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Goods and Services Tax (GST) is an indirect tax levied in India on the sale of goods and services. Goods and services are divided into five tax slabs for collection of tax – 0%, 5%, 12%,18% and 28%. Petroleum products and alcoholic drinks are taxed separately by the individual state governments. There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold. In addition, a cess of 22% or other rates on top of 28% GST applies on a few items like aerated drinks, luxury cars, and tobacco products.
The tax came into effect from July 1, 2017, through the implementation of one hundred and first amendments by the Government of India. The tax replaced existing multiple cascading taxes levied by the central and state governments. The tax rates, rules, and regulations are governed by the Goods and Services Tax Council which comprises finance ministers of center and all the states. GST simplified a slew of indirect taxes with a unified tax and is therefore expected to dramatically reshape the country’s 2 trillion dollar economy.
The Goods and Services Tax was launched at midnight on 1 July 2017 by the former President of India, Pranab Mukherjee, and Prime Minister of India, Narendra Modi. The launch was marked by a historic midnight (30 June – 1 July) session of both the houses of parliament convened at the Central Hall of the Parliament. Though the session was attended by high-profile guests from the business and the entertainment industry including Ratan Tata, it was boycotted by the opposition due to the predicted problems that it was bound to lead to for the middle and lower class Indians. It is one of the few midnight sessions that have been held by the parliament – the others being the declaration of India’s independence on 15 August 1947, and the silver and golden jubilees of that occasion. After its launch, the GST rates have been modified multiple times, the latest being on 18 January 2018, where a panel of federal and state finance ministers decided to revise GST rates on 29 goods and 53 services.
In simple words, Goods and Service Tax is an indirect tax levied on the supply of goods and services. GST Law has replaced many indirect tax laws that previously existed in India.
Now let us try to understand the definition of Goods and Service Tax – “GST is a comprehensive, multi-stage, destination-based tax that will be levied on every value addition.” “Input tax credit”:-
So, now Fathima pays only tax Rs.10 to government and informs govt. about Rs.40 that Anusha paid on fabric. Government checks the receipts. And then, on paper, the total tax Fathima paid is written as Rs.50/-. This is the concept of “Input Tax Credit”. That means you can claim the “credit” of “Input tax” that is paid by your supplier of raw goods.
GST is one indirect tax for the entire country. So, before Goods and Service Tax, the pattern of tax levy was as follows:
Under the GST regime, the tax will be levied at every point of sale. In the case of interstate sales, Central GST and State GST will be charged. Intra-state sales will be chargeable to Integrated GST.
The single GST(goods and service taxes) replaced several former taxes and levies which included: central excise duty, services tax, additional customs duty, surcharges, state-level value added tax and Octroi.[Other levies which were applicable on interstate transportation of goods have also been done away with in GST regime. GST is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of goods and/or services. India adopted a dual GST model, meaning that taxation is administered by both the Union and State Governments. Transactions made within a single state are levied with Central GST (CGST) by the Central Government and State GST (SGST) by the State governments. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government. GST is a consumption-based tax/destination-based tax, therefore, taxes are paid to the state where the goods or services are consumed not the state in which they were produced. IGST complicates tax collection for State Governments by disabling them from collecting the tax owed to them directly from the Central Government. Under the previous system, a state would only have to deal with a single government in order to collect tax revenue.
The GST is imposed at variable rates on variable items. The rate of GST is 2.5% for soaps and 28% on washing detergents. GST on movie tickets is based on slabs, with 18% GST for tickets that cost less than Rs. 100 and 28% GST on tickets costing more than Rs.100 and 5% on readymade clothes. The rate of under-construction property booking is 12%. Some industries and products were exempted by the government and remain untaxed under GST, such as dairy products, products of milling industries, fresh vegetables & fruits, meat products, and other groceries and necessities. Check posts across the country were abolished ensuring free and fast movement of goods.
The Central Government had proposed to insulate the revenues of the States from the impact of GST, with the expectation that in due course, GST will be levied on petroleum and petroleum products. The central government had assured states of compensation for any revenue loss incurred by them from the date of GST for a period of five years. However, no concrete laws have yet been made to support such action. GST council adopted concept paper discouraging tinkering with rates. E-Way Bill is required to be generated for every inter-state movement of goods beyond the threshold limit of rs.50000(US$790)
There are 3 taxes applicable under GST: CGST, SGST & IGST.
In most cases, the tax structure under the new regime will be as follows:
There will only be one type of tax (central) in case of inter-state sales. The Center will then share the IGST revenue based on the destination of goods.
Let us assume that a dealer in Gujrat had sold the goods to a dealer in Punjab worth Rs. 50,000. The GST rate is 18% comprising the only IGST.
In such case, the dealer has to charge Rs. 9,000 as IGST. This IGST revenue will go to the Central Government.
