1.WRITE SHORT NOTE ON TAX

Taxes

Tax is the word that is derived from a Latin word “TAXO” which means a mandatory financial charger imposed upon the tax-payer by the government.

Meaning of Tax

A tax is the amount of money paid to the government usually as a percentage of the personal income or on the goods or services bought by the person.

Essential / Features / Characteristics of Good Tax System

The following are the characteristics of good tax system

1. Distribution Of Wealth

A good tax system should fair and equal direct or lead to fair and equal distribution of wealth in the country

2. Revenue To Government

A tax system must be framed in a way that it should yield sufficient / adequate revenue to the government of the country.

3. Cost of collection

The cost of collecting the tax by the government should not be excess then the tax collected.

4. Progressive

The tax collected by government must be Progressive in character means the tax must be distributed in a proportion in way that tax payer is able to pay

5. Time and manner

Tax must be levied in the time and manner which is most likely for tax payer to pay tax conveniently.

6. Elastic

Tax system should be fairly elastic

7. Simple

The taxation system should be simple.

2.WRITE A NOTE ON THE PRINCIPLE/CANONS OF TAXATION BY ADAM SMITH?

THE PRINCIPLE/CANONS OF TAXATION BY ADAM SMITH

Adam smith is the father of modern political economy. In his book named “wealth of nation” he laid down four canons or principles of taxation, which are yet now considered to be the starting point of sound and good public finance.

1) Canon of equality

2) Canon of certainty

3) Canon of convenience

4) Canon of economy

1) Canon of equality

The canon of equality is considered as an important canon of taxation. Here the equality does not mean the every person should pay the equal amount of tax, it means the richer person/peoples should pay the higher proportion of tax and the poor pay less.

The Canon of equality states that there should be justice, in the form of equality while paying the tax.

2) Canon of certainty 

The Canon of certainty is the next canon laid by Adam Smith. The every tax payer should be aware of amount, purpose and time of payment of tax. This principle ensures that the taxpayers must have a full knowledge of the tax amount and payment time of tax.

3) Canon of convenience.

According to Adam, the canon of convenience means that Tax must be levied in the time and manner which is most likely for tax payer to pay tax conveniently.

4) Canon of economy

In Canon of economy Adam Smith implies that the cost/expenses of collecting the taxes by the government should not be excess then the tax collected.

Other canon of taxation:

1) Canon of productivity

The Canon of productivity means that a tax which is been levied must produce an adequate revenue or income to the government.

2) Canon of elasticity

The Canon of elasticity implies that the taxation system of the government should be fairly elastic. So that the government can increase the tax rate or decrease according to the situation in the country

3) Canon of simplicity

The Canon of simplicity states the good tax system should be made or framed as possible as simple. It should be plain, simple and non-technical throw out the entire process of taxation.

4) Canon of diversity

The canon of diversity says the taxation system must involve a various methods of tax collections like direct tax and indirect taxes like VAT, excise duty, GST, income tax etc.

INDIRECT TAX

An indirect tax is collected by one entity in the supply chain (usually a producer or retailer) and paid to the government, but it is passed on to the consumer as part of the purchase price of a good or service. The consumer is ultimately paying the tax by paying more for the product.

DEFINITION OF INDIRECT TAX

Indirect Taxes: They are imposed on goods / services. The Immediate liability to pay is of the manufacturer / service provider / seller but its burden is transferred to the ultimate consumers of such goods / services. The burden is transferred not in form of taxes, but, as a part of the price of goods / services.

Example-Excise Duty, Service Tax, Sales Tax.

EVOLUTION OF GST

History of GST in India

· 2000: In India, the idea of adopting GST was first suggested by the Atal Bihari Vajpayee Government in 2000. The state finance ministers formed an Empowered Committee (EC) to create a structure for GST, based on their experience in designing State VAT. Representatives from the Centre and states were requested to examine various aspects of the GST proposal and create reports on the thresholds, exemptions, taxation of inter-state supplies, and taxation of services. The committee was headed by Asim Dasgupta, the finance minister of West Bengal. Dasgupta chaired the committee till 2011.

