What is GST? Here’s a 5point simple guide on Goods and Services Tax

Though GST is a tax reform, it is going to impact every sphere of business activity, be it procurement, supply chain, IT, logistics, pricing, margins, working capital, etc.

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HomeEconomy What is GST? Here’s a 10 point simple guide on Goods and Services Tax
What is GST? Here’s a 10 point simple guide on Goods and Services Tax

Though GST is a tax reform, it is going to impact every sphere of business activity, be it procurement, supply chain, IT, logistics, pricing, margins, working capital, etc.
By Sidhartha Jain, Tax Partner, EY India
Goods and Services Tax (in short ‘GST’) is by far one of the most awaited tax reforms in the country. With the emerging consensus amongst the political parties and the push voiced by the industry, there is a lot of expectation that the Constitutional Amendment Bill will be passed in this Monsoon Session. If this happens, the Government is likely to push the implementation of GST with effect from 1st April 2017.

Though GST is a tax reform, it is going to impact every sphere of business activity, be it procurement, supply chain, IT, logistics, pricing, margins, working capital, etc. as a number of business decisions taken based on the current tax structure may no longer be relevant in the new GST regime.
What we have in the public domain now is the draft GST law and the four business processes on Registration, Returns, Payments and Refunds which gives a fair idea on the basic construct of the GST structure. What is awaited is the GST Rules, Negative List and clarity on the rates.

Also read: How the ordinary consumer would be impacted by GST
Here are the ten essential points on this much awaited mega reform:

1. GST would be levied on ‘supply’ of goods and services and hence the present prevalent concepts of levy of excise on manufacture, VAT/CST on sales, entry tax on entry of goods in local area would no longer be relevant. The ambit of ‘supply’ is quite wide and covers supply of goods and services without consideration from one taxable person to another.

2. There would be dual GST i.e. both the Centre and the States would concurrently levy GST across the entire goods and services supply chain on a common base.
Centre would levy Central GST (CGST) and States would levy State GST (SGST) on every supply of goods and services within a State. Integrated GST (IGST) would be levied on all inter-state supplies by the Centre and then transferred to the Destination State. Unlike in the present scenario, IGST would have to be paid on all inter-state supplies, be it in the nature of a sale or stock transfer.
Also read: Here’s how GST would change the way India does business

3. Present Central Taxes like Central Excise, Service Tax, CVD, SAD, CST and State Taxes like VAT, CST, Entry Tax, Luxury Tax would get subsumed under GST. Customs is outside GST and hence Basic Customs Duty would continue on imports.

4. GST is a destination based consumption tax, which essentially implies that the revenue will accrue to the State where the consumer resides. This is unlike the present origin based levy where the revenue accrues to the origin state from where the movement originates.

5. Seamless flow of credit would be there under GST whereby CGST would be allowed to be set-off against CGST and IGST, SGST against SGST and IGST and IGST against IGST, CGST and SGST in that order. However, CGST credit will not be allowed to be set-off against SGST and vice versa. Thus, under GST, the present cost of 2% CST on inter-state sale will not be there as IGST would be totally fungible in the Destination State.
However, credit fungibility is state-centric as credit accumulated in one State cannot be used against tax pay-outs in another State.
Also read: Lessons from countries that have implemented GST.