It's the BIG Day. The goods and services tax called GST is finally here. Stay awake as GST gets launched across India at midnight on June 30th in a grand ceremony. As GST gets launched across India, a lot of questions must be running through your mind. What is this GST? Is it any different from all those other taxes? Will GST help you in any way...Worse, will it affect your daily life?
So many questions, but so few answers. Just scan through this article and perhaps at the end of it, you will be able to explain to your friends, what GST is and why it's here. Want to know more on tax planning? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice / education to ensure that you are not mis-guided while buying any kind of financial products.
GST is a single indirect tax for the whole Nation. It replaces all other indirect taxes. GST is a multi-stage, destination based tax charged on every value addition. Find this difficult to understand? Let's take it step by step. What is the meaning of the word Multi-stage? When an item is manufactured, it goes through a number of stages. The first stage could be the buying of raw material. Manufacturing/Production is the second stage. Sale of the product to the retailer is the third stage. Finally, the retailer sells you the product.
GST is charged on each of these stages and is called a Multi-stage tax. What is value addition? A manufacturer wants to manufacture a shirt. He buys the raw material which is cotton, whose value increases as it is woven into a shirt. Next, he sells the shirt to a warehouse who attaches labels to the shirt. The value goes up further. The warehouse sells the shirt to the retailer who packages the shirt and invests in marketing it, further raising its value. GST gets levied/charged on each value addition.
Finally, GST is a destination based tax. Most of the taxes go to that State in which goods and services are finally consumed.
See Also: GST Tax Rates In India
GST could replace around 15 indirect taxes. GST replaces the central excise duty, additional excise duty, countervailing duty, special additional customs duty, service tax, central cesses and surcharges, value-added tax (VAT), central sales tax on inter-state trade of goods, luxury tax, entertainment tax, taxes on advertisements, taxes on betting/gambling and state cesses and surcharges on supply of goods and services.
It is the credit you/Company receive, for the tax you have paid on the inputs used in the manufacture of a product or a service. A shirt manufacturer gets credit for the taxes paid on the raw materials like cotton he has purchased to make the shirt. In much the same way a service provider like a hotel, gets tax credits on the goods and services used in the business.
Let's understand this through a simple example. You are a manufacturer of shirts. If the tax payable on the output of the final product (shirt) is INR 500 and the tax payable on the input (raw materials like cotton) is INR 300, you only need to deposit INR 200 in taxes.
See Also: Aadhaar Card Check Online
Goods and services are taxed at multiple stages of the supply chain. Changes in tax structure and tax rate, give businesses an opportunity to make profits at each stage of the supply chain. Businesses could get greedy and keep the profits for themselves. The Government wants to ensure that businesses pass on the benefits of GST to customers in the form of reduced prices. The anti-profiteering mechanism does just that.
Many countries which have made the transition to GST have noticed inflationary pressures in the short run. GST could fuel inflation in India in the short run. The anti-profiteering mechanism makes sure this doesn't happen.
What happens if businesses indulge in profiteering? This is when the anti-profiteering mechanism kicks in. An anti-profiteering authority acts on any complaints of profiteering and directs the profiteering supplier to cut prices. The profiteering supplier could be asked by this authority to return the benefit of the reduced tax burden to you (buyer) with 18% interest. The anti-profiteering authority can even recover the amounts from a business indulging in profiteering, even if the buyer does not lodge a complaint.
Crude oil, diesel, petrol, natural gas, motor spirit, high speed diesel and jet fuel are currently not part of GST. Liquor is also kept out of the ambit of GST. Even electricity is not included under GST.
GST is a game changer, there's no doubt about it. GST eliminates what is known as "tax on tax" or simply cascading of taxes. GST could be the answer to most of the ailments that plague the Indian economy. Be Wise, Get Rich.
Keep your Financial Cognizance up to date with IndianMoney App. Download NOW for simple tips & solutions for your financial wellbeing.
Have a complaint against any company? IndianMoney.com's complaint portal Iamcheated.com can help you resolve the issue. Just visit IamCheated.com and lodge your complaint. If you want to post a review on any company you can post it on Indianmoney.com review and complaint portal IamCheated.com.
Be Wise, Get Rich
This is to inform that Suvision Holdings Pvt Ltd ("IndianMoney.com") do not charge any fees/security deposit/advances towards outsourcing any of its activities. All stake holders are cautioned against any such fraud.