GST to be soon be a reality: Five things to know about the tax reform

GST is a destination-based tax on consumption of goods and services

What is goods and services tax (GST)? 

It is a destination-based tax on consumption of goods and services. This means the tax would accrue to the taxing authority, which has the jurisdiction over the place of consumption — also termed as place of supply. 

How does it work?

It will be levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as setoff. In a nutshell, only value addition will be taxed and burden of tax is to be borne by the final consumer.

Which of the existing taxes are proposed to be subsumed under GST?

Central taxes: 

• Central excise duty 
• Duties of excise (Medicinal and Toilet Preparations) 
• Additional duties of excise (Goods of special importance) 
• Additional duties of excise (textiles and textile products) 
• Additional duties of customs (commonly known  as CVD) 
• Special additional duty of customs (SAD) 
• Service tax 
• Central surcharges and cesses so far as they relate to supply of goods and services 

State taxes: 

• State VAT 
• Central Sales Tax 
• Luxury Tax 
• Entry Tax (all forms) 
• Entertainment and amusement tax (except when levied by the local bodies) 
• Taxes on advertisements 
• Purchase tax 
• Taxes on lotteries, betting and gambling 
• State surcharges and cesses so far as they relate to supply of goods and services 

Who is liable to pay GST?

Tax is payable by the taxable person on the supply of goods and/or services. Liability to pay tax arises when the taxable person crosses the threshold exemption — Rs20 lakh (Rs10 lakh for NE states) except in certain specified cases where the taxable person is liable to pay GST even though he has not crossed the threshold limit. The CGST/SGST is payable on all intra-state supply of goods and/or services and IGST is payable on all interstate supply of goods and/or services. 

What would be the role of GST Council & GSTN? 

A GST Council comprising the Union Finance Minister (who will be the Chairman of the Council), the Minister of State (Revenue) and the State Finance/Taxation Ministers  make recommendations to the Union and the States on all matters relating to GST. The CGST and SGST would be levied at rates to be jointly decided by the Centre and States. The rates would be notified on the recommendations of the GST Council.  GSTN is a special purpose vehicle set up to cater for the needs of GST. The GSTN shall provide a shared IT infrastructure and services to central  and state governments, tax payers and other stakeholders.