Introduction to GST

GST (goods and service tax) is a comprehensive tax levy on manufacture, sale and
consumption of goods and services at a national level.

‘G’ – Goods

‘S’ – Services

‘T’- Tax

GST is a tax on goods and services with value addition at each stage having comprehensive
and continuous chain of set-of benefits from the producer’ services providers point up to
the retailer’s level where only the final consumer should bear the tax.’’ Through a tax credit
mechanism, GST is collected on value –add goods and services at each stage of sale or
purchase in the supply chain.

GST is paid on the procurement of goods and services can be set off against that payable on
the supply of gods or services. But being the last person in the supply chain, the end
consumer has to bear this tax and so, in many respects, GST is like a last – point retail tax.

France was the first country to introduce GST in 1954 .Worldwide, Almost 150 countries
have introduced GST in one or the other form since now. Most of the countries have a
unified GST system. Brazil and Canada follow a dual system vis-à-vis India is going to
introduce. In China GST applies only to goods and the provision of repairs, replacement and
processing services.

GST rates of some countries are given below:

Country Rate of GST

Australia 10 %
France 19.6%
Canada 5%
Germany 19%
Japan 5%
Singapore 7%
New Zealand 15%
Basically , GST is a value added tax , levied at all points in the supply chain with credit with
allowed for any tax paid on inputs acquired for the use in making the supply . It is indirect
tax that brings most of the taxes imposed on most goods and services, on manufacture, sale
and consumption of goods and services, under a single domain at the national level. It
would apply to both goods and services in a comprehensives manner with exemptions
restricted to a minimum and it is payable at the final point of consumption.

Needs for GST in India

1.Simplification of indirect tax

The multiplicity of indirect tax has caused numerous compliance woes. The introduction of
GST will largely simplify the compliance and remove multiple taxes. It will bring uniformity in
taxes.

2.‘One country, one tax’

As there will be only one indirect tax framework, it will help transform the economy by
encouraging transparency and thereby facilitating ‘one country, one tax’ concept.

3.Single Economic ZONE

GST forges a single economic zone for the country from overlapping federal and state taxes.
GST is in line with Cooperative Federalism wherein the Centre and the states work together
for the benefit of the nation.

4..Boost in Foreign investment

In the longer run, the GST is expected to attract foreign investment reducing the cost of
capital goods; raise manufacturing and exports, increase tax collections and create jobs.

5.End of ‘Tax Terrorism

Many cases of tax evasion have led to a situation of tax terrorism in the country. Hence It is
expected that GST will put an end to “Tax Terrorism” because of stricter rules.

6.“Make In India” will get a boost

Manufacturing will get more competitive as GST addresses the issue of cascading tax, inter-
state tax, high logistics cost and fragmented market.

7.For ease of starting business

Today, a business having operations across different state needs VAT registration. Different
tax rules in different states only add to the complications and incur high procedural fees.

GST will bring in unification and will make starting a business easier and the consequent
expansion easy.

8.Simple Taxation

GST will simply the process by integrating all taxes, making the process of paying tax simpler.
Also double taxation will be avoided. In present regime, Central Taxes are not recognized by
state and state taxes are not recognized by Central.

9.Respite for business in both sales and services

Businesses like restaurants which fall under both Sales and Service taxation, have to
calculate both VAT and Service Tax separately. GST will not distinguish between sales and
services and GST will be applicable on total.

10.Reduction in logistics cost and time across state

Many transport vehicles got delayed during movement across states due to small tax
borders and check post issues. Interstate movement will become cheaper and less time
consuming as these taxes will be eliminated.

11 .from increased imports

GST will address the issue of increased imports by levying an appropriate countervailing
duty on imports.

12.Boost to e-commerce industry

State and central taxes have levied multiple taxes on e-commerce thereby making the sector
more complicated. Some sellers are discouraged from selling because of such complications.
GST ‘frees up’ the e-commerce sector.

13.For GDP growth

It is expected that implementation of GST would lead to 2% incremental GDP growth.

