UNIT-1: INTRODUCTION TO ECONOMICS OF GST

Chapter 1: Indirect taxes Before GST

Syllabus: Indirect Tax – Meaning, Types with examples Constitutional framework of
Indirect Taxes before GST (Taxation Powers of Union and State Government) Concept
of VAT: Meaning. Variants and Methods.
Meaning of Tax:
Tax is Compulsory levy imposed by government to the citizens for the various
services rendered to them.
Types of Tax:
1. Direct Tax
2. Indirect tax
Meaning of Direct Tax:
Direct Tax is a type of tax where impact and incidence are fall on same person.
Which means payer of tax is the sufferer of tax. Example : Income tax, Wealth Tax,
Property Tax

Meaning of Indirect Tax:

Indirect tax is a type of tax where impact is on one person and incidence is on other
person. Which means payer of tax is not sufferer of tax whereas suffer of tax not
paying directly to the Government.

Indirect tax is the tax levied on the consumption of goods and services. It is not
directly levied on the income of a person. Instead, he/she has to pay the tax along
with the price of goods or services bought from the seller.
Example: GST, Custom Duty, Stamp Duty
Different types of indirect taxes in India
Earlier, different types of indirect taxes were imposed as follows:
1. Service Tax
2. Excise Duty
3. Value added tax
4. Custom duty
5. Stamp duty
6. Entertainment tax
7. STT (security transaction tax)

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 Service tax: This is charged on the services availed by the customer. The service
tax is collected by the Government of India and deposited with them.
For example, if the person books a hotel accommodation, service tax is charged on
the hotel booking amount.
Excise duty: When any product or good is manufactured by a company in India,
then the tax levied on those goods is called the Excise Duty.
For example, if a person manufactures cars, he is liable to pay excise duty on
manufactured cars.
Custom duty: This a tax levied on the goods imported to India. Sometimes, Custom
Duty is also levied on products which are exported out of India.
Stamp duty: This is a tax levied on the transfer of any immovable property in a
state of India. The state government in whose state the property is located charges
this type of tax. Also, stamp duty is mandatory on all types of legal documents.
Value Added Tax (VAT): This is paid on the value addition in price during the sale
of goods. This type of tax is levied on any product sold directly to customer and are
movable. VAT consists of Central Sales Tax which is paid to the Government of
India, State Sales Tax which is paid to the respective State Government.
For example, when the wholesaler sells goods to a retailer, VAT is calculated on the
value addition..
Entertainment tax: This tax is charged by the state government and is applicable
on any products or transactions related to entertainment.
For example: movie tickets, video game arcades, stage shows, exhibitions,
amusement parks, and sports-related activities.
Security Transaction Tax: This tax is levied during the trading of securities
through Indian Stock Exchange

Features of Indirect Tax

1. An important source of revenue: Indirect taxes are a major source of tax

revenues for Governments worldwide. In India, indirect taxes contribute
more than 50% of the total tax revenues of Central and State Governments.
2. Tax on commodities and services: It is levied on commodities at the time
of supply or manufacture or purchase or sale or import/export thereof.
Hence, it is also known as commodity taxation. It is also levied on supply of
services.
3. Shifting of burden: There is a clear shifting of tax burden in respect of
Indirect taxes. For example, GST paid by the supplier of the goods is
recovered from the buyer by including the tax in the cost of the commodity.
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 4. No perception of direct pinch: Since value of indirect taxes is generally
inbuilt in the price of the commodity, most of the time the tax
payer/consumer pays the same without actually knowing that he is paying
to the Government. Thus, tax payer does not perceive a direct pinch while
paying indirect taxes.
5. Inflationary: Tax imposed on commodities and services causes an all-
round price spiral. In other words, indirect taxation directly affects the
prices of commodities and services and leads to inflationary trend.
6. Wider tax base: Unlike direct taxes, the indirect taxes have a wide tax
base. Majority of the products or services are subject to indirect taxes with
low thresholds.
7. Promotes social welfare: Higher taxes are imposed on the consumption of
harmful products (also known as sin goods) such as alcoholic products,
tobacco products etc. This not only checks their consumption but also
enables the State to collect substantial revenue.
Constitutional framework Of Indirect Tax before GST (Taxation Powers of Union
& State Government)

In India, the constitution is Supreme and all laws and conduct of the Government are
sub-ordinate to it.
• The constitution of India states that no tax shall be levied or collected except by
authority of law.
• As per “article 1(1) of constitution” , India shall be union of States. There is a
bifurcation of powers between union and states. Government of India (Central
Government) has certain powers in respect of whole country. Each state (and
union territory) has certain powers in respect of that particular state (Union
territory).
• Indian constitution has a three-tier federal structure, comprising, The Union
Government, The State Government, The Local Government.
• The power to levy taxes and duties is distributed among the three categories of
Government, in accordance with the vittles of Constitution of India.
• The constitution consists of a preamble, 25 parts having 448 articles and 12
Schedules.

