Unit I.

Chapter 1:
Introduction to GST
 Understanding
Tax
 Definition:
“A compulsory contribution to state revenue, levied by the
government on workers' income and business profits, or added to the
cost of some goods, services, and transactions.”

Taxes may be broadly categorized as – direct and indirect taxes

 Direct Taxes are the taxes that are levied on the income of
individuals or organizations and are directly paid to the government
by the taxpayer.
 Eg: Income tax, Corporate tax, Wealth tax, Inheritance tax,
Gift tax,
Expenditure tax etc.
 Indirect taxes are applied on the manufacture or sale of goods and
services. They are the taxes that are paid by consumers when they buy
goods and services.

 Since the sellers collect the taxes and then pay it to the government, they
are referred to as indirect taxes.

 Eg: Central Sales Tax (CST)

 Excise Duty
 Customs
 Luxury Tax
 VAT
 Securities Transaction Tax (STT)
 Entertainment Tax
 Stamp Duty
VAT EXAMPLE

Here is how the VAT would work:

1. A chocolate’s manufacturer buys the raw materials for Rs.2, plus a VAT of 20 paisa—payable to the
government of India—for a total price of Rs.2.20.
2. The manufacturer then sells chocolate to a retailer for Rs.5 plus a VAT of 50 paisa, for a total of
Rs.5.50. The manufacturer renders only 30 paisa to Indian Govt., which is the total VAT at this
point, minus the prior VAT charged by the raw material supplier. Note that the 30 paisa also equal
10% of the manufacturer’s gross margin of Rs.3.
3. Finally, a retailer sells Chocolate to consumers for Rs.10 plus a VAT of Rs.1, for a total of Rs.11. The
retailer renders 50 paisa to Indian Govt., which is the total VAT at this point (Rs.1), minus the prior
50-paisa VAT charged by the manufacturer. The 50 paisa also represent 10% of the retailer’s gross
margin on chocolate.
 Constitutional Provisions of
Indirect
Article 265 Taxes
of the Constitution states – “no tax shall be levied or collected except
by the authority of law”.
Article 246 of the Indian Constitution, distributes legislative powers, including
taxation, between the Parliament of India and the State Legislatures;

Schedule VII of the constitution categorizes the subject matters on which the
Parliament and State Legislature have the powers to make laws in three lists:

List I - Union List

Includes the items on which Parliament has exclusive rights to frame laws
List II - State List
Includes the items on which State Legislatures have exclusive rights to frame laws
List III - Concurrent list
Includes the items on which both Parliament and State Legislatures have rights to
frame laws. However, in case of any overlap the Parliamentary Law will be
 History of GST in
 India
2000 – The idea of replacing all indirect taxes with a single GST was first proposed

 Up to 2014 – Several attempts to introduce the tax were made, with drafts being introduced in
Parliament and being sent back with certain objections

 Dec 2014 – GST Bill was introduced in Parliament by then Finance Minister Shri Arun Jaitley
 August 2016 - One Hundred and First Amendment Act was enacted
 September 2016 - The first GST Council Meeting was conducted
 March 2017 - CGST, SGST, IGST, UTGST and Compensation Cess Act was
recommended by GST Council.

 April 2017 - CGST, SGST, IGST, UTGST and Compensation Cess Act were passed
 1 July 2017 - GST laws, Goods and Services Tax was launched all over India.
 7 July 2017 - Jammu and Kashmir state legislature passed its GST
Types of
GST
•Central GST (CGST): GST paid on each transaction is divided into two equal parts, the part for
the Centre is termed as CGST.

• State GST (SGST): The part of a state’s share of GST, when a transaction takes place within the
state, is called SGST.

• Union territory GST (UGST): When a transaction takes place within a union territory (UT) without
a legislature, the part of GST that the UT gets is called UGST.

• Integrated GST (IGST): When a transaction takes place between two states/UTs or between a
state/UT and any foreign territory, IGST is levied without any bifurcation on the applicable GST
Compensation Cess in
GST
• The Goods and Services Tax (Compensation to States) Act 2017, was
enacted to enable the recovery of any loss in revenue to States due to
the imposition of GST.

• This Act allows the centre to levy a cess on the supply of selected
goods and services for a 5 years period (i.e., until 1st July 2022). The
cess thus collected is then distributed to states in order to make up
for any loss in indirect tax revenues due to the shift from the earlier
regime to the current GST system.
• The government has extended the time for levy of GST compensation
Compensation Cess is also referred to as ‘sin’ tax or ‘luxury’ tax
due to the nature of products that it is levied on i.e. tobacco and
tobacco products and motor vehicles. All these as it is attract a GST
slab rate of 28%, and in addition there is a cess levied on tax.

