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GOODS AND SERVICE TAX (GST) : What good will it do?

The whole country is awaiting the implementation of the new tax structure in
the economy: Goods and Service Tax(GST) . The new tax structure holds a lot
of expectations and is believed to accelerate growth and development in the
economy which is presently at a stand-still.
What is GST?
In simple words, Goods and Service Tax (GST) is the union of most of the
indirect taxes which are in force with a view to remove the complexities
existing in the present scenario. GST is a comprehensive tax which will be
imposed on the manufacture, supply and consumption of goods and services
at the national level. It will be levied on every goods and services except for
crude petroleum, motor spirit, diesel, aviation turbine fuel ,natural gas and
some services to be specified. Both the Central and State taxes will be
subsumed under the single head of GST. Moreover, implementation of GST
will thin the differences in the definition of goods and services in the
country.
Keeping in mind the federal structure of the Indian Government , GST will
have a dual structure and will be levied at two levels : Central level
(CGST)and the State level (SGST).
Moreover , there is also an additional concept of IGST which will be levied by
the Central Government on the inter state transaction of goods and services.
This has to be kept in mind the IGST is not the replacement of CST (Central
Sales Tax) but will be levied as a summation of CGST and SGST.
For eg, let us assume that the rate of SGST is 12% and the rate of CGST is
14% in the country. Now ,if a dealer in Maharashtra sells his goods to a
dealer of the same state, then he will charge two taxes namely, CGST @ 14%
and SGST@ 12 % separately in his bill. But, if the dealer sells his goods to a
dealer of another state (say Gujarat), then he will charge IGST at an overall
rate of 26% (12% + 14% ) in his bill.
A relevant feature of GST is that it will be levied on the supply of goods and
services and not their sale. So, now even the branch transfers, free supplies
and stock transfers will be under the ambit of the new tax structure and GST
will be paid on such transfers.
The new tax structure will reform the economy and is believed to be a boon
for the traders and the assesses. It will not only simplify the calculation and

compliance procedures but is also believed to remove the cascading effect of


taxes(tax on tax) which is a major area of concern today.
After GST, this problem will be solved and removal of cascading effect will
lead to the reduction of prices of domestic commodities in the international
market, thereby increasing exports.
The following example throws light on the IGST model :
X of Mumbai sold goods worth Rs. 10.00 Lakhs to Y of Mumbai and Y of
Mumbai sold the same goods to Z of Rajasthan at Rs. 10.50 Lakhs. Now at
second stage Z of Rajasthan sold the same goods to a consumer in
Rajasthan at Rs.11.00 Lakhs. Suppose the rate of SGST is 12% and rate of
CGST is 14%.
X
Sale Price (in
lacs)
SGST @ 12%
CGST @ 14%
IGST @ 26%
Less: Input Tax
Credit SGST

10
1.2
1.4
NIL

10.50

11

2.73

1.32
1.54
NIL

NIL

(1.26)
(2.6)

CGST
Net Payable :
State Govt.

NIL

(1.47)

1.2

.06

Central Govt.

1.4

.13

.07

Effect of IGST will be as follows :


RAJASTHAN
The consumer state is
Rajasthan and Sale price to
the Consumer is Rs. 11.00
Lakhs hence the state of
Rajasthan should get Rs.
1.32 Lakhs as SGST @ 12%
on Rs. 11.00 Lakhs
Amount paid as SGST

CENTRE
The central will get a
sum of Rs. 1.54 as
CGST on the sale
price of Rs. 11.00
Lakhs @14% and
centre will get this
amount as under: Amount
deposited by X in

MAHARASHTRA
The state of
Maharashtra is the
Supplier state in this
transaction and since
GST is consumer and
destination based tax
hence Maharashtra
should not get any Tax
out of this transaction

in Rajasthan by Z=
Rs.0.06
Amount of SGST
transferred by the
central agency from
the State of
Rajasthan = Rs. 1.26

state of
Maharashtra as
CGST
= Rs.
1.40 Lakhs
Amount
deposited by Y
as IGST (only
part of CGST
taken) = Rs.
0.07 Lakhs
Amount
deposited by Z
of Rajasthan as
CGST= .07Lacs

Amount paid by
first dealer X as
SGST= Rs. 1.20
Lakhs
Less:Transferred to the
Centre by
Maharashtra
= Rs.
1.20 Lakhs