France was the earliest country to initiate Goods and Services Tax or GST. At present, around 160 countries have imposed GST/VAT in some form or another. Some countries have VAT as the substitution of GST. Still, concept-wise, it is a destination-based tax imposed on the consumption of goods & services. Goods and Services Tax or GST is a tax that replaced many indirect taxes in India. The Goods and Services Tax was implemented in India with effect from 1st July 2017. Some Facts Related to GST
Indirect taxes such as Value Added Tax (VAT), Central Sales Tax, Purchase tax, Sales tax, Excise duty, CAD, SAD, Octree, Entry Tax, Luxury Tax, cases, etc., are replaced by one tax, i.e., Goods and Services Tax or GST. There is a dual system {Central + State} of tax under GST, which means tax is collected by State and Central Government both. Gaining sectors of GST involves Automobiles, Logistics, Cement, FMCG, Pharmaceutical, E-commerce, and Industry manufacturing sectors. Losing sectors of GST include Media, Textiles, Banks, and the Telecom sector. Alcohol for human consumption; Petroleum products such as petrol, high-speed diesel, petroleum crude, natural gas, and aviation turbine fuel; and electricity are outside the scope of GST. GST is a simplified tax regime applied at goods & services at a uniform rate throughout the entire nation. It is the biggest reform of Indirect tax, that provides a uniform and straightforward way of Indirect tax in India.
Impact Of GST On The Common Man
However, it is conclusively the common man who is directly or indirectly influenced by the imposition of GST. As when a new reform or bill is implemented, it impacts most on the common man. Prior to moving to the discussion of the impact of GST, let’s dig a bit into the concept of the Goods & Services Tax.
Concept of Goods and Services Tax
Goods and services tax is an Indirect tax that is levied on the supply of goods and services. This law has taken the place of all the formerly existing indirect taxes. GST is one tax for the entire nation. Now let’s discuss the elements in the definition of GST – “GST is a comprehensive, multi-level, destination-based tax imposed on every value addition.”
1. Multi-Stage
There are various intermediaries when an item passes through its chain of supply – from the manufacturer to the final consumer. Consider some major levels involved in the chain of supply as enumerated below:
Buying raw materials for manufacturing Manufacture or Production of goods Warehousing of final finished goods Sale of finished goods to the wholesaler Sale of the finished goods to the retailer Sale of products to the final consumers
Goods and services tax will be levied on each of the above-mentioned levels or stages. This feature makes it a multi-level tax.
2. Value Addition
A manufacturer who makes bread buys raw materials such as flour, sugar, etc. The value of inputs escalates when they are combined and baked to make loaves of bread. The manufactures then sell it to the warehousing agency where the large quantum of bread is packed. This is another value addition, after which the warehouse sells the packages to shop- keeper or retailer. The retailer unboxes the bread and sells them to the final consumers of the product. Thus, again adding value to it. GST is imposed on each of these value additions, i.e., added monetary value at each intermediate level to make final sale to consumers at the end.
3. Destination-based
Understand this by a situation, suppose goods are manufactured in Madhya Pradesh, and those are sold to the final consumer in Gujarat. As the Goods and Services Tax is levied at the point of consumption, therefore, the whole tax revenue will go to Gujarat and not Madhya Pradesh. Also Read: Income Tax Slab for FY 2020-21 (AY 2021-22) Now, let’s discuss the componential structure of the GST.
Components of the Goods and Services Tax
There are 4 components of GST, namely CGST, SGST, and IGST, which are applicable under the GST system. These are explained as: 1. CGST: CGST is the abbreviation for Central Goods and Services Tax. It is collected by the Central Government on an Intra-state sale, i.e., sale within the state; for example, supply of goods & services within Gujarat. 2. SGST: SGST is the abbreviation for State Goods and Services Tax. It is collected by the State Government on an Intra-state sale; for example, the supply of goods & services within Gujarat. 3. IGST: IGST stands for Integrated Goods and Services Tax. It is collected by the Central Government on an Inter-state sale, i.e., a sale between two different states; for example, the supply of goods & services between Gujarat and Tamilnadu. IGST is applicable to imports as well. 4. UTGST – UTGST stands for Union Territory Goods and Services Tax. UTGST is similar to SGST, and the only difference is that in UTGST, the tax is collected by the respective Union Territory administration. For example, the supply of goods & services within Chandigarh. Thus, we can conclude,
CGST and SGST are both imposed on the intra-state supply of goods & services. Anyone from SGST or UTGST will be applicable along with CGST, depending on the place of supply, i.e., or union territory. The rate of CGST and SGST (or UTGST) remains equal. For e.g. If GST is levied @ 12% on a product, CGST & SGST will be applicable as: CGST @ 6% and SGST @ 6%. IGST is imposed on both supplies of goods & services outside the state and the country.
