Frequently Asked Questions (FAQs) on Goods and Services Tax (GST)
Following are the
answers to the various frequently asked questions relating to GST:
Question
1.What is GST? How does it work?
Answer: GST is one indirect
tax for the whole nation, which will make India one unified common market.
GST is a single tax on
the supply of goods and services, right from the manufacturer to the consumer. Credits
of input taxes paid at each stage will be available in the subsequent stage of
value addition, which makes GST essentially a tax only on value addition at
each stage. The final consumer will thus bear only the GST charged by the last
dealer in the supply chain, with set-off benefits at all the previous stages.
Question
2. What are the benefits of GST?
Answer:The benefits of GST
can be summarized as under:
·
For
business and industry
o Easy compliance: A robust and
comprehensive IT system would be the foundation of the GST regime in India.
Therefore, all tax payer services such as registrations, returns, payments,
etc. would be available to the taxpayers online, which would make compliance easy
and transparent.
o Uniformity of tax
rates and structures:
GST will ensure that indirect tax rates and structures are common across the
country, thereby increasing certainty and ease of doing business. In other
words, GST would make doing business in the country tax neutral, irrespective
of the choice of place of doing business.
o Removal of cascading: A system of seamless
tax-credits throughout the value-chain, and across boundaries of States, would
ensure that there is minimal cascading of taxes. This would reduce hidden costs
of doing business.
o Improved
competitiveness:
Reduction in transaction costs of doing business would eventually lead to an
improved competitiveness for the trade and industry.
o Gain to manufacturers
and exporters:
The subsuming of major Central and State taxes in GST, complete and
comprehensive set-off of input goods and services and phasing out of Central
Sales Tax (CST) would reduce the cost of locally manufactured goods and
services. This will increase the competitiveness of Indian goods and services
in the international market and give boost to Indian exports. The uniformity in
tax rates and procedures across the country will also go a long way in reducing
the compliance cost.
·
For
Central and State Governments
o
Simple
and easy to administer:
Multiple indirect taxes at the Central and State levels are being replaced by
GST. Backed with a robust end-to-end IT system, GST would be simpler and easier
to administer than all other indirect taxes of the Centre and State levied so
far.
o
Better
controls on leakage: GST
will result in better tax compliance due to a robust IT infrastructure. Due to
the seamless transfer of input tax credit from one stage to another in the
chain of value addition, there is an in-built mechanism in the design of GST
that would incentivize tax compliance by traders.
o
Higher
revenue efficiency: GST
is expected to decrease the cost of collection of tax revenues of the
Government, and will therefore, lead to higher revenue efficiency.
·
For
the consumer
o
Single
and transparent tax proportionate to the value of goods and services: Due to multiple
indirect taxes being levied by the Centre and State, with incomplete or no
input tax credits available at progressive stages of value addition, the cost
of most goods and services in the country today are laden with many hidden
taxes. Under GST, there would be only one tax from the manufacturer to the
consumer, leading to transparency of taxes paid to the final consumer.
o
Relief
in overall tax burden:
Because of efficiency gains and prevention of leakages, the overall tax burden
on most commodities will come down, which will benefit consumers.
Question
3. Which taxes at the Centre and State level are being subsumed into GST?
Answer:
At the Central level, the following taxes are
being subsumed:
a. Central Excise Duty,
b. Additional Excise
Duty,
c. Service Tax,
d. Additional Customs
Duty commonly known as Countervailing Duty, and
e. Special Additional
Duty of Customs.
At the State level, the following taxes are
being subsumed:
a. Subsuming of State
Value Added Tax/Sales Tax,
b. Entertainment Tax
(other than the tax levied by the local bodies), Central Sales Tax (levied by
the Centre and collected by the States),
c. Octroi and Entry tax,
d. Purchase Tax,
e. Luxury tax, and
f. Taxes on lottery,
betting and gambling.
Question
4. What are the major chronological events that have led to the introduction
of GST?
Answer: GST is being
introduced in the country after a 13 year long journey since it was first
discussed in the report of the Kelkar Task Force on indirect taxes. A brief
chronology outlining the major milestones on the proposal for introduction of
GST in India is as follows:
a.
In
2003, the Kelkar Task Force on indirect tax had suggested a comprehensive Goods
and Services Tax (GST) based on VAT principle.
b.
A
proposal to introduce a National level Goods and Services Tax (GST) by April 1,
2010 was first mooted in the Budget Speech for the financial year 2006-07.
c.
Since
the proposal involved reform/ restructuring of not only indirect taxes levied
by the Centre but also the States, the responsibility of preparing a Design and
Road Map for the implementation of GST was assigned to the Empowered Committee
of State Finance Ministers (EC).
d.
Based
on inputs from Govt of India and States, the EC released its First Discussion
Paper on Goods and Services Tax in India in November, 2009.
e.
In
order to take the GST related work further, a Joint Working Group consisting of
officers from Central as well as State Government was constituted in September,
2009.
f.
