messy tangle
to unravel.

GST Solutions for Business Managers

We understand that although GST was rolled out a year back, the numerous requirements are
bound to make a business-owner or the one implementing its provisions to become nervous. Do
get in touch with us if you want any additional clarification on the Effects of GST on the
Telecom Industry or a complete solution for all your compliance requirements.

37
3.5 Impact on Automobile sector:

Before GST implementation and unification of taxes, we had a series of indirect taxes in India,
wherein every state had their own indirect tax structure. Now, after GST implementation, all
these taxes have been subsumed to one tax.

Impact of GST on automobile sector particularly is considered as a positive thing as


manufacturers of automobiles will have to pay reduced taxes and ultimately customers will also
be benefited. Before GST, various taxes such as sales tax, road tax, sector tax, VAT, motor
vehicle tax, registration duty, etc. were imposed. All of these have been subsumed to GST on
automobile services.

3.5.1 GST Impact on Automobile Sector

GST tax on automobiles has significantly reduced the cost of transporting goods, as
transportation anywhere in India doesn’t pass through check posts or various taxes. It has, in fact,
reduced the price of automobiles across the country when compared to the prices before GST.

38
1. Reduced Operational Cost

CST or central state tax, which was applied when there was an interstate sale, has been
eliminated. There is no longer need for automobile companies to maintain different warehouses
at different locations. They can join various warehouses and enjoy low operating cost. Further,
taxes paid on advertising, promotions, and other overhead come under input credit tax, which
will lead to an additional decrease in operational cost.

2. Effect on Working Capital

Although operational cost is reduced, GST tax on automobiles has increased dealers' concerns
and here’s why this has happened:

Whenever any vehicle is transferred, GST is cleared and capital is locked as the supply is taxable
with GST. Now, the dealer needs to pay the GST on the exact day as the reception of advance.
However, this will also make dealers more cautious to avoid hurting their outflow.

Another way GST will affect dealers is by cash lock-on free services. Many automobile
manufacturers provide free services or warranty cards at the time of sales in form of customer
benefits. Dealers will have to pay the GST on these at the time of issue but the customers may
redeem these services any time later.

39
3.5.2 GST Rate on Automobiles

GST rate on automobiles is calculated with the fixed base rate of 28% on all cars with additional
cess slabs such as 1%, 3%, 15%, 17%, 20%, and 22%. Both the cess and base rate
together impacts GST rate on the automobile sector.

1. Two-Wheelers

GST impact on two-wheelers is rather low as the 350 cc or below engine is taxed in 28% slab
and engine above 350 cc is charged with 31% tax.

2. Commercial Vehicles

Most of the commercial vehicles fall under 28% tax, which was earlier 30.2%. However,
minibuses have been greatly affected as these fall in 15% cess slab, which makes the tax 43%.
While most commercial vehicles have seen a negligible effect after GST implementation, GST
on 13 passenger minibuses has raised concerns.

3. Luxury Car

Luxury car tax scenario has seen good times with GST as these cars are taxed at 42-45%. But,
this was previously 50% or more than that. So, the overall tax has reduced for luxury cars.

4. Small Cars

Small cars have not been highly affected by GST implementation as earlier the tax rate was 29%
which included every tax including VAT. But, after GST, it is 28% and cess is 1%.

5. Hybrid Cars

The major GST effect on automobile industry can be seen in hybrid cars, as these are taxed 28%
with additional 15% cess. Previously, hybrid cars were taxed at 30% only.

40
6. Spare Parts

Spare parts are taxed with the highest rate in the slab of 28% while previously it was just 12%,
which makes the current tax charges more than double of what was charged before.

Before and After GST Tax Rates on Automobile Industry

Category Before GST After GST

Two wheelers 30.2% 28-31%

Commercial vehicles 30.2% 28%

Luxury cars 50% 42-45%

Small cars 24-25% 29-31%

Hybrid cars 30% 43%

Spare parts 12% 28%

GST: A Positive Impact

The overall effect of GST on the automobile industry is positive, as, on a whole, it has reduced
the rate. Further, GST has enhanced the manufacturing of automobiles by reducing taxes to one
and made the taxation system less complicated than before.

