Highlights of India’s Finalized GST
On May 18th and 19th, 2017, the government-appointed Goods and Services Tax (GST) council finalized a few critical aspects of the GST. After the council gave the green light, the Indian government rolled out the much anticipated GST on July 1st. The much anticipated GST is said to be the most significant tax reform in the country’s history. Indian President Mr. Pranab Mukherjee and Prime Minister Mr. Narendra Modi officially launched GST at the Parliament’s historic Central Hall.
The GST will integrate all of India’s indirect taxes into a single unified tax regime. GST aims to simplify indirect taxes so that businesses in India can focus on commercial and operational efficiency. In addition, the new GST regime is expected to give India a face-lift on the global map, and to improve country’s ranking on the ease of doing business index. In the coming days, the country expects a boost in foreign investments that would encourage global entities and multinationals to set up their operations in India. Below are few highlights of the GST.
Dual GST Structure
India has a federal structure where both center and states enjoy certain powers as prescribed in the constitution. Keeping in line with the existing structure, India adopted a dual GST. In this structure, the federal – or centeral – government will charge a Central GST (CGST), and state governments/union territories will impose State GST (SGST/UTGST) on all intra-state goods and services. Both center and states will levy equal tax rates on various items. For example, if GST rate is fixed at 18% on a product, then the federal government will receive 9% as CGST and the state will receive 9% as SGST.
Integrated GST (IGST = CGST+ SGST/UTGST)
The federal government will impose a single integrated GST on all inter-state supply of goods and services. The IGST rate will be a total of all the taxes levied by the state/UT (SGST/UTGST) and federal government (CGST). For administrative purposes, intra-states, and interstates taxes will come under one umbrella and businesses will need to file a single return for all the interstate and intra-state transactions and tax payments.
All the businesses with an annual turnover of INR 2 million and above are liable to pay GST. For north-east and special category states the cut-off is INR 1 million. GST registration is mandatory for e-commerce operators that are selling through the digital platform regardless of their turnover.
GST council finalized goods under six tax slabs: 0%, 5%, 12%, 18%, 28%, and 28% plus cess (tax) for luxury items and hazardous goods. On the other hand, for services, four tax slabs are 5%, 12%, 18%, and 28%. Alcohol and petroleum products are still not subject to taxes under GST.
Export and Import Rates
Exports will not be taxed (0%) but imports will be treated as inter-state supplies of goods and will be taxed under IGST. Businesses that pay taxes on raw materials or services for exporting goods and services are eligible for a refund.
The government has included an anti-profiteering clause in the GST. The clause controls the price fluctuations and also ensures that the businesses pass on the reduced tax on goods and services to consumers. Defaulters may end up losing their GST registration.
GSTN Portal as a Single Point of Contact
The government recently launched a pan-India GSTN portal. The portal will be a single point of contact with the tax authorities. Effective July 1st, 2017, every registered company needs to feed their transactions into the GSTN portal.
GST is likely to make indirect taxation simpler and business-friendly. It is a paradigm shift from the earlier tax regime, and businesses need to be well-prepared to tackle the challenges of implementing the GST.
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