GST Simplified – All you need to About Goods & Service Tax in India


16 years after the idea to introduce GST in India was put forward by the then Prime Minister Atal Bihari Vajpayee; the GST Bill was finally passed in Rajya Sabha and Lok Sabha on August 2016. Additionally, it has been approved by as many as 16 states in India and is being touted as one of the biggest economic reforms in Indian history. It is estimated that the IT system will roll out by March 2017 and in all likelihood, by July 2017 the Good and Service Tax in India will be applicable across the country. GST in India will follow a four-tier structure, and will be levied at the rate of 5%, 12%, 18% and 28%. It is estimated that it will increase the country’s GDP by 1 – 2%.

So What is GST?

GST or Goods and Service Tax is a tax levied on goods and services (not taxes on income and profits), which will be applicable uniformly all over India. But before that, let us decode the Indian Tax structure to gain a better understanding of GST.

Current Tax Structure in India
Current Tax Structure in India

The tax system is broadly classified into two groups – Direct Tax and Indirect Tax. Where Direct Tax is levied directly on individuals, Indirect Tax is paid by the intermediaries on behalf of the final consumer and collected by both the Central and the State government.

As you can see in the table depicted above, Indirect tax has many heads that are levied in different phases of the manufacturing and selling cycle; the implementation and collection of which, is a complicated procedure. Therefore, GST was introduced with the aim to reduce the cascading burden of tax on tax.

Ideally, GST is a one tax regime, but India will incorporate the Dual GST system, which means there will be two GST, i.e. Central GST and State GST.

Heads under Indirect Tax (Central) that will be replaced by the Central GST –

  • Central Excise Duty
  • Duties of Excise
  • Cesses and Surcharges
  • Customs and Service Tax

Heads under Indirect Tax (State) that will be replaced by the State GST –

  • State VAT
  • State Cesses and Surcharges
  • Central Sales Tax
  • Tax on Advertisements
  • Purchase Tax
  • Tax of Lottery and Gambling
  • Luxury Tax
  • Entry Tax
  • Entertainment Tax

However, there are still some heads that will not be included under the GST banner. These include customs, petroleum, tax on liquor, stamp duty, tax on electricity among others.

Proposed Tax Structure Under the GST Regime
Current Tax Structure in India

Will GST Make Commodities Cheaper?

It is supposed that GST will not make commodities cheaper immediately. Apparently, the uniform rate of GST will increase the prices in the short term. However, in the long term, GST will reduce the prices of goods and services due to no tax on tax and improvement in productivity. Nonetheless, there are certain commodities that will become comparatively cheaper by the implementation of GST in India, these include – cars, houses, restaurants and home appliances. Likewise, certain commodities will be adversely affected, such as, products that have little tax or no taxes will bear the brunt of higher taxes, the price of jewellery, credit cards, and mobile phones in all likelihood will increase.

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