41
3.6 Impact on IT sector:

GST being locked at 18% on the IT sector in India has created ripples of change in this industry.
The new tax system has amalgamated service tax, vat, and excise duty under one entity.
Consequently, there are several benefits of GST on the IT sector. Although the tax system has
been simplified with the elimination of cascading taxes, understanding the impacts of GST on
this sector is necessary to know how it will affect businesses.

3.6.1 Eradication of Multiple Taxation

The previous tax system posed many challenges for the IT Sector. For example, software is listed
under both a good and a service. Therefore, IT companies were expected to pay both VAT and
service tax. With the commencement of the current GST rate on IT, businesses will be required
to pay a standard single tax, which will reduce the confusion as well as sum up to approximately
the same amount that they paid earlier.

42
2. Freelance IT Service Providers

The service tax that was originally 15%, after the implementation of GST has become 18% for
freelancers who offer IT services. This has created a financial disbalance in their annual
taxations. The GST rate on IT services maintains a certain ambiguity in its tax structure for
bloggers. While bloggers are required to register for taxation, as opposed to the previous tax
system, those earning under INR 20 lakh annually may not have to pay anything. This system is
questionable for those who are freelance bloggers who also provide IT services. Whether this
section has to register under GST or not is still undeclared.

3. E-commerce Sellers

The GST impact on IT sector requires all e-commerce businesses to pay taxes, regardless of what
their annual turnover is. This will force small businesses to reduce their cap on profit even during
the initial phase, given that the profit margins are usually low during that period.

4. Business Opportunities for Software Companies

Due to the advancement in the digital sector, the government has provided online registration for
GST. The GST effects on the IT industry has paved a way for IT companies to obtain contracts

43
for creating GST software from sectors dealing with finance. One of the best examples of this is
Infosys that made more than Rs. 1,300 crores from GSTN. The government has been seen
creating lots of opportunities for not only the big but also the small corporations when it comes
to going digital.

5. Infrastructure Expenses and Credit Claims

While businesses are making haste for their ERPs to comply with the new GST on Information
Technology, they are spending more on the company’s infrastructure. The previous tax system
did not allow businesses to claim credits for maintaining a quality working environment. Quality
infrastructure and other facilities were all categorized under aesthetics. However, the new GST
system will allow IT service providers to claim full refunds on annual maintenance services.

6. Uniform Tax for all States

Services tax was obtained unevenly from different states owing to the previous taxation policies
that varied for each state. Post its implementation, the GST impacts on the service sector entitles
states like Jammu and Kashmir to pay service tax, too. IT companies in these areas will have to
follow the new tax structure to run legally.

7. Software Reform

IT companies have realized the need for having software that would be equipped to calculate
GST according to the new rules laid down by the government. This means that the IT industry
would have to change or upgrade their systems to comply with the terms of the new policies,
incurring huge expenditures.

44
8. Coping up with GST

It can be concluded that the IT sector is going to have an almost grey experience with GST.
However, even with 18% tax, the IT industry is predicted to grow exponentially. After carefully
analyzing how GST impacts the IT sector in India, GST appears to be just another economic
reform that will be easier to cope with in due time. If you, too, are finding it difficult to cope, it is
suggested that you look for Web GST Software that simplifies GST for all kinds of businesses.
With dynamic GST computation, Web GST Software is a personal accountant that keeps your
GST in check.

45
3.7 Impact on Hospitality sector:

According to a report, demystifying the Indian Online Traveler, Indian hotel industry is expected
to observe a growth of USD 13 billion by the year 2020. Another data says that foreign tourist
arrival (FTA) observed an increase to 10.66 Lakh in January 2018 as compared to 9.83 Lakh in
January 2017.

Both the statistics show that the Indian hotel industry is one of the fastest growing sectors of the
country. However, GST impact on hospitality sector is both good and bad. On the one hand, it is
expected to attract more customers because of decreased rates for end-users. On the other hand,
the complicated compliance structure is being frowned upon.

Although the unified tax regime may have long-term benefits, it is still receiving high criticism
from around the country. Most of the hotels have to pay 18% GST, which is the second highest
tax slab available.

Although the unified tax regime may have long-term benefits, it is still receiving high criticism
from around the country. Most of the hotels have to pay 18% GST, which is the second highest
tax slab available.

