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GOODS AND SERVICES TAX (GST)
Goods and Services Tax (GST) is a
single tax rate levied on the
manufacture, sale and
consumption of goods and
services at a national level.
GOODS AND SERVICES TAX
GOODS AND SERVICES TAX
In this system, GST is levied only on the value-added at every
stage of production. This will ensure that there is no cascading
effect of taxes (tax on tax paid) on inputs that are used in
manufacturing of goods.
GOODS AND SERVICES TAX
For example: If a tax of 15% is levied on Rs. 2 lakhs at the first
stage, the tax outflow would be Rs. 30,000. At the next stage when
the same goods are sold for Rs. 2.5 lakhs the tax would have been
Rs. 37,500 (Rs. 2.5 Lakhs x 15%) but since there is a set off of Rs.
30,000 available, the actual tax at that stage will be Rs. 7,500 (Rs.
37,500 – Rs. 30,000).
Simply put, when the final tax is
calculated, the tax already paid on
input / raw material is deducted
and then tax is levied only on the
cost of the goods produced.
GOODS AND SERVICES TAX
How is the GST
different from
current system?
GOODS AND SERVICES TAX
Current GST Nature of Regime
A Combination of value added tax (VAT) which is a destination-based tax and origin-based taxes such as excise duties etc.
Tax incidence at the point of sale
Tax Base Goods & Services are taxed separately, subject to some exemptions
Comprehensive base of goods & services included
Multiplicity of tax rates
Multiple tax rates Single tax rate
Tax Cascading
Incomplete set off mechanism for tax paid in the supply chain (e.g. no set off available for VAT against service tax or excise duty)
Complete set-off should be available in the entire chain of production and distribution to eliminate tax cascading effect
Why is it considered a better
system?
GOODS AND SERVICES TAX
GOODS AND SERVICES TAX
Currently, there are multiple indirect taxes — Central taxes such as excise
duty, service tax and countervailing duty, and State taxes, such as VAT,
entertainment tax and luxury tax. This results in high tax rates.
Accordingly, GST seeks to eliminate multiplicity of taxes, rates, exemptions
and such exceptions to achieve uniformity of taxes across the country.
Further, it would provide greater certainty and transparency of taxes.
Also, the differences across states fragment the national market along
state boundaries. GST is likely to replace all these taxes with a simple levy,
lowering effective tax on goods and creating a national market in goods
and services.
What is the GST model
India plans to adopt?
Most countries have a unified GST system. However, India has opted
for a dual GST system prevalent in Brazil and Canada. Under this
model, both the Centre and states have the right to levy and collect
tax on the sale of goods and services.
GOODS AND SERVICES TAX
What are the key
benefits of
implementing a GST?
GST will simplify India's tax structure, broaden the tax base, and
create a common market across states. This will lead to increased
compliance and will support India's GDP growth.
It will be beneficial for India Inc. as the average tax burden on
companies will fall due to transparent set-off mechanism and
elimination of cascading taxes leading to reduced production costs and
increased export competitiveness.
GOODS AND SERVICES TAX
Implementation of GST may lead to a fall in costs in many cases
making several products competitive leading to benefits for the
manufacturers and also making some of them competitive on the
world stage. Over a period of time the consumer will reap the benefits
of the process through lower costs.
GOODS AND SERVICES TAX
Let us see the formula of the Current Account Balance (CAB)
CAB = X - M + NI + NCTX = Exports of goods and servicesM = Imports of goods and servicesNI = Net income abroad [Salaries paid or received,
credit / debit of income from
FII & FDI etc. ]
NCT = Net current transfers [Workers' Remittances
(unilateral), Donations,
Aids & Grants, Official,
Assistance and Pensions etc]
CURRENT ACCOUNT DEFICIT
Hope you have now understood the
concept of Goods and Services Tax.
GOODS AND SERVICES TAX
DISCLAIMER
The views expressed in this lesson are for information purposes only and do not construe to be
any investment, legal or taxation advice. The lesson is a conceptual representation and may not
include several nuances that are associated and vital. The purpose of this lesson is to clarify the
basics of the concept so that readers at large can relate and thereby take more interest in the
product / concept. In a nutshell, Professor Simply Simple lessons should be seen from the
perspective of it being a primer on financial concepts. The contents are topical in nature and
held true at the time of creation of the lesson. This is not indicative of future market trends, nor
is Tata Asset Management Ltd. attempting to predict the same. Reprinting any part of this
material will be at your own risk. Tata Asset Management Ltd. will not be liable for the
consequences of such action.
Mutual Fund investments are subject to market risks, read all
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