Immediate impact of the new Goods and Services Tax in India
Biggest tax reform:The Goods and Services Tax has been hailed as the biggest tax reform since independence—functioning on the principle of One Nation One Market One Tax w.e.f.1st July 2017
Nature:
GST is an Indirect tax.(ie collected indirectly from the assesses through manufacturers/service providers.
It is on Goods and Services alone. Therefore Direct Taxes (collected directly from the assesses) like Income Tax, Wealth Tax, Profession Tax, Property Tax, Stamp Duty and also Basic Customs duty will continue to be levied and are not subsumed or covered under GST
The indirect taxes subsumed or merged with GST are Excise, Service Tax, Central Sales Tax, VAT, Entertainment Tax, Luxury Tax, Tax on Lottery and Betting, Octroi ,Entry Tax, Purchase Tax, Countervailing and Special Additional Duties (in case of imports), etc.
Tax Structure:
There will be two equal components of GST - the Central GST (CGST) and the State GST (SGST).
The central government will levy and collect CGST while state governments will levy and collect SGST on all transactions within the state.
In case of interstate sales IGST will be charged
Tax Rates: 5% 12% 18% and 28%
0% -Vegetables, fruits , milk, curd, salt ,cereals, eggs, meat, fish, honey, bread newspapers etc stamps etc have Nil rate of tax
Most products are covered under the 18% tax rate
Example :GST Bill with 12% Tax rate. CGST & SGST rates will be equal ie 6% each
Supplier -Selling Price Rs 100+ Rs 6 CGST + Rs 6 SGST= 112 Final Price Customer
Tax only on Value added – In effect although GST is computed on selling price, the net effect of the tax is only on ‘Value Added’. This is because credit of input taxes paid at each stage in the supply chain will be available in the subsequent stage of chain--right from the manufacturer to the consumer.
Example:
Supplier : Rs 100+CGST (6%) Rs 6+SGST (6%) Rs6= Rs 112 Manufacturer
Manufacturer Rs 112+Value Added (20% of 100cost) Rs 20+ CGST (6%)Rs 7.2 +SGST (6%) Rs 7.2= Customer=Rs 146.40
Manufacturer has to pay Output Tax= Rs7.2+Rs 7.2=Rs 14.4
Manufacturer has already paid Input Tax to Supplier =Rs 6+Rs 6=Rs 12
Therefore Net tax to be paid to the Govt: =Rs14.4-Rs 12=Rs 2.4
which is the same as 12% on Value added Rs 20=2.4
Exclusions from GST:
Products outside ambit : Alcohol , Petroleum products, crude oil and gas , Electricity
Services outside ambit: Govt.services, RBI services, Health care services, Education services , Burial services, Agricultural services, Specified insurance schemes
Tresh hold Turnover: Turnover below which GST is not applicable. This is done to prevent hardship to small shopkeepers and businesses.
Businesses with turnover Businesses with turnover >Rs 20 lac < Rs 75 lac can opt for a ‘Composition scheme’ where GST is applicable but with simplified procedures and overall nominal tax rates
Benefits:
Unification and Harmonization of tax laws, tax rates and procedures across the country.Removes multiple taxes levied by both Centre and State viz: are subsumed into one consolidated tax system.
The complexity of indirect taxation resulted in a parallel economy there was an informal set up amongst officials and industry where bribes or facilitation fees were common .This has come to an end with GST.
Free movement of goods and services amongst states – Check posts of Octroi/ Entry Tax which were hot beds of corruption are now being dismantled.
Impact on Products and Services:
Household Goods: Nearly 81% of most household items will fall under below-18%
Consumer Durables: Home appliances and Consumer durables like television, air conditioner, refrigerator and washing machine will attract a 28% tax, which is higher as it was earlier around 23-28% depending on the state.
Mobile Phones: Basic Customs duty of 10% has been levied on imported mobile phones. Moreover Interstate GST will apply to imported phones over and above Basic Customs duty.
In case of local mobile manufacturers, GST has been levied at 12%
Telecom service providers are not happy as GST has increased tax from 15% to 18% on their services.
Capital goods: In a big boost to industry, the GST Council has set the rate for capital goods industrial intermediate items at 18 per cent which were otherwise between 23% to 27%.
Pharmaceuticals: Medicines mostly come under the 12% GST rate and would be costlier as the earlier rates were between 9%-10%. Life saving drugs would be at 5%.
Vehicles: Vehicle prices have come down after GST, main beneficiaries being luxury cars and SUV’s. However a surprise has been higher taxation in case of fuel efficient hybrid vehicles.
Small cars—28% +1% cess Mid Size Cars- 28% +3% cess
Luxury Cars , Hybrid Vehicles and SUV’s 28% +15% cess
Bikes and Scooters < 350CC – 28% > 350 CC 28% +3% cess
In case of trucks and heavy vehicles GST rate is 28%.
In case of buses GST rate is 28% + 15% cess
Real Estate:
Affordable Housing under Pradhan Mantri Awas Yojana will be exempt
Renting: Renting of residential premises is not covered under GST. Renting of commercial premises will attract 18% GST
Sale of Under construction homes : GST rate is 18% with an abatement of 1/3rd for land cost which makes it effectively 12%. Although this rate is higher than the existing rate, in the long run GST is actually expected to bring down the project cost for developers due to availability of tax credit on inputs this would mean homes would, in fact, become cheaper with benefits being passed on to buyer
Sale of ready to move in homes- No GST is applicable
Services: Services like banking, insurance, financial, telecom, consultancy, beauty ,maintenance, repair etc would become more expensive immediately since the present Service Tax rate is only 15% which is now raised to 18% in GST.
Hospitality : In case of restaurants and hotels the issue becomes slightly complicated :
Air-conditioned Restaurants would attract 18% GST while Non Air-conditioned restaurants would be taxed at 12% GST.
Hotel tariffs less than Rs1000 do not attract GST, Tariffs between Rs 1000 and Rs 2500 attract 12% GST, Tariffs between Rs 2500 and Rs 7500 attract 18% GST while Tariffs above Rs 7500 would attract tax of 28%
Entertainment:
Movie ,theatre tickets—28% for tickets over Rs 100 and 18% for tickets below Rs 100.
Transport :
Cab aggregators like Ola and Uber will be taxed at 5% GST .
Non-AC train travel will be exempt .5% GST will be levied on AC travel tickets.
Travelling on metro, local train and religious travel including Haj yatra will all continue to be exempt
Economy class air travel will attract 5 %GST while business class will be charged 12%
One reads in the newspapers that many corporates are on a spree to slash prices this is because GST also has an anti-profiteering clause which means that benefits of GST have to be passed onto customers.
With this GST seems to be a win-win situation for all
Sources:
/www.proptiger.com/guide/post/g...
http://www.thehindu.com/busine...
ttps://cleartax.in/s/tax-calculation-gst
