INCOME TAX AND GST

Module III
CHAPTER 1:

Goods and service tax

It is a comprehensive, multistage, destination based tax which is levied
on every value addition. It is a single tax on supply of goods and
services.

Evolution of GST system in India (Milestones of GST)

⮚ 2000- Prime minister introduced the concept of GST.

⮚ 2003- The central govt formed a task force under Vijay Khalkar.
⮚ 2004- The force recommended GST to replace existing tax.

⮚ 2006- First announcement of GST by union minister 2006-07 budget.

⮚ 2009- Empowered committee released the first discussion paper.

⮚ 2011- 115th amendment bill introduced and subsequently lapsed.
⮚ 2016- 122nd amendment bill introduced in Lok Sabha.
⮚ 2016- 1st GST council meeting conducted.

⮚ 2017 (March) - GST council recommend CGST, SGST, IGST, UTGST.

⮚ 2017 (April) - CGST, SGST, IGST, UTGST, act was passed.

⮚ 2017- (July) - GST was launched all over India.

Salient features of GST

● GST applicable on the supply of goods or services.

● GST is a destination based consumption tax.

● GST to be paid to accounts of center and state separately.
● GST is an important source of revenue for government.
● GST apply all goods and services except human consumption alcohol.
● Tobacco and tobacco products would be subject to GST.
● GST would be subject to PAN based registration.

Objectives of GST
1. One country one tax system.
2. Reduce tax evasion.
3. Reduce corruption.
4. Reduce economic distortion.

5. Increase productivity.
6. Increase tax GDP ratio.
7. Increase tax regulations compliances.
8. Uniform registration and payment.

Need for GST in India

1. GST rationalize the multiplicity of taxes.
2. Introduction of GST will cover untaxed areas of services.
3. GST will avoid distortions by present complex tax structure.
4. GST will avoid paying tax on tax.
5. GST will lead to credit availability on inter-state purchases.
6. GST provides greater certainty and transparency of taxes.
7. GST ensures tax compliance across the country.
8. GST will avoid dual taxation to some extent.
Advantages of GS
1. Eliminating tax on tax effect.
2. Decrease in price of product.
3. One point single tax.
4. Uniformity of tax rate.
5. Eliminate multiplicity of taxation.
6. Easy identification of products.
7. Easy compliance.
8. Reducing transaction cost.
9. Reduces the corruption.

Benefits of GST to various stake holders

⮚ Benefits to trade and industry

● Reduction in multiplicity of taxes.

● Mitigation of double taxation.

● Development of common national market.
● Simpler tax regime.

● Efficient neutralization of taxes.

⮚ Benefits to government
● Simpler tax system.
● Efficient uses of resources.
● Improved revenue collections.
● Broadening of tax base.

● Reduce tax evasion.

 ⮚ Benefits to citizen
• Simple and transparent tax system

• Reduction in prices due to elimination of cascading effect

• Uniform prices across the country

• Increased employment opportunities

Limitations/ negative aspects of GST system in India

1. Dual tax system.
2. Short term business challenges.
3. Increased operation cost.
4. Online taxation system.
5. Multiple registration.
6. Indigenous manufacturing.
7. Revenue distribution.
8. Complexities of the businessman.

Comparison between traditional indirect/ VAT tax system

and GST

Basis of
Traditional Indirect/VAT System GST System
Comparison

Tax on manufacture, sale, and

1. Tax Base Tax on supply of goods and services
services separately

2. Cascading Present, due to limited input tax Eliminated, due to seamless ITC(Input Tax Credit)
Effect credit

3. Number of Many taxes (Excise, VAT, CST, Service

One unified tax (CGST, SGST, IGST)
Taxes Tax, etc.)

4. Tax
Origin-based and multi-layered Destination-based and simplified
Structure

5. Input Tax
Limited and not cross-utilizable Broad and seamless ITC across goods & services
Credit (ITC)

6. Inter-state CST applied; no credit for

IGST applied; full credit available
Transactions CST(Central SalesTax)

7. Rate
VAT rates differed across states Uniform rates across India
Uniformity

8. Less transparent; multiple taxes at

More transparent; online and uniform system
Transparency stages

9.

Compliance Multiple registrations and filings Single registration per state; online compliance

Requirements

10.

