Understanding the basics of GST

People have taken note of the GST or the Goods Services Tax law. A new law has been proposed which is set to reform how people do business and the way goods and services are taxed in India. Whether it makes goods cheaper for the common man like you and me, nobody can tell. But this is going to impact our lives in our jobs, our businesses and the overall economic environment.  Reason enough for us to learn something about it!

Who does it apply to?

• To every person who supplies goods and/or services of value exceeding Rs 20 lakh in a financial year. (Limit is Rs 10 lakh for some special category states). Compulsory registration for these. And GST must be paid when turnover exceeds Rs 20 lakh (Rs 10 lakh for some special category states).
• To any person making inter-state taxable supply of goods and/or services
• Every e-commerce operator
• Every person who supplies goods and/or services, other than branded services, through e-commerce operator
• Aggregators who supply services under their own brand name
• Casual Taxable Person
• Non-Resident Taxable Person
• Person required to deduct/collect tax (TDS/TCS)
• Input Service Distributor
• Person supplying online information and database access or retrieval services from a place outside India to a person in india, other than a registered taxable person.
• Person required to pay tax under Reverse Charge
• Person supplying the goods on behalf of other taxable person (eg. Agent)
• GST does NOT apply to Agriculturists
• GST does not apply to any person engaged exclusively in the business of supplying goods and/or services that are not liable to tax or are wholly exempt from tax under this Act

What is the GST framework as per the new law?

GST is expected to replace a myriad of indirect taxes such as VAT, customs duty, Excise, CST, Service Tax, Entertainment Tax with a single tax called the Goods and Services Tax.

• Broadly there will be 2 forms of GST in India.
• At the intra-state level (when goods travel within a state) and at the inter-state level (when goods travel between states).
• At the intra-state level two types of GST shall be levied CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax).
• At the inter-state level IGST (Or Integrated Goods and Services Tax) shall be levied.
• Imports shall be considered as inter-state supply.
• Exports shall be zero rated.
• Supplies to SEZ will be Zero-rated

Will the new GST allow tax cascading benefits?

Many of us are aware that service tax and VAT have cascading benefits, which means you can avail credit of tax paid by you on inputs. For example in case of service tax – you levy service tax on services you sell and while depositing this tax you can take credit of service tax paid by you on services used as inputs.

This cascading benefit shall also be available in case of GST.

Here is how set off works in case of GST –

IGST payments can be set off against – IGST, CGST, SGST on inputs

CGST payments can be set off against – IGST and CGST on inputs

SGST payments can be set off against – IGST and SGST on inputs

Hope our readers will find this information about GST useful. We will bring more details on the draft law which is under discussion and has not been approved yet, so you can better understand its impact on your business.