India’s Goods & Services Tax: 10 Things to Know

India’s parliament has approved implementation of Goods and Services Tax (GST) – the country’s biggest tax reform. The GST will replace and harmonize India’s current indirect tax system – a complex medley of about 17 taxes include state Value Added Tax (VAT), service tax, central sales tax and entry tax.

  1. The measure is expected to reduce business transaction costs and make it easier for foreign companies to do business in India
  2. Under the new regime, companies will get offsets for taxes paid at different stages of the supply chain, mitigating the dangers of double-taxation.
  3. The GST could potentially make sourcing, distribution, and warehousing of goods easier between the Indian states..
  4. More details are to be issued by the government in the coming days including administrative and compliance processes, place of supply and other rules.
  5. GST was first mooted 16 years ago but was repeatedly deferred due to lack of a political consensus as it would curb the powers of Indian states/provinces.
  6. The GST bill was finally passed by India’s parliament after key amendments including:
    • Removal of 1% additional tax on all inter-state supply of goods that was proposed in the original bill
    • States will get full compensation for the first five years towards any losses incurred due to the implementation of GST
    • Central Government agreed to create a dispute resolution mechanism between the federal and state governments, or between various states, that arise from GST Council recommendations
  7. India aims to roll out GST from April 2017 but a majority of state parliaments will first need to pass the GST amendment, which would then lead to the establishment of a GST Council to finalize key terms of the new tax.
  8. The federal government favors 18% GST rate but states are lobbying for more.
  9. The Tax Collection at source (TCS) guidelines may increase administrative and documentation workload for companies in the e-commerce sector.
  10. Luxury cars, consumer durables, electronics items and readymade garments are expected to become cheaper with GST roll out but mobile phones, banking and insurance services, telephone bills and air travel are expected to get more expensive.

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