So far, VAT at the state or Cenvat at the central level, along with services tax, have been

major steps in tax reforms. Before the present tax regime, there was the sales tax regime,
where there was a cascading effect on tax. VAT has removed this burden, but it had
deficiencies. The Cenvat load remains. There were several state taxes which were not
subsumed in any one tax. The inter-state sales tax or CST was not fully relieved.  All this will
be accomplished by the state GST. If VAT was a major improvement in the indirect tax
system, GST will be the next logical step and a major breakthrough in the history of tax
reforms in the country. With the GST, the positive impact on the GDP and state domestic
product may be as high as a 2 per cent gain.

As a first major step in the GST direction, the release of first discussion paper is a major
break through. The second step is the need for a Constitutional amendment, as the power of
levying service tax will be given to the state, because it is a dual structure. To subsume so
many, many Acts, we also require a Constitutional amendment. The GST on imports will also
require one. The first draft of the Constitutional amendment is expected by the end of
November. Side by side, work on the draft for the Central GST and draft model state GST
legislation, and draft for inter-state GST (IGST) and rules and procedure will start.

State governments have autonomy in selecting rates. In GST, the rates will be exactly the
same , so it will be a harmonious structure. If there is an exigency, or state have items of local
importance in our choice of the list of exempted items which do not effect inter-state trade-
these will be given flexibility. All federal structures have faced the problem. We are going to
take care of it through Constitutional amendments.

Threshold limit in GST

A threshold of gross annual turnover of Rs.l 0 lakh, both for goods and services for all the
States and Union Territories will be prescribed  with adequate compensation for the States
(particularly, the States in North-Eastern Region and Special Category States) where lower
threshold had prevailed in the VAT regime. After taking into consideration the interest of
small traders and small & medium scale industries and to avoid dual control, it has been
proposed that the threshold for Central GST for goods will be lakh, Rs.l.5 crore and the
threshold for services should also be appropriately high.

Service Tax under GST

Service Tax is  presently levied at 10.3% (inclusive of Education Cess) percent tax on more
than 105 services. States do not levy or collect service taxes at present, but get a share from
the Centre’s  collections. It is proposed that states will keep the entire collection from certain
services from this year. States would also tax another set of proposed new services, collect
and appropriate as \ part of compensation for central sales tax phase-out in 2010. Since there
would be issues on taxing cross border services it is expected that the. State GST would only
include services that are essentially of “local nature”. It has also been proposed that Service
tax rate under Central GST and State GST is likely to be uniform.

Though State Service Tax proposed to be levied on new local services would add to the cost,
a redeeming feature is that Input Tax Credit would be eligible on the State Service Tax and a
host of other levies like entry tax, electricity tax, and luxury tax etc that would be integrated
under State GST. Of course, the service will qualify as an eligible input service for claiming
cenvat credit.
Inter-state Transactions of Goods and Services (IGST)

Integrated GST (IGST) model for taxation of inter-state transaction of goods and services has
been proposed by the discussion paper. According to this model, Centre would levy IGST
which would be CGST plus SGST on all ‘inter-State transactions of taxable goods and
services with appropriate provision for consignment or stock transfer of goods and services.
The inter-State seller will pay IGST on value addition after adjusting available credit of
IGST, CGST, and SGST on his purchases. The Exporting State will transfer to the Centre the
credit off GST used in payment off GST.

The importing dealer will claim credit of IGST while discharging his output tax liability in
his own State. The Centre will transfer to the importing State the credit of IGST used in
payment of SGST. The relevant information will also be submitted to the Central Agency
which will act as a clearing house mechanism, verify the claims and inform the respective
governments to transfer the funds.

The  advantages of IGST model are as follows-

 Maintenance of uninterrupted input tax credit chain on inter State transactions.

 No upfront payment of tax or substantial blockage of funds for the inter-State seller or
buyer.
 No refund claim in exporting State, as ITC is used up while paying the tax.
 Self monitoring model.
 Level of computerization is limited to inter-State dealers and Central and State
Governments should be able to computerize their processes expeditiously.
 As all inter-State dealers will be e-registered and correspondence with them will be by
e-mail, the compliance level will improve substantially.
 Model is likely to  take ‘Business to Business’ as well as ‘Business to Consumer’
transactions into account.

Taxpayer Identification number

Under the GST regime, each taxpayer will be allotted a PAN inked taxpayer identification
number with a total on 13 to 15 digits. This would bring the GST PAN-linked system in line
with the prevailing PAN-based system for Income tax, facilitating data exchange and
taxpayer compliance.

Composition Scheme

According  to the discussion paper, composition/compounding scheme for the purpose of

GST will have an upper ceiling on gross annual turnover and a floor tax rate with respect to
gross annual turnover. In particular, there would be a compounding cut-off at Rs. 50 lakh of
gross annual turnover and a floor rate of 0.5% across the States. The scheme would also
allow option for GST registration for dealers with turnover below the compounding cut-off.

Documentation and compliance

Due to the dual structure of the GST, the assessees will be required to maintain separate
accounts for Central GST and State GST. There will be one periodical return for both CGST
and SGST with one copy each to be submitted to the respective GST authority.

Conclusion

GST will give more relief to industry, trade and agriculture through a more comprehensive
and wider coverage of input tax set-off and service tax set-off, subsuming of several Central
and State taxes in the GST and phasing out of CST. The transparent and complete chain of
set-offs which will result in widening of tax base and better tax compliance may also lead to
lowering of tax burden on an average dealer in industry, trade and agriculture. The subsuming
of major Central and State taxes in GST, complete and comprehensive setoff of input goods
and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally
manufactured goods and services. This is likely to  increase the competitiveness of Indian
goods and services in the international market and to boost  Indian exports.