Features of Goods & Services Tax
Single tax instead of various indirect taxes. VAT, SAD, CAD, Sales tax, Service tax, etc. all merged into one. GST has a four-tier rate structure. The tax slabs are fixed at 5%, 12%, 18%, and 28%, whereas there is 0% tax on necessities, i.e., essential commodities such as groceries, and gold is taxed 3%. Common consumer goods have a lower rate of tax @5%, and luxury goods come under the highest tax rate of 28%. GST rate on services is classified as 5% on essential services, 12% charged on common services, 18% charged on commercial services, and 28% charged on luxury services. The standard rate of services under GST is 18%. However, some services like education from educational institutions, Post offices, RBI, etc., are exempted from service tax. There is a tax revenue allocation proportion between central and state governments. The Central and state government will share the revenue collection of GST in 50:50 ratios. This means the half amount will go to the central government, and half will go to the concerned state’s government. Components of GST are CGST, SGST or UTGST, and IGST. The GST council adopted dual GST for Central and State. The purpose is the sharing of revenue from unified GST. The model of CGST + SGST / UTGST and IGST will be imposed on intra-state and inter-state supply of goods & services, respectively. Anyone from SGST or UTGST can be applied along with CGST as per the place of supply of goods & services. There is a composition scheme under GST. Composition levy is another method of tax imposition for taxpayers with annual turnover up to Rs. 75 lakhs. Manufacturers and restaurants can avail of this scheme. It allows taxpayers to make payments under GST at a flat rate, without input credits. The maximum limit is Rs 50 lakhs, applicable for special category states. There is a right to levy a tax on economic activities done in Territorial waters, those falling within the area of 12 nautical miles in water.
A glance at Tax Slabs Under GST
The tax slabs under the GST regime are as described below:
1. Exempted GST Rate Slab (No Tax)
Some of these that are of regular consumption include fresh fruits and vegetables, milk, buttermilk, curd, natural honey, flour, besan, bread, all kinds of salt, jaggery, hulled cereal grains, fresh meat, fish, chicken, eggs, along with bindi, sindoor, kajal, bangles, drawing and colouring books, stamps, judicial papers, printed books, newspapers, jute and handloom, hotels and lodges with tariff below INR 1000 and so on.
2. 5% GST Rate Slab
Some of these include apparel below INR 1000 and footwear below INR 500, cream, skimmed milk powder, branded paneer, pizza bread, rusk, sabudana, cashew nut, frozen vegetables, coffee, tea, spices, cashew nut in shell, raisin, ice, fish fillet, kerosene, coal, medicine, agarbatti (incense sticks), rail and economy class air tickets, postage or revenue stamps, fertilizers, small restaurants, and so on.
3. 12% GST Rate Slab
Edibles like frozen meat products, butter, cheese, ghee, dry fruits in packaged form, animal fat, sausages, fruit juices, namkeen, ketchup & sauces, ayurvedic medicines, all diagnostic kits and reagents, cellphones, spoons, forks, tooth powder, umbrella, sewing machine, spectacles, indoor games like playing cards, chess board, carom board, ludo, apparels above INR 1000, non-AC restaurants, business class air ticket, state-run lottery, work contracts and so on attract a 12% GST.
4. 18% GST Rate Slab
Pasta, biscuits, cornflakes, pastries and cakes, preserved vegetables, jams, soups, ice cream, mayonnaise, mixed condiments and seasonings, mineral water, footwear costing more than INR 500, camera, mobile phones, speakers, monitors, printers, electrical transformer, optical fiber, tissues, sanitary napkins, notebooks, steel products, headgear and its parts, aluminium foil, bamboo furniture, AC restaurants that serve liquor, restaurants in five-star and luxury hotels, telecom services, IT services, branded garments, and financial services.
5. 28% GST Rate Slab
pan masala, aerated water, personal care items like deodorants, shaving creams, Chewing gum, bidi, molasses, chocolate not containing cocoa, waffles and wafers coated with chocolate, aftershave, hair shampoo, dye, sunscreen, paint, vacuum cleaner, water heater, dishwasher, weighing machine, washing machine, automobiles, motorcycles, 5-star hotel stays, race club betting, private lottery and movie tickets above INR 100, etc. have been clubbed together under the 28% GST slab. Some other items that will get costlier also include:
Mobile bills, Courier services, mobile phone tariffs, tuition fees, salon visits, insurance premiums, banking charges, broadband services will get costlier by 3%. These were previously charged @ 15% service tax, and will now fall under 18% tax slab. Taxes on aerated drinks, tobacco, and luxury goods will now come under the 28 percent tax bracket under GST. Estate will also get expensive as it will now attract a GST of 12% as opposed to 6%.
