Goods and Services Tax (India)

Goods and Services Tax (GST) is an indirect tax (or consumption tax) levied in India on the supply of goods and services. GST is levied at every step in the production process, but is meant to be refunded to all parties in the various stages
of production other than the final consumer.
Goods and services are divided into five tax slabs for collection of tax - 0%, 5%, 12%, 18% and 28%. However, Petroleum products, alcoholic drinks, electricity, are not taxed under GST and instead are taxed separately by the
individual state governments, as per the previous tax regime. There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold. In addition a cess of 22% or other rates on top of 28% GST applies on few items like
aerated drinks, luxury cars and tobacco products. Pre-GST, the statutory tax rate for most goods was about 26.5%, Post-GST, most goods are expected to be in the 18% tax range
The tax came into effect from July 1, 2017 through the implementation of One Hundred and First Amendment of the Constitution of India by the Indian government. The tax replaced existing multiple flowing taxes levied by
the central and state governments.
The tax rates, rules and regulations are governed by the GST Council which consists of the finance ministers of centre and all the states. GST is meant to replace a slew of indirect taxes with a federated tax and is therefore expected to
reshape the country's 2.4 trillion dollar economy, but not without criticism. Trucks' travel time in interstate movement dropped by 20%, because of no interstate check posts.

History
Formation
The reform of India's indirect tax regime was started in 1985 by Vishwanath Pratap Singh, Finance Minister in Rajiv Gandhi’s government, with the introduction of the Modified Value Added Tax (MODVAT). Subsequently, Prime Minister P V
Narasimha Rao and his Finance Minister Manmohan Singh, initiated early discussions on a Value Added Tax (VAT) at the state level.[5] A single common "Goods and Services Tax (GST)" was proposed and given a go-ahead in 1999 during
a meeting between the Prime Minister Atal Bihari Vajpayee and his economic advisory panel, which included three former RBI governors IG Patel, Bimal Jalan and C Rangarajan. Vajpayee set up a committee headed by the Finance
Minister of West Bengal, Asim Dasgupta to design a GST model.
The Ravi Dasgupta committee which was also tasked with putting in place the back-end technology and logistics (later came to be known as the GST Network, or GSTN, in 2015). It later came out for rolling out a uniform taxation regime in
the country. In 2002, the Vajpayee government formed a task force under Vijay Kelkar to recommend tax reforms. In 2005, the Kelkar committee recommended rolling out GST as suggested by the 12th Finance Commission.
After the defeat of the BJP-led NDA government in the 2004 Lok Sabha election and the election of a Congress-led UPA government, the new Finance Minister P Chidambaram in February 2006 continued work on the same and proposed a
GST rollout by 1 April 2010. However, in 2011, with the Trinamool Congress routing CPI(M) out of power in West Bengal, Asim Dasgupta resigned as the head of the GST committee. Dasgupta admitted in an interview that 80% of the task
had been done.
In the 2014 Lok Sabha election, the Bharatiya Janata Party-led NDA government was elected into power. With the consequential dissolution of the 15th Lok Sabha, the GST Bill – approved by the standing committee for reintroduction –
lapsed. Seven months after the formation of the Modi government, the new Finance Minister Arun Jaitley introduced the GST Bill in the Lok Sabha, where the BJP had a majority. In February 2015, Jaitley set another deadline of 1 April 2017
to implement GST. In May 2016, the Lok Sabha passed the Constitution Amendment Bill, paving way for GST. However, the Opposition, led by the Congress, demanded that the GST Bill be again sent back for review to the Select
Committee of the Rajya Sabha due to disagreements on several statements in the Bill relating to taxation. Finally in August 2016, the Amendment Bill was passed. Over the next 15 to 20 days, 18 states ratified the Constitution amendment
Bill and the President Pranab Mukherjee gave his assent to it.
A 21-member selected committee was formed to look into the proposed GST laws.After GST Council approved the Central Goods and Services Tax Bill 2017 (The CGST Bill), the Integrated Goods and Services Tax Bill 2017 (The IGST Bill),
the Union Territory Goods and Services Tax Bill 2017 (The UTGST Bill), the Goods and Services Tax (Compensation to the States) Bill 2017 (The Compensation Bill), these Bills were passed by the Lok Sabha on 29 March 2017. The Rajya
Sabha passed these Bills on 6 April 2017 and were then enacted as Acts on 12 April 2017. Thereafter, State Legislatures of different States have passed respective State Goods and Services Tax Bills. After the enactment of various GST
laws, Goods and Services Tax was launched all over India with effect from 1 July 2017.The Jammu and Kashmir state legislature passed its GST act on 7 July 2017, thereby ensuring that the entire nation is brought under an unified indirect
taxation system. There was to be no GST on the sale and purchase of securities. That continues to be governed by Securities Transaction Tax (STT).