Advantages of GST

1.GST eliminates the cascading effect of tax

GST is a comprehensive indirect tax that was designed to bring the indirect taxation under
one umbrella. More importantly, it is going to eliminate the cascading effect of tax that was
evident earlier.
Cascading tax effect can be best described as ‘Tax on Tax’. Let us take this example to
understand what Tax on Tax is:
Before GST regime:
A consultant offering services for say, Rs 50,000 and charged a service tax of 15% (Rs 50,000
* 15% = Rs 7,500).
Then say, he would buy office supplies for Rs. 20,000 paying 5% as VAT (Rs 20,000 *5% = Rs
1,000).
He had to pay Rs 7,500 output service tax without getting any deduction of Rs 1,000 VAT
already paid on stationery.
His total outflow is Rs 8,500.

2.Higher threshold for registration

Earlier, in the VAT structure, any business with a turnover of more than Rs 5 lakh (in most
states) was liable to pay VAT. Please note that this limit differed state-wise. Also, service tax
was exempted for service providers with a turnover of less than Rs 10 lakh.
Under GST regime, however, this threshold has been increased to Rs 20 lakh, which exempts
many small traders and service providers.
Let us look at this table below:

Tax Threshold Limits

Excise 1.5 crores

VAT 5 lakhs in most states

Service Tax 10 lakhs

GST 20 akhs (10 lakhs for NE states)

3.Composition scheme for small businesses

Under GST, small businesses (with a turnover of Rs 20 to 75 lakh) can benefit as it gives an
option to lower taxes by utilizing the Composition scheme. This move has brought down the
tax and compliance burden on many small businesses.

4.Simple and easy online procedure

The entire process of GST (from registration to filing returns) is made online, and it is super
simple. This has been beneficial for start-ups especially, as they do not have to run from
pillar to post to get different registrations such as VAT, excise, and service tax.
Our ClearTax GST software is already on a roll filing GST returns

5.The number of compliances is lesser

Earlier, there was VAT and service tax, each of which had their own returns and compliances.
Below table shows the same:

Under GST, however, there is just one, unified return to be filed. Therefore, the number of
returns to be filed has come down. There are about 11 returns under GST, out of which 4 are
basic returns which apply to all taxable persons under GST. The main GSTR-1 is manually
populated and GSTR-2 and GSTR-3 will be auto-populated.

6.Defined treatment for E-commerce operators

Earlier to GST regime, supplying goods through e-commerce sector was not defined. It had
variable VAT laws. Let us look at this example:
Online websites (like Flipkart and Amazon) delivering to Uttar Pradesh had to file a VAT
declaration and mention the registration number of the delivery truck. Tax authorities could
sometimes seize goods if the documents were not produced.
Again, these e-commerce brands were treated as facilitators or mediators by states like
Kerala, Rajasthan, and West Bengal which did not require them to register for VAT.
All these differential treatments and confusing compliances have been removed under GST.
For the first time, GST has clearly mapped out the provisions applicable to the e-commerce
sector and since these are applicable all over India, there should be no complication
regarding the inter-state movement of go impact of GST on e-commerce.
7.Improved efficiency of logistics
Earlier, the logistics industry in India had to maintain multiple warehouses across states to
avoid the current CST and state entry taxes on inter-state movement. These warehouses
were forced to operate below their capacity, giving room to increased operating costs.
Under GST, however, these restrictions on inter-state movement of goods have been
lessened.
As an outcome of GST, warehouse operators and e-commerce aggregators players have
shown interest in setting up their warehouses at strategic locations such as Nagpur (which is
the zero-mile city of India), instead of every other city on their delivery route.
Reduction in unnecessary logistics costs is already increasing profits for businesses involved
in the supply of goods through transportation.
Visit here to read more about the impact of GST on logistics.

8.Unorganized sector is regulated under GST

In the pre-GST era, it was often seen that certain industries in India like construction and
textile were largely unregulated and unorganized.
Under GST, however, there are provisions for online compliances and payments, and for
availing of input credit only when the supplier has accepted the amount. This has brought in
accountability and regulation to these industries.
Let us now look at disadvantages of GST. Please note that businesses need to overcome
these disadvantages to run the business smoothly.

Disadvantages of GST

1.Increased costs due to software purchase

Businesses have to either update their existing accounting or ERP software to GST-compliant
one or buy a GST software so that they can keep their business going. But both the options
lead to increased cost of software purchase and training of employees for an efficient
utilization of the new billing software.
ClearTax is the first company in India to have launched a ready-to-use GST software
called Cleartax GST software. The software is currently available for free for SMEs, helping
them transition to GST smoothly. It has truly eased the pain of the people in so many ways.