· 2004: A task force that was headed by Vijay L. Kelkar the advisor to the finance ministry, indicated that the existing tax structure had many issues that would be mitigated by the GST system.

· February 2005: The finance minister, P. Chidambaram, said that the medium-to-long term goal of the government was to implement a uniform GST structure across the country, covering the whole production-distribution chain. This was discussed in the budget session for the financial year 2005-06.

· February 2006: The finance minister set 1 April 2010 as the GST introduction date.

· November 2006: Parthasarthy Shome, the advisor to P. Chidambaram, mentioned that states will have to prepare and make reforms for the upcoming GST regime.

· February 2007: The 1 April 2010 deadline for GST implementation was retained in the union budget for 2007-08.

· February 2008: At the union budget session for 2008-09, the finance minister confirmed that considerable progress was being made in the preparation of the roadmap for GST. The targeted timeline for the implementation was confirmed to be 1 April 2010.

· July 2009: Pranab Mukherjee, the new finance minister of India, announced the basic skeleton of the GST system. The 1 April 2010 deadline was being followed then as well.

· November 2009: The EC that was headed by Asim Dasgupta put forth the First Discussion Paper (FDP) , describing the proposed GST regime. The paper was expected to start a debate that would generate further inputs from stakeholders.

· February 2010: The government introduced the mission-mode project that laid the foundation for GST. This project, with a budgetary outlay of Rs.1,133 crore, computerised commercial taxes in states. Following this, the implementation of GST was pushed by one year.

· March 2011: The government led by the Congress party puts forth the Constitution (115th Amendment) Bill for the introduction of GST. Following protest by the opposition party, the Bill was sent to a standing committee for a detailed examination.

· June 2012: The standing committee starts discussion on the Bill. Opposition parties raise concerns over the 279B clause that offers additional powers to the Centre over the GST dispute authority.

· November 2012: P. Chidambaram and the finance ministers of states hold meetings and set the deadline for resolution of issues as 31 December 2012.

· February 2013: The finance minister, during the budget session, announces that the government will provide Rs.9,000 crore as compensation to states. He also appeals to the state finance ministers to work in association with the government for the implementation of the indirect tax reform.

· August 2013: The report created by the standing committee is submitted to the parliament. The panel approves the regulation with few amendments to the provisions for the tax structure and the mechanism of resolution.

· October 2013: The state of Gujarat opposes the Bill, as it would have to bear a loss of Rs.14,000 crore per annum, owing to the destination-based taxation rule.

· May 2014: The Constitution Amendment Bill lapses. This is the same year that Narendra Modi was voted into power at the Centre.

· December 2014: India’s new finance minister, Arun Jaitley, submits the Constitution (122nd Amendment) Bill, 2014 in the parliament. The opposition demanded that the Bill be sent for discussion to the standing committee.

· February 2015: Jaitley, in his budget speech, indicated that the government is looking to implement the GST system by 1 April 2016.

· May 2015: The Lok Sabha passes the Constitution Amendment Bill. Jaitley also announced that petroleum would be kept out of the ambit of GST for the time being.

· August 2015: The Bill is not passed in the Rajya Sabha. Jaitley mentions that the disruption had no specific cause.

· March 2016: Jaitley says that he is in agreement with the Congress’s demand for the GST rate not to be set above 18%. But he is not inclined to fix the rate at 18%. In the future if the Government, in an unforeseen emergency, is required to raise the tax rate, it would have to take the permission of the parliament. So, a fixed rate of tax is ruled out.

· June 2016: The Ministry of Finance releases the draft model law on GST to the public, expecting suggestions and views.

· August 2016: The Congress-led opposition finally agrees to the Government’s proposal on the four broad amendments to the Bill. The Bill was passed in the Rajya Sabha.

· September 2016: The Honourable President of India gives his consent for the Constitution Amendment Bill to become an Act.

· 2017: Four Bills related to GST become Act, following approval in the parliament and the President’s assent:

· Central GST Bill

· Integrated GST Bill

· Union Territory GST Bill

· GST (Compensation to States) Bill

The GST Council also finalised on the GST rates and GST rules. The Government declares that the GST Bill will be applicable from 1 July 2017, following a short delay that is attributed to legal issues.

