WHAT IS GOODS AND SERVICE TAX

The Goods and Service Tax Act was passed in the Parliament on 29th March 2017. The Act came into effect on 1st July 2017.

GST (Goods and Service Tax) is an Indirect Tax which has replaced many Indirect Taxes such as VAT, CST, etc in India.

Let us see what is GST and the reason why it is making business and taxes simpler and easier.

1. WHAT IS GST?

1. Goods & Services Tax Law in India is a Comprehensive, Multi-stage, Destination-based tax that is levied on every Value Addition.

2. Goods and Service Tax is an indirect tax levied on the supply of goods and services.

3. GST is one Indirect Tax for the entire Country. The basic concept behind this is:

“ONE TAX, ONE NATION”

So, Comparison what was before Goods and Service Tax and what is now i.e., after GST is as follows:

Illustrated with an example of supply chain, consisting Manufacturer, Wholesaler, Retailer and Consumer showing the impact with and without GST:

“Suppose manufacturer, started production for one item (say, one Dress), he has all the necessary thing to manufacture dress. Now, Manufacturer must be having certain people known as wholesalers will have retailers, so that item reaches to the end users (customers)”.

Following shown, the cost of saving by customer on one item after implementing GST:-

From the above example, it is clear, that on one item, customer save Rs.2.42, on applying GST, while if we continue with current taxation system, then not a single penny is saved by consumer.

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.”

Multi-stage:

There are multiple stages an item goes through along its supply chain: from manufacture to final sale to the consumer. Let us consider the following case:

1. Purchase of raw materials

2.Production or manufacture

3. Warehousing of finished goods

4. Sale to wholesaler

5. Sale of the product to the retailer

6. Sale to the end consumer

Goods and Services Tax will be levied on each of these stages, which makes it a multi-stage tax.

Value Addition:

The manufacturer who makes Shirts buys thread, buttons, cloth and other raw material. The value of the inputs increases when the thread and cloth are stitched into shirts.

The manufacturer then sells the shirts to the wholesalers who packs large quantities of shirts and labels it. That is another addition of value after which the wholesalers sells it to the retailer.

The retailer separates in smaller quantities and invests in the marketing of the shirts thus increasing its value.

GST will be levied on these value additions i.e. the monetary worth added at each stage to achieve the final sale to the end customer.

Destination-Based:

Consider goods manufactured in Uttar Pradesh and are sold to the final consumer in Gujarat. Since Goods & Service Tax (GST) is levied at the point of consumption, in this case, Gujarat, the entire tax revenue will go to Gujarat and not Uttar Pradesh.

2. Journey of GST in India:

The GST journey began in the year 2000 when a committee was set up to draft GST Law. It took 17 years from then for the Law to evolve. In 2017 the GST Bill was passed in the Lok Sabha and Rajya Sabha. On 1st July 2017 the GST Law came into force.

If you have any query regarding GST, mail us at info.itslyf.com . We will try to resolve your queries as soon as possible.

-Geetika Goyal (Team ItsLyf)