Concepts of GST

WEBINAR
ON
CONCEPTS OF GST (GOODS & SERVICE TAX)
Presented by-
Mr. Tushar Ranjan Barik
Asst. Professor of Commerce
NIIS Group of Institutions

Contents-
1. Tax
2. Types of Tax (Direct & Indirect Tax)
3. Incidence & Impact
4. Direct Tax Vs. Indirect Tax
5. Meaning of GST
6. GST Mechanism
7. Salient Features of GST
8. Need for GST In India
9. Comparison between Pre-GST & Post-GST Regime though Illustration
10. What are the Components of GST ?
11. Advantages of GST

MEANING OF TAX
Tax is a compulsory payment to be made by every resident of India. It is a
charge or burden laid upon persons or the property for the support of a
Government. Government decided the rates and the items on which tax will
be charged, like income tax, GST, etc
Tax can be defined in very simple words as the government’s revenue or source of income. The money
collected under the taxation system is put into use for the country’s development through several projects
and schemes.
 The Indian Constitution authorizes the Central and the State Governments to levy taxes.
 The Parliament passes laws to approve taxes collected by the Central Government. In the case of the State
Governments, the State Legislature holds this power.
 By the State Government: Also, the local governing and civic bodies too have the right to levy certain taxes.

TYPES OF TAXES
On the basis of incidence and impact of tax, a tax can be either, ‘Direct Tax’ or ‘Indirect Tax’
 Direct Taxes: The individuals directly pay these taxes to the respective governments. In
this case the both Incidence and Impact will fall in a single person, i.e. an assesse. The
most notable examples include Income tax, Capital gains tax, Corporate tax,
Wealth Tax and Securities transaction tax.
 Indirect Taxes: These taxes are not directly paid to the governments but are collected by
the intermediaries who sell or arrange products and services. In this case, the Incidence
and impact of taxes will fall on two different persons. GST (Goods and Service Tax),
Service tax, sales tax, octroi, customs duty, value-added tax, and excise duty,
customs duty, are some of the top examples.

INCIDENCE & IMPACT OF TAXES
 Incidence of Tax: Incidence of Tax means the first burden of tax.
Incidence of tax falls on a person on whom the tax levied for the first time.
Incidence of tax can be shifted to another person.

 Impact of Tax: Impact of tax means the ultimate/final burden of tax.
Impact of tax falls on the person who ultimately bears the burden of tax,
i.e. the Consumer.

DIRECT TAX VS. INDIRECT TAX
Particulars Direct Tax Indirect Tax
 Meaning Direct Taxes are the taxes in which the incidence and
impact falls on the same person/assessee
Indirect Taxes are such type of taxes where incidence and
impact fall on two different persons.
 Nature of tax Direct Tax is progressive in nature. Indirect Taxes are regressive in nature.
 Taxable Event Taxable Income / Taxable Wealth of the Assessees. Purchase / Sale / Manufacture of goods and /or rendering of
services.
 Levy & Collection Levied and collected from the Assessee. Levied & collected from the consumer but paid / deposited
to the Exchequer by the Assessee / Dealer.
 Shifting of Burden Tax Burden is directly borne by the Assessee. Hence, the
burden cannot be shifted.
Tax burden is shifted to the subsequent / ultimate user.
 Tax Collection Tax is collected after the income for a year is earned or
valuation of assets is determined on the valuation date.
At the time of sale or purchases or rendering of services.
 Tax Evasion Comparatively more because of presence of
Unorganised sector.
Comparatively less because of presence of organised sector.
 Administered by Direct Tax is administered by Central Board of Direct
Taxes (CBDT)
Indirect Tax is administered by Central Board of Indirect Tax &
Customs (CBIC). It is formerly known as Central Board of
Excise & Customs(CBEC).

