How will GST change the taxation in India?

How will GST change the taxation in India?
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In India, there are over 20 types of taxes that we pay to the government. These can be broadly classified as direct tax, indirect tax, surcharges and cess. All business owners are aware of the amount of different taxes deposited by them apart from income tax. Before a business decides to expand or start a new process, the tax implications have to be understood to avoid default or paying exorbitant taxes which can eat into their profits.

In an effort to simplify and streamline the taxation process, the Government of India plans to introduce Goods and Services Tax (GST) which will subsume many central and state levied taxes.

Salient Features as mentioned on the GST official website include the following:

  • GST, or Goods and Services Tax, will subsume central indirect taxes like excise duty, countervailing duty and service tax, as also state levies like value added tax, Octroi and entry tax, luxury tax. This can enable the Center and the state to work seamlessly and provide tax relief to businesses too.
  • The consumer of the product or service will bear the GST charges by the last dealer in the supply chain. The dealer will set-off all the previous GST charged in the final price of the product or service.
  • In an effort to support individual states, the government has kept tobacco, alcohol and petroleum products out of the purview of GST.
  • GST will have two components. The Central Goods and Services Tax (CGST) levied by the Center and The State Goods and Services Tax (SGST) levied by the individual states.
  • The Center will have the authority to collect GST on supplies concerning inter-state businesses. The tax collected would then be divided between the Center and the States on recommendations of a GST Council.
  • The GST Council shall comprise of a Chairperson, Vice Chairperson and members. The President of India has since Constituted the GST Council comprising of the following members-
    • The Union Finance Minister … Chairperson
    • The Union Minister of State in charge of Revenue or Finance … Member
    • The Minister in charge of Finance or Taxation or any other Minister nominated by each State Government … Members
    • The members of GST Council shall amongst themselves, elect one of them as Vice Chairman of the Council. The states shall be represented by the Minister in-charge of Finance or Taxation or any other Minister nominated by the State but he or she should be a Minister in the State Government.
  • The GST Council has proposed an additional tax not exceeding 1% on inter-state trade in goods. This will be levied by the Center to compensate the states for approximately two years.

In simple words, Goods and Services Tax is a tax levied when a consumer buys a good or service. The current tax regime is riddled with indirect taxes which the GST aims to subsume with a single comprehensive tax, bringing it all under a single umbrella.

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