46
1. Hospitality Sector Tax before GST Implementation

Before GST implementation, a hotel room that had tariff more than INR 1,000 came under
service tax of 15%. After abatement, this value was brought to somewhere around 8-10%. Then,
Value Added Tax (VAT), which ranges from 12% -14.5%, along with luxury tax, was applied on
this price. Similarly, for restaurants, service tax after abatement was 6% and VAT was applied
above it.

2. Impact of GST on the Hospitality Sector

GST's impact on the hospitality sector is overall positive, as with reduced end-user costs, the
industry will likely attract more customers and tourists. Additionally, the regime is expected to
improve government’s revenue. It will have a long-term positive impact, and the tax structure
will be further simplified for end-customers as well as hotels.

One-Night Tariff GST Rate

Less Than INR 1,000 Not applicable

INR 1,000 To 2,500 12%

INR 2,500 To 7,500 18%

More Than INR 7,500 28%

3. Understanding GST Regime with an Example


47
Room Details Pre GST Post GST

Charges Or Tariff INR 2,000 INR 2,000

8% Luxury Charge INR 160 -

9% Service Tax INR 180 -

12% GST Tax - INR 240

Final Amount INR 2,340 INR 2,240

48
4. Benefits of GST on the Hospitality Sector

 With the removal of multiple taxes and VAT’s cascading effect, taxation is streamlined
and simplified. The end-customers won’t have to pay a series of taxes on food and
beverages and hotel bills.

 Taxation processing and calculation have been made easier and time-saving for the
hospitality industry.

 Previous tax regime was complicated to customers and they were not able to recognize
the correct tax order. With unified tax system, it is hassle-free for end-users to cross-
check and understand the taxation structure.

 The hospitality industry can avail the benefits of input tax credit, which means that the
hotels can reduce the tax already paid on input while paying the output.

5. Disadvantages of GST for Hospitality Services

 The hospitality industry is facing multiple issues regarding the implementation of GST.
Compliance and maintenance process of GST is complicated as there are multiple GST
rates (5, 12, 18, and 28) for different categories of services and goods offered. To avail
input tax credit’s full advantage, businesses have to match outputs and inputs based on
the tax rate applied.

 Although GST may have reduced end-user prices, if hotels spend extra on maintaining
compliance, they end up charging more to customers. This will ultimately reduce the
positive impact of GST in decreasing end-user costs.

 If SMEs fail to buy products from registered dealers, they’ll not be able to avail benefits
of the input tax credit.

49
 The complicated structure may lead to the formation of a parallel economy where users
may opt out of receiving bills. It will create numerous undocumented transactions.

 Many neighboring countries have 5% to 10% GST tax slab for hospitality services.
However, in India, most hotels fall under the tax slab of 18% to 28%. This can negatively
impact the tourism industry.

6. GST Impact on the Hospitality Sector: A Tough Journey

As GST is still in its initial stages, it puts forth various challenges. Many hospitality businesses
are unable to efficiently maintain compliance and understand how to correctly pass down the
input credit tax. Additionally, there are various tax slabs, which make everything more
complicated.

50
3.8 Impact on MSME:

Goods and Service Tax (GST) combines both the current Central and State Taxes in the country
into a solitary tax, thereby eliminating the dual taxation system and enabling a joint nationwide
market. The implementation of this tax allows the government to have an improved hold on the
taxpayers, which, in turn, improves the complete tax scheme and has several other benefits.

This MSME sector of the market has been deliberated as the chief development driver of the
Indian economy for years. SMEs have emerged as the principal employment-creating segment in
India and have delivered stable growth through various sectors of our developing nation.
The impact of GST on MSME has been tremendous.

51
For Micro, Small, and Medium Enterprises (MSME), the business proprietors and producers are
required to pay various different taxes as per the laws and so, fulfilling all the tax-related
documentations has them running to different departments. Without GST, these entrepreneurs
faced harassment from the various departments they had to report to file their taxes.

With the implementation of GST, they do not have to file those taxes manually to different
departments, but instead easily pay them all online. This reduces the chances of harassment and
increasing their benefits.

Another impact of GST on SMEs is that the business owners only have to pay a tax of 18-22
percent as compared to the combined taxes of 32% before GST.

As the nation has progressed and moved to accept GST, so did the MSMEs. But the effect
of GST on Small and Medium Enterprises has two sides to it– positive as well as negative. Let’s
have a look at both of these aspects in a little more detail.

