Goods and Services Tax (GST) - India's Biggest Tax Reform

Indirect Tax = Tax the burden of which is indirectly put on us!

We buy garments – there’ll be VAT. We eat at KFC – there’ll be the sneaky VAT and Service Tax!

GST in India
We are not paying these taxes as an Assessee - the respective tax departments don’t know it is us who are paying the taxes for what specific goods/ service we took – it is collected from the mass, every one who buys or uses a service, at the same rate, irrespective of a person’s income level.

You buy a pack of biscuits or a person under BPL – both pay indirect tax – and most of the times you don’t even know or pay attention as to how much you are paying in indirect taxes!

It could be very easily more than what you pay for your income tax!

What is the scenario today?

Currently India (I mean us the consumers) is reeling under a lot of different indirect taxes – excise duty, VAT, Service Tax, sales tax etc.

Some are levied by the Central Government, while others by the State Government – as India has a ‘federal’ system of Governments – i.e. two governments, one in the centre and the ones in the states.

Excise and Service tax are central government levied indirect taxes. VAT and Sales tax are State Government levied indirect taxes.

Excise Duty is a tax on the manufacturing of excisable goods. Thus if a manufacturer, manufactures those goods which the central government has deemed to be ‘excisable’ good(s) – then the manufacturer will have to pay excise duty on those goods.

Service Tax is a tax on ‘services rendered’ which are not in the ‘negative list’. Thus – all services rendered are under the blanker of service tax – except for those which are mentioned in the negative list!

VAT – or Value Added Tax is a stage wise levy of tax on value addition – thus at every stage of ‘value addition’ VAT is levied and passed on to the next person in the chain of changing hands.

Sales Tax is a tax on sale of goods – interstate and intrastate.

The rules and regulations and compliance procedures of all are different – and complex and tedious – and we’re only talking about the popular four indirect taxes!

To bring all these varied and sometimes overlapping taxes under one umbrella and to plug the loopholes that invariably comes with such multiple and confusing and dual taxation system – the concept of GST was formulated.

Goods and Service Tax or GST

 GST is a combined or ‘one’ tax on both goods and services – incorporating the concept of ‘value addition’ – extending from manufacturing to consumption. 

GST is the new ‘it’ word in today’s economic scene – with economists and Finance Ministers to tax payers and Chartered Accountants all eyeing the 2016 roll out with either eager, optimistic, skeptical or doubtful outlooks!

But until GST is a 100% reality – we the students need to know the 101s of what on earth GST is? What is this GST? Is it a three headed tax monster out to chew and drool on out life styles and expendable incomes?

Let us find out!

The Salient Features of GST:

  • GST will combine the best of all indirect taxes to bring a compact, singular and easy system for levy, collection and assessment of indirect taxes in India.
  • Empowered Committee of State Finance Ministers and their ‘thinkers’ are the ones nailing down the details for proper introduction and application and back-end operational requirements, infrastructural requirements, databases, consumer education, and most importantly the procedural compliances during transition stage etc.
  • Most important feature - Tax Input Credit under GST – will be available for set-off at every stage.
Input Credit means, if you’ve paid tax on purchase of any good(s) or procurement of any service(s) and – when selling your goods or services you’re required to further pay tax – you can set off your tax payment liability with the tax already paid by you when you procured your inputs.

Example: You are ‘special muffin manufacturer’. You buy a whole lot of special ingredients to manufacture your muffin – say you bought multi flavoured syrups for the flavours – you had to pay tax (indirect you see!) to procure the syrups.

Now you used these syrups and made your muffins (this is value addition – without the process of baking, adding of ingredients there would be no muffin) – you sell them – but you got to pay tax on the ‘manufactured’ muffins!

So you paid tax when you bought the ingredients (input tax) and when you manufactured/ sold them you paid tax again (output tax) – here, you will get the credit of the input tax paid to decrease your liability of output tax.

This is the Input tax credit system simplified for understanding.
  • GST will be levied at every stage of value addition.
  • Value addition would mean – applying effort on the goods or services to make worth more. By undergoing a certain process, or set of activities – ‘value’ is being added to the goods or services.
  • Under GST – the rate of tax – ‘Revenue Neutral Rate’ or RNR – is set to not exceed 27% combining both central and state tax rates.
  • It will bring more people under the indirect taxes net thereby increasing revenue and also dealing with tax evasion and black money issues.
  • Meanwhile a higher rate of Service Tax @ 14%, adding Education Cess to Excise Duty and taking off items from the exempted list are nothing but measured steps towards applying GST – which is slated for a 1st April 2016 release – after having missed numerous past deadlines!
  • More specifics on GST will become available as the Government will approach the 2016 deadline so keeping abreast with the development is important.