Please note: These tax rates are revised from time to time, so kindly once check the latest rates as per your requirement) Also Read: 40 Ways to Save Income Tax Legally in India (2020)
How GST Will Impact a Common Man’s Budget?
What is the impact of GST on the common man? The impact of GST on the common man of the country is multitudinous. Not just the bill has brought down the prices of essential commodities, but it would also help the citizens of the country to achieve a better standard of living, gradually. We should discuss the impact of GST on the common man of India in detail:
1. Cheaper Bills of Restaurant: In the earlier scenario, if your restaurant bill amounted to ₹2,000 then, about 18.5% tax rate was imposed on you, this included both Service Tax and Value Added Tax. This brings the bill close to 2,370, without including the Service Charge. Now, with the implementation of GST, the rates have been fixed at 18%, for eating in restaurants. At this rate, your restaurant bill would be amounting to 2,360 for that specific order. 2. Amplified phone bills: Your phone bills are costlier now. Earlier, you have to pay a charge of 15% on a telecom services bill of ₹500, which then amounted to you to ₹575. But after GST implementation, the tax imposed on you will be @18% for telecom services, so now your ₹500 bills for the same services used after-tax, will amount to 590. After GST, the telecom rates increased, resulting in costly phone calls and internet usage. 3. Affordable four-wheelers: After the implementation of GST, purchasing a car has become easier, mainly due to price similarly in manufacturing and non – manufacturing states. For example, earlier for buying a car of ₹5 lakhs, a consumer was required to pay 12.5% excise duty along with VAT, after which the amount of car extends to ₹6.25 lakhs. But with GST, the price has trimmed up to ₹35,000, due to a uniform rate of 18%, lowering the price of the same car to ₹5.9 lakhs, inclusive of all taxes. 4. Shopping readymade garments became cheaper: Earlier, the tax rate on readymade garments was about 12.5% inclusive of Excise Duty and Value Added Tax. So, a readymade garment that cost 1500 attracted a tax of about 187.5. But under the GST regime, the same readymade garment costs 1,180 with a tax rate of 12%. 5. Smartphones now cost dearly: Earlier, buying a smartphone required for a tax payment of up to 12.8% With GST imposed @ 18% on cell phones, the price of a cell phone worth₹10,000 has increased to ₹11,800 now (with added taxes), which earlier amounted to 11,280 (with added taxes). 6. Prices of LED TVs snipped off: Buying a LED TV and watching your favourite serials become cheaper now due to involvement in Make in India campaign. Earlier, LED TVs attracted a rate of 24.5% of tax, leading the price of a LED TV worth ₹20,000 to ₹24,900. After the implementation of GST, there is a tax rate of 18% imposed on LED TVs that snipped the price to ₹23,600. Hence LED TVs are cheaper now. 7. Purchasing jewellery gets exorbitant: As per the experts, the jewellery articles attract a tax levy of about 6% (GST on gold is 3% plus the service charges on making of jewellery) which was about 2% previously, making it tougher for the consumers to buy jewellery and affecting the market on the whole. 8. The effect on online shopping: The e-commerce industry is included under the tax cover of GST. Under this, the tax is deducted at the source for each purchase from the seller. This resulted in making purchases of bags, shoes, electronics, and many other things costly via online mode. GST has gradually shrunk the profit margins, and revisions in tax compliance resulted in a gradual snipping of discounts and other freebies to customers. Although, the customers might get the advantage of lower logical costs and faster delivery time. Overall, GST introduced a simpler taxation structure for taxpayers. It is a lucid and simple tax. It has a uniform tax regime as compared to the previous tax system. It has some tax exemptions that result in ease of doing business. The final prices of products have been slashed down due to the unrestricted flow of input tax credit towards manufacturers, retailers, and other service providers. Furthermore, GST will make increased availability of disposable income for consumers and will eventually lead to a rise in the GDP of the country. Recommended: How to Pay Income Tax Online: Steps to File Your Income Tax Yet, there is a compliance burden. You are required to file your GST returns on time. Filling GST returns is not that easy as it seems to be. Many people are required to hire a tax professional for it. The Increased cost of some services to 18%, which was 15% earlier, will increase your monthly expenses. You have to revise your budget to incur an additional cost of services. There are always some complications involved. It is a consumption-based tax, so in case of services, the place where service is rendered is required to be ascertained.