GOODS AND SERVICES TAX

MEANING

The Goods and Services Tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services. In effect, GST provides revenue for the government.

The Goods and Services Tax aims to reduce the number of indirect taxes and unify the Indian market. Though it was implemented midway in the last financial year, it has its fair share of proponents and critics. Here’s a look at the advantages and disadvantages associated with GST.

Advantages of GST

1. GST eliminates the cascading effect of tax

GST is a comprehensive indirect tax that was designed to bring the indirect taxation under one umbrella. More importantly, it is going to eliminate the cascading effect of tax that was evident earlier.

Cascading tax effect can be best described as ‘Tax on Tax’. Let us take this example to understand what is Tax on Tax:

Before GST regime:

A consultant offering services for say, Rs 50,000 and charged a service tax of 15% (Rs 50,000 * 15% = Rs 7,500).

Then say, he would buy office supplies for Rs. 20,000 paying 5% as VAT (Rs 20,000 *5% = Rs 1,000).

He had to pay Rs 7,500 output service tax without getting any deduction of Rs 1,000 VAT already paid on stationery.

His total outflow is Rs 8,500.

Under GST 

GST on service of Rs 50,000 @18%

9,000

Less: GST on office supplies (Rs 20,000*5%)

1,000

Net GST to pay

8,000

2. Higher threshold for registration

Earlier, in the VAT structure, any business with a turnover of more than Rs 5 lakh (in most states) was liable to pay VAT. Please note that this limit differed state-wise. Also, service tax was exempted for service providers with a turnover of less than Rs 10 lakh.

Under GST regime, however, this threshold has been increased to Rs 20 lakh, which exempts many small traders and service providers.

Let us look at this table below:

Tax

Threshold Limits

Excise

1.5 crores

VAT

5 lakhs in most states

Service Tax

10 lakhs

GST

20 lakhs (10 lakhs for NE states)

3. Composition scheme for small businesses

Under GST, small businesses (with a turnover of Rs 20 to 75 lakh) can benefit as it gives an option to lower taxes by utilizing the Composition scheme. This move has brought down the tax and compliance burden on many small businesses.

4. Simple and easy online procedure

The entire process of GST (from registration to filing returns) is made online, and it is super simple. This has been beneficial for start-ups especially, as they do not have to run from pillar to post to get different registrations such as VAT, excise, and service tax.

Our ClearTax GST software is already on a roll filing GST returns

5. The number of compliances is lesser

Earlier, there was VAT and service tax, each of which had their own returns and compliances. Below table shows the same:

Under GST, however, there is just one, unified return to be filed. Therefore, the number of returns to be filed has come down. There are about 11 returns under GST, out of which 4 are basic returns which apply to all taxable persons under GST. The main GSTR-1 is manually populated and GSTR-2 and GSTR-3 will be auto-populated.

6. Defined treatment for E-commerce operators

Earlier to GST regime, supplying goods through e-commerce sector was not defined. It had variable VAT laws. Let us look at this example:

Online websites (like Flipkart and Amazon) delivering to Uttar Pradesh had to file a VAT declaration and mention the registration number of the delivery truck. Tax authorities could sometimes seize goods if the documents were not produced.

 Again, these e-commerce brands were treated as facilitators or mediators by states like Kerala, Rajasthan, and West Bengal which did not require them to register for VAT.

All these differential treatments and confusing compliances have been removed under GST. For the first time, GST has clearly mapped out the provisions applicable to the e-commerce sector and since these are applicable all over India, there should be no complication regarding the inter-state movement of goods anymore.

Read a more detailed analysis of the impact of GST on e-commerce.

7. Improved efficiency of logistics

Earlier, the logistics industry in India had to maintain multiple warehouses across states to avoid the current CST and state entry taxes on inter-state movement. These warehouses were forced to operate below their capacity, giving room to increased operating costs.

Under GST, however, these restrictions on inter-state movement of goods have been lessened.

As an outcome of GST, warehouse operators and e-commerce aggregators players have shown interest in setting up their warehouses at strategic locations such as Nagpur (which is the zero-mile city of India), instead of every other city on their delivery route.

