The GST Primer: All You Need To Know

With less than 24 hours left for the implementation of one of the biggest reforms the country has ever seen, the first question that will strike your mind is, ‘are we GST ready’?

The GST storm will be hitting the country at midnight today. The storm, that was predicted decades ago, is finally coming to life. Things are going to change, and, change beyond expectations. The way you do business will never be the same again. The complex tax structure of the nation might become even more complex.

Implementing a new reform in a country like India is a tough job. But, when the reform is as complex as ‘GST’, the problem in implementation escalates to an all new level. Believe me; the government will be more anxious than the common people, because if things don’t work out the way they are supposed to, people will know who to blame. 

There are several experts talking about the positives and negatives of the reform, but the absolute truth or the fate of GST is unknown and can’t be predicted.

The lack of knowledge about the GST is one of government’s major concerns. As we inch closer to the historic 1st of July, here are the things about GST you must know:

Basics:

- The GST is a destination based tax which is proposed to be levied at all stages, from manufacture to consumption. 

- GST would follow the destination principle. The imports will be subjected to GST, while the exports will have zero tax rates.

- In case of Inter-state transactions within India, the state tax would apply in the state of destination as opposed to that of origin. 

For example- In the present system, if a product is being sold from Mumbai to Chennai at a price of Rs. 2100, you have to pay a CST (Central State Tax) of 10% which is Rs. 210. So, the total cost becomes Rs. 2310. 

Under GST, you will only have to pay IGST (Integrated Goods and Service Tax) of 10% as the cost of CGST (Central goods and service tax) and SGST (State Goods and Service Tax) will be deducted from the integrated tax. The CGST and SGST comprises of 5% tax. So, for the above mentioned scenario, the total cost from Mumbai to Chennai will only be Rs. 2210. You save Rs. 100. 

Threshold Limit for Registration:

Every supplier must register with the state if his/her aggregate turnover in a financial year exceeds a certain threshold limit based upon the state’s category:

• Special States of Assam, J&K, Andhra Pradesh, Himachal Pradesh, Sikkim, Meghalaya, Mizoram, Nagaland, Tripura and Uttarakhand- Rs. 10 lakhs. 
• All other states- Rs. 20 lakhs. 

If a person is engaged in the business of supplying non-taxable supplies, or wholly exempt supplies, the person is not liable to register. 

Taxes to be subsumed (The below taxes would not exist separately from now on): 

CENTRAL TAXES:

• Central Excise Duty. 
• The Excise Duty
• Additional Duties of Excise (goods of special importance).
• Additional Duties of Excise (textile and textile products).
• Service Tax
• Additional Customs Duty.
• Special Additional Duty of Customs.
• Central Surcharges and Cesses.

STATE TAXES:

• Value Added Tax
• Central Sales Tax
• Entry Tax, Octroi and LBT (Local Body Tax)
• Luxury Tax
• Taxes on Advertisements
• Taxes on Lottery, Betting and Gambling.
• Entertainment Tax
• Purchase Tax
• State Cesses and Surcharges

Exclusions from GST: (The below sectors would not come under the GST)

1. Basic Custom Duty
2. Tobacco Products (partly)
3. Electricity and Power
4. Real Estate Stamp Duty
5. Clean Energy Cess
6. Alcohol for human consumption

Invoices under GST:

1. If a taxable supplier is supplying taxable goods or services, he must issue an invoice.
2. Invoice is not mandatory if the supplied goods or services are less than Rs. 200 and the recipient is unregistered. 
3. The input tax credit can be claimed based on tax invoice.
4. If there is a supply of taxable services, the registered taxable person shall issue tax invoice within 30 days from date of provision of services or before the due date of payment or before the date of payment, in case of continuous supply of service. 
5. If there is a supply of taxable goods, the registered taxable person shall issue tax invoice, before/ at the time of removal of goods, if the supply involves movement of goods or before/ at the time of delivery of goods, if the supply doesn’t involve movement of goods.

Input Tax Credit:

1. Input Tax in relation to a taxable person means, the GST charged on any supply of goods or services to him which are used or are intended to be used, in the course of furtherance of his business.
2. The definition of Input Tax Credit includes the tax payable or paid under reverse charge mechanism. 
3. Input Tax Credit on goods and services can be claimed up to the month of September of the following financial year to which the invoice pertains or before the date of filing of annual return, whichever is earlier.

Challenges: 

1. All the old rules and regulations, working manuals, administrative systems, procedures, internal control system and circulars need to be re-set. 
2. When the law would be uniform, dispute settlement mechanisms would also be needed.
3. Implementation of IT systems and computerization at mass level in the small towns and rural areas would be the toughest task.
4. In economies like India, destination based taxation requires high compliance cost and efficient administration. 
5. In the GST model, the magnitude of transactions would be so high that integration may fail without a sound IT infrastructure. 

(This has been summarised from a report on GST by Sudhir Sunil & Co)

Kshitiz Mohan

BW Reporters Kshitiz Mohan is a journalist