INTRODUCTION TO GST

The introduction of GST (Goods and Service Tax) in India brought a tumultuous shift in its economy. Every business whether engaged in supply of goods or in the service sector, going beyond a specific threshold, is required to be registered with GST.

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1. THRESHOLD

2. CONCEPT OF GST

GST is a destination based tax applicable on all transactions involving supply of goods and/or services. What this means is that the tax is collected at the destination of the goods and services, not at the originating point as was done under previous indirect taxation schemes.

India follows the Concurrent Dual GST system which is also followed by Canada and Brazil. Under this system, the levying of tax and its collection is done by both the Centre and the States. The Centre collects CGST and the States collect SGST.

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1. THRESHOLD

The threshold for the various categories is as below,

• For Supply of Goods –

1. Businesses in North Eastern States with turnover of Rs. 20 lakhs or more

2. Business in Other States with turnover of Rs. 40 lakhs or more

• For Supply of Services –

1. Businesses in North Eastern States with turnover of Rs. 10 lakhs or more

2. Business in Other States with turnover of Rs. 20 lakhs or more

• Businesses which are engaged in inter-state supply of goods and / or services

• Input Service Distributors

• Selling goods or rendering services through E-Commerce operators

• E-Commerce operators collecting tax at source

• Businesses which are TDS or TCS Deductors

• Casual taxable / Non-resident taxable persons

• Businesses registered under pre-existing Service tax laws

• Persons liable to pay tax under Reverse Charge mechanism

Note: The turnover mentioned above shall be the aggregate annual turnover of the business from its supply of goods and / or services.

2. CONCEPT OF GST

As previously said, the introduction of GST was a momentous initiative, the likes of which had not been seen before in Independent India. It removed the stumbling block in implementing of indirect taxation in India by removing the cascading effect of taxes.

BEFORE GST

Particulars	Manufacturer	Wholesaler	Retailer	Customer
Value of Goods	-	1,12,000	1,32,000	1,71,000
Add: Profit Margin	-	20,000	20,000	-
Total	1,00,000	1,32,000	1,52,000	-
Add: Excise Duty @12%	12,000	-	-	-
Sub Total	1,12,000	1,32,000	1,52,000	-
Add: VAT @12.5%	14,000	16,500	19,000	-
Net Total	1,26,000	1,48,500	1,71,000	-

Before GST, we can observe that VAT was charged on Value of Goods plus excise duty leading to a cascading effect, i.e. Tax on Tax. Furthermore the credit of Excise Duty and VAT paid was not enjoyed by the next person in the Supply Chain.

AFTER GST

Particulars	Manufacturer	Wholesaler	Retailer	Customer
Value of Goods	-	1,00,000	1,20,000	1,65,200
Add: Profit Margin	-	20,000	20,000	-
Total	1,00,000	1,20,000	1,40,000	-
Add: CGST @9% SGST @9%	9,000 9,000	10,800 10,800	12,600 12,600	-
Net Total	1,18,000	1,41,600	1,65,200	-
Input Credit Available	-	(18,000)	(21,600)	-
Tax Payable to Government	18,000	21,600-18,000 = 3,600	25,200-21,600 = 3,600	-

Under GST, there is availability of input credit throughout the supply chain. Furthermore the tax is calculated on the value of goods only, hence the problem of Tax on Tax was resolved.