52
3.8.1 Positive Impact of GST on MSMEs

 Low Rates Taxes


With the application of GST, industries having a turnover between Rs.10 and 50 lakh
have to pay levies at lower rates, thereby, getting an enormous relief from tax burdens.

 Reduction in Logistics Cost and Time


GST enactment reduced time and money required for Interstate movement as their duties
got eliminated. Also, this diminishes costs of retaining large stocks due to ease in free
movement of goods.

 Creating a Uniform Platform


GST levies taxes on stock transmissions and neutralizes the impact of contributed taxes
through the input credit too, thus, removing all tax differentiation and bringing small and
medium businesses to par with large-scale industries.

 Increased Reach to Customers


Presently, the Central Sales Tax (CST) on sales between states restricts small and
medium businesses to reach their potential customers across India, which surges the
acquisition charge of products for the consumers. The implementation of GST will
prevent that.

3.8.2 Negative Impact of GST on MSMEs

 Burden of Lower Threshold


GST bill has improved the threshold limit from 10 lakh to 20 lakh generally and from 4
lakh to 10 lakh for North-eastern states, due to which any service provider or retailer is
subject to the tax levy. Earlier, the central expunge threshold was INR 1.5 crore. Now, as
the threshold is low, most MSMEs have to pay a lump sum of their investment towards
tax in the near, foreseeable future.

 Lack of Tax Differentiation for Luxury Items and Services


The GST implementation has the function of tax neutrality, which though beneficial in
other areas, does not differentiate between luxury and normal items and services. Unlike
53
earlier, when the state and central government levied greater duties on luxury goods and
services, the GST tax requires all goods and services to have the same tax. This leads to
an increase in the financial gap between the rich and the poor and is not a model situation
for MSMEs to compete and flourish against large industries.

 Selective Tax Levying


GST tax is not applicable to alcoholic liquor for human consumption as well as petroleum
and oil based industries, which is a contradiction of the policy of the 'unified market'
philosophy of GST.

 Extra Operational Capital Requirement


Taxes on stock transmission primarily affect the functioning capital necessities. This, in
fact, varies with factors such as stock reversal time at depository, credit sequence to the
consumer, etc. A greater sum of Capital Prerequisites increases the interest charge, which
finally increases the rate of Completed Merchandises.

3.8.3 Conclusion

Although the GST implementation aims to upsurge the taxpayer base, largely SMEs into its
opportunity, it presents a problem of compliance and related charges for them.

Nevertheless, GST will make the MSMEs more competitive in the long run and will make the
playing arena level between big enterprises and them. Additionally, the Indian MSMEs would be
able to compete with the international market goods and competition coming from cheap price
epicenters such as China, Philippines, and Bangladesh and actually thrive in the world market
scenario..

54
3.9 Impact on the Indian economy:

The Goods and Service Tax (GST) was implemented in India from 1st July 2017, approximately
12 years after being first proposed in the parliament in 2006 by P.C. Chidambaram, the Finance
Minister during the UPA rule.

The tax overhaul is one of the biggest reforms in India's tax code since India's declaration on
independence in 1947. GST replaced Service Tax, Excise duty, VAT, Customs Duty, and a slew
of other levies charged on Indian businesses.

On the eve of the first anniversary of this landmark reform, we attempt to review its performance
and impact on the various drivers of the Indian economy.

55
3.9.1 Tax Structure

Simplification of the tax structure is one of the major pillars of the GST regime. With its
introduction, the practice of charging differential tax rates on goods (excluding fuel) across
various states came to an end. Keeping the 'One Nation One Tax' adage in mind, goods are
broadly classified into 4 tax-slabs. Moreover, several essential goods of mass consumption have
been declared tax-free.

It is important to note that all types of fuel have been kept out of the ambit of GST as taxes on
fuel serve as a huge contributor of tax for the central and state governments and used by them to
manage fiscal positions. Any major reduction in these taxes would put a considerable strain on
the government's ability to manage national and state finances.

3.9.2 Increase in the Number of Registered Tax Payers

Another reason for implementing GST was to formalize the economy and bring more traders
under the tax net. The Economic Survey result released in January 2018 has revealed that 34 lakh
businesses registered for a GST number during the first 6 months of GST. This has increased the
number of taxpayer’s base by 50%. Besides the immediate registrations, several unregistered
dealers are also expected to obtain GST numbers as enterprises continue to show preference
towards registered entities.

