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Excise duty Paid

on removal of
goods from the
factory

Third Party Third Party


(Factory) Distributers
Sale value = INR 100
Excise Duty = INR12.5

Excise duty charged


either on the sale
value of the goods to
the distributor or on
the maximum retail
price (MRP) minus
abatement

Fig. Excise duty on Manufacturing


VAT Paid in the state of
Karnataka on transfer of
property from the
retailer to the customer

Retailer Customer
(Karnataka) (Karnataka)

Sale value = INR 100


VAT = INR 14.5

VAT charged on the


sale transaction
value / sale value
between the retail
and customer, after
the eligible
discounts

Fig. VAT on within the State Sale of Goods


CST Paid in the state of
Karnataka (origin stat) on
transfer of property from
the manufacturer to the
distributer

Manufacturer Distributor
(Karnataka) (Maharashtra)
Sale value = INR 100
CST = INR 2 or VAT
rate

VAT charged on the


sale transaction
value / sale value
between the retail
and customer, after
the eligible
discounts

Fig. CST on between the States Sale of Goods


Service tax Paid by service
provider (paid by service
recipient in some cases)
on provision of service to
another person

Service Provider Service


(Karnataka) Recipient
Sale value = INR 100 (Maharashtra)
Service Tax = 14% + 0.5%
+ 0.5%

Service tax charged


on the gross value
of the transaction
between the service
provider and the
service recipient

Fig. Service Tax on Provision of Service


Custom duties paid by the
buyer on imported goods
covered under the customs
tariff act and at the rate
Seller Buyer
specified in the act
(USA) Assessable value = INR (India)
100
Custom Duties = INR
29.44

BCD charged on the


assessable value (import
value + certain additions,
if any).CVD charged on
the assessable value or
MRP minus abatement.
SAD charged on
assessable Value + BCD +
CVD

Fig. Custom Duties on Import of Goods into India


Entry tax Paid by
the dealer or the
person causing the
entry of goods into
the state
Dealer Buyer
(Outside State) (In state)
Sale value = INR 100
Entry Tax = Depends on
State

Entry tax charged


on the sale value or
transaction value
(or such value as a
state may
prescribe) of the
goods entering the
state

Fig. Entry on Entry of Goods into a State


Sale of Inputs
INR 100
Excise Duty INR
12.5 Manufacturer
Vendor
(Seller of Inputs) (Producer of Finished
Goods - FG)

Dispatch of FG INR
200
Excise Duty INR 25

Input Excise duty of INR 12.5


paid by manufacturer Wholesaler
allowed as credit against his (Buyer of Finished
output excise duty of INR 25. Goods - FG)
Manufacturer to pay only
INR 12.5 is cash to excise
authorities on dispatch of FG

Fig. Input Excise Duty / Service Tax credit mechanism


Sale of Inputs
INR 100
VAT INR 14.5
Manufacturer
Vendor
(Producer of Finished
(Seller of Inputs)
Goods - FG)

Dispatch of FG INR
200
VAT INR 29

Input VAT of INR 14.5 paid by Wholesaler


manufacturer allowed as
(Buyer of Finished
credit against his output VAT
Goods - FG)
of INR 29. Manufacturer to
pay only INR 14.5 is cash to
VAT authorities on of FG

Fig. Input VAT credit mechanism (same stat transactions)


2000 Setup of EC of finance ministers to design GST for India

Partial Integration of input tax credit mechanism under central


2004 excise and service tax legislations
Introduction of National VAT in a majority of states
2005 All states in India on-board VAT by 2007/2008
The finance Minister announces implementation of GST on April
2007 1, 2010
EC release the first discussion paper on GST with a blueprint for
2009 GST
Introduction of constitution amendment bill in the parliament
2011 and setup of GST network to create IT Framework
Introduction of Negative list based taxation of service and place
2012 of provision of service rules
Re-Introduction of Constitution (One Hundred and Twenty-second
2014 Amendment) Bill, 2014
Re-iteration of Introduction of GST by April 1, 2016 in the Union
2015 Budget Speech of 2015-16
Constitution Amendment Bill, 2014 passed by the Lok Sabha on
2015 May 6, 2015

Fig. GST History of India


Origin State Consumption
A State B

Seller Inter-State Sale Buyer


(Karnataka) (Tamilnadu)
Central Sales Tax(CST)

CST payable in the


State of Karnataka
(Origin state from
which the goods
start the movement
collects CST)

