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GST Registration Online - Overview of Goods and Services Tax (GST)  

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June 19, 2017 11:16 am  

 Get GST Ready : Overview of Goods and Services Tax (GST)

Q 1. What is Goods and Service Tax (GST)?

Ans. It is a destination based tax on consumption of goods

and services. It is proposed to be levied at all stages right

from manufacture up to final consumption with credit

of taxes paid at previous stages available as setoff. In a

nutshell, only value addition will be taxed and burden of

tax is to be borne by the final consumer.

Q 2. What exactly is the concept of destination based

tax on consumption?

Ans. The tax would accrue to the taxing authority which

has jurisdiction over the place of consumption which is

also termed as place of supply.

Q 3. Which of the existing taxes are proposed to be

subsumed under GST?

Ans. The GST would replace the following taxes:

(i) taxes currently levied and collected by the Centre:

a. Central Excise duty

b. Duties of Excise (Medicinal and Toilet

Preparations)

c. Additional Duties of Excise (Goods of Special

Importance)

d. Additional Duties of Excise (Textiles and Textile

Products)

e. Additional Duties of Customs (commonly known as

CVD)

f. Special Additional Duty of Customs (SAD)

g. Service Tax

h. Central Surcharges and Cesses so far as they

relate to supply of goods and services

(ii) State taxes that would be subsumed under the GST

are:

a. State VAT

b. Central Sales Tax

c. Luxury Tax

d. Entry Tax (all forms)

e. Entertainment and Amusement Tax (except when

levied by the local bodies)

f. Taxes on advertisements

g. Purchase Tax

h. Taxes on lotteries, betting and gambling

i. State Surcharges and Cesses so far as they relate to

supply of goods and services

The GST Council shall make recommendations to the Union

and States on the taxes, cesses and surcharges levied by

the Centre, the States and the local bodies which may be

subsumed in the GST.

Q 4. What principles were adopted for subsuming

the above taxes under GST?

Ans. The various Central, State and Local levies were 

examined to identify their possibility of being subsumed

under GST. While identifying, the following principles were

kept in mind:

(i) Taxes or levies to be subsumed should be primarily in

the nature of indirect taxes, either on the supply of goods

or on the supply of services.

(ii) Taxes or levies to be subsumed should be part of

the transaction chain which commences with import/

manufacture/ production of goods or provision of services

at one end and the consumption of goods and services at

the other.

(iii) The subsumation should result in free flow of tax

credit in intra and inter-State levels. The taxes, levies and

fees that are not specifically related to supply of goods &

services should not be subsumed under GST.

(v) Revenue fairness for both the Union and the States

individually would need to be attempted.

Q 5. Which are the commodities proposed to be kept

outside the purview of GST?

Ans. Alcohol for human consumption, Petroleum

Products viz. petroleum crude, motor spirit (petrol),

high speed diesel, natural gas and aviation turbine fuel&

Electricity.

Q 6. What will be the status in respect of taxation of

above commodities after introduction of GST?

Ans. The existing taxation system (VAT & Central Excise)

will continue in respect of the above commodities.

Q 6A. What will be status of Tobacco and Tobacco

products under the GST regime?

Ans. Tobacco and tobacco products would be subject to

GST. In addition, the Centre would have the power to levy

Central Excise duty on these products.

Q 7. What type of GST is proposed to be

implemented?

Ans. It would be a dual GST with the Centre and States

simultaneously levying it on a common tax base. The GST

to be levied by the Centre on intra-State supply of goods

and / or services would be called the Central GST (CGST)

and that to be levied by the States would be called the State

GST (SGST). Similarly Integrated GST (IGST) will be levied

and administered by Centre on every inter-state supply of

goods and services.

Q 8. Why is Dual GST required?

Ans. India is a federal country where both the Centre and

the States have been assigned the powers to levy and collect

taxes through appropriate legislation. Both the levels

of Government have distinct responsibilities to perform

according to the division of powers prescribed in the

Constitution for which they need to raise resources. A dual

GST will, therefore, be in keeping with the Constitutional

requirement of fiscal federalism.