Pros of GST -

  • Easier to understand for the taxpayers and will simplify compliance
  • Uniformity of rules and regulations of levy, assessment, collection and rates will mean easier administration and proper collection and voluntary compliance
  • Bringing India at par with international taxation standards.
  • Increase in revenue for the Governments.

Cons

  • States will have revenue sharing issue 
  • If the dual rate and control system which is existing under the current taxation schemes in India not properly combined – then the purpose of GST is defeated. It’ll be the same ol’ Service Tax/ Excise Duty and VAT bur under a different name!

That is all folks on GST worth knowing – for bank and insurance exam purposes!

For the successful candidates of IBPS SO (written), SBI Clerical (final), and SSC CGL 14 (Tier 1) – a big congratulations – and for the hopefuls of IBPS PO and Clerical ’14 (finals) – keep the prayers on full mode!

Have a good day!

Update 9 May 2015

Constitution (122nd Amendment) Bill, better known as the GST (goods and services tax) Bill passed on Lok Sabha, now it will be presented in Rajya Sabha. As it is a constitutional amendment, at least 50% attendance is required and 2/3 of the votes are required in favour of amendment.

Update 10 October 2015

"Missing the April 1, 2016, deadline does not mean going to 1st April 2017. GST can be implemented anytime during the year" - CBEC

GST can be implemented anytime during 2016. In 2015 Parliamentary sessions, Congress didn't let the Government to pass the bill.
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25 comments:

  1. Nice article thanks a lot sir...

    ReplyDelete
  2. ibps clerk marks out

    ReplyDelete
  3. sir ibps clerk 4 qualified candidates marks out please share it for ur readers

    ReplyDelete
  4. Abhimanyu Singh SharmaMarch 9, 2015 at 9:09 PM

    very good article sir jee.
    Thanks a ton..:)

    ReplyDelete
  5. Sir ye input credit tax smaj nh aaya.....can u plz make me understnd in simple terms.....or anyone can help me....

    ReplyDelete
  6. Thanxx for the informative article.

    ReplyDelete
  7. Raman sir kya apko idea has new India assurance wale assistant ka results kab publish karenge.

    ReplyDelete
  8. Hi,
    As per my observation. now ur all post is going too boring and most of the u r just promoting ur site. As I am a older follower of ur all post but now is not good and knowledgeable as compare to previous.

    ReplyDelete
  9. Aman Deep SinghMay 9, 2015 at 6:01 PM

    Dear sir i have given you two reminders regarding updated material unfortunately i haven't received any link from ur side. As a matter of fact i guess i was among the first persons who have purchased this material. It shows ur carelessness

    ReplyDelete
  10. Thanks for your efforts to make us understand well!!

    ReplyDelete
  11. sir please explain land bill and mudra bank raman sir

    ReplyDelete
  12. Check this -

    http://www.bankexamstoday.com/2015/03/land-aquisition-bill-2015-summary.html

    http://www.bankexamstoday.com/2015/04/what-is-mudra-bank-explained.html

    ReplyDelete
  13. Tax rate on Pens - 10%


    Suppose you are a shopkeeper, you purchased a Pen for Rs.100 (Tax - Rs.10).


    You sold the pen for Rs.150 ( Tax - 15)


    Tax payable by shopkeeper - 15 - 10 = Rs.5


    Rs.10 here is Input tax credit

    ReplyDelete
  14. Thank you

    ReplyDelete
  15. Sir I have a doubt.i want to pursue a degree in law simultaneously with working as a clerk.I am being selected as a clerk in ibps 4,can i do both simultaneously.means is it correct to do them together.

    ReplyDelete
  16. actually it is a full time facility with no compulsion of attending classes.i have only to appear for exams for that.so is it legally ok.

    ReplyDelete
  17. thnx a lot SIR....i was searching some matter on gst for sbi po essay wrtng nd i found it very useful......thank u....

    ReplyDelete
  18. Okie thnku sir..

    ReplyDelete

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