3.9.3 Elimination of the Cascading Effect of Taxes

As per the GST rules, a trader can claim credit for the taxes he has paid on goods and services
used for his goods. This is beneficial to the final customer as they are paying taxes on just the
final goods and not a double tax, i.e., the tax paid by the trader on the input materials and on the
final product as well.

This has made several goods such as textiles, daily consumables like soap, and construction
material like cement and paints cheaper.

To make sure that the benefits of lower taxes are passed on to the consumers, the government has
constituted a National Anti-profiteering Authority.

56
3.9.4 Increase in Documentation

Every registered trader had to file 3 returns per month (now reduced to 2) under GST and one
annual return. Additionally, there are other returns for input service distributors, job-work, etc.
which add to the compliance burden. This has resulted in an increased cost of compliance as all
businesses have had to hire additional resources for maintenance of tax books and filing the
various returns.

Service providers have been especially hit with the compliance requirements as they now have to
file a minimum of 25 returns in a year, up from one every 6 months under the previous laws.

3.9.5 Increase in Prices in the Medium Term, Benefits in the Long-Term

When the GST was implemented last year, some industries that began paying a higher tax, like
restaurants, immediately hiked their prices to pass on the impact to its customers. However,
when the government reduced taxes late last year, it is widely believed that the benefits have not
been passed on to the customers.

Similarly, the government's anti-profiteering body has asked for clarifications from FMCG
companies if the dual benefits of price reductions and Input Tax Credit have been passed on to
the customers.

As mentioned above, since this is the first year of the regime, most issues are expected to be
ironed out as companies exhaust their old inventory and the entire supply chain accounts for the
new tax rates.

57
3.9.6 Adverse short-term Impact on MSMEs and Exports

The micro, small, and medium enterprises (MSMEs) were just recovering from the
demonetization drive implemented in November 2016 when GST was implemented in July
2017. The biggest impact of GST in the short term has been felt by this group. This was
primarily due to the hiccups in compliance and inefficient government machinery to process and
refund tax credits during the initial months. As per a report by Dun and Bradstreet, the Daily
Sales Outstanding (DSO) of MSMEs has increased from 58 days to 70 days, increasing their
working capital requirements.

Similarly, MSME export houses have also had to bear the brunt of a delay in processing of tax
credits. The initial issues in processing the Input Tax Credit (ITC) severely marred operations.
Also, the requirement of higher ticket loans from banks and NBFCs made businesses lose profits
in the short-term.

3.9.7 Offers India a Competitive Edge

GST's primary motto of 'One Nation One Tax' is increasing India's competitiveness on the global
stage. Providing tax credits throughout the value chain make the goods cheaper. Also, a
transparent tax system makes the country lucrative for international companies to set up
operations here.

The first year of GST has led to mixed results for the economy and the various sectors. The
government has resolved most of the teething troubles while it still seeks recommendations and
tweaks the framework. The impact of GST in the long term is expected to be positive with lower
taxes and improvement in several parameters in 'Ease of Doing Business'.

58
3.10 Impact on Agriculture sector:

1. What is GST?

Goods and service tax or GST is a single tax on the supply of goods and services, right from the
manufacturer to the consumer. The final consumer will have to pay GST to the last supplier in
this complex chain. The introduction of GST replaced both Central level taxes like excise and
service tax, customs duty and state taxes like VAT, CST, Octroi & Entry Tax, Entertainment
Tax, etc.

The single largest sector contributing to the Indian Economy is the Agriculture. It alone accounts
for up to 16% of the Indian GDP. Hence, the Effect of GST on Agriculture Growth was one of
the major concerns after the implementation of GST taxes in the country. Furthermore,
the Impact of GST on Agriculture Sector was expected to be more of an indirect impact.
However, the real question of this polemical topic is whether the Role of GST in Agriculture has
proven to be beneficial for this market sector or has acted as a bane.

