Frequently Asked
Questions (FAQs) on Goods and Services Tax (GST)
Following are the
answers to the various frequently asked questions relating to GST:
Question 1.What is GST? How does it
work?
Answer:
GST is one indirect tax for the whole nation, which will make India one unified
common market.
GST is a single tax on
the supply of goods and services, right from the manufacturer to the consumer.
Credits of input taxes paid at each stage will be available in the subsequent
stage of value addition, which makes GST essentially a tax only on value
addition at each stage. The final consumer will thus bear only the GST charged
by the last dealer in the supply chain, with set-off benefits at all the
previous stages.
Question 2. What are the benefits of
GST?
Answer:The benefits of GST
can be summarized as under:
· For
business and industry
o Easy
compliance:
A robust and comprehensive IT system would be the foundation of the GST regime
in India. Therefore, all tax payer services such as registrations, returns,
payments, etc. would be available to the taxpayers online, which would make
compliance easy and transparent.
o Uniformity
of tax rates and structures: GST will ensure that indirect tax
rates and structures are common across the country, thereby increasing
certainty and ease of doing business. In other words, GST would make doing
business in the country tax neutral, irrespective of the choice of place of
doing business.
o Removal
of cascading: A system of seamless tax-credits throughout the
value-chain, and across boundaries of States, would ensure that there is
minimal cascading of taxes. This would reduce hidden costs of doing business.
o Improved
competitiveness: Reduction in transaction costs of doing business
would eventually lead to an improved competitiveness for the trade and
industry.
o Gain
to manufacturers and exporters: The subsuming of major Central and
State taxes in GST, complete and comprehensive set-off of input goods and
services and phasing out of Central Sales Tax (CST) would reduce the cost of
locally manufactured goods and services. This will increase the competitiveness
of Indian goods and services in the international market and give boost to
Indian exports. The uniformity in tax rates and procedures across the country
will also go a long way in reducing the compliance cost.
· For
Central and State Governments
o Simple
and easy to administer: Multiple indirect taxes at the Central
and State levels are being replaced by GST. Backed with a robust end-to-end IT
system, GST would be simpler and easier to administer than all other indirect
taxes of the Centre and State levied so far.
o Better
controls on leakage: GST will result in better tax compliance
due to a robust IT infrastructure. Due to the seamless transfer of input tax
credit from one stage to another in the chain of value addition, there is an in-built
mechanism in the design of GST that would incentivize tax compliance by
traders.
o Higher
revenue efficiency: GST is expected to decrease the cost of
collection of tax revenues of the Government, and will therefore, lead to
higher revenue efficiency.
· For
the consumer
o Single
and transparent tax proportionate to the value of goods and services: Due
to multiple indirect taxes being levied by the Centre and State, with
incomplete or no input tax credits available at progressive stages of value
addition, the cost of most goods and services in the country today are laden
with many hidden taxes. Under GST, there would be only one tax from the
manufacturer to the consumer, leading to transparency of taxes paid to the
final consumer.
o Relief
in overall tax burden: Because of efficiency gains and
prevention of leakages, the overall tax burden on most commodities will come
down, which will benefit consumers.
Question 3. Which taxes at the
Centre and State level are being subsumed into GST?
Answer:
At the Central level,
the following taxes are being subsumed:
a. Central
Excise Duty,
b. Additional
Excise Duty,
c. Service
Tax,
d. Additional
Customs Duty commonly known as Countervailing Duty, and
e. Special
Additional Duty of Customs.
At the State level,
the following taxes are being subsumed:
a. Subsuming
of State Value Added Tax/Sales Tax,
b. Entertainment
Tax (other than the tax levied by the local bodies), Central Sales Tax (levied
by the Centre and collected by the States),
c. Octroi
and Entry tax,
d. Purchase
Tax,
e. Luxury
tax, and
f. Taxes
on lottery, betting and gambling.
Question 4. What are the major
chronological events that have led to the introduction of GST?
Answer: GST is being
introduced in the country after a 13 year long journey since it was first
discussed in the report of the Kelkar Task Force on indirect taxes. A brief
chronology outlining the major milestones on the proposal for introduction of
GST in India is as follows:
a. In
2003, the Kelkar Task Force on indirect tax had suggested a comprehensive Goods
and Services Tax (GST) based on VAT principle.
b. A
proposal to introduce a National level Goods and Services Tax (GST) by April 1,
2010 was first mooted in the Budget Speech for the financial year 2006-07.
c. Since
the proposal involved reform/ restructuring of not only indirect taxes levied
by the Centre but also the States, the responsibility of preparing a Design and
Road Map for the implementation of GST was assigned to the Empowered Committee
of State Finance Ministers (EC).
d. Based
on inputs from Govt of India and States, the EC released its First Discussion
Paper on Goods and Services Tax in India in November, 2009.
e. In
order to take the GST related work further, a Joint Working Group consisting of
officers from Central as well as State Government was constituted in September,
2009.