The rate of cess on tobacco products is 290%, while that on pan

masala is 135%.

On coal rather than a cess rate a flat Rs. 400 per tonne is levied as
cess, which is in addition to the 5% GST rate
Note: When bringing in GST the Centre had committed to the states
that, starting from 2015-16 level, there will be a 14% Year-on-year
increase in tax revenue. If, due to migration to GST, this does not
happen then the Centre will compensate (thus compensation to states
cess) the states by paying the shortfall.

How will the Centre raise this money?

By charging the compensation cess on notified products for a period

of five years. After 5 years, the centre believed that the GST system
would’ve stabilised and states would no longer require this support.
Why was GST
Introduced?
The Objectives behind introducing GST include:

- To converge all indirect taxes into a single tax.

- To facilitate creation of a common market through a uniform tax

structure across the country.

-Seamless flow of credit

-To increase in exports

-Competitive price – make things cheaper for end consumers and

thus increase their demand in an economy.

- To reduce the tax burden

Salient Features of
GST
- GST is applicable on the supply of all goods & services
- It is a destination-based tax rather than an origin-based tax

- It is a tax on value addition

- GST provides seamless input tax credit

- GST would apply on all goods and services except Alcohol for human consumption

- GST on five specified petroleum products (Crude, Petrol, Diesel, Aviation Turbine Fuel &
Natural Gas) would be applicable from a date to be recommended by the GSTC.

-Tobacco and tobacco products would be subject to GST. In addition, the Centre would
have the power to levy Central Excise duty on these products.
- Burden of GST is borne by the final consumer
 Rationale for GST
Advantages to Economy
1. unified common market
2. Increase in manufacturing process
3. Improvement in export and import
4. More employment opportunities have been created
Advantages to traders
5. Reduction in multiplicity of taxes
6. Reduce cascading and double taxation burden
7. Neutralization of tax become more efficient for exporters
8. Simplified GST rules for exmption and tax credit
9. Uniform registration process for return filing, tax payments and tax refund
Advantages to Govt
10. Creation of common mkt for foreign investment and promote MAKE In India programme
11. Increase in India GDP
12. States are also developing in environment of increasing capital investment
13. Low tax evasion
14. Low cost of keeping multiple tax records
Advantages for citizens
15. Simplified tax structure
16. Reduced prices of goods nd services because of less cascading effect burden
17. Uniform prices throughout thye country
18. Transparent taxation system
Source:
Cleartax.in
 Types of Tax Levied Under Old and New
Regime – A
Comparis
on Activity
Trade Tax Under Old Tax Tax Under GST
Structure
Import of Goods Basic Customs Duty, Basic Customs
Countervailing Duty (CVD), Duty &
Special Additional Duty IGST
(SAD)
Import of Services Service tax under IGST
reverse charge
Inter State CST IGST
Supply of Goods
Intra State Supply of VAT CGST & SGST
Goods
Inter State Service Tax IGST
Supply of
Items Not Taxed/Covered Entirely Under GST Council or state

1) Alcohol for human consumption: On alcohol, the power to tax remains with the states and it is
currently not under the purview of GST:

2) Petroleum products: GST was not imposed on five petroleum products — crude oil, diesel, petrol,
natural gas and ATF. The Council is yet to decide a slab rate and date from which GST will be effective
on these products.

3) Tobacco: In addition to GST, the Central Government has the power to levy additional excise
duty on tobacco products (compensation cess).

4)Entertainment tax: The power to decide on entertainment tax levied by local bodies remains with
the states. GST council does not decide on this.

5)Completed properties or resale of old properties- GST is not imposed on sale of completed
properties where completion certificate has been issued.
Who is ‘Taxable’ Person under
GST
GST on supply can be levied only if it is made by a taxable person
A “taxable person” under GST is:
- A person who is registered or liable to be registered under section 22 or section 24.
- A person not liable to be registered but has taken voluntary registration and got himself
registered is also a taxable person.
- https://taxguru.in/goods-and-service-tax/gst-registration-section-22-24-cgst-act-2017.html
Note:
- GST in India being state-centric, a person making supplies from different states need to
take separate registration in each state (from where you intend to make outward
supplies).
- Further the person may take more than one registration within a state if the person has
multiple business verticals
GST Rates for Goods

GST rates in India for various goods and services are

divided into four slabs: 5% GST, 12% GST, 18% GST, and
28% GST. Since the inception of the Goods and Services
Tax, the GST council has revised the GST rates for various
products several times (GST).
GST Rates for Services
GST on gold

Importing, purchasing, and making charges of gold attract

distinct GST rates, with the gold value being taxed at 3%
and making charges at 5%.