Reduction in unnecessary logistics costs is already increasing profits for businesses involved in the supply of goods through transportation.

Visit here to read more about the impact of GST on logistics.

8. Unorganized sector is regulated under GST

In the pre-GST era, it was often seen that certain industries in India like construction and textile were largely unregulated and unorganized.

Under GST, however, there are provisions for online compliances and payments, and for availing of input credit only when the supplier has accepted the amount. This has brought in accountability and regulation to these industries.

Let us now look at disadvantages of GST. Please note that businesses need to overcome these disadvantages to run the business smoothly.

Disadvantages of GST1. Increased costs due to software purchase

Businesses have to either update their existing accounting or ERP software to GST-compliant one or buy a GST software so that they can keep their business going. But both the options lead to increased cost of software purchase and training of employees for an efficient utilization of the new billing software.

ClearTax is the first company in India to have launched a ready-to-use GST software called Cleartax GST software. The software is currently available for free for SMEs, helping them transition to GST smoothly. It has truly eased the pain of the people in so many ways.

2. Being GST-compliant

Small and medium-sized enterprises (SME) who have not yet signed for GST have to quickly grasp the nuances of the GST tax regime. They will have to issue GST-complaint invoices, be compliant to digital record-keeping, and of course, file timely returns. This means that the GST-complaint invoice issued must have mandatory details such as GSTIN, place of supply, HSN codes, and others.

ClearTax has made it easier for SMEs with the ClearTax BillBook web application. This application is available for FREE until the end of September and is an easy solution to this problem. This will help every business to issue GST-compliant invoices to their customers. These same invoices can then be used for return filing through the ClearTax GST platform.

3. GST will mean an increase in operational costs

As we have already established that GST is changing the way how tax is paid, businesses will now have to employ tax professionals to be GST-complaint. This will gradually increase costs for small businesses as they will have to bear the additional cost of hiring experts.

Also, businesses will need to train their employees in GST compliance, further increasing their overhead expenses.

4. GST came into effect in the middle of the financial year

As GST was implemented on the 1st of July 2017, businesses followed the old tax structure for the first 3 months (April, May, and June), and GST for the rest of the financial year.

Businesses may find it hard to get adjusted to the new tax regime, and some of them are running these tax systems parallelly, resulting in confusion and compliance issues.

5. GST is an online taxation system

Unlike earlier, businesses are now switching from pen and paper invoicing and filing to online return filing and making payments. This might be tough for some smaller businesses to adapt to.

Cloud-based GST billing software like the ClearTax GST Billing Software is definitely an answer to this problem. The process for return filing on ClearTax GST is very simple. Business owners need to only upload their invoices, and the software will populate the return forms automatically with the information from the invoices. Any errors in invoices will be clearly identified by the software in real-time, thus increasing efficiency and timeliness.

6. SMEs will have a higher tax burden

Smaller businesses, especially in the manufacturing sector will face difficulties under GST. Earlier, only businesses whose turnover exceeded Rs 1.5 crore had to pay excise duty. But now any business whose turnover exceeds Rs 20 lakh will have to pay GST.

However, SMEs with a turnover upto Rs 75 lakh can opt for the composition scheme and pay only 1% tax on turnover in lieu of GST and enjoy lesser compliances. The catch though is these businesses will then not be able to claim any input tax credit. The decision to choose between higher taxes or the composition scheme (and thereby no ITC) will be a tough one for many SMEs.

Conclusion

Change is definitely never easy. The government is trying to smoothen the road to GST. It is important to take a leaf from global economies that have implemented GST before us, and who overcame the teething troubles to experience the advantages of having a unified tax system and easy input credits.

STRUCTURE OF GST

4 Tier GST Tax Structure

The new tax structure was carefully crafted to keep both the burden of the common man and inflation rates in mind, which were the biggest concerns of several economists who have been keenly following the progression of the GST bill since its approval.

The four-tier tax structure contains four separate rates: a zero rate, a lower rate, a standard rate, and a higher rate. This article is aimed at providing a brief overview of each GST rate.

