GST how to work: The roll out of Goods and Service Tax (GST) on July 1 has paved way for a new common national market. The new tax regime has reduced central and state taxes into a single tax regime. The gross domestic product growth or GDP of India will grow by 1.5-2 percent in the long term. The report added Finance Minister Arun Jaitley commenting on the benefits of GST. He said that the new tax regime has many benefits- ranging from creating a national market to ease of doing business and improving tax compliance. Jaitley added, it will lower the overall tax burden on consumers. Here are 10 things to know how GST will work:
1) As compared to earlier principle of orgin-based taxation, GST is a destination- tax. It follows a multi-stage collection mechanism. The tax in GST will be collected at every stage and the credit of tax paid at the previous stage is available as a set-off at the next satge of transaction. This helps to eliminate “tax on tax” system. The industry will be benefited by it as there will be a better cash flow and better working capital management. If talking from a consumer point of view GST will help bring down the overall tax.
2) Input tax credit: In this the credit of input tax can be availed in the next stage of value addition. It means that the consumer will now bear only the GST charged at the previous point of the supply chain.
3) GST rates: There are four tax slabs under the new tax regime which are percent, 12 percent, 18 percent and 28 percent. Some of the goods and services have been left out. Metals like gold will have a tax rate of 3 percent. On specified luxury and sin goods with peak tax rate of 28 percent cess has been levied. The businesses are required to file returns each month under this new tax system. For the companies to get use to GST the government has let businesses to file late returns for the first two months.
4) CGST, SGST, IGST: The GST to be levied by the Centre would be called Central GST (CGST) and that to be levied by the States (including Union territories with legislature) would be called State GST (SGST). An Integrated GST (IGST) would be levied on inter-state supply (including stock transfers) of goods or services. This would be collected by the Centre. Import of goods would be treated as inter-state supplies and would be subject to IGST in addition to the applicable customs duties. Exports will be treated as zero-rated supplies which means no tax will be payable on exports of goods or services. However, exporters can claim input tax credit.
5) Companies with the turnover of Rs. 20 lakh (Rs. 10 lakh for special category state) annually are exempted from GST.
6) The government has allowed manufacturers and retailers with stocks lying up to June 30 to carry forward their input tax credit for 90 days. They can claim up to 60 percent on such goods.
7) For the benefits to be passed on to the consumers by the manufacturers and service providers, the government has included an anti-profiteering clause in GST. Under this clause, it becomes mandatory to pass on the benefit of tax reduction due to input tax credit to the final customer.
8) A GST council has been set-up which will make recommendations on everything related to the new tax system including laws, rules and rates. The panel is headed by Finance Minister Arun Jaitley. The other members if the council are the finance ministers of each state.
9) Petrol, diesel and aviation turbine fuel have been exempted from GST. A decision to include these petroleum products under GST will be taken by the GST Council later.
10) For taxpayers having a business turnover below 1.5 crore 90 percent of administrative control is entrusted to the state tax administration while 10 percent is vested with central tax administration. This is to ensure single interface. Further, all administrative control over taxpayers having turnover above Rs. 1.5 crore will be divided equally between central and state tax administrations. States will be compensated for any revenue loss from GST implementation for five years.