Ultimate Checklist to know You are GST Ready
- April 24, 2017
- Posted by: Devashish Dey
- Category: GST
What is GST
In order to be ready to welcome the changes proposed in the GST Bill, you need to first know what exactly GST is.
GST stands for Goods and Services Tax. This is a method of taxation proposed in India where most of the already existing taxes will be merged into a single system of taxation. This GST is supervised and directed by a council called the GST Council. This Council is presided over by its chairman Mr. Arun Jaitley who is the Union Finance Minister of India. As of now, whenever goods and services are sold/provided or consumed, there would be a tax part of which goes to the respective State Government and another part which goes to the Central Government’s treasury. With the GST bill, there would be a tax on these goods and services, all controlled only by the Central Government.
The Current Tax Situation in India
According to the Constitution of India, both the Central and State governments have the power to levy taxes on various goods and services, sold or bought. Both governments have some areas where they have the sole power to impose a certain amount of tax. The most important one which is income tax is in the hands of the Central Government. These are also called as direct taxes. Indirect taxes are levied when goods are manufactured or when services are provided and consumed by the involved people. Most of the indirect taxes also stand in the domain of the Central Government itself. The State Governments, on the other hand, control taxes on consumption of goods and services.
The main problem with this kind of taxation system is that the Central has powers to levy a tax, and the individual State Governments also have the same power. This causes quite a problem when a particular good or service is being taxed. Firstly, when a product is made or produced in a factory, the Central Government imposes a tax before the product even leaves the factory. This is called central excise tax. Any product that is manufactured in any factory or workplace in India will be levied this tax by the Central Government. Now when the product is sent to some store or shop for sale, the concerned State Government will impose an additional tax on the sale of the product. This is a tax for consumption of the product and it is called as Value Added Tax (VAT) that we can see clearly on the bill when we buy any product. So, in effect, there are two taxes on the product, one when it had been manufactured and one when it has been bought/consumed.
Another problem is that State Governments will impose a tax on products which are brought in from other states because they treat them as “imported” goods even if they are manufactured in India only. This causes additional tax burden on the consumers many times. To add to these problems, the fact that excise tax is applied at the factory where the product is manufactured, and value added tax is added afterwards at the stage of sale or consumption means that the State Government is adding a VAT on the increased price which is caused due to the Central Government’s excise tax addition. That means we are being taxed by the State on the already imposed tax amount by the Central Government. This excise tax is not shown on the bill we are given when we purchase a product, so we do not actually know the true amount of tax we are having to play for a product, and there is no transparency in the taxation system currently.
Changes with implementation of GST
With GST, first of all, the tax barriers between states will be removed. When this happens, instead of taxing a product twice, the tax will be levied only at the time of the consumer actually purchasing the product. This tax will include both the excise and VAT taxes at once. Also then there will be no State-imposed tax on the Central-imposed tax, thus decreasing the final tax amount a little.
Become GST Ready
With the proposed GST Bill to take effect from the 1st of July this year, it is high time we prepared to welcome GST. So here are the points you need to consider to become GST ready when it will be finally implemented.
- You will have to file only a single state-wise report of all your transactions, within and out of the country. Accordingly, you can pay the taxes on the kind of goods and services involved.
- The state-wise registration, paying of taxes and all other such transactions will be made online, so get ready for that. There will actually be minimum or no personal interaction between you and the tax officials.
- A business with an annual turnover upto 20 lakh rupees need not register under the GST law. But that with upto 50 lah rupees should do so to avail tax benefits, pay lower taxes and have a somewhat comparatively lax compliance rules and regulations.
- If you are a service/goods provider make sure you break up the price clearly including actual price and the tax levied in the bill. If you are a consumer, be in the know-how about the bill and how you infer the tax you are paying for a product or service.
- With the implementation of GST, for many tech, FMCG, vehicle, telecom and travel products/services the price will go up with an increase in the tax amount to be paid. Either get ready to shell out big bucks come July 1st. or stock up on your required products as much as possible before the GST Bill is implemented.
All in all, the implementation of the GST Bill will come in with its own advantages and disadvantages. Although the tax amounts might go up a bit, there will be transparency in the taxation process and there will not be tax levied on tax as it is happening in the current scenario. These advantages can only indicate progress and somewhere down the line, we will definitely benefit from the implementation of this Bill.