In
order to amend the Constitution to enable introduction of GST, the Constitution
(115th Amendment) Bill was introduced in the Lok Sabha in March 2011. As per
the prescribed procedure, the Bill was referred to the Standing Committee on
Finance of the Parliament for examination and report.
g.
Meanwhile,
in pursuance of the decision taken in a meeting between the Union Finance
Minister and the Empowered Committee of State Finance Ministers on 8th
November, 2012, a ‘Committee on GST Design’, consisting of the officials of the
Government of India, State Governments and the Empowered Committee was
constituted.
h.
This
Committee did a detailed discussion on GST design including the Constitution
(115th) Amendment Bill and submitted its report in January, 2013. Based on this
Report, the EC recommended certain changes in the Constitution Amendment Bill
in their meeting at Bhubaneswar in January 2013.
i.
The
Empowered Committee in the Bhubaneswar meeting also decided to constitute three
committees of officers to discuss and report on various aspects of GST as
follows:-
(a) Committee on Place of
Supply Rules and Revenue Neutral Rates;
(b) Committee on dual
control, threshold and exemptions;
(c) Committee on IGST and
GST on imports.
j.
The
Parliamentary Standing Committee submitted its Report in August, 2013 to the
Lok Sabha. The recommendations of the Empowered Committee and the
recommendations of the Parliamentary Standing Committee were examined in the
Ministry in consultation with the Legislative Department. Most of the
recommendations made by the Empowered Committee and the Parliamentary Standing
Committee were accepted and the draft Amendment Bill was suitably revised.
k.
The
final draft Constitutional Amendment Bill incorporating the above stated
changes were sent to the Empowered Committee for consideration in September
2013.
l.
The
EC once again made certain recommendations on the Bill after its meeting in
Shillong in November 2013. Certain recommendations of the Empowered Committee
were incorporated in the draft Constitution (115th Amendment) Bill. The revised
draft was sent for consideration of the Empowered Committee in March, 2014.
m. The 115th
Constitutional (Amendment) Bill, 2011, for the introduction of GST introduced
in the Lok Sabha in March 2011 lapsed with the dissolution of the 15th Lok
Sabha.
n.
In
June 2014, the draft Constitution Amendment Bill was sent to the Empowered
Committee after approval of the new Government.
o.
Based
on a broad consensus reached with the Empowered Committee on the contours of
the Bill, the Cabinet on 17.12.2014 approved the proposal for introduction of a
Bill in the Parliament for amending the Constitution of India to facilitate the
introduction of Goods and Services Tax (GST) in the country. The Bill was
introduced in the Lok Sabha on 19.12.2014, and was passed by the Lok Sabha on
06.05.2015. It was then referred to the Select Committee of Rajya Sabha, which
submitted its report on 22.07.2015.
Question
5.How would GST be administered in India?
Answer:Keeping in mind the
federal structure of India, there will be two components of GST – Central GST
(CGST) and State GST (SGST). Both Centre and States will simultaneously levy
GST across the value chain. Tax will be levied on every supply of goods and
services. Centre would levy and collect Central Goods and Services Tax (CGST),
and States would levy and collect the State Goods and Services Tax (SGST) on all
transactions within a State. The input tax credit of CGST would be available
for discharging the CGST liability on the output at each stage. Similarly, the
credit of SGST paid on inputs would be allowed for paying the SGST on output.
No cross utilization of credit would be permitted.
Question
6.How would a particular transaction of goods and services be taxed
simultaneously under Central GST (CGST) and State GST (SGST)?
Answer :The Central GST and
the State GST would be levied simultaneously on every transaction of supply of
goods and services except on exempted goods and services, goods which are
outside the purview of GST and the transactions which are below the prescribed
threshold limits. Further, both would be levied on the same price or value unlike
State VAT which is levied on the value of the goods inclusive of Central
Excise.
A
diagrammatic representation of the working of the Dual GST model within a State
is shown in Figure 1 below.
Figure 1: GST within State
Question
7.Will cross utilization of credits between goods and services be allowed under
GST regime?
Answer :Cross utilization of
credit of CGST between goods and services would be allowed. Similarly, the
facility of cross utilization of credit will be available in case of SGST.
However, the cross utilization of CGST and SGST would not be allowed except in
the case of inter-State supply of goods and services under the IGST model which
is explained in answer to the next question.
Question
8.How will be Inter-State Transactions of
Goods and Services be taxed under GST in terms of IGST method?
Answer:In case of
inter-State transactions, the Centre would levy and collect the Integrated
Goods and Services Tax (IGST) on all inter-State supplies of goods and services
under Article 269A (1) of the Constitution. The IGST would roughly be equal to
CGST plus SGST. The IGST mechanism has been designed to ensure seamless flow of
input tax credit from one State to another. The inter-State seller would pay
IGST on the sale of his goods to the Central Government after adjusting credit
of IGST, CGST and SGST on his purchases (in that order). The exporting State
will transfer to the Centre the credit of SGST used in payment of IGST. The
importing dealer will claim credit of IGST while discharging his output tax
liability (both CGST and SGST) in his own State. The Centre will transfer to
the importing State the credit of IGST used in payment of SGST.Since GST is a
destination-based tax, all SGST on the final product will ordinarily accrue to
the consuming State.
