GOODS AND SERVICES TAX
What is the news?
• The GST Council in its eleventh meeting gave
in-principle approval to the two key draft laws of
CGST and IGST.
• Final approval to these laws, along with the other
two pending laws of SGST and Union Territory
GST are likely by March 16, 2017.
What is GST?
• GST is one indirect tax for the whole nation,
which will make India one unified common
market.
• It is a single tax on the supply of goods and
services, right from the manufacturer to the
consumer.
• The GST is administered & governed by GST
Council and it’s Chairman is Union Finance
Minister of India.
• In India, GST Bill was first introduced in 2014 as
The Constitution (122nd Amendment) Bill.
• This got an approval in 2016 and was renumbered
in the statute by Rajya Sabha as The Constitution
(101st Amendment) Act, 2016.
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How does it work?
Stage 1:
• Imagine a shirt manufacturer. He buys raw
material worth Rs 100 including Rs 10 tax (on
raw materials). With these raw materials, he
manufactures a shirt.
• In the process of creating the shirt, he adds value
to the materials. Let us take this value added by
him to be Rs 30. The gross value of his good
would, then, be Rs 100 + 30, or Rs 130.
• At a tax rate of 10%, the tax on output (this shirt)
will then be Rs 13.
• But under GST, he can set off this tax (Rs
13) against the tax he has already paid on raw
material/inputs (Rs 10).
• Therefore, the effective GST incidence on the
manufacturer is only Rs 3 (Rs 13 – Rs 10).
Stage 2:
• The next stage is that of the good passing from the
manufacturer to the wholesaler.
• The wholesaler purchases it for Rs 130, and adds
on value of, say, Rs 20. The gross value of the
SINCE 2004
 good he sells would then be Rs 130 + Rs 20. A • Further, both would be levied on the same price
total of Rs 150. or value unlike State VAT which is levied on the
value of the goods inclusive of Central Excise.
• A 10% tax on this amount will be Rs 15.
• But again, under GST, he can set off the tax on his What is IGST?
output (Rs 15) against the tax on his purchased • In case of inter-State transactions, the Centre
good from the manufacturer (Rs 13). would levy and collect the Integrated Goods and
Services Tax (IGST) on all inter-State supplies of
• Thus, the effective GST incidence on the
goods and services under Article 269A (1) of the
wholesaler is only Rs 2 (15 – 13).
Constitution.
Stage 3:
• The IGST would roughly be equal to CGST plus
• In the final stage, a retailer buys the shirt from the SGST.
wholesaler. • The inter-state seller would pay IGST on the sale
• To his purchase price of Rs 150, he adds value of, of his goods to the Central Government after
say, Rs 10. adjusting credit of IGST, CGST and SGST on his
purchases (in that order).
• The gross value of what he sells, therefore, goes
up to Rs 150 + 10, or Rs 160. The tax on this, at • The exporting state will transfer to the Centre the
10%, will be Rs 16. credit of SGST used in payment of IGST.
• But by setting off this tax (Rs 16) against the tax • The importing dealer will claim credit of IGST
on his purchase from the wholesaler (Rs 15), the while discharging his output tax liability (both
retailer brings down the effective GST incidence CGST and SGST) in his own State.
on himself to Re 1 (16 –15). • The Centre will transfer to the importing State
Thus, the total GST on the entire value chain the credit of IGST used in payment of SGST.
from the raw material/input suppliers through the • Since GST is a destination-based tax, all SGST
manufacturer, wholesaler and retailer is, Rs 10 + 3 +2 + on the final product will ordinarily accrue to the
1, or Rs 16. consuming State.
How would GST be administered in India?
How will IT be used for the implementation of
• There will be two components of GST: GST?

o Central GST (CGST) • For the implementation of GST in the country,

o State GST (SGST)
• Centre would levy and collect the CGST, and
States would levy and collect the SGST on all • GSTN is working on developing a state-of-the-
transactions within a State.
• The Central GST and the State GST would be
levied simultaneously on every transaction of
supply of goods and services except on exempted
goods and services, goods which are outside the
purview of GST and the transactions which are
below the prescribed threshold limits.
the Central and State govts have jointly registered
Goods and Services Tax Network (GSTN) to
provide shared IT infrastructure and services.
art comprehensive IT infrastructure including
the common GST portal providing frontend
services of registration, returns and payments to
all taxpayers, as well as the backend IT modules
for certain States that include processing of
returns, registrations, audits, assessments, appeals,
etc.

