Thursday, 4 August 2016

Frequently Asked Questions (FAQs) on Goods and Services Tax (GST)

Frequently Asked Questions (FAQs) on Goods and Services Tax

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

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
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 inbuilt  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


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 bein subsumed into GST?
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

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 RevenueNeutral 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

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 on19.12.2014, 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 below the prescribed threshold limits. Further, both would be

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 below.

Figure 1: GST within State

 Question 7.Will cross utilization of credits between goods and services be allowed under GST regime?

Answer  :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

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 below.
Figure 2

 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

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,

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 specia 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:

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 alsobe 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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