Finally after a long wait, GST bill was ratified from 50% of legislation states on 8th September 2016. Wait? Why is this news been shown here? Is it important?
I know most of you have heard about some GST bill which is going to be passed very soon. Maybe you would have heard that it's related to tax. But do you know the whole story? Do you know why it matters?
Now before your wiki it, I should stop you. If you are not pertained to that commerce/economic linguistic pattern, you are not going to understand even a single bit of info there. So I am here to put it all in, as simple as it goes, way.
Let's start with the taxes you already pay. Currently under “Taxation in India” there are two categories.
- Indirect Tax: Its doesn't involve monetary value but in forms of goods and services, like old times. Here in we could add Service Tax which is fixed at 15%, and Excise and Custom Duty which varies over transfers.
- Value Added Tax: Commonly known as VAT, which definitely varies from state to state.
There are more like Property Tax, Local Body Tax but they aren't much of concern here.
So now that you know how tax works in India,you'll get a hold of what changes GST might bring.
What is GST?
Abbreviated for Goods and Services Tax, GST is officially known as 122nd Amendment Bill. Its main motive is to surface a uniform tax throughout the country.
The bill was first proposed in Lok Sabha on 19 December 2014 by Mr. Arun Jaitley. It was passed on 6 May 2015 and was promoted to Rajya Sabha on 14 May 2015. After being cleared from Upper House on 3 August 2016, the bill was sent for ratification from 50% states legislatures. This long run came to an end on 8 September 2016 and got nod from our Honorable President.
The bill will be effective from 1 April 2017 (tentative).
The bill was given a thorough thought before passing from each step. It shows its importance in Indian Economy.
Features of GST bill:
- The tax will have two components as Central GST (CGST) and State GST (SGST). This was done to avoid confusions and make it as uniform as practically possible.
- This will act on all goods and services except exempted goods.
- There will be separate collection of CGST and SGST but taxpayer will see it in bind form.
- As these are different, SGST could be used as ITC for CGST.
- Cross utilisation is not allowed
- Separate jurisdiction
- Annual turnover base for SGST is 10 lakh while for CGST is 1.5 crore.
- Taxpayer will have to submit periodical returns.
- Soon this trend will followed up by GST PAN Linked System.
So this was all the information about GST. How it'll work and what are the norms? But still its unclear how it will help us,the taxpayers. Here's your answer.
How will GST benefit the common taxpayer?
To understand this we need to take an example. Let's say you own a shop of mobile phones and I am the buyer. Now you need to pay Service Tax, VAT and Excise Custom duty on your product and I need to pay Service tax and VAT on the phone I'll buy.
Also if you take your good to sell in other state, due to changes in VAT you'll get a loss or profit. Similarly for me if I buy phone from another state I get it a little cheap.
Ain't it troublesome?
For same thing we need to pay different taxes in different region.
The solution is GST. What will it do?
- Uniform tax rate throughout country prevent changes in price across the border.
- Separate accountability of Central and State will ponder less variation.
- In future if applied on petroleum products it will shorten cost.
If it still doesn't convince you, read this.
GST will cut your taxing cost about 15 to 20%.
I think that's enough to understand this whole article. All in all for a big economy like India, tax uniformity is must. Where on one side it sorts things for government and taxpayers, it also prevent fugitives to grab hand on money in between.