Zero rate

The zero rate tax is a nil tax rate that is applied on goods and services. This is equivalent to tax exemption and does not have any effect on the price of the product. Items that are eligible for zero rate tax are decided by the government.

As per the four-tier tax structure, the zero rate tax will be applied on 50% of the items of the consumer price index (CPI) basket - an index that constantly measures prices of commonly purchased consumer goods and services to measure inflation. The zero rate items could include items such as, food grains, milk, curd, and other food items like eggs, cereal and meat. Also, metro travel, education and healthcare are exempted from GST.

Including zero rate as part of the GST structure will keep the prices of basic items in check, regardless of whether the government decides to increase tax rates in the future.

Lower rate

A lower rate of 5% will be applied on the rest of the items in the CPI basket and other items of mass consumption. This includes food items like sugar, tea, coffee, oil, and other essentials like PDS kerosene and LPG. Since the taxation on coal is likely to reduce from 11.69% to 5% under the GST regime, electricity generation is expected to be less expensive. The GST council has decided to place transport services in the 5% sector, which is applicable to Ola and Uber aggregators. Air-conditioned train tickets will be taxed at a rate of 5%, while non-AC train tickets will be exempt from GST. This, along with the zero rate tax, will help prevent inflation from having much of an impact on zero rate and lower rate items, keeping the prices of all essential items in check.

Standard rate

There are two standard rates that have been finalized by the GST Council: 12% and 18%. Finance Minister Arun Jaitley, in his address to the press, said that the Council had finalized two standard rates in order to keep inflation in check.

Imagine a product, which is currently taxed at 13%, charged a rate of 18% GST. This would increase the price of the product by 5%, leading to inflation. To avoid this, the GST council decided to tax all goods and services that are currently taxed at 9-15% at a standard rate of 12%. Processed foods will also be taxed at 12%. The rest of the goods and services will be taxed the second standard rate of 18%. Toiletries like hair oil, soap, and toothpaste will be taxed at 18%. Also, capital goods, industrial intermediaries, iron and steel, financial and telecom services will be included under this sector.

Higher rate

A higher rate of 28% will be levied on white goods such as washing machines, air conditioners, refrigerators, small cars, etc. Aerated drinks and cement are also included in this tier.

Previously, the tax on white goods was around 27% (including an excise of 12.5% and VAT of 14.5%), but the cascading effect elevated the tax as high as 30-31%. This will be minimized by the new higher rate of 28%.

Additional cess

The additional cess, which had been a topic of debate since the proposal of the GST rates, is now finalized.

People worried that demerit goods (such as tobacco products and aerated drinks), which were previously taxed at 65% and 40%, would become cheaper and too easily accessible with the new higher rate of GST set at 28%. Keeping this in mind, the new GST structure will collect an additional cess on top of 28% GST. The cess will only be applied on certain demerit goods. The percentage of additional cess has been fixed by the government as 15% for luxury vehicles, 1% for petrol powered small cars and 3% for diesel powered small cars. Motorcycles with an engine capacity of over 350 cc will be liable for an additional cess of 3%.

Even though this might not look close to what was expected of GST, the newly proposed tax structure is the first of the many steps that government wants to test. The idea of the current structure is to lower the burden of the common man by taxing items of mass consumption at 0-5%, followed by taxing most major goods and services at a standard rate of 18%.

Structure of GST

Tax Structure of GST. GST Tax Structure. Taxation Structure of Goods and Service Tax. Check Complete details for Proposed Tax Structure of GST in India. After Providing “GST Model For India – Proposed, Central and State GST“. Under the proposed concurrent dual GST model for India, the following taxes shall be levied on the supply of goods and services. Recently we provide complete details for GST Registration, GST Login Procedure, GST Rates 2017, GST Return Online Process, GST Refund Details, HSN Code List etc…

Tax Structure of GST, Goods and Service Tax Taxation Structure

· CGST – Central Goods and Service Tax

· SGST – State Goods and Service Tax

· IGST – Integrated Goods and Service Tax/ (CGST+SGST)

Additional Tax (upto 1%) to be levied in case of inter-state supply of goods, which is a non-vatable item. Hence, no input credit available on such.