The power to levy and collect taxes emerges from the constitution of India. The
following are the significant vittles of the constitution regarding taxation:
1. Article 265: It states that no tax shall be levied or collected other than the
authority of law. In fact, it ensures no arbitrary collection of tax.

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 2. Article 246: The authority to legislate law and levy taxes and duties is given by
constitution vide Article 246. The Parliament may make laws for the whole of
India or any part of the territory of India, the State legislature may make laws
for whole or part of the State.

3. Seventh Schedule (to Article 246): The Seventh Schedule contains three lists
which enumerate the matters under which the union and the State
Governments have the authority to make laws.
o List I (Union List): The Central Government has the exclusive right to
make laws in respect of any matter covered in this list. Some of the
particulars in List I are defence of India, atomic energy and mineral
resources, central bureau of intelligence and investigation, railways,
highways, currency, RBI, post office saving bank, taxes on income other
than agricultural income, duties of customs, corporation tax.
o List II (State List): It contains the matters in respect of which the State
Government has the exclusive right to make laws. These matters include
public order, police, local government, public health and sanitarium,
hospital, burials and burial grounds, cremation ground, libraries, water,
fisheries, betting and gambling, etc.
o List III (Concurrent List): It contains the items in respect of which both
Central & State Governments have powers to make laws. This list
includes criminal laws, criminal procedure, marriage and divorce,
contracts including partnership, agency, bankruptcy and insolvency,
trust and trustees, trade unions, industrial and labour disputes, etc

Value-Added Tax (VAT)

VAT or value-added tax, is a common form of indirect tax levied on services and
goods. It is paid to the government by the producers at every stage in the supply
chain.VAT tax is applicable only on goods sold within a particular state, which
means that the buyer and the seller need to be in the same state.

VAT is the tax which is charged on the gross margin at every stage in the sale of
goods. Tax is assessed and collected at each point, starting from the manufacturer
until the product reaches the retailer.

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 Variants of VAT:
VAT is divided into three variants such as gross product variants, income variants
and consumption variants.
1. Gross Product Variants:
1. Allows deduction on all purchases of raw material and components
but not for capital inputs, i.e taxes on capital goods such as plant and
machinery are not deductible from the tax base in the year of
purchase.
2. No deduction for the depreciated part of the plant and machinery in
the base year.
3. The economic base of Gross Product Variant is same as to Gross
National Product.
4. Tax on capital goods is not refunded then it is Called Gross Product
Variants.

2. Income Variant:
1) Allows deduction on purchase on raw material, components, and
depreciation on capital goods.
2) The input tax credit for capital goods is not refunded straightway but
is refunded in accordance with the depreciation schedule similar to the
one used for income tax purposes.
3) Income Variant is same as the Net National Product..
4) Methods of measuring depreciation depend on the life of an asset.

3. Consumption Variant:
1) This is the most popular variant which is worldwide accepted.
2) it does not affect decisions regarding investment because the tax on
capital goods is also available for set-off against the VAT liability.
3) The system is tax neutral in respect of techniques of production
(labour or capital-intensive).
4) In the foreign-trade sector, this variant relieves all Exports from
taxation while imports are taxed.
5) The consumption variant is convenient from the point of
administrative expediency since the business gets set-off for the tax
on services, it does not cause any cascading effect.

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 Methods of computation of VAT
VAT can be computed by adopting three different methods. These are
(i) Addition method,
(ii) Subtraction method, and
(iii) Tax-credit method. These methods can be used to arrive at the VAT
liability.
Addition method:
This method is based on the identification of value-added which can be estimated
by summation of all the elements of value-added (i.e. wages, profits, rent and
interest). This method is known as addition method or income approach.
Subtraction method:
The subtraction method estimates value-added by means of difference between
outputs and inputs. This is also known as product approach and has further
variants in the way subtraction is attempted from among

• direct subtraction method.