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• All States, accounting authorities, RBI and banks, of leakages, the overall tax burden on most
are also preparing their IT infrastructure for the commodities will come down, which will benefit
administration of GST. consumers.
• There would no manual filing of returns. All taxes Why some states opposed GST?
can also be paid online.
• A GST Council as a constitutional body would
What are the benefits of GST? impinge on the legislative sovereignty of Parliament
and the State Legislatures and would jeopardise
For business and industry:
the autonomy of the states in fiscal matters.
• Easy compliance: All tax payer services such as
registrations, returns, payments, etc., would be • The decision-making rule and voting weight in
the proposed council were found unacceptable as
available to the taxpayers online, which would
these gave the Centre an effective veto in the GST
make compliance easy and transparent.
Council.
• Uniformity of tax rates and structures: GST will
ensure that indirect tax rates and structures are • GST is consumption based tax. It is paid where
the consumption of goods & services are made.
common across the country, thereby increasing
certainty and ease of doing business. • So, after implementing GST, the states where
Demand of goods and services is more will
• Removal of cascading: A system of seamless tax-
generate more revenue, then states with higher
credits throughout the value-chain, and across
manufacturing potential (Ex. TN, Gujarat).
boundaries of States, would ensure that there is
minimal cascading of taxes. This would reduce • It is quite clear that a manufacturing state like
hidden costs of doing business. Tamil Nadu will permanently lose substantial
revenue if GST is implemented.
• Improved competitiveness: Reduction in
transaction costs of doing business would What is the timeline of GST?
eventually lead to an improved competitiveness.
• 2004: Vijya Kelkar, then advisor to the Finance
• Gain to manufacturers and exporters: It Ministry, recommends GST to replace the existing
woldreduce the cost of locally manufactured tax regime.
goods and services. This, in turn, will increase the
• Feb 2006: GST appears in the Budget speech for
competitiveness of Indian goods and services in
the first time.
the international market and give boost to Indian
exports. • Feb 2007:UPA said Empowered Committee of
finance ministers will prepare a road map for GST.
For Central and State Governments:
• April 2008: Empowered Committee submits a
• Simple and easy to administer. report titled ‘A Model and Roadmap Goods and
• Better controls on leakage. Services Tax (GST) in India’.
• Higher revenue efficiency. • Nov 2009: Empowered Committee submits a
discussion paper in the public domain on GST
For the consumer:
welcoming debate.
• Under GST, there would be only one tax from
• Feb 2010: Government launches project for
the manufacturer to the consumer, leading to
computerisation of commercial taxes. Finance
transparency of taxes paid to the final consumer.
Minister Pranab Mukherjee defers GST to April
• Because of efficiency gains and prevention 1, 2011.

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• March 2011: Constitution Amendment Bill • Dec 19, 2014: The Amendment Bill (122nd) in
(115th) to GST introduced. Bill referred to the Lok Sabha.
Standing Committee on Finance. • May 6, 2015: The Amendment Bill (122nd)
• Nov 2012: Finance minister and state ministers passed by the Lok Sabha.
decide to resolve all issues by Dec 31, 2012. • May 12, 2015: The Amendment Bill presented in
• Feb 2013: Declaring government’s resolve to the Rajya Sabha.
introduce GST, the finance minister makes • May14, 2015: The Bill forwarded to joint
provisions for compensation to states in the committee of Rajya Sabha and Lok Sabha.
Budget.
• Aug 2015: Government fails to win the support
• Aug, 2013: The bill lapsed as the 15th Lok Sabha of Opposition to pass the bill in the Rajya Sabha
was dissolved. where it lacks sufficient number.
• Dec 18, 2014: Cabinet approval for the • Aug 3, 2016: Rajya Sabha passes the Constitution
Constitution Amendment Bill (122nd) to GST. Amendment Bill by two-thirds majority.

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Shankar IAS Academy App. available for Android, iphone and Windows.