Launch
The GST was launched at midnight on 1 July 2017 by the President of India, and the Government of India. The launch was marked by a historic midnight (30 June – 1 July) session of both the houses of parliament convened at the Central
Hall of the Parliament. Though the session was attended by high-profile guests from the business and the entertainment industry including Ratan Tata, it was boycotted by the opposition due to the predicted problems that it was bound to
lead for the middle and lower class Indians. It is one of the few midnight sessions that have been held by the parliament - the others being the declaration of India's independence on 15 August 1947, and the silver and golden jubilees of that
occasion.After its launch, the GST rates have been modified multiple times, the latest being on 22 December 2018, where a panel of federal and state finance ministers decided to revise GST rates on 28 goods and 53 services.
Members of the Congress boycotted the GST launch altogether. They were joined by members of the Trinamool Congress, Communist Parties of India and the DMK. The parties reported that they found virtually no difference between the
GST and the existing taxation system, claiming that the government was trying to merely rebrand the current taxation system. They also argued that the GST would increase existing rates on common daily goods while reducing rates on
luxury items, and affect many Indians adversely, especially the middle, lower middle and poorer income groups.

Tax
Taxes subsumed
The single GST subsumed several taxes and levies which included: central excise duty, services tax, additional customs duty, surcharges, state-level value added tax and Octroi. Other levies which were applicable on inter-state
transportation of goods have also been done away with in GST regime. GST is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of goods and/or services.
India adopted a dual GST model, meaning that taxation is administered by both the Union and State Governments. Transactions made within a single state are levied with Central GST (CGST) by the Central Government and State GST
(SGST) by the State governments. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government. GST is a consumption-based tax/destination-based tax, therefore, taxes are paid
to the state where the goods or services are consumed not the state in which they were produced. IGST complicates tax collection for State Governments by disabling them from collecting the tax owed to them directly from the Central
Government. Under the previous system, a state would only have to deal with a single government in order to collect tax revenue.

HSN code in GST TAX RATE

HSN (Harmonized System of Nomenclature) is an 8-digit code for identifying the applicable rate of GST on different products as per CGST rules. If a company has turnover up to ₹1.5 Crore in the preceding financial year then they need not
mention the HSN code while supplying goods on invoices. If a company has turnover more than ₹1.5 Crore but up to ₹5 Cr then they need to mention the first two digits of HSN code while supplying goods on invoices. If turnover crosses ₹5
Cr then they shall mention the first 4 digits of HSN code on invoices.

Rate
The GST is imposed at variable rates on variable items. The rate of GST is 18% for soaps and 28% on washing detergents. GST on movie tickets is based on slabs, with 18% GST for tickets that cost less than Rs. 100 and 28% GST on
tickets costing more than Rs.100 and 5% on readymade clothes. The rate on under-construction property booking is 12%.Some industries and products were exempted by the government and remain untaxed under GST, such as dairy
products, products of milling industries, fresh vegetables & fruits, meat products, and other groceries and necessities.
Check posts across the country were abolished ensuring free and fast movement of goods.
The Central Government had proposed to insulate the revenues of the States from the impact of GST, with the expectation that in due course, GST will be levied on petroleum and petroleum products. The central government had assured
states of compensation for any revenue loss incurred by them from the date of GST for a period of five years. However, no concrete laws have yet been made to support such action. GST council adopted concept paper discouraging
tinkering with rates.