Q 9. Which authority will levy and administer GST?

Ans. Centre will levy and administer CGST & IGST while

respective states will levy and administer SGST.

Q 10. Why was the Constitution of India amended

recently in the context of GST?

Currently, the fiscal powers between the Centre and the

States are clearly demarcated in the Constitution with

almost no overlap between the respective domains. The

Centre has the powers to levy tax on the manufacture of

goods (except alcoholic liquor for human consumption,

opium, narcotics etc.) while the States have the powers

to levy tax on the sale of goods. In the case of inter-State

sales, the Centre has the power to levy a tax (the Central

Sales Tax) but, the tax is collected and retained entirely

by the States. As for services, it is the Centre alone that

is empowered to levy service tax.

Introduction of the GST required amendments in the

Constitution so as to simultaneously empower the Centre

and the States to levy and collect this tax. The Constitution

of India has been amended by the Constitution (one hundred

and first amendment) Act, 2016 recently for this purpose.

Article 246A of the Constitution empowers the Centre and

the States to levy and collect the GST.

Q 11. How a particular transaction of goods and

services would be taxed simultaneously under

Central GST (CGST) and State GST (SGST)?

Ans. The Central GST and the State GST would be levied

simultaneously on every transaction of supply of goods and

services except the exempted goods and services, goods

which are outside the purview of GST and the transactions

which are below the prescribed threshold limits. Further, 

both would be levied on the same price or value unlike

State VAT which is levied on the value of the goods inclusive

of CENVAT. While the location of the supplier and the

recipient within the country is immaterial for the purpose

of CGST, SGST would be chargeable only when the supplier

and the recipient are both located within the State.

Illustration I: Suppose hypothetically that the rate of CGST

is 10% and that of SGST is 10%. When a wholesale dealer

of steel in Uttar Pradesh supplies steel bars and rods to

a construction company which is also located within the

same State for, say Rs. 100, the dealer would charge CGST

of Rs. 10 and SGST of Rs. 10 in addition to the basic price

of the goods. He would be required to deposit the CGST

component into a Central Government account while

the SGST portion into the account of the concerned State

Government. Of course, he need not actually pay Rs. 20 (Rs.

10 + Rs. 10 ) in cash as he would be entitled to set-off this

liability against the CGST or SGST paid on his purchases

(say, inputs). But for paying CGST he would be allowed to

use only the credit of CGST paid on his purchases while

for SGST he can utilize the credit of SGST alone. In other

words, CGST credit cannot, in general, be used for payment

of SGST. Nor can SGST credit be used for payment of CGST.

Illustration II: Suppose, again hypothetically, that the

rate of CGST is 10% and that of SGST is 10%. When

an advertising company located in Mumbai supplies

advertising services to a company manufacturing soap

also located within the State of Maharashtra for, let

us say Rs. 100, the ad company would charge CGST of 

Rs. 10 as well as SGST of Rs. 10 to the basic value of

the service. He would be required to deposit the CGST

component into a Central Government account while

the SGST portion into the account of the concerned State

Government. Of course, he need not again actually pay

Rs. 20 (Rs. 10+Rs. 10) in cash as it would be entitled to

set-off this liability against the CGST or SGST paid on

his purchase (say, of inputs such as stationery, office

equipment, services of an artist etc). But for paying

CGST he would be allowed to use only the credit of CGST

paid on its purchase while for SGST he can utilise the

credit of SGST alone. In other words, CGST credit cannot,

in general, be used for payment of SGST. Nor can SGST

credit be used for payment of CGST.

Q 12. What are the benefits which the Country will

accrue from GST?

Ans. Introduction of GST would be a very significant step in

the field of indirect tax reforms in India. By amalgamating

a large number of Central and State taxes into a single tax

and allowing set-off of prior-stage taxes, it would mitigate

the ill effects of cascading and pave the way for a common

national market. For the consumers, the biggest gain would

be in terms of a reduction in the overall tax burden on goods,

which is currently estimated at 25%-30%. Introduction

of GST would also make our products competitive in the

domestic and international markets. Studies show that this

would instantly spur economic growth. There may also be

revenue gain for the Centre and the States due to widening

of the tax base, increase in trade volumes and improved 

tax compliance. Last but not the least, this tax, because of

its transparent character, would be easier to administer.