2.Being GST-compliant
Small and medium-sized enterprises (SME) who have not yet signed for GST have to quickly
grasp the nuances of the GST tax regime. They will have to issue GST-complaint invoices, be
compliant to digital record-keeping, and of course, file timely returns. This means that the
GST-complaint invoice issued must have mandatory details such as GSTIN, place of supply,
HSN codes, and others.
ClearTax has made it easier for SMEs with the ClearTax BillBook web application. This
application is available for FREE until the end of September and is an easy solution to this
problem. This will help every business to issue GST-compliant invoices to their customers.
These same invoices can then be used for return filing through the ClearTax GST platform.
3.GST will mean an increase in operational costs
As we have already established that GST is changing the way how tax is paid, businesses will
now have to employ tax professionals to be GST-complaint. This will gradually increase costs
for small businesses as they will have to bear the additional cost of hiring experts.
Also, businesses will need to train their employees in GST compliance, further increasing
their overhead expenses.
4.GST came into effect in the middle of the financial year
As GST was implemented on the 1st of July 2017, businesses followed the old tax structure
for the first 3 months (April, May, and June), and GST for the rest of the financial year.
Businesses may find it hard to get adjusted to the new tax regime, and some of them are
running these tax systems parallelly, resulting in confusion and compliance issues.

5.GST is an online taxation system

Unlike earlier, businesses are now switching from pen and paper invoicing and filing to
online return filing and making payments. This might be tough for some smaller businesses
to adapt to.
Cloud-based GST billing software like the ClearTax GST Billing Software is definitely an
answer to this problem. The process for return filing on ClearTax GST is very simple. Business
owners need to only upload their invoices, and the software will populate the return forms
automatically with the information from the invoices. Any errors in invoices will be clearly
identified by the software in real-time, thus increasing efficiency and timeliness.

6.SMEs will have a higher tax burden

Smaller businesses, especially in the manufacturing sector will face difficulties under GST.
Earlier, only businesses whose turnover exceeded Rs 1.5 crore had to pay excise duty. But
now any business whose turnover exceeds Rs 20 lakh will have to pay GST.
However, SMEs with a turnover upto Rs 75 lakh can opt for the composition scheme and pay
only 1% tax on turnover in lieu of GST and enjoy lesser compliances. The catch though is
these businesses will then not be able to claim any input tax credit. The decision to choose
between higher taxes or the composition scheme (and thereby no ITC) will be a tough one
for many SMEs.

Strengths of Goods and Service Tax in India:

1. It will dropping out the cascading effects of tax on production and distribution of

goods and services which will competitiveness and consequently, GDP will increase.

2. It will apply all goods and services except some exempted products.

3. GST replaces service tax, excise, VAT and over a dozen local levies. All goods and

services are now classified under four tax slabs of 5%, 12%, 18% and 28%.

4. Tobacco is not exempted from the GST. It is treated as sin goods and come under the

taxation with central excise tax.

5. Alcohol, real estate, custom duty and electricity are exempted from GST. (proposed

article, 366(12A) ).

6. Benefits from GST to following elements:

A) 5% GST – previous rates – Medicines- 11%, Footwear below Rs.500 – 14.41%,

Renewable energy devices – 17.18%, Iron ore – 17.18%.

B) 12% GST – previous rates – Mobile Phones – 20.02%, Readymade garments –

18.16%, Contact lenses – 18%, Processed food – 14% .

C)18% GST – previous rates – Cars for handicapped 20 to 22%.

These basic needs such as medicines, cars for handicapped, readymade garments

would be less than their pervious taxes which would be beneficial for customers.

Weaknesses of GST system in India:

Some sectors are unhappy by GST rates:

1. Textile Industry: Even through every variety of cloth has different tax rates, it
required them to change their entire tax logs and incorporate the change. They were

very comfortable with the existing tax system.

2. Brick manufacturers: Brick manufacturers from fly ash (thermal based power plant

bricks) have to pay 28% tax as opposed to the chimney – based bricks which continue

to pay 5%.