E-Way Bill
An e-Way Bill is an electronic permit for shipping goods similar to a waybill. It was made mandatory for inter-state transport of goods from 1 June 2018. It is required to be generated for every inter-state movement of goods beyond 10
kilometres (6.2 mi) and the threshold limit of ₹50,000 (US$700).
It is a paperless, technology solution and critical anti-evasion tool to check tax leakages and clamping down on trade that currently happens on a cash basis. The pilot started on 1 February 2018 but was withdrawn after glitches in the GST
Network. The states are divided into four zones for rolling out in phases by end of April 2018.
A unique e-Way Bill Number (EBN) is generated either by the supplier, recipient or the transporter. The EBN can be a printout, SMS or written on invoice is valid. The GST/Tax Officers tally the e-Way Bill listed goods with goods carried with
it. The mechanism is aimed at plugging loopholes like overloading, understating etc. Each e-way bill has to be matched with a GST invoice.
Transporter ID and PIN Code now compulsory from 01-Oct-2018.
It is a critical compliance related GSTN project under the GST, with a capacity to process 75 lakh e-way bills per day.
Intra-State e-Way Bill
The five states piloting this project are Andhra Pradesh, Gujarat, Kerala, Telangana and Uttar Pradesh, which account for 61.8% of the inter-state e-way bills, started mandatory intrastate e-way bill from 15 April 2018 to further reduce tax
evasion .It was successfully introduced in Karnataka from 1 April 2018.The intrastate e-way bill will pave the way for a seamless, nationwide single e-way bill system. Six more states Jharkhand, Bihar, Tripura, Madhya Pradesh, Uttarakhand
and Haryana will roll it out from 20 April 18. All states are mandated to introduce it by May 30, 2018.

Reverse Charge Mechanism

Reverse Charge Mechanism (RCM) is a system in GST where the receiver pays the tax on behalf of unregistered, smaller material and service suppliers. The receiver of the goods is eligible for Input Tax Credit, while the unregistered dealer
is not.
In the notification dated on 29th January 2019, the Indian government has finally implemented the RCM (reverse charge mechanism) which started from 1st February 2019 as per the GST acts and amendments. Also to note that the up to
INR 5000 exemptions will be removed effectively.

Goods kept outside the GST

 Alcohol for human consumption.
 Petrol and petroleum products (GST will apply at a later date) viz. Petroleum crude, High speed diesel, Motor Spirit (petrol), Natural gas, Aviation turbine fuel.

GST Council
GST Council is the governing body of GST having 33 members. It is chaired by the Union Finance Minister. GST Council is an apex member committee to modify, reconcile or to procure any law or act or regulation based on the context of
goods and services tax in India. The council is headed by the union finance minister Arun Jaitley assisted with the finance minister of all the states of India. The GST council is responsible for any revision or enactment of rule or any rate
changes of the goods and services in India.

Goods and Services Tax Network (GSTN)

The GSTN software is developed by Infosys Technologies and the Information Technology network that provides the computing resources is maintained by the NIC. "Goods and Services Tax" Network (GSTN) is a non- profit organisation
formed for creating a sophisticated network, accessible to stakeholders, government and taxpayers to access information from a single source (portal). The portal is accessible to the Tax authorities for tracking down every transaction, while
taxpayers have the ability of connect for their tax returns.
The GSTN's authorised capital is ₹10crore (US$1.4 million) in which initially the Central Government held 24.5 percent of shares while the state government held 24.5 percent. The remaining 51 percent were held by non-Government
financial institutions, HDFC and HDFC Bank hold 20%, ICICI Bank holds 10%, NSE Strategic Investment holds 10% and LIC Housing Finance holds 11%.
However, later it was made a wholly owned government company having equal shares of state and central government.