2. Laws Prior to the Implementation of GST Rate on Agriculture

Before the implementation of GST on Agriculture, certain food items like rice, sugar, salt, wheat,
and flour were free from paying taxes under CENVAT. Also, agricultural products went through
numerous licensing processes earlier. Thus, a number of indirect taxes (VAT, excise duty,
service tax) were applied under the previous tax laws. Under the state VAT, cereals and grains
were taxed at the rate of 4%.

59
3. National Agricultural Market (NAM)

National Agricultural Market (NAM) is a national scheme introduced by the central government.
It provides all the farmers and traders in the markets with a singular and uniform e-commerce
platform for a transparent and impartial trade of agri-commodities. Prior to the GST effect on the
Agriculture Industry, the implementation of NAM scheme was challenging due to non-uniform
and variable state VAT and APMC (Agricultural produce market committee) laws.

However, there have also been huge Advantages of GST on Agriculture - As after GST has been
levied, a successful path for the establishment and implementation of NAM has also been
created. Majority of the indirect duties levied on agricultural products have been absorbed under
the GST Rate on Agriculture. This allows every farmer, trader, and cultivator to receive the input
credit for the tax paid on every value addition, thus, creating a transparent, hassle-free, and
convenient supply chain. Moreover, this has led to the free and quick movement of agri-
commodities across different state borders within India.

60
4. GST Impact on Agriculture Sector

5. Fertilizers

Earlier, fertilizers were subjected to a 0-8% VAT which, after GST, will attract 12% tax. This
has increased the prices of fertilizers by 5-7%.

6. Pesticides

Pesticides have been put in the 18% tax slab, increasing from the pre-GST 12% duty and VAT of
4-5% in some states.

7. Tractors

Tractors have been placed in 12% excise slab, while several of its components and accessories
have been put in the 28% slab.

61
8. Pumps

GST rate on pump sets has been decreased to 18% from 28%, thus, reducing manufacturing costs
and driving sales indirectly.

9. Agri-Commodities

Highly used agri-commodities such as rice, wheat, milk, fresh fruits, and vegetables are placed in
the zero tax slabs. This helps in evading tax, cess, and Arhatiya commission imposed by some
States.

10.Fresh Produce

Fresh fruits and vegetables are not subject to any taxes. However, higher rates of 12% and 18%
have been introduced for dry fruits and preparations from fruits and vegetables, such as fruit
jellies, pastes, jams or juices which were taxed at a rate of 5% earlier.

11. Frozen Produce

Frozen or chilled fruits and vegetables whether cooked or uncooked, preserved fruits, vegetables
and nuts, and areca nuts are taxed at 5%.

12. Processed Produce

Processed foods like fruit and vegetable juices under GST will be taxed at 12%, up from 5%.
Some items like fruit jams, jellies, marmalades, etc. will be taxed even higher at 18%.

13.Benefits of GST on Agriculture Sector

After the implementation of GST, all farmers, traders, and cultivators are liable to pay taxes. So,
the earlier category of people who were exempt from taxes no longer exists under GST.

Also, it saves the agricultural workforce from paying the service tax under the GST
implementation laws and guidelines. Along with this, most non-processed agricultural and
cultivated products have also been exempted from taxation.

62
4) Data analysis and interpretation of data:

The total sample was categorized on the basis of age into four major segments .Out of 98 respondents,
43.9% were between 20 – 30 years age span , 16.3% were below 20 years, 27.6% were between 30-40
years. And 12.2% were above 60 years.

Out of the total 98 respondents 43.9% were having positive view when asked whether introduction of
GST has affected the Indian Financial Market., 33.7% were having Negative view and 22.4% were
having diplomatic view stating it had no impact.

63
Out of the total 101 respondents that responded on the questionnaire, 57.4% were female respondents and
about 42.6% were Male respondents.

Out of the total 100 respondents, 74% respondents answered “yes” when asked if implementing GST will
cause any change in Indian Financial markets and 26% respondents were having an opposite view.

64
Out of the total 101 respondents, 52.5% respondents were of the view that GST will burden the Indian
Financial Markets, rest 47.5% were having a contradictory view.

Out of the total 101 respondents, 56.4% were of the view that Indian Financial Market was not ready for
implementing the GST system. Rest 43.6% respondents were having a positive view.

65
Out of the total 85 respondents, 42.4% respondents were expecting GST to be applied after 3 years,
35.5% respondents were expecting after 1 year and rest 22.4% were having different views.