Taxes to be subsumed under GST Structure:

Post implementation, the following Central and State indirect taxes would be subsumed in GST and existing indirect taxes takes the form of CGST, SGST and IGST as per above proposed model.

Central taxes to be subsumed in GST

· Central Excise Duty

· Additional Excise Duties,

· Excise Duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act 1955

· Service Tax,

· Additional Customs Duty (Countervailing Duty)

· Special Additional Duty of Customs – 4% (SAD),

· Central Surcharges and Cesses in the nature of taxes on goods/services like cess on rubber, tea, coffee, national calamity contingent duty etc

State taxes to be subsumed in GST

· State VAT/Sales Tax,

· Entertainment tax (unless it is levied by the local bodies),

· Luxury Tax,

· Taxes on lottery, Betting and gambling.

· Tax on advertisements,

· State Cesses and Surcharges in the nature of taxes on goods/ services

· Octroi and Entry Tax

· Purchase tax

Some of the taxes that would be continued under GST regime are Basic customs duty, property tax, stamp duty, vehicle tax etc.

Alcoholic liquor for human consumption is exempted from the purview of GST and tobacco products would be subject to separate excise duty in addition to GST. Further, the petroleum products would be continued to be taxed as per the existing laws and would be transitioned into GST regime from a future date to be notified by the GST Council.

SGST (State Goods and Services Tax)Meaning of SGST

On this blog we have already talked about GST – Introduction and Working and this article is based on State Goods and Services Tax, which is one of the 3 categories under Goods and Services Tax (CGST, IGST and SGST) with a concept of one nation one tax.

It falls under the State Goods and Services Tax Act, 2017.

It is levied on the Intra State movement of goods and services. The revenue collected under State Goods and Services Tax is for the State Government. However, Input Tax Credit on it is given partly to the Centre and partly to the States as it will be utilized against the payment of both SGST and IGST.

Example

The above stated example shows how the taxes would be collected by both the centre and by the state. Both CGST and SGST will be applicable on a single transaction.

In case you are confused about GST as a business owner, feel free to consult the GST experts at Legal Raasta. You can get comprehensive assistance on GST Registration and GST Return Filing. You can also use our GST software for doing end-to-end GST compliance.

CGST (Central Goods and Services Tax)Meaning of CGST

On this blog we have already talked about GST – Introduction and Working and this article is based on Central Goods and Services Tax, which is one of the 3 categories under Goods and Services Tax (CGST, IGST and SGST) with a concept of one nation one tax.

It falls under the Central Goods and Services Tax Act, 2017.

It is levied on the Intra State movement of goods and services. The revenue collected under Central Goods and Services Tax is for the Central Government. However, Input Tax Credit on it is given partly to the Centre and partly to the States as it will be utilized against the payment of both CGST and IGST.

Example

The above stated example shows how the taxes would be collected by both the centre and by the state. Both CGST and SGST will be applicable on a single transaction.

In case you are confused about GST as a business owner, feel free to consult the GST experts at LegalRaasta. You can get comprehensive assistance on GST Registration and GST Return Filing. You can also use our GST software for doing end-to-end GST compliance.

IGST (Integrated Goods and Services Tax)Meaning of IGST

IGST refers to the Integrated Goods and Services Tax which is a part of GST under the concept of one nation one tax. It is one of the 3 types of taxes and is under the Integrated Goods and Services Tax Act, 2017. It is charged on the goods and services supplied from one state to another.

Features of IGST

· IGST equals to CGST+SGST. IGST model envisages that the centre will levy tax at a rate approximately equal to CGST+SGST on Inter-State supply of goods & services.

· It is a destination based tax and will accrue to importing state.

· It will lower tax burden by taxing Inter-State transaction only once.

· B2B transactions – tax will flow to the State where Purchaser claims Input Tax Credit.

· B2C transactions – tax will flow to the State of Consumer, otherwise tax will remain in the State of Seller.

Difference between CGST, SGST and IGST

In this blog we talked about GST – Introduction, CGST, SGST and IGST. This article is based on taxes subsumed under CGST SGST and IGST, Why we are getting 3 taxes – CGST SGST and IGST, How will input tax credit be adjusted between states and centre and the Difference between CGST SGST and IGST.