Read more: http://www.taxguru.in/goods-and-service-tax/gst-in-india.html#ixzz0wmq7f6eL

Goods & Services Tax

Are you ready for the change?

GST is seen as the single most important tax reform initiative in India since independence. It
is expected to provide a significant boost to investment and growth of the economy.

GST will have a significant impact on almost all aspects of businesses operating in the
country, including the supply chain, sourcing and distribution decisions, inventory costs and
cash flows, pricing policy, accounting and IT systems and transactions management.

In order to prepare for the GST, the companies need to understand its full implications, make
and test the system changes and prepare a roadmap for a smooth transition to GST.

While the important dimensions of the new tax structure are being closely examined, the time
is ripe for the businesses to start making preparations for a successful changeover and
implementation. 

What is GST? 

The indirect tax regime in India is proposed to be replaced by a comprehensive dual GST
with Central GST and State GST to be levied concurrently by the Centre and the States.
GST would replace most indirect taxes currently in place. The tax base is anticipated to be
comprehensive, including virtually all goods and services, with minimum exemptions.

Following the destination principle, GST structure would include imports while exports
would be zero-rated. For inter-State transactions in India, the State tax would apply in the
State of destination as opposed to that of origin.

Full input credit system would operate in parallel for CGST and SGST, however, cross
utilization of input tax credit between CGST and SGST would not be permitted.

GST will have a far reaching impact on virtually all aspects of businesses operating in the
country, for instance, pricing of products and services; supply chain optimization; IT,
accounting and tax compliance systems.

Ernst & Young can help.

Ernst & Young has been closely involved with the GST initiative through its Policy Advisory
Group - a specialized team of experienced professionals, including former government
officials - that advises businesses as well as governments on diverse policy issues. The Group
helps businesses anticipate policy changes, assess their impact on their operations, and
engage in a constructive dialogue with the relevant authorities for remedial measures to
address any concerns.

The Group has diverse VAT and GST experience with extensive interactions with both the
Centre and the State Governments in India and overseas engagements in jurisdictions such as
Canada, China and European Union.

Come 1 ST APRIL 2010.

INDIAN ECONOMY .. WHICH IS FAMOUSLY GROWING AHEAD, BREACHING ALL

NEW PEAKS , NOW AWAITS FOR A COMPELLING AND ENERGETIC TURN-
AROUND IN ITS TAXATION FRAMEWORK , WHICH HAS INBOUND ABILITY TO
HELP GOVERNMENT OF INDIA TO ENHANCE REVENUES AND MAINTAIN THE
DEMOCRATIC CONSENSUS.

THIS SITE ENABLES THE WHOLE INDIAN NATION AND THEIR ASSOCIATED
FRIENDS TO BE INFORMED WITH ALL THE NEWS AND UPDATES WHICH TAKES
PLACE IN THE FORMATION OF IMMINENT GOODS & SERVICES TAX (GST)
REGIME.

THE IDEA OF A UNIFORM VAT/GST ACROSS GOODS AND SERVICES BY 2010

REITERATES THE NEED FOR HARMONISATION, TO START WITH, AT THE
FEDERAL LEVEL, OF THE TWO TAXES THAT OPERATE, I.E. THE CENVAT AND
THE SERVICE TAX, IN TERMS OF BOTH A SINGLE RATE AS WELL AS A SINGLE
TAX CODE. A HARMONISATION OF THESE TWO TAXES WOULD REMOVE THE
DUALITY OF GOODS AND SERVICE TAXATION AT THE FEDERAL LEVEL.

GST may be set at 14-16%:Chidambaram

THE STORY HAS HAD MANY A TWIST & TURN,BUT IT ADDS UP TO NOTHING
LESS THAN A REVOLUTION

Goods and Services Tax

Now-a-days our country is following the unitary system for

collection of Indirect Taxes levied on manufacture, sale and
consumption of goods as well as services in order to create a
suitable reform in Indirect tax from both domestic and foreign
investment perspective thereby reducing burdensome
compliance, high cost of transaction and nagging uncertainty in
tax liability for a business.

The budget speech of 2006-2007 included a proposal for

commencement of Goods and Services Tax (GST) and in the
budget speech of 2009-10 it has been said again that the
introduction of GST would be accelerated with effect from April
01, 2010.

GST model is outlined with a dual GST consisting of a Central

and a State GST. To relieve the pressure on States, an assistance
of Rs 1,000 crore will be provided to them for GST
implementation

The Indian government is studying tax reforms that include many

other Central and State level direct and indirect taxes, excise
duties, service tax and luxury tax, and replace them with a single
Goods and Service Tax (GST). Customs duty will be levied out
of GST and is likely to be replaced by VAT on imports.

The introduction of goods and services tax will create an effect for abolition of taxes such as
octroi, Central sales tax, State level sales tax, entry tax, stamp duty, telecom licence fees,
turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and
services, and get rid of the cascading effects of multiple layers of taxation.

The predicted rate for the proposed GST is going to be 20 percent. Petroleum products and
liquor are however likely to stay behind the GST structure. Liquor and tobacco could be
included in GST. States could impose an additional tax on these products.

Goods and services that are subject to GST can be taxed at standard rate, which is at a fixed
rate of, for example 5% or 10%, and at zero rate. Zero rating is a concept only found under
the GST framework. Suppliers of zero rated supplies do not collect GST because the GST
rate is zero.

Goods and Services Tax