f. In
order to amend the Constitution to enable introduction of GST, the Constitution
(115th Amendment) Bill was introduced in the Lok Sabha in March 2011. As per
the prescribed procedure, the Bill was referred to the Standing Committee on
Finance of the Parliament for examination and report.
g. Meanwhile,
in pursuance of the decision taken in a meeting between the Union Finance
Minister and the Empowered Committee of State Finance Ministers on 8th
November, 2012, a ‘Committee on GST Design’, consisting of the officials of the
Government of India, State Governments and the Empowered Committee was
constituted.
h. This
Committee did a detailed discussion on GST design including the Constitution
(115th) Amendment Bill and submitted its report in January, 2013. Based on this
Report, the EC recommended certain changes in the Constitution Amendment Bill
in their meeting at Bhubaneswar in January 2013.
i. The
Empowered Committee in the Bhubaneswar meeting also decided to constitute three
committees of officers to discuss and report on various aspects of GST as
follows:-
(a) Committee
on Place of Supply Rules and Revenue Neutral Rates;
(b) Committee
on dual control, threshold and exemptions;
(c) Committee
on IGST and GST on imports.
j. The
Parliamentary Standing Committee submitted its Report in August, 2013 to the
Lok Sabha. The recommendations of the Empowered Committee and the
recommendations of the Parliamentary Standing Committee were examined in the
Ministry in consultation with the Legislative Department. Most of the
recommendations made by the Empowered Committee and the Parliamentary Standing
Committee were accepted and the draft Amendment Bill was suitably revised.
k. The
final draft Constitutional Amendment Bill incorporating the above stated
changes were sent to the Empowered Committee for consideration in September
2013.
l. The
EC once again made certain recommendations on the Bill after its meeting in
Shillong in November 2013. Certain recommendations of the Empowered Committee
were incorporated in the draft Constitution (115th Amendment) Bill. The revised
draft was sent for consideration of the Empowered Committee in March, 2014.
m. The
115th Constitutional (Amendment) Bill, 2011, for the introduction of GST
introduced in the Lok Sabha in March 2011 lapsed with the dissolution of the
15th Lok Sabha.
n. In
June 2014, the draft Constitution Amendment Bill was sent to the Empowered
Committee after approval of the new Government.
o. Based
on a broad consensus reached with the Empowered Committee on the contours of
the Bill, the Cabinet on 17.12.2014 approved the proposal for introduction of a
Bill in the Parliament for amending the Constitution of India to facilitate the
introduction of Goods and Services Tax (GST) in the country. The Bill was
introduced in the Lok Sabha on 19.12.2014, and was passed by the Lok Sabha on
06.05.2015. It was then referred to the Select Committee of Rajya Sabha, which
submitted its report on 22.07.2015.
Question 5.How would GST be administered
in India?
Answer:Keeping in mind the
federal structure of India, there will be two components of GST – Central GST
(CGST) and State GST (SGST). Both Centre and States will simultaneously levy
GST across the value chain. Tax will be levied on every supply of goods and
services. Centre would levy and collect Central Goods and Services Tax (CGST),
and States would levy and collect the State Goods and Services Tax (SGST) on
all transactions within a State. The input tax credit of CGST would be
available for discharging the CGST liability on the output at each stage.
Similarly, the credit of SGST paid on inputs would be allowed for paying the
SGST on output. No cross utilization of credit would be permitted.
Question 6.How would a particular
transaction of goods and services be taxed simultaneously under Central GST
(CGST) and State GST (SGST)?
Answer :The Central GST
and the State GST would be levied simultaneously on every transaction of supply
of goods and services except on exempted goods and services, goods which are
outside the purview of GST and the transactions which are below the prescribed
threshold limits. Further, both would be levied on the same price or value
unlike State VAT which is levied on the value of the goods inclusive of Central
Excise.
A diagrammatic representation of the working of the Dual GST model within a
State is shown in Figure 1 at end.
Question 7.Will cross utilization of
credits between goods and services be allowed under GST regime?
A,nswer :Cross
utilization of credit of CGST between goods and services would be allowed.
Similarly, the facility of cross utilization of credit will be available in
case of SGST. However, the cross utilization of CGST and SGST would not be
allowed except in the case of inter-State supply of goods and services under
the IGST model which is explained in answer to the next question.
Question 8.How will be Inter-State
Transactions of Goods and Services be
taxed under GST in terms of IGST method?
Answer:In case of inter-State
transactions, the Centre would levy and collect the Integrated Goods and
Services Tax (IGST) on all inter-State supplies of goods and services under
Article 269A (1) of the Constitution. The IGST would roughly be equal to CGST
plus SGST. The IGST mechanism has been designed to ensure seamless flow of
input tax credit from one State to another. The inter-State seller would pay
IGST on the sale of his goods to the Central Government after adjusting credit
of IGST, CGST and SGST on his purchases (in that order). The exporting State
will transfer to the Centre the credit of SGST used in payment of IGST. The
importing dealer will claim credit of IGST while discharging his output tax
liability (both CGST and SGST) in his own State. The Centre will transfer to
the importing State the credit of IGST used in payment of SGST.Since GST is a
destination-based tax, all SGST on the final product will ordinarily accrue to
the consuming State.
A diagrammatic representation of the working of the IGST model for inter-State
transactions is shown in Figure 2 t end.
Question 9.How will IT be used for
the implementation of GST?
Answer:For the implementation
of GST in the country, the Central and State Governments have jointly
registered Goods and Services Tax Network (GSTN) as a not-for-profit,
non-Government Company to provide shared IT infrastructure and services to
Central and State Governments, tax payers and other stakeholders. The key
objectives of GSTN are to provide a standard and uniform interface to the
taxpayers, and shared infrastructure and services to Central and State/UT
governments.
GSTN
is working on developing a state-of-the-art comprehensive IT infrastructure
including the common GST portal providing frontend services of registration,
returns and payments to all taxpayers, as well as the backend IT modules for
certain States that include processing of returns, registrations, audits,
assessments, appeals, etc. All States, accounting authorities, RBI and banks,
are also preparing their IT infrastructure for the administration of GST.
There would no manual filing of returns. All taxes can also be paid online. All
mis-matched returns would be auto-generated, and there would be no need for
manual interventions. Most returns would be self-assessed.
Question 10.How will imports be taxed under GST?
Answer :The Additional
Duty of Excise or CVD and the Special Additional Duty or SAD presently being
levied on imports will be subsumed under GST. As per explanation to clause (1)
of article 269A of the Constitution, IGST will be levied on all imports into
the territory of India. Unlike in the present regime, the States where imported
goods are consumed will now gain their share from this IGST paid on imported
goods.
Question 11.What are the major features
of the Constitution (122nd Amendment) Bill, 2014?
Answer :The
salient features of the Bill are as follows:
g. Conferring
simultaneous power upon Parliament and the State Legislatures to make laws
governing goods and services tax;
h. Subsuming
of various Central indirect taxes and levies such as Central Excise Duty,
Additional Excise Duties, Service Tax, Additional Customs Duty commonly known
as Countervailing Duty, and Special Additional Duty of Customs;
i. Subsuming
of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax
levied by the local bodies), Central Sales Tax (levied by the Centre and
collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, and
Taxes on lottery, betting and gambling;
j. Dispensing
with the concept of ‘declared goods of special importance’ under the
Constitution;
k. Levy
of Integrated Goods and Services Tax on inter-State transactions of goods and
services;
l. GST
to be levied on all goods and services, except alcoholic liquor for human
consumption. Petroleum and petroleum products shall be subject to the levy of
GST on a later date notified on the recommendation of the Goods and Services
Tax Council;
m. Compensation
to the States for loss of revenue arising on account of implementation of the
Goods and Services Tax for a period of five years;
n. Creation
of Goods and Services Tax Council to examine issues relating to goods and
services tax and make recommendations to the Union and the States on parameters
like rates, taxes, cesses and surcharges to be subsumed, exemption list and
threshold limits, Model GST laws, etc. The Council shall function under the
Chairmanship of the Union Finance Minister and will have all the State
Governments as Members.
Question 12.What are the major features
of the proposed registration procedures under GST?
Answer:The major features of
the proposed registration procedures under GST are as follows:
i. Existing
dealers:
Existing VAT/Central excise/Service Tax payers will not have to apply afresh
for registration under GST.
ii. New
dealers:
Single application to be filed online for registration under GST.
iii. The
registration number will be PAN based and will serve the purpose for Centre and
State.
iv. Unified
application to both tax authorities.
v. Each
dealer to be given unique ID GSTIN.
vi. Deemed
approval within three days.
vii. Post
registration verification in risk based cases only.
Question 13.What are the major features
of the proposed returns filing procedures under GST?
Answer:The
major features of the proposed returns filing procedures under GST are as
follows:
a. Common
return would serve the purpose of both Centre and State
Government.
b. There
are eight forms provided for in the GST business processes for filing for
returns. Most of the average tax payers would be using only four forms for
filing their returns. These are return for supplies, return for purchases,
monthly returns and annual return.
c. Small
taxpayers:
Small taxpayers who have opted composition scheme shall have to file return on
quarterly basis.
d. Filing
of returns shall be completely online. All taxes can also be paid online.
Question 14.What are the major features
of the proposed payment procedures under GST?
Answer:The major features of
the proposed payments procedures under GST are as follows:
i. Electronic
payment process- no generation of paper at any stage
ii. Single
point interface for challan generation- GSTN
iii. Ease
of payment – payment can be made through online banking, Credit Card/Debit
Card, NEFT/RTGS and through cheque/cash at the bank
iv. Common
challan form with auto-population features
v. Use
of single challan and single payment instrument
vi. Common
set of authorized banks
vii. Common
Accounting Codes
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