What is GST, how is it different from now: Decoding the indirect tax regime
April, 17th 2017
What is GST?
It is a proposed new indirect tax regime, where one commodity will have the same rate, pan-India. There could be exceptions based on local importance, in which case those would be exempt.
Input tax credit
Refunds for taxes paid on input. This would be done in each stage, so that there is no cascading tax on tax.
How is it different from now?
In GST, only two buckets will have to be created to get input tax credit — one for State-GST and another for Central-GST. Currently, if companies are selling in, say, seven states, they have to make seven buckets for taking input tax credit in value added tax (VAT). Similarly, for excise duty, they have to make as many buckets as there are manufacturing units. For services, only one bucket is required.
Filing of statements and returns
They will have to file a statement of outward supplies by the 10th of the next month of sale, statement of inward supplies or inputs by the 15th of the next month and returns by the 20th of the next month, matching inward and outward supplies and claims on input tax credit.
Which taxes will be subsumed in GST?
Service tax, central excise duty, state level value added tax and local taxes such as octroi.
A body to recommend any changes in GST, including rates. It will have the Union finance minister as chair and state finance ministers as members.
Voting rights in GST Council
The Centre will have one-third vote and all states combined will have two-third. Each state will have equal voting power.
Requirement for approval by the Council
Every decision has to be passed with three-fourth voting.
Does the Centre have a veto?
No, but the Centre alone can block a resolution.
Five slabs have been approved by the council. These are zero, 5%, 12%, 18% and 28%. There could be one more for bullion.
Will cess and surcharges be subsumed in GST?
Yes, except for the cess on demerit, luxury and polluting items such as tobacco, luxury cars, aerated drinks and coal over the peak rate of 28%.
Use of this cess and its longevity
It would be used for compensating states for any revenue loss due to GST for the first five years of the rollout, slated from this July. It would be there for these five years only.
What is not included in GST?
Real estate, except for land leasing, alcohol and electricity.
Is petroleum included?
Yes. But, it will be zero rated till the Council decides to impose GST on it. Till then, central excise duty and state VAT will be imposed on it.
Have all the Bills been enacted for rolling out GST?
Yes, except for state GST Bills, which will have to be passed in respective states.
What is left now, beside state GST Bills?
Fitment of items in five GST rates, and finalisation of four GST rules — on input tax credit, composition, transition and valuation.
Have other rules been cleared by the Council?
Five rules have been cleared — invoice, payment, refunds, registration and returns. Rules on returns are yet to be made public.
How many returns are to be filed by companies under GST?
Rules on returns are yet to be out, but the draft rules say it should be 13. One each month and then a final return. Currently, 13 returns are to be filed for state-level VAT, 13 for excise and two for supplies. So, for suppliers, it would be a less tedious task in the goods and services tax.
Do companies have to file for registration in every state they are selling, manufacturing or offering services?
Yes. Life will be a bit complicated for service providers currently they have to file only for a centralised registration.