3. Scientific apparatus makers: Which deals with its manufacturing and trade, are not

happy with GST. They now have to pay 18% as opposed to the earlier 5.25%.

4. Auto: Small cars will become slightly expensive as they now will fall under the 28%

tax bracket.

5. Tea, coffee, masala – It is taxed 5% under GST. Previously it was 3 to 4 percent.

Tea/coffee are the basic drinks and by charging more consumer would have to pay

more on tea stalls than before.

6. FMCG: While soaps and toothpaste will be cheaper, other personal care products like

shampoos and deodorants will be more expensive post GST.

Opportunities of GST in India:
1.The rates of tax are set at ground level which will help states and union to collect more
revenue.

2. It will reduce the transaction costs and wastages of scare resources because at one
registration people can do transactions from States and Unions. So, it will connect the whole
nation from a single click.

3. In indirect tax structure multiple taxes were charged from taxpayers. But GST will
eliminate the taxes on chain of transactions.

4. GST is also known as “one point single taxation system”. This is a helping hand for
businessman’s, they can come to agreement on price modalities, supply chain etc,, without
thinking too much about taxes imposed on them at later stages.

5. GST will reduce average tax burden of consumers. They will be certain about their taxes
which will reduce evasion of taxes.

6.GST can provide the opportunity of Corruption Free Indian Revenue Services. The root of
corruption found in political system. It will bring transparency in Indian political system.
Threats of GST in India:
1.School fees, courier services, mobile charges, insurance premiums, banking charges, Wi-Fi,
direct-to-home services will get costlier.

2.Inter-states supply of goods and services are considered as import and IGST will be applied
(1%) in addition to custom duties.

3.The Central government promised for compensation to loss making states for a period of 5
years. The compensation will be as: 100% for first 3 years, 75% for 4th year and 50% for 5th
year. So, it is possible that all states do not implement it in effective manner to get
compensation.

4.GST is not friendly with banking sector. Because the cost of goods become cheaper after
GST and it will promote export. Presently, 14% service tax is being levied on banking
transactions. GST will make these transactions more costly. Over and above, in most of
countries banking sector is excluded from GST.

5.GSTC (Goods and service Tax Council) will set the benchmark for resolving the dispute on
recommendations of GSTC. It means GSTC will lay down the criteria for GSTC itself. It is
against the principle of natural justice.

6.GST is not a guarantee in itself that it would not be influenced by political parties and
politicians will not use it as a win-loss game.

8 Key Point of Differences between VAT and GST

1.Taxable event

VAT- On Sale of goods.

GST- On every supply of goods or service.

2.Tax between state and center

VAT- Only State govt. gets the whole share for welfare of state's public.

GST- GST is collected under SGST and CGST for every sale from same state. The
corresponding center and state amount then gets bifurcated.
3.Input Credit

VAT- Dealer has right to deposit his net VAT liability by deducting input VAT on goods
purchased and from output VAT on goods sold.

GST- As GST is applicable on goods as well as services provided, the GST portal system
calculates the Input credit which is used for payment during the next GST liability.

4.Input tax credit on services of goods

VAT- Not applicable, as VAT is only for goods, not services.

GST- The paid GST on services adds up to total input GST comparable to total output GST,
which may be on goods sold. Finally the tax payer gets the input credit on tax for the
services availed by the products you purchased.

5.Taxation on services

VAT- VAT is not applicable on provided or sold services. Service tax is charged additionally @
14.5%.

GST- GST rates for services depend on nature of service. It may be 12% and 18% and 28%
depending on the sector. Most services come under 15% GST.

6.Return Filing

VAT- Must file return by 20th of succeeding month.

GST- Must file return for sales by 10th, purchase by 15th and payment by 20th of succeeding
month.

7.Compulsion for VAT No. & GST No.

VAT- If turnover is or beyond RS. 10 Lakh.

GST- If turnover is or beyond Rs.20 Lakh.

8.Online Payment

VAT- Online payment is not compulsory.

GST- Online payment is compulsory if tax is more than Rs. 10,000.

