You know that GST is a concept of “One nation, one tax”; but do you know that are a plethora of nuances pertaining to GST, which you need to be aware of. Here is a quick run-in on 15 such nuances that you need to be aware of about GST…
15 nuances that you need to know about GST…
- Goods and Services Tax (GST) is a national level tax and overcomes all inter-state barriers. Goods and services can freely flow from one corner of India to another just it can flow within a state. That is also referred to as “One Nation, One Tax”
- GST will subsume a total of 17 indirect taxes into a single tax. This will include national level taxes like central excise, service tax, Central sales tax and will also subsume state and local levies like VAT, entry tax, Octroi, luxury tax etc.
- Import duties will be kept outside the purview of GST and will be charged as before. However, any countervailing duty (CVD) and any special additional duty (SAD) intended to bring parity of local and international prices will be subsumed into GST.
- All imports of goods and services will be treated as inter-state sale and will attract integrated goods and services tax (IGST). However, exports will not attract any GST and will be entirely exempt under GST. Any taxes paid on exports will be entirely refundable.
- For every transaction there will be a clear distinction between the central GST (CGST) and the state level GST (SGST). However, in case of inter-state sales of goods and services, the IGST as explained above will be applicable.
- The big difference in GST is that service tax will no longer be a preserve of the centre but will be shared between the states and the centre. In case of inter-state provision of services, the IGST will be imposed and will accrue to the state where the service is provided.
- Goods under the GST will have different slabs of tax rates. The broad slabs are 0%, 5%, 12%, 18% and 28%. Even in case of services there will be slabs depending on the necessity and the breadth of utility of the service.
- Most food items within the goods category will be charged GST either at the rate of 0% or at 5%. In other products, the GST has made a classification between entry level demand and premium demand. For example; low priced clothing versus premium clothing, low priced footwear versus premium footwear, entry level cars versus premium cars, daily use perishables versus premium products etc. This will be instrumental in keep inflation in check.
- Some products are specifically exempted from the ambit of GST. Crude oil, refinery products, Aviation Turbine Fuel, High Speed Diesel, Petrol and alcohol will continue to attract the old rates of GST and may be included into GST at a future date.
- The most important aspect of the GST Bill is seamless input tax credits across categories and goods and services. For example, if you pay Rs.100 as GST on inputs and your liability is to pay Rs.200 GST on output, then you only need to pay the net GST of Rs.100 to the government.
- These input tax credits will be largely anti-inflationary. In the past, the credit for service tax paid on input services was not available on goods produced. Under GST, since all goods and services taxes are subsumed, such credits will be absolutely seamless across the spectrum.
- Anti-profiteering is another important clause in GST. Under the anti-profiteering clause, businesses are required to seamlessly pass on tax reduction to the customer. Failure to do the same will attract the anti-profiteering clause which will entail penal action including summary cancellation of the GST registration of the business entity.
- The GST will have to be paid by the manufacturer of goods or the provider of the service and the amount will have to be included in the invoice. The invoice in the prescribed format will, abs initio, demarcate between the SGST and the CGST and credit payments accordingly.
- The impact of GST will be varied. Products like entry level cars, batteries, paints and cement will become cheaper while commercial vehicles, branded textiles, financial services and jewellery will become expensive under GST. Of course, the net impact after ITC will have to be assessed.
- All businesses with an annual turnover above Rs.2 million will have to be pay GST. This limit has been lowered to Rs.1 million in case of North East states. There is also a special Composite scheme under which a business does not have to be liable to pay GST till an annual turnover of Rs.7.5 million. This will have two exceptions. Firstly, IGST will have to be paid in case of any inter-state sale. Secondly, composite scheme will not apply if the business wants to claim input tax credit.
In a nutshell, GST is a step in the right direction. Hopefully, a national level market should mean lower costs and better productivity. A lot would eventually depend on the implementation.