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The Goods and Services Tax (GST) - seen as one of the biggest tax reforms in India since 1947- was introduced with the aim of creating a single, unified market that is beneficial to the economy. It is multi-stage, destination-based tax levied on every service and goods. The new tax regime, which was implemented on July 1, 2017, has replaced many central and state indirect taxes like VAT, excise duty, and service tax. Items under GST are taxed in five tax brackets - 0%, 5%, 12%, 18% and 28%. According to experts, common citizens stand to gain in a big manner from the GST regime, given its anti-profiteering provisions of the landmark legislation.
Here is a look at some of the advantages of GST:
The main objective of GST is to drive the country to becoming an integrated economy by charging uniform tax rates. Subsuming of the various state and central indirect taxes into just one tax has also provided a big lift to the government’s ‘Make in India’ campaign, since goods that manufactured or supplied in the country will not only be competitive in national markets, but in the international ones as well. In addition to this, Integrated Goods and Services Tax (IGST) is charged on all imported goods. IGST is more or less equal to State GST plus Central GST, thus bringing uniformity in taxation on both locally produced as well as imported goods.
One of the biggest advantages of GST is that it removes the ‘cascading tax effect,’ which means it eliminates ‘tax on tax.’ Earlier, a commodity was taxed at every stage before reaching the consumer. The extra tax levied was added to inflation and ultimately the price rise had to be borne by the customer. GST replaced this with input tax credit, where the tax for inputs is taken off the taxes to be paid for the final product. Doing so has helped ensure that consumers paid a more reasonable rate for a product or service.
Compliance has been made much simpler on account of harmonisation of tax rates, procedures and laws. Common formats/forms, common definitions, and common interface via the GST portal have helped to improve efficiencies. The earlier tax regime had service tax and VAT - both of which had their own compliances and returns. By merging the two, GST has brought down the number of returns and the time spent on tax compliances. Inter-state disputes like those on e-commerce taxation and entry tax have been taken care of, and multiple taxation on the same transactions has also been eliminated. As a result, compliance costs have been brought down.
Goods and Service Tax Network (GSTN) is a common portal designed to help people prepare, file, rectify returns and make payments of indirect tax liabilities. The procedures for different processes have been automated and simplified. Verification of input tax credit is now done online and ITC across the nation can be matched electronically, thereby making the process more accountable and transparent.
Essential commodities such as fruits, vegetables, salt, milk, grains, newspaper, etc. fall under the 0% tax rate slab under GST. Previously, some of these items were taxed in a few states under VAT law. The new tax structure came as a big relief for the general public.
During the old tax regime, it was often observed that a few industries such as construction and textile were largely unorganized and unregulated. Following the introduction of GST, there are new provisions in place for online compliances, and for availing of input credit only when the supplier has accepted the amount. This has allowed for accountability and regulation of such sectors.
Previously, the logistics industry had to maintain a number of warehouses across states to avoid CST and state entry taxes on inter-state movement. The warehouses were functioning below their capacity, which in turn resulted in increased operating costs. GST has helped lessen the restrictions on inter-state movement of goods. Warehouse operators have shown interest in establishing their warehouses at strategic locations, rather than only in cities of their delivery route. Bringing down unnecessary logistics expenses has boosted profits for businesses involved in the supply of goods via transportation.
The refund process has been made simpler under the GST regime. Genuine taxpayers, in case of exports, are rewarded with an immediate refund (on the provisional basis) of 90% of their claim arising from exports. The taxpayers do not have to go to any tax department to claim a refund. Rather, a simple online refund process will be sufficient, and the refund will get directly credited to the bank account of the taxpayer.
Experts believe that in the long run, the new tax regime shall open doors to financial inclusion in the economy. As start-ups move towards digital book-keeping and optimizing existing processes, they would find it easier to meet the eligibility criteria for credit facilities by banks and investors in the country and abroad. In addition to this, FinTech organizations will have easy access (digitally) to the young, fast-growing ventures, and can provide them the credit needed to set up and grow their businesses.
Credit of input taxes paid at every stage is made available in the following stage of value addition. This essentially makes GST a tax only on value addition at each stage. On account of efficiency gains and stoppage of leakages, the tax charged overall on most supplies will reduce, which is beneficial to consumers. The final consumer will therefore only have to incur the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
To sum it all up, here is a brief look at the benefits of the regime to the common man, the economy, and industry and trade.
Is cross utilization of credits between goods and services permitted under GST?
Cross utilization of credit of CGST between goods and services is permitted. Additionally, the facility is also available for SGST. However, the cross utilization of CGST and SGST would not be allowed, unless it is an inter-state supply of goods and services under the IGST model.
What is the validity of composition levy?
As long as conditions listed under Section 10 of the CGST Act, 2017 and Rule 3 to 5 of the CGST Rules, 2017, remain satisfied, the option to pay tax under composition levy remains valid.
How do small taxpayers stand to benefit under the GST regime?
Taxpayers whose aggregate turnover during a financial year is up to Rs. 10 lakhs shall be exempt from tax. Here, aggregate turnover will constitute the aggregate value of all supplies - taxable and non-taxable, exempt supplies and exports (goods and/or services) and exclude taxes, namely GST.
What are the requirements for generating an e-way bill?
The prerequisite for e-way bill generation is that the person generating the bill needs to be registered on the GST portal, and should register in the e-way bill portal. In case the transporter is not a registered person under GST, it is compulsory for him or her to get enrolled on e-way bill portal. The person who is generating the bill has to ensure he or she has documents like tax invoice or delivery challan or bill of sale and Transporter’s ID.
How are imports taxed under GST?
Imports of goods and services are treated as inter-state supplies and IGST will be levied on them. Tax revenue concerning SGST will accrue to the state where the goods and/or services imported are consumed.
Can an individual who pays tax under the composition scheme avail input tax credit on inward supplies?
No, a taxable person who has opted to pay tax under the composition scheme cannot avail input tax credit on inward supplies. When he or she switches over from composition scheme to normal scheme, the individual would be allowed to be eligible for credit on the date of transition.
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