Taxes subsumed under CGST SGST and IGST

Why we are getting 3 taxes – CGST SGST and IGST ?

India is a federal country where both the Centre and the State have been assigned the powers to levy and collect taxes. Both the levels of Government need to raise resources as they have distinct constitutional responsibilities to perform. A dual GST where Centre and State simultaneously levy GST will, therefore, not only be in keeping with the Constitutional requirement of fiscal federalism but also be advantageous to all stakeholders.

Taxpayers are allowed to take input tax credit of 3 taxes being levied thus ensuring “One nation one tax”.

https://www.legalraasta.com/gst/cgst-sgst-and-igst/

GST is a consumption based tax i.e. the tax should be received by the state in which the goods or services are consumed and not by the state in which such goods are manufactured. IGST will ensure seamless flow of input tax credit between inter-statemovement of goods. One state has to deal only with the Centre government to settle the tax amounts and not with every other state, thus making the process easier.

For example: A dealer in Punjab sold goods to the consumer in Punjab worth Rs. 10,000. The GST rate is 12% comprising of CGST rate of 6% and SGST rate of 6%, in such case the dealer collects Rs. 1200 and Rs. 600 will go to the central government and Rs. 600 will go to the Punjab government.

Now, if the dealer in Punjab had sold goods to a dealer in Delhi worth Rs. 1,00,000. The GST rate is 12% comprising of CGST rate of 6% and SGST rate of 6%. In such case the dealer has to charge Rs. 12,000 as IGST. This IGST will go to the Centre.

Difference between CGST SGST and IGST

CGST

SGST

IGST

Meaning

CGST means Central goods and service tax to replace the existing tax like service tax, excise, etc. and It is levied by central government

SGST means State goods and service tax, replace the existing tax like sales tax, luxury tax, entry tax, etc. and it is levied by the state government

IGST refers to the integrated goods and services tax and it is a combined form of CGST and IGST and it is levied by central government

Collection of tax

Central government

State government

Central government

Applicability

Intra-state supply

Intra-state supply

Inter-state supply

Registration

No registration till the turnover crosses 20 lakh ( 10 lakh for north eastern states)

No registration till the turnover crosses 20 Lakh ( 10 lakh for north eastern states)

Registration is mandatory

Composition

The dealer can use the benefit up to 75 lakh under the composition scheme

The dealer can use the benefit up to 75 lakh under the composition scheme

The composition scheme is not applicable in inter state supply

Conclusion

A basic difference between the three has been explained above. However, GST is so wide and complicated that there will always be some miseries unanswered.

In case you are confused about GST as a business owner, feel free to consult the GST experts at LegalRaasta. You can get comprehensive assistance on GST Registration and GST Return Filing. You can also use our GST software for doing end-to-end GST compliance.

Union Territory GST (UTGST) and Why It Is Implemented

The GST council has included the UTGST in order to complete the constitutional obligation which it says The Constitution (One Hundred and First Amendment) Act, 2016, has added a new clause, namely Clause 26B on “State” in Article 366. As per this clause, “State” with reference to Articles 246A, 268, 269, 269A, and 279A includes a Union territory with Legislature yet even ‘State’ for the purposes of GST, added a Union territory with Legislature.

The purpose of UTGST bill is to apply a collection of tax on every Intra UT supply of goods and service in the union territories in absence of legislature and has similar properties as that of SGST. So all in all, the SGST cannot fulfill the needed provision here and for the same UTGST has taken its place. The Union Territory GST is applied to union territories of India namely Chandigarh, Lakshadweep, Daman and Diu, Dadra and Nagar Haveli, Andaman and Nicobar Islands.

Why Union Territory GST Is Implemented?

The main agenda has been taken up by the GST council for which the apex body has introduced the UTGST which will continue to provide benefits as same as SGST. Apart from that, New Delhi and Puducherry will still enjoy the SGST provisions as both states have their separate legislatures and can operate freely on the terms of SGST and has also been considered as the states by the GST Council.