ONE YEAR OF GST: THE SUCCESSES, FAILURES AND WHAT’S NEXT ON THE AGENDA
One year into the goods and services tax (GST) regime, early-day jitters have given way to general acceptance that this may not be the most perfect single tax system, but it’s working. There are many issues that remain to be
addressed, but the fact that some of the knotty ones have been resolved gives rise to confidence that even these will be sorted out. Here’s how the past year panned out.

Inflation rate didn’t rise: GST, it was widely feared, would cause inflation to rise, as with many countries that launched a single tax regime. That hasn’t
happened in India. The recent spike in consumer inflation has been due to high food and fuel prices, unrelated to GST. What helped? The much-criticised
multi-slab structure. It ensured the levy was as close as possible to the existing rate, which meant the incidence of tax didn’t rise. The second factor was the
anti-profiteer.
Single national market: Long queues of trucks at state borders disappeared as checkposts were dismantled, creating a seamless national market. These
barriers had restricted movement of goods across the country, leading to huge delays and increasing transaction costs for the logistics sector, eventually
translating into higher costs for consumers.
One tax nationally: A consumer in Kanyakumari now pays the same tax on an item as one in Jammu & Kashmir. GST has also allowed businesses to
streamline distribution systems—production, supply chain, storage—to make them more efficient, having previously been forced to design them keeping state
taxes in mind.
Formalisation kicks off, tax base begins to widen: One of the expected benefits was that GST would encourage formalisation of the economy. Evasion
would stop making sense, thanks to transparent digital processes and incentive of input credit and invoice matching. With number of registrations crossing 10
million, it seems more businesses are signing up for GST. Rise in the Employees’ Provident Fund Organisation subscriber base provides further evidence of
the same.
Everyone wins: As many as 17 taxes and multiple cesses were subsumed into GST, aligning India with global regimes. Central taxes such as excise duty,
services tax, countervailing duty and state taxes — including value added tax, Oct roi and purchase tax — were all rolled into one. The new regime provided
for free flow of tax credits and did away with cascading due to tax on tax, boosting company financials and resulting in reduced prices for consumers. It also
ensured a single law for the whole country with uniform procedures and rules, which reduces compliance burden and business complexity. The government
sacrificed revenues but improved compliance should cover any gap.

