Implementation of GST

SECTION : Overview of Goods and Service Tax (GST)

DESCRIPTION
  • Lesson Objectives

    On completion of this lesson, you will be able to understand:

    ·      Features of GST.

    ·      B2B and B2C Transactions

    ·     Destination based taxon consumption

    ·     Administration of GST

    ·     Calculation of GST

     

     

    Please go through the Second Video of the Chapter I.

    Implementation of GST

     

    Features of GST

    ·        It is proposed to be levied at all stages right from manufacture up to final consumption.

    ·        Credit of taxes paid at previous stages available as setoff for Business Persons.

    ·        Only value addition will be taxed and burden of tax is to be borne by the final consumer.

    ·        The tax paid by the Consumer will be income for the Government.

     

    B2B and B2C Transactions

    There are Business Persons who are registered under GST. They are called as Business. And when there is any transaction between a Registered Person to another Registered Person it will be called as B2B transaction. When the Business Person is selling to a Customer or who is not registered in GST, it wil be called as B2C Transaction.

     

     

    In the above image,

    Supplier, Manufacturer, Distributor and Retailer are business persons and any transaction between them will be called as B2B Transaction. When Retailer is selling to customer, it will be called as B2C Transaction.

     

     

    Claiming Input Tax Credit

     

    ·        In a B2B transaction (Business to Business) the buyer can claim tax paid as Input Tax Credit. He can deduct tax paid from his Total Tax Liability. Because Tax Liability is calculated as

                                           Tax Liability = Output Tax – Input Tax

      

    Output Tax means tax collected from Buyer and Input Tax means Tax paid to Supplier.

    ·        In a B2B Transaction, the government is only a custodian of tax. Because when a buyer claim input Tax Credit, the government has to allow such credit.

    ·        In a B2C Transaction (Business to Consumer), the consumer has to pay GST. And that will be the income for the government as the consumer cannot claim input tax credit.

    ·        Final burden of tax is to be borne by the Consumer only.

     

    Destination based tax on consumption

    The tax would accrue to the taxing authority which has jurisdiction over the place of consumption which is also termed as place of supply. GST is a destination based tax on consumption of goods and services.

     

    Dual GST

    India is a federal country where both the Centre and the States have been assigned the powers to levy and collect taxes through appropriate legislation. Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources.

     

    A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal federalism. It would be a dual GST with the Centre and States simultaneously levying it on a common tax base.

     

    ·        The GST to be levied by the Centre on intra-State supply of goods and / or services would be called the Central GST (CGST) and

    ·        That to be levied by the States would be called the State GST (SGST).

    ·        Similarly Integrated GST (IGST) will be levied and administered by Centre on every inter-state supply of goods and services.

      

    Taxes to be paid

    ·        The CGST / SGST is payable on all intra-State supply of goods and/or services and

    ·        IGST is payable on all inter-State supply of goods and/or services.

    ·        The CGST /SGST and IGST are payable at the rates specified in the Schedules to the respective Acts.

     

    What is IGST?

    Under the GST regime,

    ·        An Integrated GST (IGST) would be levied and collected by the Centre on inter-State supply of goods and services.

    ·        Under Article 269A of the Constitution, the GST on supplies in the course of inter- State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.

     

    For example, when a Supplier in Tamilnadu supplies goods to a Customer in Karnataka

     

    ·        Price including tax will be paid by Customer in Karnataka to Supplier in Tamilnadu. The tax paying will be IGST.

    ·        IGST will be collected by the Central Government, which comprises of CGST and SGST at 50:50.

    ·        CGST portion is for Central Government and SGST portion is for State Government.

    ·        Here tax will be paid by the Central Government to the State Government where customer is situated i.e. Karnataka. This is called Place of Supply.

     

    ADMINISTRATION OF GST

    The Centre and states will share powers for control over tax payers under GST.  States will have powers to assess and administer 90 per cent of the tax payers under Rs 1.5 crore annual turnover while the remaining would be controlled by the Centre. For tax payers with more than Rs 1.5 crore turnover, states and the Centre will control and administer them in 50:50 ratio.

     

    The power to levy and collect IGST, a tax on inter-state movement of goods and services, will lie with Centre but by special provisions in law, states will also be cross-empowered.

      

    CALCULATION OF GST

    The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except

    ·        Exempted goods and services

    ·        Goods which are outside the purview of GST and

    ·        The transactions which are below the prescribed threshold limits.

     

    Illustration I:

    Suppose hypothetically that the rate of CGST is 14% and that of SGST is 14%. When a wholesale dealer of steel in Mumbai supplies steel bars and rods to a construction company which is also located in Nagpur that is within the same State for, say Rs. 10,0000/- the dealer would charge CGST of Rs. 1,400/- and SGST of Rs. 1,400/- in addition to the basic price of the goods.

    ·        He would be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government.

    ·        Of course, he need not actually pay Rs. 2,800/- (Rs.1,400/- + Rs. 1,400/- ) in cash as he would be entitled to set-off this liability against the CGST or SGST paid on his purchases (say inputs).

    ·        But for paying CGST he would be allowed to use only the credit of CGST paid on his purchases while for SGST he can utilize the credit of SGST alone.

    ·        In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.

     

    Illustration II: Suppose the rate of CGST is 14% and that of SGST is 14%. When an advertising company located in Mumbai supplies advertising services to a company manufacturing soap also located within the State of Maharashtra i.e. Nagpur for, let us say Rs. 10,000/-, the Advertisement company would charge CGST of Rs. 1,400/- as well as SGST of Rs. 1,400/- to the basic value of the service.

    ·        He would be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government.

    ·        He need not actually pay Rs. 2,800/- (Rs. 1,400/-+Rs. 1,400/-) in cash as it would be entitled to set-off this liability against the CGST or SGST paid on his purchase (i.e. stationery, office equipment, services of an artist etc.).

    ·        But for paying CGST he would be allowed to use only the credit of CGST paid on its purchase while for SGST he can utilize the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.

     

    GST Bill

    Suppose you went to a Hotel with your friend.

    Had 2 Coffees. The Rate is Rs. 40/-. Total Value is Rs. 80/-. GST is 12%.

    SGST = 6% = Rs. 4.80/- = To be paid to State Govt.

    CGST = 6% = Rs. 4.80/- = To be paid to Central Govt.

    Here Total rounded off to Rs. 90/-

     


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