MEANING OF GOODS & SERVICE TAX(GST)
1.Meaning:
a) “GST is an Indirect Tax charged on supply of Goods, or, Services or both except on supply of the Alcoholic
Liquor for Human Consumption” [Article 366(12A)].
b) It is implemented from 01.07.2017.
c) It extends to whole of India including Jammu and Kashmir.
2.Value added Tax: It is a Value Added Tax levied on Manufacture, Sale and Consumption of Goods and
Services. Only Value addition will be taxed and burden of tax is to be borne by the final consumers.
3.Set-off of taxes: The Supplier at each stage is permitted to avail credit of GST paid on purchase of Goods
and/services which can be set-off against the taxes paid on supply of Goods and Services made by him.
4.Accrual of Tax: The Tax would accrue to the taxing authority which has jurisdiction over the Place of
Consumption, which is also termed as Place of Supply. Hence, GST is a ‘Destination based consumption tax.’

GST MECHANISM
Manufacturer:
Price- 100
GST @ 10% 10 (Output GST)
Total 110
Government
GST from Manufacturer +10
GST from Whole Seller + 2
GST from Retailer + 2
Total GST Collected 14
Wholesaler
Purchase Price Price- 110
Price- 100 + 10 ( Input GST)
+ (Profit + Exp. )@ 20% : 20
Total 120
+ GST @ 10% 12 ( Output GST)
Total S.P. including GST 132 (P.P for Retailer)
GST Payable from W.S
(12-10 =2 )
Retailer:
Purchase Price Price- 132
Price- 120 + 12 ( Input GST)
+ (Profit + Exp. )@ 20% : 24
Total 144
+ GST @ 10% 14 ( Output GST)
Total S.P. including GST 158 (P.P for Consumer)
GST Payable from R.
(14-12 =2 )
Consumer will pay ( Price = 144 + GST= 14 )

The following are the salient features of the GST- Goods and Service Tax;
1. Indirect Tax: GST is an indirect tax, charged on supply of supply of goods or services or
both, except supply of Alcoholic Liquor for human consumption.
2. Value Added Tax: It is a Value Added Tax levied on manufacture, Sale and Consumption
of Goods & Services. Only Value addition will be taxed and burden of tax is to be borne by
the final Consumption.
3. Destination Based Consumption Tax: The tax would accrue to the taxing authority which
has jurisdiction over the Place of Consumption which is also termed as Place of Supply.
That means, the tax burden will arise on the head of ultimate consumer. Hence GST is a
Destination Based Consumption Tax.
SALIENT FEATURES OF GST

4. Dual GST Model: GST is working in a Dual GST Model. That means, it is
charging by both the Central and State Govt.
5. Registration: Every supplier of goods and/or services is required to
obtained Registration in the State/ UT from where he makes taxable supply, if
his turnover exceeds Rs. 20 Lakhs during the financial year.
SALIENT FEATURES OF GST

NEED FOR GST IN INDIA
During Earlier Indirect Tax Regime, so many deficiencies are there. Due to those deficiencies, the whole Indirect
taxation structure was very much critical. In order to simplify the indirect tax system and keeping in view ‘ one
country - one tax’ , GST has been introduced. Before any discussion about the needs of GST, you must clear about the
Deficiencies in the Earlier Indirect structure are as follows;
Deficiencies in the Earlier Indirect Tax Regime:
 No Set-off: Certain taxes levied by State Government were not allowed as set off for payment of other taxes being
levied by them. Example: When Goods are manufactured and sold, both Excise Duty (CENVAT) and State VAT
were levied. Though CENVAT and State Level VAT are essentially Value Added Taxes, Set-off of one against the
credit of another was not possible as CENVAT was a Central Government Levy and State VAT was a State
Government Levy.
 Variety of Taxes and Rates: The Variety of Value Added Tax Laws in the country with disparate tax rates and
dissimilar tax practices in different States, Union Territories and Central Level divides the country into
separate economic Spheres. Total 17 indirect taxes has been subsumed with GST. These are as follows:-