A
diagrammatic representation of the working of the IGST model for inter-State
transactions is shown in Figure 2 below.
Figure 2
Question
9.How will IT be used for the implementation of GST?
Answer:For the implementation
of GST in the country, the Central and State Governments have jointly
registered Goods and Services Tax Network (GSTN) as a not-for-profit,
non-Government Company to provide shared IT infrastructure and services to
Central and State Governments, tax payers and other stakeholders. The key
objectives of GSTN are to provide a standard and uniform interface to the
taxpayers, and shared infrastructure and services to Central and State/UT
governments.
GSTN is working on
developing a state-of-the-art comprehensive IT infrastructure including the
common GST portal providing frontend services of registration, returns and
payments to all taxpayers, as well as the backend IT modules for certain States
that include processing of returns, registrations, audits, assessments,
appeals, etc. All States, accounting authorities, RBI and banks, are also
preparing their IT infrastructure for the administration of GST.
There
would no manual filing of returns. All taxes can also be paid online. All
mis-matched returns would be auto-generated, and there would be no need for
manual interventions. Most returns would be self-assessed.
Question
10.How will imports be taxed under GST?
Answer :The Additional Duty
of Excise or CVD and the Special Additional Duty or SAD presently being levied
on imports will be subsumed under GST. As per explanation to clause (1) of
article 269A of the Constitution, IGST will be levied on all imports into the
territory of India. Unlike in the present regime, the States where imported
goods are consumed will now gain their share from this IGST paid on imported
goods.
Question
11.What
are the major features of the Constitution (122nd Amendment) Bill,
2014?
Answer :The salient features
of the Bill are as follows:
g. Conferring
simultaneous power upon Parliament and the State Legislatures to make laws
governing goods and services tax;
h. Subsuming of various
Central indirect taxes and levies such as Central Excise Duty, Additional
Excise Duties, Service Tax, Additional Customs Duty commonly known as
Countervailing Duty, and Special Additional Duty of Customs;
i.
Subsuming
of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax
levied by the local bodies), Central Sales Tax (levied by the Centre and
collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, and
Taxes on lottery, betting and gambling;
j.
Dispensing
with the concept of ‘declared goods of special importance’ under the
Constitution;
k. Levy of Integrated
Goods and Services Tax on inter-State transactions of goods and services;
l.
GST
to be levied on all goods and services, except alcoholic liquor for human
consumption. Petroleum and petroleum products shall be subject to the levy of
GST on a later date notified on the recommendation of the Goods and Services
Tax Council;
m. Compensation to the
States for loss of revenue arising on account of implementation of the Goods
and Services Tax for a period of five years;
n. Creation of Goods and
Services Tax Council to examine issues relating to goods and services tax and
make recommendations to the Union and the States on parameters like rates,
taxes, cesses and surcharges to be subsumed, exemption list and threshold
limits, Model GST laws, etc. The Council shall function under the Chairmanship
of the Union Finance Minister and will have all the State Governments as
Members.
Question
12.What
are the major features of the proposed registration procedures under GST?
Answer:The major features of
the proposed registration procedures under GST are as follows:
i.
Existing
dealers:
Existing VAT/Central excise/Service Tax payers will not have to apply afresh
for registration under GST.
ii.
New
dealers:
Single application to be filed online for registration under GST.
iii.
The
registration number will be PAN based and will serve the purpose for Centre and
State.
iv.
Unified
application to both tax authorities.
v.
Each
dealer to be given unique ID GSTIN.
vi.
Deemed
approval within three days.
vii.
Post
registration verification in risk based cases only.
Question
13.What
are the major features of the proposed returns filing procedures under GST?
Answer:The major features of
the proposed returns filing procedures under GST are as follows:
a. Common return would serve the
purpose of both Centre and State Government.
b. There are eight forms
provided for in the GST business processes for filing for returns. Most of the
average tax payers would be using only four forms for filing their returns.
These are return for supplies, return for purchases, monthly returns and annual
return.
c. Small taxpayers: Small taxpayers who
have opted composition scheme shall have to file return on quarterly basis.
d. Filing of returns
shall be completely online. All taxes can also be paid online.
Question
14.What
are the major features of the proposed payment procedures under GST?
Answer:The major features of
the proposed payments procedures under GST are as follows:
i.
Electronic
payment process- no generation of paper at any stage
ii.
Single
point interface for challan generation- GSTN
iii.
Ease
of payment – payment can be made through online banking, Credit Card/Debit
Card, NEFT/RTGS and through cheque/cash at the bank
iv.
Common
challan form with auto-population features
v.
Use
of single challan and single payment instrument
vi.
Common
set of authorized banks
vii.
Common
Accounting Codes
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