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Guide to Goods and Services Tax (GST)

By Atul

Goods and Services Tax (GST) is a new type of tax imposed by the Indian government to replace all other indirect taxes. GST is a kind of tax imposed on usage of goods and services, sale, and manufacturing of goods and services.  According to the government goods and service tax (GST) is applied to goods and services nationwide for achieving overall economic growth. The goods and services tax is particularly designed to replace the indirect taxes imposed on goods and services by the Centre and States governments in the country. GST is a kind of value-added tax imposed by the government.

GST exists in many countries like Brazil, Canada, etc. The tax charged in the form of GST differs from country to country. India has applied the Canadian form of GST i.e. dual taxation system.  Goods and service tax facilitates the government to collect revenues for the government and to curb tax evasion. This tax is paid by the consumers of goods and services and is also collected and forwarded to the government by the business entities.

Tax Law before GST

Earlier before GST Return was introduced in India, there were many types of indirect taxes like service tax, exercise tax, sales tax etc. Every state had a different set of rules and regulations for their tax collection. States used to collect taxes in the form of the VAT. Centre used to charge in the interstate sales of goods.

Due to many types of taxes like entertainment tax, octroi, other local taxes, there was a lot of overlapping of taxes. Both Centre and the State levied a lot of taxes on the people. This overlapping was lead the government to decide on creating a simple system for tax for both centre and the state. To remove this cascading effect of the taxes a simple form of tax reform was needed to be introduced.

Introduction of GST in India

In India, the Goods and Service Tax Bill was officially introduced in 2014. The GST Bill in India is to implement a value-added tax nationwide on manufacturing and sales of different goods and services. The Goods and Service Tax act became operative in India from the year 2017. The Finance Minister of India Mr. Arun Jaitley announced the Goods and Service Tax in Lok Sabha in the year 2014. The Parliament passed the bill on 6th May 2015, by 352 votes in favour of GST and 37 against it.

Taxation system under GST

GST is an indirect tax. Earlier, people had to pay indirect tax on goods and services such as Service Tax, Excise Duty, Customs Duty, value added tax etc. In GST Return taxation system, there is dual taxation. The state has a right to levy their own tax on the sale and consumptions of the goods and the Centre levies taxes on the manufacturing of the goods. All these taxes levied on the manufacturers and traders are also passed down to the consumer.

Goods and Services Tax Act

Goods and Service Tax act is the most important tax act that has been introduced in a country like India so far. The GST act, which is also known as The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, mainly focuses to simplify the taxation process for the levied by Centre and the state on the goods and services in India. This goods and services tax act provides power to the Parliament to make laws for imposing taxes on goods and services for the whole country.

One Nation, One taxation system

Earlier there were many types of taxes were charged by both centre and the state like:

  • Central Sales Tax
  • State VAT
  • Entertainment Tax
  • Purchase Tax
  • Luxury Tax
  • Entry Tax
  • Central Excise Duty
  • Duties of Excise
  • Additional Duties of Excise
  • Additional Duties of Customs, etc.

The Goods and Services Tax has been introduced with the notion of "One Nation, One Tax". GST includes Central Indirect taxes such as Excise Duty, Service Tax, Countervailing Duty, Special Additional Duty of Customs, etc. All of which are related to the supply and consumption of goods and services. It also includes States Sales Tax, VAT, Entertainment Tax, Central Sales Tax, local bodies’ taxes, Entry and Octroi tax, Luxury tax, Taxes on betting, lottery, Purchase Tax, and State cesses and surcharges involved in the supply and consumption of services and goods.

With the introduction of goods and services tax, the unfavourable or cascading effects of taxes on the goods and services have been removed. With the origin of the GST, the government now claims that the tax procedure has now become more effective, transparent and easy. However, the major effects of this goods and services tax will be seen in the long run.

The Goods and Services Tax has been introduced with the notion of "One Nation, One Tax". GST includes Central Indirect taxes such as Excise Duty, Service Tax, Countervailing Duty, Special Additional Duty of Customs, etc. All of which are related to the supply and consumption of goods and services. It also includes States Sales Tax, VAT, Entertainment Tax, Central Sales Tax, local bodies’ taxes, Entry and Octroi tax, Luxury tax, Taxes on betting, lottery, Purchase Tax, and State cesses and surcharges involved in the supply and consumption of services and goods.

With the introduction of goods and services tax, the unfavourable or cascading effects of taxes on the goods and services have been removed. With the origin of the GST, the government now claims that the tax procedure has now become more effective, transparent and easy. However, the major effects of this goods and services tax will be seen in the long run.

 

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