The same dealer sells goods to a consumer in Gujrat worth Rs. 50,000. The GST rate on the good is 12%. This rate comprises CGST at 6% and SGST at 6%.
The dealer has to collect Rs. 6,000 as Goods and Service Tax. Rs. 3,000 will go to the Central Government and Rs. 3,000 will go to the Gujarat government as the sale is within the state.
The following is the list of indirect taxes in the pre-GST regime:
All these taxes have been replaced with Central GST, State GST, and Integrated GST
The impact of GST on macroeconomic indicators is likely to be very positive in the medium-term. Inflation would be reduced as the cascading (tax on tax) effect of taxes would be eliminated. The revenue from the taxes for the government is very likely to increase with an extended tax net, and the fiscal deficit is expected to remain under the checks. Moreover, exports would grow, while FDI (Foreign Direct Investment) would also increase. The industry leaders believe that the country would climb several ladders in the ease of doing business with the implementation of the most important tax reform ever in the history of the country.
After a lot of deliberation, our GST council has finalized the rates for all the goods and major service categories under various tax slabs, and the GST is expected to fill the loopholes in the current system and boost the Indian economy. This is being done by unifying the indirect taxes for all states throughout India.
The tax rate under GST are set at 0%, 5%, 12%, 18% and 28% for various goods and services, and almost 50% of goods & services comes under 18% tax rate. But how is our life going to change post GST? Let’s see how GST on some day-to-day good and services will have an impact on an end user’s pocket.
Footwear & Apparels/Garments:
Footwear costing more than INR 500 will have a GST rate of 18% from an earlier rate of 14.41 rate but rates for the footwear below INR 500 has been reduced to 5%. So, you need to shell out more for buying a footwear above INR 500/-. And with respect to the ready-made garments, the rates have been reduced to 12% from an existing 18.16% which will make them cheaper.
Cab and Taxi rides:
Now, taking an Ola or an Uber will be cheaper because the tax rate has come down to 5% from an earlier 6% for a cab booking made online.
Under the GST, the tax rate for economy class for flight tickets is set at 5% but the tax for business class tickets will have a higher tax rate of 12%.
There will not be much of an impact. The effective tax rate has increased from 4.5% to 5% in GST. But, a passenger who travels for business trips can claim Input Tax Credit on their rail ticket which can help them to reduce expenses. People traveling by local trains or in the sleeper class will not be affected, but first-class & AC travelers will have to pay more.
Movies tickets costing below INR 100 will be charged a GST rate of 18% but prices above INR 100 will have a higher tax rate of 28%.
Life Insurance Premium:
The Premium Amounts on policies will rise, with an immediate impact can be seen on your term and endowment policy premiums as the rates have been increased under GST across life, health and general insurance.
Mutual funds Returns:
GST impact on your returns from mutual funds investments will largely be marginal as the GST will be charged on the TER i.e. Total Expense Ratio of a mutual fund. The TER is commonly called an expense ratio of a mutual fund company, and the same is set to go up by 3%. The return what you get as an investor will be reduced to that extent unless the respective mutual fund company i.e. AMC absorbs it but that anyhow will be a marginal difference.
Jewelry: The gold investment will become slightly expensive because there will be 3% GST on gold & 5% on the making charges. The earlier tax rate on gold was around 2% in most of the states and the GST is increased from the existing rate to around 2% to 3%.
Buying a Property:
Under construction, properties will be cheaper than ready-to-move-in properties. The GST rate for an under-construction property is 18% but the effective rate on this kind of property will be around 12% due to input tax credits the builder will avail of.
Education & Medical Facilities:
Education and Medical sectors have been kept outside the GST ambit and both the primary education & healthcare is exempt from GST. It means a consumer will not pay any tax for the money you spent on these services. But due to the increase in the rate of taxes for certain goods & services as procured by these organizations, they may pass on the additional tax burden to the consumers.
For your hotel stay, If your room tariff is less than Rs 1,000, then there will be no GST, but anything above Rs 5,000 will attract 28% tax.
Buying a Car:
Most of the cars in the Indian market will become slightly cheaper, except for the hybrid cars because the GST rate will be 28% tax on all the vehicles irrespective of their make, engine capacity or model. However, over and above this 28%, an additional cess will be levied which can be either 1%, 3% or 15 %, depending on the particular car segment.
People will have to pay more on mobile phone bills as GST on telecom services is now 18%, as opposed to the earlier tax rate of 15%. However, telecom companies may absorb this 3% rise due to fierce competition
Restaurant Bills/EATING OUT:
Your restaurant bill would depend on whether you dined at an AC or Non-AC establishments which do not serve alcohol. Now dining at five-star hotels will be charged at 18% GST rate and the Non-AC restaurants will be charged 12% and a 5% GST will be charged from small hotels, dhabas, and restaurants who do not cross an annual turnover of INR 50 Lakh.
