Home » Business » What is GST and how it will affect you

Image result for gst in india 2017

GST was implemented in India from 1st July, 2017. It is said to be the most significant economic reform agenda on the Narendra Modi’s government. The one reform has power and ripples impact on all of us.

It is said to be a complicated reform as most taxation matters usually are in the system. In this article we are going to have an overview on GST and explain in detail how it is expected to make a difference to all of us.

How is India’s Tax system structured today?

The salient feature of our constitution is that it divides taxation power between centre and states. Both enjoys their own share of powers and has some exclusive areas where they can levy tax. There are direct taxes which come under Income tax, which includes tax on company profile and it is said to be the exclusive domain of central government.

These Indirect taxes are categorised as taxes which are levied on manufacturing of goods, provision of services and consumption. Perhaps in India, generally speaking, indirect taxes levied on manufacture of goods or provision of services is the exclusive domain of central government. Whereas for State government, Taxes on consumption are the exclusive domain of state governments.

What is the problem with this arrangement?

Currently, there are two important problems with the current arrangement. For an example, consider the manufacturing of some goods such as shirt which starts from weaving to the finished good to be consumed. It starts from centre; Central government levies the indirect tax called central exercise at factory gate. Eventually, the shirt reaches a retail outlet and ultimately goes in hands of the consumer, who buys the product. Now, its state government turn, which levies Value Added Tax    (VAT) as a tax on consumption. So, we have two taxes, a tax at the factory gate which adds to the cost of the shirt and another tax on the final price.

Since states have their exclusive domain on consumption tax within their territory, they simply tag the things which come from other states as Imports. For example, if a shirt maker in Karnataka buys thread in Kerala, the buyer should pay central exercise and Kerala’s state taxes on the product. On this cost, Karnataka government would have levy tax if the shirt is sold in the state. Ultimately if the shirt is sent across Karnataka’s border and sold in Tamil Nadu, an Import tax has to be paid which is termed as central sales tax by the state.

It is well said that India is politically one country, but economically it is fragmented. There are numerous taxes to be paid when there is commerce between two states. It makes an adverse effect as it increases costs for everyone and makes economic activity within India for its Citizens a much complicated one.

How will GST help? 

Goods and Services Tax (GST) is actually an indirect tax reform which ultimately aims to remove taxation barriers between states and create a single market which is open to all to buy, sell, import, export within the country. It’s exclusively designed and has class within it which provides economic freedom to Traders. For that to happen the constitution first needs to be amended to remove different layers of governments’ exclusive powers to levy taxes. It’s obvious that tax barriers between the states and the centre will fade away.

How businesses will have to adapt?

All existing businesses having tax registration or businesses having more than Rs.20 lakhs of annual revenue in most states will have to obtain GST registration. Once, GST registration is obtained, the businesses will be required to file GST returns every month to update the Government. Hence, all businesses will have to adopt their accounting software and obtain GST registration and start filing GST returns.

How will it help consumers

These days’ people are not that much aware about the taxes what they pay on goods which they pay. It’s simple the bill is the acknowledgement of the thing which consumer has bought which shows the VAT, the buyer has paid, it is actually an understatement of the actual tax paid. Subsequently, well before merchandise reached the retail outlet, the central government has collected excise duty whereas the presence of excise duty is not acknowledged.

Under GST, Purchaser benefits in two ways.

Firstly, all the taxes are directly collected at the point of consumption. For example, if a shirt is taxed at 15%, it will include both central government’s taxes and state government’s taxes. Transparency in taxation should deter governments from indiscriminately increasing taxes as there is bound to be public counterblast.

Secondly, When Tax barriers are broken between the states; the consumers would not need to end up paying tax on tax which is what happens when goods move across state borders.

You can check GST rates for various goods and services through this tool at IndiaFilings.com

Skip to toolbar