Fig. Indirect Tax Regime Origin Based


Origin State Consumption
A State B

Seller Inter-State Supply Buyer


(Karnataka) (Tamilnadu)
Goods & Service Tax(CST)

CST (IGST) on
supply of goods
payable in State B
(consumption state)
where the goods
are consumed

Fig. GST Regime Consumption Based


Indirect Tax
Regime
GST
Manufacture of
goods
Supply of
Sale of goods
Goods and
Import of goods
services
Provision of
Service
Entry of goods

Fig. Taxable Events Indirect Tax vs. GST


Existing Central Existing State Taxes under
Taxes Taxes GST Regime

Excise
Duty
Service VAT
CGST
Tax + Entry Tax = SGST
BCD* Luxury Tax
IGST
CVD Ent. Tax
SAD
CST

Fig. Existing Indirect Taxes to be subsumed under the GST regime


Supply of Inputs
INR 100
CGST INR 1, CGST Manufacturer
Vendor* INR 10 (Producer of Finished
(Seller of Inputs) Goods - FG)
State A State A

Supply of FG INR 200


CGST INR 20, CGST INR
20

The manufacturer will be


eligible to use the Input Wholesaler
CGST of INR 10 against the (Buyer of Finished
output CGST of INR Goods - FG)
20.Similarly, Input SGST of State A
INR 10 can be used against
the output SGST of TNR 20.

* Vender, manufacturer and the wholesaler are based in different states

Fig. Sale of goods within the State (Intra-state)


Supply of Inputs
Vendor* Manufacturer
INR 100 IGST INR
(Seller of Inputs) (Producer of Finished
10
State A Goods - FG)
State A

Supply of FG INR
200
IGST INR
40

The manufacturer will be Wholesaler


eligible to use the Input (Buyer of Finished
CGST of INR 20 paid on Goods - FG)
inputs against the output State A
IGST of INR 40 on supply of
FG

* Vender, manufacturer and the wholesaler are based in different states

Fig. Sale of goods between the States (Inter-state)


Goods Services

Zero Rate
0% Zero Rate
Special Rate 0%
1% Base Rate
Base Rate 12% Higher
12% Higher Rate 20%
Rate 20%
The GST rate are still under discussion. Decision
pending on the actual GST rates and number of GST
rates

Fig. Possible GST Rates??


India USA

Export of Goods or
Seller Services Buyer
Value of Supply INR
100
GST INR 0

Export would be
zero rated under
GST, but the seller
would be eligible for
input tax credit /
refund of the input
GSTs

Fig. Exports to be zero rated under the GST regime


Existing
Proposed
Indirect Tax
GST Regime
Regime
BCD
IGST
BCD instead of
CVD CVD and
SAD SAD
CESS and
CESS
other duties
included in
GST

Fig. Import Duties Indirect tax regime vs GST regime


Possible reduction
in tax cost
Possible
Reduced cheaper
resources, cost
To the Governments

Expansion of goods and

To the Consumers
Tax base time services

To the Business
Increase in Reduction in Improved
Revenue litigation services
levels
Streamlining of Efficient
tax structuring of Access to
administration operations more goods
and services
Self-Assessment

Fig. Benefits of GST


Conceptualizati Implementation
on and Management
Stage Stage

Minimum of 4 different
taxes under GST
Transactional
Probability of high Provisions
rate of GST
IT Infrastructure
Complexity of taxing
inter-state transactions GST Administration

Difficulty of framing Accounting Standards


the place of Supply
rules

Fig. GST Challenges


Knowledge of GST concepts, acts and rules

GST impact analysis on business operations and tax cost

Plan for business restricting / supply chain restricting,


if required

Changes to IT Instructure / Information Systems

Resource management for in house tax teams

Fig. GST Preparedness for Businesses


Power to both central & stat governments to levy GST on
transactions in goods and services

Introduction to definition of GST in the Constitution

Provision for formulation of GST council

Additional 1% tax on inter-stat supply of goods

Compensation to the Stat governments for loss of CST

Fig. Key changes in the Constitution Amendment Bill


The term Supply is not defined along with the
definition of GST in the constitution amendment bill

The GST council as a recommendatory body

1% additional duty on inter-state supply of goods

Exceptions made for specific sectors & taxes under GST

Fig. Key Drawbacks in the GST Bill


Continuously evolving legislation with new world focus

Technology drive and fully automated

Self-assessment with zero intervention by govts.

Reduction in tax evasion

Selective / Exceptional audit and investigation

Reduced corruption

Fig. Future of Indirect Taxes in India