Central Taxes (Levied by Central Government)
Txes Tax Laws Taxable Event
 Central Excise Duty Central Excise Act,1944 Manufacture/Production
 Duties of Excise (Medical and Toilet Preparation) Central Excise Act,1944 Manufacture/Production
 Additional Duties of Excise (Goods of Special Importance) Central Excise Act,1944 Manufacture/Production
 Additional Duties of Excise (Textile & Textile Products) Central Excise Act,1944 Manufacture/Production
 Additional Duties of Customs (commonly known as CVD) Customs Act, 1962 Import
 Special Additional Duty of Customs Customs Act, 1962 Import
 Service Tax Finance Act, 1994 Provision of Services
 Central Sales Tax Central sales Tax Act, 1956 Inter State Sale
 Surcharge & Cesses so far as relate to supply of goods &
services
Any of the above tax law, as applicable Any of the above Taxable Event, as specified in
the law.
State Taxes (Levied by Sate Government)
Txes Tax Laws Taxable Event
Sate VAT VAT Act. (State wise) Intra-state Sale
Luxury Tax State Luxury Act Services provided by Clubs, Hotels, etc
Entry Tax State wise entry tax act. Inter-state transfer of Goods
Entertainment Tax Entertainment Tax Act Commercial Entertainment
Taxes on Advertisement Advertisement Tax Act Advertisement Contract
Purchase Tax VAT Act Purchase of Specified goods
Taxes on lotteries, Batting and Gambling Different state acts Lottery, Batting and Gambling
Surcharge & Cesses so far as relate to supply of goods & services Any of the above tax law, as applicable Any of the above Taxable Event, as specified in
the law.
List the Central and State levies during Pre-GST regime was subsumed in GST in India:

 Cascading Effect: In the earlier tax regime, there was Cascading effect of taxes on account of- (i) Levy of Non-Vatable
CST, and (ii) Inclusion of CENVAT in the value for Imposing VAT.
 High Compliance Cost: The creation of tariff and non-tariff barriers such as octroi, entry tax, check posts, etc.
hindered the free flow of trade throughout the country. Besides that, the large number of taxes created high compliance
cost for the tax payers in the form of number of Returns, Payments, etc.
 Others:
(a) Non-inclusion of several local levies in the State VAT such as Luxury Tax, Entertainment Tax, etc
(b) No CENVAT after manufacturing Stage.
(c) Non-Integration of VAT & Service Tax
We can understand the above limitations through the following Illustrations of Comparison between PRE-GST and POST-GST Regime.

Illustrated with an example of supply chain, consisting Manufacturer, Wholesaler, Retailer and Customer, showing
the impact with and without GST:-
Suppose, manufacturer, started production for one item (say, one Dress), he had all the necessary things to
manufacture dress. Now, Manufacturer must be having certain people known as wholesalers and further
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:-
COMPARISION BETWEEN PRE-GST AND POST GST REGIME WITH ILLUSTRATION

What are the components of GST?
There are three taxes applicable under this system: CGST, SGST & IGST.
 CGST (Central GST): It is the tax collected by the Central Government on an intra-state sale (e.g., a transaction
happening within Maharashtra)
 SGST (State GST): It is the tax collected by the state government on an intra-state sale (e.g., a transaction
happening within Maharashtra)
 IGST (Integrated GST) : It is a tax collected by the Central Government for an inter-state sale (e.g., Maharashtra
to Tamil Nadu)
Transaction New Regime Old Regime Revenue Distribution
Sale within the State
(Intra-Sate Sale)
CGST + SGST VAT + Central Excise/Service tax Revenue will be shared equally between the Centre and the
State
Sale to another State
(Inter- Sate Sale)
IGST Central Sales Tax + Excise/Service Tax There will only be one type of tax (central) in case of inter-
state sales. The Centre will then share the IGST revenue
based on the destination of goods.
In most cases, the tax structure under the Post-GST regime are as follows:

Concepts of GST

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