WHAT HASN’T WORKED

Compliance has miles to go: The biggest dampener was the compliance process, as information technology glitches took more than the anticipated time to
be resolved. The filing system that was put in place in the beginning was quickly abandoned as businesses struggled with compliance. A new return form is
being crafted to help make the process much less painful for businesses and is likely to be available soon.
Cumbersome registration system: Multiple registration requirements have complicated things for industry, which was expecting simplicity. In many cases,
registration is required in all states. Companies fear that multiple audits and assessments due to multiple registrations could make life more difficult for them
going forward.
New cesses crop up: While GST scrapped a multiplicity of taxes and cesses, a new levy in the form of compensation cess was introduced for luxury and sin
goods. This was later expanded to include automobiles. A new cess on sugar is also being examined.
Refunds problem for exports: The refund mechanism for exporters, including data matching law, besides procedures governing them, have irked the
sector, particularly smaller entities that saw their working capital requirements rise. Though several efforts have been made to address the issue, it may
require more intervention.
WIN FACTOR: CONSENSUS AND AGILITY
War room saved the day: A GST Feedback and Action Room was set up to take care of initial launch issues. The government remained open to addressing
issues as they cropped up, with feedback flowing in fast via phones, messages and even Twitter. Return filing dates were deferred, tax slabs were rejigged to
address industry and consumer concerns and procedures and rules were amended to ensure hardships were alleviated. The officers’ committee —
comprising state and central official still meet regularly to draw up options for GST council to act upon.
GST Council delivered: The GST Council, comprising central and state representatives, was the kind of federal arrangement that could have easily been
bogged down by ego and politics. The Centre has a 33% vote while the states account for 66%, with any dispute needing 75% support to be resolved. It has
never had to vote on any issues, with just one dissent recorded so far. There may have been bickering and differences of opinion, but matters were always
thrashed out and a painstaking consensus achieved. The council has found solution to most issues and these have not been shoddy compromises but sound
decisions that have only improved the single tax. The council has provided templates for more such structures where the central and state could work
together.
Next on the Agenda
There is consensus among experts and industry that GST has made vast progress from its early days of teething troubles. It has settled in as far as the
consumer is concerned, but businesses want to see improvement. A simpler tax fi ling regime, fewer slabs and a broader tax base are some things the
government needs to address in the year ahead.
Expansion of tax base
There are many goods that are still outside the GST net, which comes in the way of seamless flow of input tax credit. Key items outside its ambit are
electricity, alcohol, petroleum goods and real estate. Among fuels, it may be possible to bring natural gas and aviation fuel within GST. But it may not be easy
to do that with diesel, petrol and kerosene as most states are opposed to such a move. Getting real estate under GST may also be difficult as it will require
constitutional amendment.
Tax slab rationalisation
There are as many as six slabs, excluding exempt goods. Though most goods fall in the 12%, 18% and 28% brackets, there is a case for merging slabs to
reduce complexity and classification disputes. The 12% and 18% bracket could be merged into one single slab in the 14-16% range.
Lower tax rate
There has been a substantial reduction in the number of products in the 28% bracket with goods moved to the 18% one. There is further scope for cutting the
peak rate on all products other than ‘sin’ goods. Products such as cement, paint, air conditioners, washing machines, refrigerators etc should also see a
reduction in the tax rate to 18% from 28%.
GST returns simplification
This is the biggest item on the agenda as far as businesses and compliance are concerned. The government has already taken an initiative in this direction
with the proposed consolidation of all periodic returns into one. The committee set up for this task has been working on the new format and the IT-related
changes required. A new and simplified return fi ling process may become effective in the next six months.
Legislative changes
Over the past year, several issues that need to be fixed through legislative changes have accumulated. Some of these relate to input tax credit, and the
requirement of paying tax up front on various transactions such as deemed exports and subsequently claiming a refund. The government could introduce
changes in the monsoon session to fix these niggles.
More data analytics
The government has already started detailed analysis of a number of data sets to plug leakage. The format of the e-way bill has been designed to capture
invoicerelated information so that the government can use data analytics to identify concern areas and plug revenue leakages. Businesses have already
started receiving notices about discrepancies between amounts mentioned in different GST returns and those reported on the e-way bill portal. Income tax
returns released this year have also bought specific information in relation to GST. The government can use the granular data to check tax evasion.
Anti-profiteering agency
The agency, which was constituted for a period of two years, has been functional for about six months and issued a few orders following investigations. The
GST Council needs to decide whether to wind it up after two years or keep it going until the tax regime matures.
EXPERT TAKE
Goal Scored in Time: MS Mani, Partner, Deloitte India
The goods and services tax has been one of the key enablers to improve the ease of doing business in India and has consolidated a plethora of taxes levied
by the Centre and states into a common, fungible tax. Despite some initial hiccups caused by post-implementation changes in rates and compliance
requirements accompanied by an inadequately prepared portal, the tax is entering the growth phase as is evidenced by the stabilisation of GST collections
over the past two months.
The expansion of the tax base being a necessary concomitant for the success of GST, it is expected that, in addition to the e-way bill, a few more anti-
evasion measures will gradually be put in place. It is also necessary that it becomes the only indirect tax over a period of time by including products outside
its purview such as petroleum products and levies outside its ambit such as stamp duty.
It is essential that all future changes are introduced keeping in mind their impact on all businesses, especially small and medium enterprises (SMEs) to
enable them to be prepared as the success of a nationwide consumption tax depends on its acceptability across all sections of business. While the goal has
been scored, it essential to carry the entire team along in all the forthcoming matches.

GST 2.0 Needed: Pratik Jain, Indirect taxes leader, PwC

If you examine the impact of GST from the standpoint of various stakeholders — government, industry and consumers — it is certainly directionally positive.
For consumers, prices of commodities have either gone down or been stable and accessibility has improved, given supply chain efficiencies. A common rate
structure across states means decision making for consumers becomes easier.
From the industry standpoint, except the initial technological challenges in filings and blockage of funds for exporters, GST has not caused any disruption. In
many cases, there has been a saving of 3-5% due to incremental credits and vendor price renegotiation.

