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Economic Freedom at Midnight: PM launches GST

At the midnight of June 30, 2017, India in a sense achieved economic freedom by launching the Goods and Services Tax (GST) – the biggest tax reforms the country was waiting to happen – from the historic Central Hall of Parliament.

This historic moment is the culmination of a 14-year journey that began in 2002, when the Kelkar Task Force on indirect taxation suggested a comprehensive GST based on value-added tax principle. GST will pave the way for realization of the goal of ‘One Nation - One Tax - One Market’.

The 101th Constitutional Amendment Act, 2016 providing for GST received the President’s assent on September 8, 2016 and the GST Council came into existence on September 15, 2016.

GST - Meaning

The GST is meant to be a unified indirect tax across the country on products and services. Under the GST system, tax will be levied only on the value added at each stage. It is a single tax (collected at multiple points) with a full set-off for taxes paid earlier in the value chain. Thus, the final consumer will bear only the GST charged by the last dealer in the supply chain with set-off benefits at all the previous stages.

Structure of GST

  • The threshold limit for exemption from levy of GST is Rs. 20 lakh for the States except for the Special Category, where it is Rs 10 Lakh.
  • A four slab tax rate structure of 5%, 12%, 18% and 28% has been adopted for GST.
  • A cess would be levied on certain goods such as luxury cars, aerated drinks, pan masala and tobacco products, over and above the GST rate of 28% for payment of compensation to the states.
  • The threshold for availing the Composition scheme is Rs. 75 lakh except for special category States where it is Rs. 50 lakh and they are required to file quarterly returns only. Certain categories of manufacturers, service providers (except restaurants) are out of the Composition Scheme.

Benefits of GST

A robust and comprehensive IT system would be the foundation of the GST regime in India, which in turn will make compliance easy and transparent. Further, uniformity of tax rates and structures will increase certainty and ease of doing business. Also, it will reduce hidden cost of doing business as there will be minimal cascading of taxes.

 

GST would be simpler and easier to administer and will therefore, lead to higher revenue efficiency. From consumer viewpoint, because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit consumers.

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