Goods and Services Tax (GST)
GST - What
is GST?
Goods and Services Tax is
an Indirect Tax which has replaced many Indirect Taxes in India. The Goods and
Service Tax Act was passed in the Parliament on 29th March 2017. The
Act came into effect on 1st July 2017. Goods & Services Tax
Law in India is a comprehensive, multi-stage, destination-based
tax that is levied on every value addition.
In simple words, Goods
and Service Tax (GST) is an indirect tax levied on the supply of goods and
services. This law has replaced many indirect tax laws that previously
existed in India. More information can be found on Goods and Services Tax
Portal.
GST is one
indirect tax for the entire country Hence called ONE NATION
ONE TAX
Under the GST regime, the
tax is levied at every point of sale. In the case of intra-state sales, Central
GST and State GST are charged. Inter-state sales are chargeable to Integrated
GST.
Now let us try to
understand the definition of Goods and Service Tax – “GST is
a comprehensive, multi-stage, destination-based tax that
is levied on every value addition.”
Multi-stage
There are multiple change-of-hands an item goes
through along its supply chain: from manufacture to final sale to the consumer.
Let us consider the following case:
- Purchase of raw materials
- Production or manufacture
- Warehousing of finished goods
- Sale to wholesaler
- Sale of the product to the retailer
- Sale to the end consumer
Goods and Services Tax is levied on each of these stages
which makes it a multi-stage tax.
Value Addition
The manufacturer who
makes biscuits buys flour, sugar and other material. The value of the inputs
increases when the sugar and flour are mixed and baked into biscuits.
The manufacturer then
sells the biscuits to the warehousing agent who packs large quantities of
biscuits and labels it. That is another addition of value after which the
warehouse sells it to the retailer.
The retailer packages the
biscuits in smaller quantities and invests in the marketing of the biscuits
thus increasing its value.
GST is levied on these
value additions i.e. the monetary value added at each stage to achieve the
final sale to the end customer.
Destination-Based
Consider
goods manufactured in Maharashtra and are sold to the final consumer in
Karnataka. Since Goods & Service Tax is levied at the point of consumption.
So, the entire tax revenue will go to Karnataka and not Maharashtra.
Items not Covered under
GST
There are certain
activities which are items not covered under GST. They are beyond the scope of
GST, i.e., GST will not apply on them. These are classified under Schedule III
of the GST Act as “Neither goods nor services”.
1.Services by an
employee to the employer in relation to his employment
2. Court/Tribunal
Services including District Court, High Court and Supreme Court
3. Duties
performed by:
- The Members of
Parliament, State Legislature, Panchayats, Municipalities and other local
authorities
- Any person who holds
a post under the provisions of the Constitution
- Chairperson/Member/Director
in a body established by the government or a local body and who is not an
employee of the same
4. Services of a
funeral, burial, crematorium or mortuary including transportation of the
deceased
There are no taxes on
funeral services for any religion.
5. Sale of land
and sale of building
Construction of a new
building is subject to GST (being works contract).
6. Actionable
claims (other than lottery, betting and gambling)
Actionable Claims’ means
claims which can be enforced only by a legal action or a suit, example a book
debt, bill of exchange, promissory note.
Actionable claims are
neither products nor services. They can be considered as something in lieu of
money. So GST will not apply on these.
Lottery, betting and
gambling attract 28% GST.
7. Supply of
goods from a place in the non-taxable territory to another place in the
non-taxable territory without such goods entering into India*.
8. Supply in
Customs port before Home consumption:
(a) Supply of warehoused goods to any person before clearance for home consumption;
(b) Supply of goods by the consignee to any other person, by an endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.
(a) Supply of warehoused goods to any person before clearance for home consumption;
(b) Supply of goods by the consignee to any other person, by an endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.
9. Supply of Petroleum Products and Alcohols
are still outside the purview of GST. Hence VAT is applicable on them which
falls under State jurisdiction.
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