Tax is a simple term, but it has a profound impact on developing countries like India. Taxes levied from the public helps in the development of the nation. However, too many cascading taxes makes people reluctant about paying taxes. It promotes tax evasion, corruption, and black money.
To curb all such fallacy in the economy, the Government of India made an intelligent move of implementing the Goods and Service Tax or commonly known as the GST. However, the population is unsure about the implementation of GST and fears that it will lead to inflation. Therefore, to help people understand the concept of GST and the impact it will have on their lives, we have listed below some faqs. It will help you to understand GST better.
What is GST?
GST is one indirect tax on supply of goods and services for the whole nation. It will eliminate the series of cascading taxes making things affordable for the consumers. Before GST, the consumers had to pay many indirect taxes. For instance, in the case of petrol, the dealers bought gasoline from oil companies at a price of Rs. 25.46 per liter on which they paid excise duty.
Further, the consumers had to pay 27% VAT. Thus, the customers had to bear indirect taxes. Thus, to eliminate these indirect taxes, GST is introduced. For example, the manufacturing cost of any product is Rs. 100 inclusive of all the taxes and the selling price of the product is set Rs. 120, now Goods and Service Tax will be applied on Rs. 20 instead of total cost, thereby excluding all the indirect costs.
What are the GST Rate Slabs?
- The government has decided on several Goods and service tax slabs. Some are as low as 0% while others are as high as 28%. The GST Council finalized a five tier structure of 0%, 5%, 12%, 18%, and 28%.
- The essential item will have lower Goods and Service Tax rates while a luxury item will have high rates. A per the new rules the service tax will increase from 15% to 18%, while the essential items such as food, books, newspaper, jute, cotton, etc. will be taxed at 0 rates.
- The goods such as apparels below Rs. 1000, footwear below Rs. 500, tea, coffee, spices, etc. along with services such as railways will be charged 5% GST. Butter, ghee, cheese, spectacles, fruit juices, etc., will fall under the 12% GST slab.
- Under the 18%, GST slab falls goods such as biscuits, pastries, cakes, tampons, software, printers and others. Services including IT and financial, branded garments, and five-star hotel rooms will charge 18%.
- The luxury items such as the chewing gums, chocolates, shampoos, deodorant, aerated water, etc. and services like cinema, race club betting, etc. will come under the 28% Goods and Service Tax slab.
- Apart from the “Clean Environment Cess” all the other cess such as education and Krishi Kalyan cess is included in Goods and Service Tax. Thus, every article is put into a particular category depending on its usability and public demands.
What is the difference between CGST, SGST, and IGST?
India is a federal country where the powers of the central and the state are well defined. For instance, law and order fall under state jurisdiction, while the national defense is the responsibility of the center. In the same manner, taxes are individually levied by the central and state government.
Therefore, the CGST implies the center imposed GST while SGST is the state imposed GST. For example, the dealer in Rajasthan sales a product worth Rs. 10,000 to a buyer in Rajasthan and GST rate is 18%. These 18% Goods and Service Tax will get equally divided in CGST and SGST. The example explains that both the state and Central government has a share in goods and service tax.
Now IGST is the integrated Goods and Service Tax which is levied in the case of inter-state transactions. It is collected by the center and then shared with the State. For instance, a dealer from Rajasthan sales a product worth 10,000 in Gujarat with GST rates of 18% then the total tax amount of Rs. 1800 will go to the center. The center will later transfer the state share to respective states.
Which Taxes are Subsumed into GST?
GST includes the following Central level Taxes.
- Central Excise Duty
- Additional Excise Duty
- Service Tax
- Additional Custom Duty or Countervailing Duty
- Special Additional Duty of customs
GST includes the following State level Taxes.
- State Value Added Taxes or State Tax
- Entertainment Tax
- Central State Tax
- Octroi and Entry Tax
- Purchase Tax
- Luxury Tax
- Taxes on Lottery, gambling, and betting
What is the impact of GST in India?
Economists forecast that Goods and Service Tax is expected to lower inflation with its affordable rates of goods and services. However, the economic growth of the country will not boost in an immediate pattern, but the bill will definitely benefit the country in a long term effect.
As an impact of GST the service sector may face short term inflation because of increased tax rates; however, customers will be benefitted because of reduced service cost. Small traders with annual turnover less than Rs. 20 lakhs are exempted from Goods and Service tax registration; nevertheless, they will not get the benefit of input tax credit. This new format of taxation will help in the growth of the startups and will promote the tax compliance. As a result, both consumers and businesses will benefit.
To be continued…
GST is a vast topic, and so are the questions associated with it. Not all the questions are answerable in one single article. So to get all your queries resolved, read the second part of the GST FAQ’s and stay updated with the national news.