GST – a new phase in Indian tax laws

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India’s parliament approved four central GST bills on 29th March, 2017. These included the Integrated GST bill, the Union territory GST bill, and the GST (compensation to states) bill – which are crucial for implementation of Goods and Services Tax across India. The GST bill is noteworthy as it subsumes a slew of central and state taxes which makes Tax compliance a complex and difficult matter, specially for small and medium enterprises.

Salient Points of GST:

  1. Destination(Consumption) tax to be borne by final consumer based on every phase of value addition
  2. Co-operative federalism: Both Center and states have given up powers to GST council to recommend the effective tax rates
  3. Amalgamation of Indirect taxes (i.e. Central excise duty, CVD, SAD, Service Tax, surcharges and cesses, Sate VAT, CST, Luxury tax, Entry Tax, etc.) to be replaced by GST
  4. Turnover under Rs. 10,00,000/- to be exempt (For NE and Sikkim threshold is Rs. 5,00,000/-)
  5. Composition Scheme under GST: applicable for dealers whos aggregate turnover does not exceed Rs. 50L – they have a floor tax rate for CGST&SGST not less than 1% and maximum of 3%; they can not collect any input tax credit from their suppliers
  6. Alcohol, Petroleum products, Natural Gas & Electricity are outside the purview of GST.
  7. Imports of Goods and Services would be treated as inter-state supplies.
  8. Exports will be treated as zero rate supplies

Taxes to be Subsumed in GST:

Surcharges & Cesses

Central Taxes State Taxes
Central Excise duty State VAT / Sales Tax
Additional duties of excise Central Sales Tax
Excise duty levied under Medicinal&
Toiletries Preparation Act
Purchase Tax
Additional duties of customs (CVD &
SAD)
Entertainment Tax (other than
those levied by local bodies)
Service Tax Luxury Tax
Surcharges & Cesses Entry Tax (All forms)
Taxes on lottery, betting & gambling
Surcharges & Cesses
Source: http://www.cbec.gov.in

Opinion:

With the passing of the GST bill in both the houses the gates for implementation of uniform tax across the country have opened. Experts expect India’s GDP to improve by 0.9% – 2% due to the new tax regime.

GST would replace all Indirect taxes paving the way for common national markets and removing the cascading effects of tax on cost of manufacturing. This will make SME and MSME more competitive vis-a vis international manufactures as well as giving a level playing field with respect to Large manufactures. GST will also add momentum to the Modi government’s flagship Make in India project.

GST is based on consumption methodology and ensures a single tax across the country. This bill significantly improves ease of tax filing and will help improve tax compliance across the nation – particularly for businesses that trade across multiple states.

We expect the services sector to be penalised as tax rate under GST is expected to be higher than under the previous Service tax regime. At the same time the manufacturing sector is expected to benefit with a clear advantage for multi-leg manufactures (with many small units and vendors) in industries such as FMCG, Automobiles, Engineering and Pharma. Logistics firms also stand to benefit significantly as Octroi and state-levied entry tax are also subsumed in GST.

Some of the public listed companies we expect to see benefit from GST are :   ( ),   ( ),   ( ),   ( ),   ( ),   ( ) and   ( ).

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