Goods and Services Tax (GST)

2021 SEP 20

Preliminary   > Economic Development   >   Budgeting   >   Goods and Servies tax

Why in news?

  • The Goods and Services Tax (GST) Council has decided to keep petroleum products out of the GST regime, while consumers will have to keep paying the Compensation Cess levied on products like automobiles till March 2026 instead of July 2022 as originally envisaged at the time of rolling out the indirect tax regime.

About GST:

  • The nationwide GST regime was rolled in 2017 to subsume and replace 17 local levies like excise duty, service tax and VAT and 13 cesses.
  • GST has been a milestone in the economic landscape of India. It has decreased the number of taxes, compliance burden and overall tax burden on common man while significantly increasing transparency, compliance and overall collection

Legal basis for GST:

  • In order to suitably implement the GST, 101st Constitutional Amendment Act inserted, deleted and amended of certain Articles of the Constitution.
  • Article 246A: Special Provision for GST
    • This Article was newly inserted to give power to the Parliament and the respective State/Union Legislatures to make laws on GST respectively imposed by each of them.
    • However, the Parliament of India is given the exclusive power to make laws with respect to inter-state supplies.
    • The IGST Act deals with inter-state supplies. Thus power to make laws under the IGST Act will rest exclusively with the Parliament.
  • Article 269A: Levy and Collection of GST for Inter-State Supply
    • While Article 246A gives the Parliament the exclusive power to make laws with respect to inter-state supplies, the manner of distribution of revenue from such supplies between the Centre and the State is covered in Article 269A.
    • It allows the GST Council to frame rules in this regard. Import of goods or services will also be called as inter-state supplies.
    • This gives the Central Government the power to levy IGST on import transactions.
  • Article 279A: GST Council
    • This Article gives power to make to the President to constitute a joint forum of the Centre and States called the GST council
    • GST Council is an apex member committee to modify, reconcile or to procure any law or regulation based on the context of Goods and Services Tax in India
    • Its chairman is Union Finance Minister with ministers nominated by the state governments as its members.
    • The council is devised in such a way that the Centre will have 1/3rd voting power and the states have 2/3rd. The decisions are taken by 3/4th majority.
  • Article 286: Restrictions on Tax Imposition
    • This was an existing article which restricted states from passing any law that allowed them to collect tax on sale or purchase of goods either outside the state or in the case of import transactions.
    • It was further amended to restrict the passing of any laws in case of services too.
    • Further, the term ‘supply’ replaces ‘sale or purchase’.
  • Compensation to States Under GST
    • 101st Constitutional Amendment Act also contains a provision to provide for relief to states on account of the revenue loss to the states arising due to the implementation of GST. It has a validity period of five years.

Salient Features of GST:

  • Four-rate structure:
    • The GST regime follows a four-rate structure that exempts or imposes a low rate of tax 5 percent on essential items and levies the highest tax rate of 28 per cent tax on luxury and sin goods.
    • The other two tax slabs are 12 and 18 per cent.
    • In the pre-GST era, the total of VAT, excise, Central Sales Tax and their cascading effect led to 31 per cent as tax payable, on an average, for a consumer.
  • Dual GST:
    • It is a dual GST with the Centre and the States simultaneously levying tax on a common base. GST to be levied by the Centre is called Central GST (CGST) and that to be levied by the States is called State GST (SGST).
  • IGST:
    • Import of goods or services would be treated as inter-state supplies and would be subject to Integrated Goods and Services Tax (IGST) in addition to the applicable customs duties.
  • GST rates to be mutually decided:
    • CGST, SGST & IGST are levied at rates to be mutually agreed upon by the Centre and the States. The rates are notified on the recommendation of the GST Council.
  • Applicable on supply side:
    • GST is applicable on ‘supply’ of goods or services as against the old concept on the manufacture of goods or on sale of goods or on provision of services.
    • Hence it is a destination-based consumption taxation
  • Reverse charge mechanism:
    • The GST is levied at every stage of the production process but is collected from the point of consumption (Reverse Charge Mechanism), refunding all parties eventually other than the end consumer.

Goods and Service Tax Network (GSTN):

  • It is a non-profit, non-government organization.
  • It will manage the entire IT system of the GST portal, which is the mother database for everything GST.
  • The government will use this portal to track every financial transaction and provide taxpayers with all services – from registration to filing taxes and maintaining all tax details.

Exemptions:

  • Businesses dealing in goods with an annual turnover of up to Rs.40 lakh are exempt from the tax.
  • Additionally, those with a turnover up to Rs.1.5 crore can opt for the Composition Scheme and pay only 1 per cent tax.
  • Services providers with turnover up to Rs.20 lakh in a year are exempt from GST. Business in the service sector with turnover up to Rs.50 lakh in a year can opt for composition scheme for services and pay only 6 per cent tax.
  • Moreover, certain items like petroleum, alcoholic beverages for human consumption and stamp duty are not included under GST regime.

PRACTICE QUESTION:

Which of the following statements are correct regarding Goods and Service Tax system?

1. Constitution gives exclusive power to Parliament to make laws with respect to inter-state supplies.

2. Under the GST system, import of goods or services is treated as inter-state supplies.

Select the correct answer using the code given below:

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer