Goods and Services Tax (GST)- An Introduction

The Goods and Services Tax which is India's biggest tax reform in 70 years of Independence was launched on the midnight of 30th June 2017 by the President Pranad Mukherjee and Prime Minister Narendra Modi. The launch was a historic moment.
The Goods and Services Tax was first conceptualized in 1999 during a meeting between then Prime Minister Atal Bihari Vajpayee and his economic advisory panel.

GST which means Goods and Services Tax is a comprehensive, multi-stage, destination-based indirect tax that will be levied on every value-addition throughout the country with the same rate that will replace multiple cascading taxes levied by the central and state government.

To understand let's focus on the terms used in the definition such as Multi-stage, destination-based and value addition. Let us start with the term ‘Multi-stage’. Now, there are multiple steps an item goes through from manufacture or production to the final sale. Buying of raw materials is the first stage. The second stage is production or manufacture. Then, there is the warehousing of materials. Next, comes the sale of the product to the retailer. And in the final stage, the retailer sells you – the end consumer – the product, completing its life cycle.


Goods and Services Tax will be levied on each of these stages, which makes it a multi-stage tax.Now, let us talk about ‘Value Addition’.
Let us assume that a manufacturer wants to make a shirt. For this, he must buy yarn. This gets turned into a shirt after manufacture. So, the value of the yarn is increased when it gets woven into a shirt. Then, the manufacturer sells it to the warehousing agent who attaches labels and tags to each shirt. That is another addition of value after which the warehouse sells it to the retailer who packages each shirt separately and invests in the marketing of the shirt thus increasing its value.
GST will be levied on these value additions – the monetary worth added at each stage to achieve the final sale to the end customer.
There is one more term we need to talk about in the definition – Destination-Based. Goods and Services Tax will be levied on all transactions happening during the entire manufacturing chain. Earlier, when a product was manufactured, the centre would levy an Excise Duty on the manufacture, and then the state will add a VAT tax when the item is sold to the next stage in the cycle. Then there would be a VAT at the next point of sale.
Currently, the Indian tax structure is divided into two – Direct and Indirect Taxes. Direct Taxes are levied where the liability cannot be passed on to someone else. An example of this is Income Tax where you earn the income and you alone are liable to pay the tax on it.
So indirect taxes are the liability of the tax can be passed on to someone else. This means that when the shopkeeper must pay VAT on his sale, he can pass on the liability to the customer. So, in effect, the customer pays the price of the item as well as the VAT on it so the shopkeeper can deposit the VAT to the government. This means that the customer must pay not just the price of the product, but he also pays the tax liability, and therefore, he has a higher outlay when he buys an item.
This happens because the shopkeeper has paid a tax when he bought the item from the wholesaler. To recover that amount, as well as to make up for the VAT he must pay to the government, he passes the liability to the customer who has to pay the additional amount. There is currently no other way for the shopkeeper to recover whatever he pays from his own pocket during transactions and therefore, he has no choice but to pass on the liability to the customer.
Goods and Services Tax will address this issue after it is implemented. It has a system of Input Tax Credit which will allow sellers to claim the tax already paid so that the final liability on the end consumer is decreased.

A single GST replaced several existing taxes and levies which includes:
At the Central level, the following taxes are being subsumed:
  1. Central Excise Duty,
  2. Additional Excise Duty,
  3. Service Tax,
  4. Additional Customs Duty is commonly known as Countervailing Duty, and
  5. Special Additional Duty of Customs.
At the State level, the following taxes are being subsumed:
  1. Subsuming of State Value Added Tax/Sales Tax,
  2. Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States),
  3. Octroi and Entry tax,
  4. Purchase Tax,
  5. Luxury tax, and
  6. Taxes on lottery, betting, and gambling.
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.

1. Tax exempted Goods 

A number of food items have been exempted from any of the tax slabs. Fresh meat, fish, chicken, eggs, milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, all kinds of salt, jaggery and hulled cereal grains have been kept out of the taxation system. Bindi, sindoor, kajal, palmyra, human hair and bangles also do not attract any tax under GST. Drawing or colouring books alongside stamps, judicial papers, printed books, newspapers also fall under this category. Other items in the exempted list include jute and handloom, Bones and horn cores, hoof meal, horn meal, bone grist, bone meal, etc.

Services 
Grandfathering service has been exempted under GST. A low budget holiday may get cheaper as hotels and lodges with tariff below Rs 1,000 are in this category. Rough precious and semi-precious stones will attract GST rate of 0.25 per cent. 

2. 5% tax 
Goods

An array of food items such as fish fillet, packaged food items, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, cashew nut, cashew nut in shell, raisin, ice and snow will be priced at 5 per cent tax. 

Apparel below Rs 1000 and footwear below Rs 500 are also in this category. 

Some items in the fuel category like biogas, kerosene and coal are in this slab. 

Items from the health industry in this category include medicine, insulin, and stent. 

Other items in this slab are agarbatti (incense sticks), kites, postage or revenue stamps, stamp-post marks, fertilizers, first-day covers, and lifeboats. 

Services 

Transport services like railways and air travel fall under this category. 

Small restaurants will also be under the 5% category 

Gold has been taxed under a separate slab of 3 per cent. 

3. 12% tax 
Goods 

Yet another category of edibles like frozen meat products, butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, fruit juices, namkeen and ketchup & sauces will attract 12 per cent tax. 

Cellphones will also be priced in this category. 

Cutlery items like Spoons, forks, ladles, skimmers, cake servers, fish knives, tongs fall in this slab. 

Ayurvedic medicines and all diagnostic kits and reagents are taxed at 12 per cent. 

Utility items like tooth powder, umbrella, sewing machine and spectacles and indoor game items like playing cards, chess board, carom board and other board games like ludo are in this slab. 

Apparel above Rs 1000 will attract 12 per cent tax. 

Services 
Non-AC hotels, business class air ticket, state-run lottery, work contracts will fall under 12 per cent GST tax slab 

4. 18% tax 
Goods 
Another set of consumables are listed under the 18 per cent category- biscuits, flavoured refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, curry paste, mayonnaise and salad dressings, mixed condiments and mixed seasonings and mineral water. 

Footwear costing more than Rs 500 are in this category. 

Items like Printed circuits, camera, speakers and monitors, printers (other than multi function printers), electrical transformer, CCTV, optical fiber are priced at 18 per cent tax under GST. 



Other items in this slab include bidi leaves, tissues, envelopes, sanitary napkins, note books, steel products, kajal pencil sticks, headgear and its parts, aluminium foil, weighing machinery (other than electric or electronic weighing machinery), bamboo furniture, swimming pools and padding pools. 

Services 
AC hotels that serve liquor, telecom services, IT services, branded garments and financial services will attract 18 per cent tax under GST. 

5. 28% tax 
Goods 
The residuary set of edibles which include chewing gum, molasses, chocolate not containing cocoa, waffles and wafers coated with choclate, pan masala and aerated water fall in this category. 

Bidi attracts 28 per cent tax. 

An array of personal care items like deodorants, shaving creams, after shave, hair shampoo, dye and sunscreen are in the highest tax slab as well. 

Paint, wallpaper and ceramic tiles are priced at 28 per cent. 


Water heater, dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum cleaner, shavers and hair clippers have been clubbed together in this slab.



Automobiles, motorcycles and aircraft for personal use will attract 28 % tax - the highest under GST system.




Services 


5-star hotels, race club betting, private lottery and movie tickets above Rs 100 are under the 28 per cent category.


The GST on restaurants in five-star and luxury hotels has been reduced to 18 per cent from 28 per cent, bringing it at par with standalone air-conditioned (AC) restaurants. Even at some air-conditioned restaurants, the bills may come down, as GST will subsume service tax and value-added tax (VAT) that is currently charged. 

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