IPL & other related events:
Events like IPL i.e. sporting events will have a 28% GST rate which is higher than the earlier 20%.rates. This will increase the price of your tickets. And the GST rate for other events like theatre, circus or Indian classical music shows or a folk dance performance or a drama show will be at 18% GST rate, this is lesser than the earlier tax rate.
DTH and cable services:
The money you pay towards your DTH (Direct-To-Home) connections or to your cable operator will reduce a bit as the rate is fixed at 18%, which is lower than the earlier taxes which were comprised of entertainment tax in the range of 10% to 30%, apart from the service tax of 15%.
The ticket price for amusement parks and theme parks will increase as the earlier service tax of 15% will become 28% under the GST.
Here’s is a list of some items which are completely exempt from the GST regime:
As their enterprises are vulnerable to any major changes in the economy due to a new policy implementation, founders and employees of these companies are extremely concerned about the impact of the four tax slabs of 5%, 12%, 18%, and 28% that have been specified in GST. Many Indian businesses have limited capital and resources at their disposal, meaning that any confusion can quickly escalate into panic.
Along with these concerned parties, millions of customers are wondering about the impact of this new tax system on the amount of money they will need to shell out to avail of their preferred goods and services.
The impact of GST on the most popular sectors of India’s startup ecosystem, including real estate, e-commerce, hospitality, smartphones, and ride-hailing.
Under the new tax structure, due to the input credit benefits that most builders will get on the key raw materials they buy, the base price of property projects launched post 1 July 2017 will be comparatively cheaper. Buying under-construction properties will attract a net effective rate of 12% as against the earlier rate of 5.5% (including value added tax and service tax). Real estate players such as Prop tiger and Quikr want to pass this cost-benefit on to property buyers. “For new projects with 100% input credit passed to the buyer and land cost being 50% of the project cost, we expect property prices to fall by around 1% in western and northern markets and around 3% in southern markets,” said a report by Edelweiss. However, prices of ready-to-move-in apartments with completion certificates, before implementation of GST on 1 July, would remain steady as these properties are out of the GST ambit. Any price change in the segment will depend purely on demand and supply.
E-commerce websites such as Flipkart and Amazon.in will have to collect TCS (tax collected at source) at a fixed 1% rate, and pay this collection to the sellers listed on their websites. This is likely to impact prices and make online shopping more expensive. Though the latest notification issued by the government stated that the provisions of “TDS (Section 51 of the CGST/SGST Act 2017) and TCS (Section 52 of the CGST/SGST Act, 2017) will be brought into force from a date which will be communicated later.”
Depending on room rates there are four slabs for hotels and lodges. While Hotels and lodges with room rates below $16 (Rs 1,000) a day have been exempted from GST, accommodation costing $16 – $39 (Rs 1,000-Rs 2,500), $39 – $117 (Rs 2,500-7500) and above $117 (Rs 7500) will attract 12% 18%, and a 28% tax slab respectively. Budget travelers also have a reason to cheer as air travel for economy class passengers has become cheaper. On the other hand, business class fares are going to cost more with a marginal increase from earlier 9% to GST rate of 12%.
Tax rates are expected to rise from 14.5% to a range between 29% and 43% for drivers who do not own cars and are associated with Ola and Uber cab-leasing programs. This is due to leases becoming costlier post-GST. For instance, these individuals were paying an EMI of Rs 25,000 pre-GST, and in a present scenario, they are likely to pay an EMI of around Rs 35,000 to Rs 40,000 post-GST.
Thus, GST will bring down the tax rate for ride-hailing services marginally. The new rate structure as compared to the previous service tax rate of 6% is a step in the right direction by the GST Council. But while the 1% fall may bring some cheer to consumers, driver partners of both Ola and Uber will be affected.
Under GST, mobile handsets are being taxed at 12% as compared to an earlier range of 8-18% implemented in various states. As a result of this average reduction in tax levied, Apple has reduced prices of its iPhone by 7.5% and Lenovo has announced a reduction in prices of models sold through offline brick and mortar stores. Motorola handsets, a Lenovo owned entity, sold through brick-and-mortar stores are also likely to see a downward price revision in coming days.
Positive and negative impact of GST:
Though there will be some confusion and price rises in the initial stages of implementing GST, in the long run, GST will boost Indian Economy. On priority, it is up to the government to address the capacity building amongst the lesser-endowed participants, such as the small-scale manufacturers and traders. Ways have to be found for lowering the overall compliance cost, and necessary changes may have to be made for the good of the masses. GST will become good and simple, only when the entire country works as a whole towards making it successful. IT-driven taxation regime, the lesser manual intervention of tax authorities, positive effect on so many sectors and uniform tax structure may witness an increase in GDP for the Indian economy.
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