Goods and Service Tax (GST)
“Goods and Service Tax (GST) is a comprehensive tax levy on manufacture, sale and consumption of goods and service at a national level under which no distinction is made between goods and services for levying of tax. It will mostly substitute all indirect taxes levied on goods and services by the Central and State governments in India.
GST is a tax on goods and services under which every person is liable to pay tax on his output and is entitled to get input tax credit (ITC) on the tax paid on its inputs(therefore a tax on value addition only) and ultimately the final consumer shall bear the tax”.
Model of GST
- The GST shall have two components: one levied by the Centre (referred to as Central GST or CGST), and the other levied by the States (referred to as State GST or SGST). Rates for Central GST and State GST would beapproved appropriately, reflecting revenue considerations and acceptability.
- The CGST and the SGST would be applicable to all transactions of goods and services made for a consideration except the exempted goods and services.
- Cross utilization of ITC both in case of Inputs and capital goods between the CGST and the SGST would not be permitted except in the case of inter-State supply of goods and services (i.e. IGST).
- The Centre and the States would have concurrent jurisdiction for the entire value chain and for all taxpayers on the basis of thresholds for goods and services prescribed for the States and the Centre.
IGST Model (Inter-State Transactions of Goods & Services) and Input tax credit (ITC) with example:
- Existing CST (Central state tax, tax on interstate movement of goods) shall be discontinued.
- Center would levy IGST (cumulative rate for CGST and SGST)on all inter-State transactions of taxable goods and services with appropriate provision for consignment or stock transfer of goods and services.
- The ITC of SGST, CGST shall be allowed as applicable.
- Since ITC of SGST shall be allowed, the Exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while discharging his SGST liability (while selling the goods in state itself). Thereafter, the Centre will transfer to the importing State the credit of IGST used in payment of SGST.
- The relevant information shall be submitted to the Central Agency which will act as a clearing house mechanism, verify the claims and inform the respective state governments or central government to transfer the funds.
- Advantage of IGST:
- No refund claim in exporting State, as ITC is used up while paying the tax.
- Maintenance of uninterrupted ITC chain on inter-State transactions.
- No upfront payment of tax or substantial blockage of funds for the inter-State seller or buyer.
Formula for GST calculation:
Add GST:
GST Amount = (Original Cost x GST%)/100
Net Price = Original Cost + GST Amount
Remove GST:
GST Amount = Original Cost - [Original Cost x {100/(100+GST%)}]
Net Price = Original Cost - GST Amount