For more understanding on the topic of the Union Territory GST, one can see the legislature rules and regulations written in the constitution, which says, As per Article 246(4) of Constitution, the Parliament has rights to form laws with respect to any matter for any part of the territory of India, which is not included in the State, including the matters enumerated in State List. By the verification of the aforementioned rules and laws of the constitution, the central government can forward the UTGST in the parliament for further approval.

Various combination of taxes can be as seen after the implementation GST like:

· For Supply of goods and/or services within a state (Intra-State): CGST + SGST;

· For Supply of goods and/or services within Union Territories (Intra-UT): CGST + UTGST;

· For Supply of goods and/or services across States and/or Union Territories (Inter-State/ Inter-UT): IGST

In the case of Input tax credit, Computation of utilization of Input Tax Credit of UTGST would be the equivalent like SGST. Here suggests, Input Tax Credit of SGST or UTGST would first set-off opposite SGST or UTGST individually. Output Tax liabilities and balance, if any, can be set-off against IGST Output Tax liabilities.

Types of categories under GST rate

The GST tax is levied based on Revenue Neutral Rate (RNR). For the purpose of imposing GST tax in India, the goods and services are categorised in to four.

These 4 categories of goods and services are as follows:

Exempted Categories under GST in India.

The GST and council and other GST authorities notifies list of exempted goods. Such goods are not fallen under payment of GST tax. The authorities may modify or amend the list time to time by adding deleting any item if required by notification to public.

Essential Goods and Services of GST in India

Essential category of goods and services are charged very lower GST rate. Essential goods and services are the goods and services for necessary items and items under basic importance.

Value-Added Tax (VAT)

What is a Value-Added Tax (VAT)?

A value-added tax (VAT) is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. The amount of VAT that the user pays is on the cost of the product, less any of the costs of materials used in the product that have already been taxed.

VAT is tax that is levied on services and goods and is paid to the government by producers although the actual tax is levied from the end user or consumers who purchase the services and goods.

VAT Rates in India 

The implementation guidelines and rules of Value Added Tax vary from state to state as the tax is collected by state governments. VAT in India is categorised under 4 heads which are as follows: 

1. Nil: Goods and services that fall under this category are exempt from VAT. These are mainly items that are basic in nature and sold in the unorganised sector. Examples of such items include khadi, salt, etc. 

2. 1%: VAT is charged at 1% for the items under this category. 1% VAT is usually charged on items that are relatively expensive in nature. The reason why VAT is charged at 1% on expensive goods is because increasing the rate of VAT will considerably increase the prices of the items that fall under this category. Some of the examples of products that fall under this category include gold, silver, precious stones, etc.  

3. 4-5%: VAT is charged at 4% to 5% on certain items that are used on a daily basis. Examples of items that attract VAT at 4-5% include cooking oil, tea, medicines, etc. 

4. General: Items that fall under the general category attract VAT at 12% to 15. The items that fall under this category are mainly luxury items such as cigarettes, alcohol, etc. 

Features of Value Added Tax in India:

· Similar goods and services are taxed equally. So a similar television from all brands will be taxed the same

· VAT is levied at each stage of production and hence makes the taxation process easier and more transparent

· VAT reduces chances of tax evasion and fosters compliance

· Encourages transparency in sale of goods and services at the tiniest level

Calculation of VAT:

VAT is actually calculated as the difference between input tax and output tax.

VAT = Output Tax – Input Tax

Where output tax is the tax received by the seller for sale of his goods and services and input tax is the tax paid by the seller for raw materials required to manufacture his goods and services.

VAT Example:

Suppose Ram owns a restaurant and spends Rs.50,000 towards obtaining raw materials. Input tax is 10%, so input tax becomes 10% of Rs.50,000 = Rs.5,000

Now after selling the food made by using the purchased raw materials, Ram was able to make Rs.1,00,000. Supposing 10% output tax, output tax becomes Rs.10,000

So, final VAT payable by Ram comes out to be Rs.10,000 – Rs.5,000 = Rs.5,000

Following items are covered under VAT

1. Petroleum

2. Electricity

3. Stamp Duty

4. Alcohol

5. Employer Employees

6. MP, MLA service

7. Furnal

8. Aviation Turbine Fuel(ATF)

9. Natural Gas