From the government’s standpoint, there is definite expansion in the tax base with some revenue buoyancy over last few months as well. With the wealth of
data available with the government and measures such as e-way bills, tax leakage is likely to be further plugged in the next year or so. Does it mean
everything is ok?
Certainly not! Tax rates need to be further rationalised, compliance is to be simplified, dispute resolution and administrative aspects have to be looked into
and GST system aligned with global best practices. That said, it’s a moment to feel proud of the country’s achievement, with a hope that GST 2.0, which is
now in the works, will be a much better version than what we have now.
Much Achieved, More Needed: Bipin Sapra, Partner, indirect tax, EY
The triumph of GST lies in the fact that while it has successfully subsumed several state and central indirect taxes, reduced cascading and credit blockages,
created a common market and brought uniformity of indirect tax law and rates across the country, its biggest achievement has been obtaining a broad
consensus among all the states and the Centre, which has strengthened the federal character of the Indian fiscal system.
During the year, multiple rates on goods and services have been evaluated and rationalised, given the possible leakage of revenue. The e-way bill system
has been successfully implemented, difficult procedures of TCS and TDS (tax collected/deducted at source) have been kept in abeyance, and the anti-
profiteering law has acted as a deterrent for most companies increasing their prices on account of GST.

While the government has worked to solve many issues, considerable intervention is still required to bring GST to its full efficiency. The proposal to have
single return tax will simplify compliance and do away with matching requirements.
Registrations need to be centralised for big service providers and, if that is not possible, assessments/ audits need to be centralised to avoid multiple
interpretations of issues for the same entity. A lot has been achieved in this year of GST implementation and yet GST will continue to evolve as the law,
procedures and rates are modified to suit the complex Indian market.

Toddling Through: Suresh Nandlal Rohira, Partner, leader, GST and customs, Grant Thornton India LLP
The first year’s journey was one of ups and downs--registrations and revenues went up and multiple compliances for taxpayers went down, with ease in
movement of goods eliminating naka barriers. However, in spite of significant success in its first year of implementation, there still seems to be a long way to
go for both the government as well as taxpayers in attaining a simplified GST regime.
 Simplification and standardisation of compliance—a single return instead of two or three--to ease taxpayers’ burden should continue to be of prime
importance for the government, especially with repeated deferment of compliance dates due to systems challenges and also the formats, which are too
complicated for many micro, small and medium enterprises (MSMEs) considering small, medium businesses have a large share of registrations.

The government should bring down the slabs from four to three as collection have been as collections have been above the mark and accordingly rate
moderations should be warranted, encouraging certain factors boosting the country.Undoubtedly, GST has received positive as well as negative responses as befits
its characterisation as a toddler. However, further steps will bring out the true sense of One Nation One Tax.

CRITICISM
The GST structure that has been decided on is too complicated and distortionary for India to reap the benefits of the national value-added tax.

Ideal situation:
There should have been a simple GST structure, with zero taxes on a few essentials, a high tax rate for a few sin goods and almost everything else taxed at a single rate.

Analysis:
India is heading towards a flawed GST structure with multiple tax rates and complex tax structure. This should be a cause of worry for the following reasons,
1. The sheer complexity of the GST structure will result in tax disputes, lobbying and corruption in the future
2. The second problem with a complicated tax structure is that it will lead to distortions
3. A more complicated tax structure will actually increase business costs, while on the other, exemptions will mean cascading of costs because of the absence of input tax credits

What should be done now?

Economic reformers would now have to push for a simpler GST in the coming years. Following are the ways in which it can be done,
1. Gradual removal of exemptions: Governments should gradually remove exemptions, on the one hand and equally gradually, bring taxes on most goods and services to a
standard rate on the other hand
2. Direct tax code: There is now a strong case to push ahead with the direct tax code so that higher collections of income and corporate taxes create fiscal space for a
rationalization of indirect taxes.