BY:1.Aditi Chaturvedi2.Apoorv Srivasthava3.Deepak Grandhe

GST is levied only on the value added at every stage of production Ensures no cascading effect of taxes on inputs used in manufacturing of

goods

Example:

If tax of 15% is levied on Rs.2 lakhs at the first stage, the tax out flow would be

Rs 30,000.At the next stage when the same goods are sold for Rs 2.5 lakhs the

tax would have been Rs 37,500 but since there is a set off Rs.30,000 available,

the actual tax at that stage will be Rs 7,500.

Difference between current system and GST

Currently, there are multiple indirect taxes- Central taxes such as excise

duty, service taxes and countervailing duty, and state taxes, such as VAT,

entertainment tax and luxury tax. This results in high tax rates.

Accordingly, GST seeks to eliminate multiplicity of taxes, rates,

exemptions and such exceptions to achieve uniformity of taxes across

the country.

Further, it would provide greater certainty and transparency of taxes.

Why is it considered a better system?

GST is a consumption based tax/levy. It is based on the Destination

principle. GST is applied on goods and services at the place where

final/actual consumption happens.

GST is collected on value-added goods and services at each stage of sale or

purchase in the supply chain. GST paid on the procurement of goods and

services can be set off against that payable on the supply of goods or

services. The manufacturer or wholesaler or retailer will pay the applicable

GST rate but will claim back through tax credit mechanism.

GST model that India plans to adopt

Most Countries have Unified GST system. However, India has opted for

Dual GST system prevalent in Brazil and Canada. Under this model,

both Center and State have the right to levy and collect taxes on

goods and services where as in unified GST model a single tax is

applied through out the country .

Manufacturing and Retail

Positive Impact:

Increased fungibility of credit on goods and services

Full credit of tax on interstate sale will reduce cost of procurement/production

No retention on stock transfer of goods will also reduce cost procurement

Credit of import duties will make imports cheaper for retailers

Negative impact:

Negative working capital impact

Increase in initial cost of purchases including Imports due to an increase in tax rate

Job work transactions, currently not taxed, are likely to be taxed and will effect

production outlay

Impact of GST on different sectors

Entertainment and Hospitality

Eliminates multiplicity of taxes Entertainment tax, luxury Tax, VAT, service Tax

By allowing credit between goods and services , GST will prevent cascading of

taxes, resulting in increased profits for companies in this sector

Simplifies levy and valuation on composite transactions. Thus, will reduce litigation

challenges and related costs faced by companies in this sector

IT and Telecom

End to classification disputes on software, SIM cards, franchise fees, AMCs, etc

Simplifies levy and valuation on composite transactions by eliminating multiplicity

of taxes- VAT, service tax, entry tax

Service Sector

Better credits across goods and services No segregation between manufacture, services,trading for utilization of credits.

Banking and Financial Services

Cost of banking and insurance will increase with rise in tax rate from 12.36%

to more than 20%.

Better credits across goods and services

Increase in credit pool due to availability of GST credits on purchase of goods

Interest on loans expected to be taxed under GST

GST will simplify Indias tax structure, broaden the tax base, and

create a common market across states. This will lead to increased

compliance and will support Indias GDP growth.

It will be beneficial for India Inc. as the average tax burden on

companies will fall due to transparent set-off mechanism and

elimination of cascading taxes leading to reduced production costs

and increased export competitiveness.

Key benefits of implementing GST

Implementation of GST may lead to fall in costs in many cases

making several products competitive leading to benefits for the

manufacturers and also making some of them competitive on the

world stage. Over a period of time the consumer will reap the

benefits of the process through lower costs.