GOODS AND SERVICE TAX – A BIRD’S EYE VIEW

Dear friends I hope you remember the introduction of VAT in India, and the hurdles faced by various states in implementing the same, like, why VAT and all such kind of opposition.Similarly here we are on our plinth to the start of a new regime called GST (Goods and Service Tax),

We should have implemented the goods and service tax much earlier so as to reduce the burden on the end-useINR or so called the common man. Nevertheless on April 2012 our country shall form its way to GST instead of VAT (Value added tax).

Now let’s know what we mean by Goods and Service Tax.

When we come across goods, we also know that it can be sale only as barter system now is not recognized, and by service tax we mean either provision to provide services, what shall be the point of taxation, the point of each taxation shall be either on sale or provision of service.

The Mechanism is quite easy; GST being an indirect tax, this always has to be kept in mind that the ultimate burden has to be on the end consumer.

Here the above diagram depicts that the

·         Dealer shall sell to the Manufacturer,

·          Manufacturer to the Distributor,

·          Distributor to the Wholesaler or Retailer and

·          Wholesaler or Retailer to the End Consumer.

Let’s take an easy example of Input By Manufacturer.

ParticulaINR / Goods	Amount	Rate Of Tax	Tax Paid
Raw Material	100 Lakhs	20% ( Assume)	20 Lakhs
Spares / Additions	50 Lakhs	20% ( Assume)	10 Lakhs
Services	50 Lakhs	20% ( Assume)	10 Lakhs
TOTAL	200 lakhs		40 Lakhs

This shows that the input tax for the manufacturer is INR. 40 Lacs for Purchases of INR.200 lacs.

Lets’ presume that the manufacturer sells the goods for INR 230 lacs with his profit margin of 15%.

ParticulaINR / Goods	Amount	Rate Of Tax	Tax Paid
Finished Goods	230 Lakhs	20% ( Assume)	46 Lakhs

Now the Manufacturer would have to pay the differential tax which shall be.

Description	Amount
Total Output Tax	46 Lakhs
Total Input Tax	40 Lacs
Net GST Payable	6 lacs

Now this chain continues from the Manufacturer to Distributor and so- on.

Each of them getting the credit of the input tax beard by them.

Internationally Systems of  GST  are of three types.

1.       Invoice System

2.       Payment System

3.       Hybrid System

Do not get panicked, by the terminologies. The systems are easy to understand.

v  Invoice System

In this System the Input Tax Credit is on the outset of receipt of invoice and the Output Tax is claimed when the Invoice is raised.

v  Payment System

In this System the Input Tax Credit is on the outset of payment made for purchases and the Output Tax is claimed when the payment is made/received.

v  Hybrid System

In this System the Input Tax Credit is on the outset of receipt of invoice and the Output Tax is claimed when the payment is made /received.

At the option of dealer to be declared in advance. Here the dealer needs to declare the system his is going to opt to the tax authorities in advance.

In India though GST Shall be implemented into State and Central model.

i.e. SGST – State Goods and Service Tax

i.e.CGST- Central Goods and Service Tax.

To be continued in next article....