Q 13. What is IGST?

Ans. Under the GST regime, an Integrated GST (IGST)

would be levied and collected by the Centre on inter-State

supply of goods and services. Under Article 269A of the

Constitution, the GST on supplies in the course of interState

trade or commerce shall be levied and collected by

the Government of India and such tax shall be apportioned

between the Union and the States in the manner as may be

provided by Parliament by law on the recommendations of

the Goods and Services Tax Council.

Q 14. Who will decide rates for levy of GST?

Ans. The CGST and SGST would be levied at rates to be

jointly decided by the Centre and States. The rates would

be notified on the recommendations of the GST Council.

Q 15. What would be the role of GST Council?

Ans. A GST Council would be constituted comprising the

Union Finance Minister (who will be the Chairman of the

Council), the Minister of State (Revenue) and the State

Finance/Taxation Ministers to make recommendations to the

Union and the States on

(i) the taxes, cesses and surcharges levied by the

Centre, the States and the local bodies which

may be subsumed under GST;

(ii) the goods and services that may be subjected to

or exempted from the GST;

(iii) the date on which the GST shall be levied on

petroleum crude, high speed diesel, motor sprit

(commonly known as petrol), natural gas and

aviation turbine fuel;

(iv) model GST laws, principles of levy, apportionment

of IGST and the principles that govern the place

of supply;

(v) the threshold limit of turnover below which the

goods and services may be exempted from GST;

(vi) the rates including floor rates with bands of

GST;

(vii)any special rate or rates for a specified period

to raise additional resources during any natural

calamity or disaster;

(viii) special provision with respect to the NorthEast

States, J&K, Himachal Pradesh and

Uttarakhand; and

(ix) any other matter relating to the GST, as the

Council may decide.

Q 16. What is the guiding principle of GST Council?

Ans. The mechanism of GST Council would ensure

harmonization on different aspects of GST between the

Centre and the States as well as among States. It has

been provided in the Constitution (one hundred and

first amendment) Act, 2016 that the GST Council, in its

discharge of various functions, shall be guided by the need

for a harmonized structure of GST and for the development

of a harmonized national market for goods and services.

Q 17. How will decisions be taken by GST Council?

Ans. The Constitution (one hundred and first amendment)

Act, 2016 provides that every decision of the GST Council

shall be taken at a meeting by a majority of not less than

3/4th of the weighted votes of the Members present and

voting. The vote of the Central Government shall have a

weightage of 1/3rd of the votes cast and the votes of all the

State Governments taken together shall have a weightage

of 2/3rd of the total votes cast in that meeting. One half

of the total number of members of the GST Council shall

constitute the quorum at its meetings.

Q 18. Who is liable to pay GST under the proposed

GST regime?

Ans. Under the GST regime, tax is payable by the taxable

person on the supply of goods and/or services. Liability to

pay tax arises when the taxable person crosses the threshold

exemption, i.e. Rs.10 lakhs (Rs. 5 lakhs for NE States) except

in certain specified cases where the taxable person is liable

to pay GST even though he has not crossed the threshold

limit. The CGST / SGST is payable on all intra-State supply

of goods and/or services and IGST is payable on all interState

supply of goods and/or services. The CGST /SGST and

IGST are payable at the rates specified in the Schedules to

the respective Acts.

Q 19. What are the benefits available to small tax

payers under the GST regime?

Ans. Tax payers with an aggregate turnover in a financial

year up to [Rs.10 lakhs] would be exempt from tax. 

[Aggregate turnover shall include the aggregate value of

all taxable and non-taxable supplies, exempt supplies and

exports of goods and/or services and exclude taxes viz.

GST.] Aggregate turnover shall be computed on all India

basis. For NE States and Sikkim, the exemption threshold

shall be [Rs. 5 lakhs]. All taxpayers eligible for threshold

exemption will have the option of paying tax with input

tax credit (ITC) benefits. Tax payers making inter-State

supplies or paying tax on reverse charge basis shall not be

eligible for threshold exemption.