Out of the total 101 respondents, 73.3% were of the view that any change in the GST will be reflected in
the stock price and its demand and rest 26.7% were having an opposite view.

66
Out of the total 100 respondents, 51% were facing some or the other issues in stock trading while 49%
respondents didn’t find any issues.

Out of the total 100 respondents, 44% respondents were having a satisfactory i.e an average experience in
Indian Financial Market after the implementation of GST, 36% were having a good experience and rest
20% respondents were having a bad experience.

67
Out of the total 101 respondents, 67.3% were of the view that the Indian Financial Market apply the
GST laws fairly and rest 32.7% were having a contradictory view.

Out of the total 101 respondents, 42.6% were not having a diplomatic stance when asked whether the
GST will burden the people in Indian Financial market, 29.7% answered “NO” and rest 27.7% answered
with a “YES”.

68
Out of the total 98 respondents 66.3% were of the view that GST in Indian Financial Market will be
easier to comply with and rest 33.7% were having a contradictory view.

5) CONCLUSION AND FINDINGS:

5.1 CONCLUSION:

GST has affected the entire economy and markets with cost of production going high in all the
sectors. As the cost goes high the profit lowers so the companies raise the prices of the products
and services in order to cover the cost that has increased due to these taxes. Whereas in some
cases the tax rate which was earlier charged is seen to be lowered by GST, but the GST panel
may increase the tax rate in such items in the coming days. It has affected various sectors of
financial markets as the profits are hit by the Indirect Tax reform. This has also led to volatility
in the stocks of some companies.

69
The proposed GST regime is a half-hearted attempt to rationalize indirect tax structure. More
than 150 countries have implemented GST. The government of India should study the GST
regime set up by various countries and also their fallouts before implementing it. At the same
time, the government should make an attempt to insulate the vast poor population of India
against the likely inflation due to implementation of GST. Efficient formulation of GST will lead
to resource and revenue gain for both Centre and States majorly through widening of tax base
and improvement in tax compliance. It can be further concluded that GST also have a positive
impact on various sectors and industry. Although implementation of GST requires concentrated
efforts of all stake holders namely, Central and State Government, trade and industry. Thus,
necessary steps should be taken.

5.2 FINDINGS:

There is not much of primary data for my study in this project so I had to study the secondary
data and come to the conclusion and suggest an opinion on how the implementation of GST
could have been a much better Indirect Tax reform. However when I collected some Primary
Data from my Family, Friends and colleagues I could understand how the consumer in India is
affected by the new indirect tax that I prepared the conclusion based on the behaviour of
consumer towards the new indirect tax and not by the behaviour of investor towards the new
indirect tax.

However when I spoke to some investors already holding stake in the companies in the above
mentioned industries, I understood that only a few investors noticed the impact of GST in their
holdings.

70
6) BIBLIOGRAPHY:

1. www.cleartax.com
2. www.wikipedia.com
3. www.moneycontrol.com
4. www.economictimes.com
5. www.timesofindia.com
6. www.investopedia.com
7. www.quora.com
8. www.services.gst.in

71
7) ANEXXTURE (QUESTIONAIRE) :

1)Gender:
o Female
o Male

2) Age
o Below 20 years
o 20 to 40
o 40 to 60
o Above 60

3) Do you think implementing GST will cause change in Indian Financial


Markets?
o Yes
o No

4) Do you think GST will burden the Indian Financial Markets?


o Yes
o No

5) Do you think Indian Financial Market is ready for implementing GST system?
o Yes
o No

72
6) If your answer is No, then when would you expect GST to be applied
o More than 1 year
o More than 3 years
o Other

7) Will any change in GST change the stock price and its demand?
o Yes
o No

8)How do you feel the introduction of GST has affected the Indian Financial
Market?

o Positively
o Negatively
o No impact

9)Are you facing any issues in stock trading after the implementation of GST?
o Yes
o No

10)How was your experience in Financial Market after implementation of GST?


o Good
o Bad
o Average

11) Does the Indian Financial Market apply the GST laws fairly?

73
o Yes
o No

12) Do you think GST in Indian Financial Markets will burden the people?
o Yes
o No
o Maybe

13) Do you think GST in Indian Financial Markets will be easier to comply with or
difficult?
o Easy
o Difficult

74