Treatment of Customs duty + CVD/SAD Customs duty + IGST (treated as inter-state supply)

Imports

11. Payment Online payment not compulsory Compulsory if more than RS.10000

System

Basic Definitions under GST:

Agent
Agent means a person who carries on the business of supply or receipt
of goods or services or both on behalf of another.
Aggregate turnover
It means the aggregate value of taxable supplies.
Capital goods
Capital goods means goods the value of which is capitalized in the
books of account of the person claiming the input tax credit and which
are used in the course of business.
Casual taxable person
Person who occasionally undertake transactions of supply of goods and
services in the course of business.

Composite supply
It means two or more goods or services that are only sold as a set and
cannot be sold individually.

Exempted supply
It is the supply of goods and services that does not attracts GST and
allows no claim on ITC.
Input tax
It means the central tax, state tax, integrated tax charged on any supply
of goods and services made to a registered person.

Mixed supply
It means a combination of two or more good or services made
together for a single price.

Agriculturist
An agriculturist is an individual or HUF who cultivates land by own
labour, family labour, or hired labour under personal supervision.
Business
Business includes any trade, commerce, manufacture, profession or
similar activity, whether or not for profit. It also covers activities
related to starting or closing a business, and services by clubs or
associations to members.

Capital Goods
Capital goods are goods whose value is shown as assets in the books of
accounts and which are used or meant to be used in the course of
business. Input tax credit can be claimed on such goods.
Example: machinery, equipment.

Casual Taxable Person

A casual taxable person is one who occasionally supplies goods or
services in a State or Union Territory where he does not have a fixed
place of business.
Example: a trader selling goods in an exhibition in another state.

Continuous supply of goods:

Continuous supply of goods means supply of goods made
continuously or repeatedly under a contract, usually through
pipelines, wires, or cables, where billing is done on a regular or
periodic basis.

Continuous supply of services:

Continuous supply of services means services provided continuously
or repeatedly under a contract for more than three months, with
payments made periodically (such as monthly or quarterly), including
services notified by the Government.
Recipient:

Recipient means:

• The person liable to pay consideration for goods or services, or

• If no consideration for goods, the person to whom goods are delivered or

made available, or

• If no consideration for services, the person to whom the service is provided,

and it includes an agent acting on behalf of the recipient.

Services:

Services mean anything other than goods, money, and securities.

It includes activities related to the use or conversion of money (such as currency

exchange) for which a separate consideration is charged.

Supplier:

Supplier means the person who supplies goods or services or both, and it

includes an agent acting on behalf of such supplier.

Voucher:

Voucher means an instrument that must be accepted as full or part payment for

goods or services, where the goods/services or the supplier are specified on the

voucher or in its terms and conditions.

Works contract:

Works contract means a contract related to construction or work on immovable

property where transfer of goods is involved during execution of the contract

(such as building, repair, installation, or renovation).

Zero-rated supply:

Zero-rated supply means supply of goods or services that are taxable at 0% GST,

which includes exports of goods or services and supplies made to SEZ developers

or SEZ units.

Exempted supply:

Exempted supply means the supply of goods or services that attracts nil rate of

GST or is fully exempt from tax under GST law, and it also includes non-taxable

supplies.

Goods:

Goods mean all kinds of movable property, including actionable claims, growing

crops, grass, and things attached to land that are agreed to be separated before

supply.

Money and securities are excluded.

Job work:

Job work means any treatment or process done on goods belonging to another

registered person.

The person who carries out such work is called a job worker.

Location of recipient of services means:

• The registered place of business where the service is received, or

• The fixed establishment where the service is received (if not the registered

place), or
 • If received at more than one place, the establishment most directly

concerned, or

• If none of the above, the usual place of residence of the recipient.

Location of supplier of services:

• Location of supplier of services means:

• The registered place of business from where the service is supplied, or

• The fixed establishment from where the service is supplied (if not the

registered place), or

• If supplied from more than one place, the establishment most directly

concerned, or

• If none of the above, the usual place of residence of the supplier.

Components of GST
CGST (Central Goods and Services Tax)
It is tax levied on intra state supplies of both goods and services by the central
government and will be governed by the CGST act.
SGST (State Goods and Services tax)
It is tax levied on intra state supplies of both goods and services by the state
government and will be governed by the SGST act.

UTGST (Union territory goods and services tax)

It is an indirect tax that is collected when intra state goods or services supplied,
along with tax charged as under CGST act.
IGST (Integrated Goods and Services Tax)
It is a tax levied on all inter-state supplies of goods and services and will be
governed by IGST Act.
Cascading effect of tax
It is the effect where a tax is paid on tax and the value of the item keeps increasing
every time this happens.