Q 20. How will the goods and services be classified

under GST regime?

Ans. HSN (Harmonised System of Nomenclature) code

shall be used for classifying the goods under the GST regime.

Taxpayers whose turnover is above Rs. 1.5 crores but below

Rs. 5 crores shall use 2 digit code and the taxpayers whose

turnover is Rs. 5 crores and above shall use 4 digit code.

Taxpayers whose turnover is below Rs. 1.5 crores are not

required to mention HSN Code in their invoices.

Services will be classified as per the Services Accounting

Code (SAC)

Q 21. How will imports be taxed under GST?

Ans. Imports of Goods and Services will be treated as

inter-state supplies and IGST will be levied on import of

goods and services into the country. The incidence of tax

will follow the destination principle and the tax revenue in

case of SGST will accrue to the State where the imported

goods and services are consumed. Full and complete set-off 

will be available on the GST paid on import on goods and

services.

Q 22. How will Exports be treated under GST?

Ans. Exports will be treated as zero rated supplies. No tax

will be payable on exports of goods or services, however

credit of input tax credit will be available and same will be

available as refund to the exporters.

Q 23. What is the scope of composition scheme under

GST?

Ans. Small taxpayers with an aggregate turnover in

a financial year up to [Rs. 50 lakhs] shall be eligible for

composition levy. Under the scheme, a taxpayer shall

pay tax as a percentage of his turnover during the year

without the benefit of ITC. The floor rate of tax for CGST

and SGST shall not be less than [1%]. A tax payer opting

for composition levy shall not collect any tax from his

customers. Tax payers making inter- state supplies or

paying tax on reverse charge basis shall not be eligible for

composition scheme.

Q 24. Whether the composition scheme will be

optional or compulsory?

Ans. Optional.

Q 25. What is GSTN and its role in the GST regime?

Ans. GSTN stands for Goods and Service Tax Network

(GSTN). A Special Purpose Vehicle called the GSTN has

been set up to cater to the needs of GST. The GSTN shall

provide a shared IT infrastructure and services to Central 

and State Governments, tax payers and other stakeholders

for implementation of GST. The functions of the GSTN

would, inter alia, include: (i) facilitating registration; (ii)

forwarding the returns to Central and State authorities;

(iii) computation and settlement of IGST; (iv) matching

of tax payment details with banking network; (v)

providing various MIS reports to the Central and the State

Governments based on the tax payer return information;

(vi) providing analysis of tax payers’ profile; and (vii)

running the matching engine for matching, reversal and

reclaim of input tax credit.

The GSTN is developing a common GST portal and

applications for registration, payment, return and MIS/

reports. The GSTN would also be integrating the common

GST portal with the existing tax administration IT systems

and would be building interfaces for tax payers. Further,

the GSTN is developing back-end modules like assessment,

audit, refund, appeal etc. for 19 States and UTs (Model

II States). The CBEC and Model I States (15 States) are

themselves developing their GST back-end systems.

Integration of GST front-end system with back-end systems

will have to be completed and tested well in advance for

making the transition smooth.

Q 26. How are the disputes going to be resolved

under the GST regime?

Ans. The Constitution (one hundred and first amendment)

Act, 2016 provides that the Goods and Services Tax Council

shall establish a mechanism to adjudicate any dispute-

(a) between the Government of India and one or more

States; or

(b) between the Government of India and any State or

States on one side and one or more other Sates on the other

side; or

(c) between two or more States,

arising out of the recommendations of the Council or

implementation thereof.

Q 27. What are the other legislative requirements

for introduction of the GST?

Ans. Suitable legislation for the levy of GST (Central GST

Bill, Integrated GST Bill and State GST Bills) drawing

powers from the Constitution would need to be passed

by the Parliament and the State Legislatures. Unlike the

Constitutional Amendment which requires 2/3rd majority,

the GST Bills would need to be passed by a simple majority.

Obviously, the levy of the tax can commence only after the

GST law has been enacted by the Parliament and respective

Legislatures.

 


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