GST Rates in India

Most of the commodities and services that are subject to GST have been categorised under
four tax slabs, viz. 5%, 12%, 18%, and 28%. However, GST Rates is not applicable to some
goods and services, such as jute, fish, eggs, fresh meat, milk, chicken, curd, fresh fruits,
butter milk, vegetables, natural honey, bread, salt, besan, prasad, sindoor, printed books,
bindi, judicial papers, newspapers, handloom, bangles, horn cores, bone meal, bone grist,
horn meal, hoof meal, palmyra jaggery, cereal grains hulled, colouring and drawing books,
etc.

Here is a list of goods and services under the different tax slabs:

Commodities subject to 5% GST:

 Agarbatti

 Apparels up to Rs.1,000

 Braille paper

 Braille typewriters

 Braille watches

 Cashew nuts

 Coir mats

 Domestic LPG

 Edible oils

 Fertilizers

 First day covers

 Fish fillet

 Floor covering

 Footwear up to Rs.500

 Frozen vegetables

 Hearing aids

 Insulin
  Matting

 Medicines

 Milk food for babies

 Packaged food items

 Packed paneer

 Pizza bread

 Postage stamps

 Revenue stamps

 Roasted coffee beans

 Rusk

 Sabudana

 Skimmed milk

 Spices

 Stamp-post marks

 Stent

 Sugar

 Tea

Services Subject to 5% GST:

 Transport services such as airways and railways

 Air travel in economy class

 Sale of advertisement space for print media

 Supply of tour operators’ services

 Road transport by radio taxis and motor cabs

  Small restaurants earning turnover up to Rs.50 lakhs

Commodities Subject to 12% GST:

 Almonds

 Animal fat sausage

 Apparel above Rs.1000

 Ayurvedic medicines

 Bhujia

 Butter

 Cake servers

 Carom board

 Chess board

 Chutney

 Diagnostic kits and reagents

 Exercise books

 Fish knives

 Forks

 Frozen meat products

 Fruit juice

 Fruits

 Ghee

 Glasses for corrective spectacles and flint buttons

 Jelly

 Jam

 Ladles
  Ludo

 Mobile

 Murabba

 Namkeen

 Non-AC restaurants

 Notebooks

 Nuts

 Packaged dry fruits

 Packed coconut water

 Pickle

 Playing cards

 Preparations of vegetables

 Sewing machine

 Skimmers

 Spoons

 State-run lotteries

 Tongs

 Tooth powder

 Umbrella

 Work contracts

Services Subject to 12% GST:

 Air tickets by business class

 Guest houses, inns, and hotels with room tariff ranging between Rs.1000 and
Rs.2500 per night
Commodities Subject to 18% GST:

 Aluminium foil Furniture

 Bamboo

 Bidi Patta

 Biscuits

 Branded garments

 Cakes

 Camera

 CCTV

 Circuits

 computers

 Corn flakes

 Curry paste

 Electrical transformer

 Envelopes

 Flavoured refined sugar

 Footwear priced above Rs.500

 Hair oil

 Headgear

 Ice cream

 Instant food mixes

 Kajal pencil sticks

 Mayonnaise

 Mineral water
 Mixed condiments

 Mixed seasonings

 Monitors

 Optical Fiber

 Padding pools

 Swimming pools

 Pasta

 Pastries

 Preserved vegetables

 printed

 Printers

 Salad dressings

 Soap

 Soups

 Speakers

 Steel products

 Tampons

 Tissues

 Toiletries

 Toothpaste

 Weighing machinery (non-electrical or electronic)

 Services Subject to 18% GST:

 AC hotels serving alcohol to customers

 Guest houses, inns and hotels with room tariff ranging from Rs.2500 and Rs.5000 per
night

 IT services

 Telecom services

 Commodities Subject to 28% GST:

 Aerated water

 After shave

 Aircraft for personal use

 Automobiles Motorcycles

 Bidis

 Ceramic tiles

 Chewing gum Molasses

 Chocolates devoid of cocoa

 Deodorants

 Dishwasher

 Dye

 Hair clippers

 Hair shampoo Sunscreen

 Paint

 Pan masala

 Shavers

 Shaving creams

 Vacuum cleaner

 Vending machines
 Waffles and wafers coated with chocolate

 Wallpaper

 Washing machine

 Water heater

 Weighing machine ATM

Services Subject to 28% GST:

Gambling and race club betting

Cinema and entertainment

5-star hotels

Guest houses, inns and hotels with room tariff of Rs.5000 and upwards