Authored by Mr. Satya Pramod, CFO, Tally Solutions.
August 3rd, 2016 will be recorded as a red letter day in the history of Indian taxation due to the near unanimous passage of 122nd Constitutional Bill in Rajya Sabha, paving the way for roll-out of GST (Goods and Services Tax) in India from 1st of April 2017. Goods and Service Tax Bill has significantly evolved over the past decade and is touted as the single largest tax reform in India since independence. It is estimated to boost GDP by 1.5 to 2%. ‘One India, One Tax’ will be the new reality with GST subsuming over ten indirect taxes and making India a common market.
Apart from elimination of cascading effect, the benefits of simplified compliance, technological backing and uniform process across India will contribute significantly to ‘Ease of doing Business’. However, the success of a business will significantly depend on the ability to understand and adopt to this new reality as certain existing business practices will have to undergo changes.
Goods and Services Tax is a comprehensive tax levied on supply of goods and services across India. GST (Goods and Services Tax) is a Destination based Consumption tax, and the taxable event is Supply as against the existing taxable events of sale, manufacture or provision of service. Draft model GST law was first made public in June 2016, after which the Revised Draft Law was made public on 26th November 2016. It is high time that businesses, industry/trade bodies, professional associations and the like provide valid inputs at an early date, and ensure the final GST Law addresses all the concerns to make the transition smooth.
Background
The indirect taxation regime in India has undergone many transformations over the past 5 to 6 decades. Introduction of MODVAT scheme in 1986, fungibility of credit between Excise and Service Tax (2004), rollout of VAT (2005 onwards) have over the years increased transparency in tax administration, reduced hassles to tax payers, and eliminated the cascading effect, thus benefitting the consumer. However, the federal structure of India has resulted in tax being administered by both Centre and State. Lack of facility to utilize credits across these two entities has resulted in partial cascading still being left in the system. Added to this, the burden of compliance has also increased due to involvement of multiple agencies. GST precisely addresses these concerns by driving uniformity across India through a single tax and ensuring an unrestricted flow of tax credit. Conceptually, GST is similar to VAT, meaning tax will be applied only on the value addition at each point in the supply chain.
Salient Features
Some of the salient features of GST (Goods and Services Tax) are:
Registration:
GST Registration threshold is Rs 10 Lakh for special category states*, and Rs 20 Lakh for Rest of India. Approximately 7-8 million businesses are likely to be registered under GST. Small dealers with turnover below Rs50 Lakh have the option of adopting the Composition scheme and pay flat ~1 to 4% tax on turnover.
*Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand
Dual GST (Goods and Services Tax):
In consideration of the federal structure of India, Dual GST has been chosen as the apt model wherein tax would be jointly levied by both Centre and the states on supply of goods and services.
The components of Dual GST are:
On intra-state transactions CGST+SGST will be applicable and on interstate transactions, IGST will be applicable.
GST Rates:
There are likely to be 3 sets of rates as below:
There is also likely to be a lower rate for precious metals and zero-rate for essential goods.
Returns:
The GST (Goods and Services Tax) regime introduces the following changes:
Major Impact Areas
Principal areas of impact for business will be:
What Next?
With the passage of the 122nd constitutional Amendment Bill in Rajya Sabha, the immediate next steps are:
The tasks look daunting, yet achievable.
What next for all of us:
With 1st of April 2017 being the likely date for launch of GST (Goods and Services Tax), the taxpayer needs to take several preparatory steps in this direction. The transition will be the key for having a clean opening balance to start with.
As always, Tally has been the pioneer in assisting businesses with understanding and adopting statutory changes. The greatly simplified solution in Tally.ERP 9 will ensure quick migration and easy handling of statutory requirements of GST.
"This note has been prepared with publicly available information, however the actual GST rates and business process are likely to undergo significant changes by the time of rollout."