• intermediate subtraction method and
• indirect subtraction method. .
Tax-credit method:
The indirect subtraction method entails deduction of tax on inputs from tax on
sales for each tax period. This method is also known as tax credit method or invoice
method. In practice, most countries use this method and employ net-consumption
VAT.

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 Chapter 2: Reforms in Indirect Taxes
Syllabus: Major Defects in the structure of Indirect Taxes prior to GST, Need for Tax
reforms. Kelkar committee on Tax Reforms.
Reforms in Indirect Taxes
Tax Reform:
Tax Reform is the process of changing the way if taxes are collected or managed by
the government and it usually undertaken to improve tax administration or to
provide economic or social benefit.
Some of the reforms in Indirect Tax in India
First Indirect Tax Reform occurred in India when the Modified Value Added Tax (MODVAT)
was introduced for selected commodities in 1986 to replace the Central Excise Duty. It
was gradually extended to all commodities through Central Value Added Tax (CENVAT).
Reduction in Custom Duties
In 1990, the custom duty on non-agricultural products was around 128%. It was brought
down gradually. Currently, the average custom duties are 11-12%, however, they range
from 0 to 150%.
Central Excise
Central Excise duties were first replaced with MODVAT and now CENVAT is applicable.
The number of different types of duties was cut down.
Service Tax
Service tax was first introduced on some limited services in 1994-95 at 7%. The rate was
gradually increased and so was the number of taxable services. Currently, we pay 14%
service tax on around 100 services.
Direct Tax Code and Goods and Services Tax
The Goods and Services Tax (GST) is so far the biggest tax reform in the country. It is
currently entangled into the murky politics in parliament.

Defects in the Structure of Indirect Taxes Before GST

1. Cascading Effect
• VAT was also payable on Excise duty component of the price resulting in
cascading effect,
• no credit of service tax paid on input service used in selling of goods is
provided by state governments
• Tax was levied on tax
• Boosted Inflation

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 2. Multiplicity of Taxes/ Cess
• Tax structure cumbersome as number of taxes were levied in Pre GST regime
• Excise duty, VAT, entry tax, luxury tax, entertainment tax, service tax, octroi
tax etc

3.Overlapping of Jurisdiction
• Distinction between goods and services was difficult. Hence, overleaping of
State VAT and Central Services Tax
• Works Contract, Food related services in restaurants, caterers, computer
software, SIM Cards, Renting of Movable property etc.

4.Rivalry among States

• Pre GST tax regime was Origin Based Tax
• Taxes were collected & utilised by state administration where goods/services
were transacted/manufactured or supplied
• Encouraged states to provide sales tax/VAT relief
• Discouraged supply of goods from other states by imposing entry tax, octroi,
luxury tax etc.

5.Loss of Man & Truck Hours

• Due to check posts mounted by states on entry points plus huge corruption

6.Difficulty in Compliance for Taxpayers

• Multiplicity of Taxes, Tax laws, multiple tax authorities & different taxable
event like Manufacture for Excise duty, Import & Export of goods for Custom
Duty, Rendering of services for Service Tax, transfer of ownership for sales
tax/VAT made difficulty in compliance for taxpayers.

7.Difficulty in Cross Verification of Credit Availed by Assessee

• Due to Lack of online data the verification was done offline
• Difficult for tax dept to get verification report from supplier
• Fraudulent credits

8.Tax Evasion
❖ Burden of compliance, multiplicity of tax laws, fudging of records, bribing of
tax officials increased the propensity to evade taxes.

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 Need for Tax Reform
Tax reform is needed for multiple purposes
❖ The first and foremost purpose is to minimize the slightest of probabilities of
avoidance and evasion of the tax from the economy.

❖ Every government requires a source of revenue that will be used for

infrastructural and economic development of the country and tax is the most
important source of the same.

❖ Another purpose is to induce a higher rate of sustainability in the revenue

levels and directing the public investments into desired avenues by means of
providing tax deductions, tax breaks and tax exemptions.

❖ Corporate tax reform also helps simplify the rules and procedures to reduce
the cost of compliance and administrative burden.

❖ The reform creates an equal and fair system of tax collection and use by
getting rid of loopholes and fraud through disproportionate use of the
system.

❖ Any new tax reform helps in globalizing the economy and making it
competitive for attracting investment through reduction of corporate tax
rates and providing incentives.

❖ The ultimate purpose is to enhance the overall functioning of the tax system
and bring economic growth in the country.

Kelkar Committee On Tax Reform

Impetus to direct tax reforms in India, came with the recommendations of the Task
Force on Direct & Indirect Taxes under the chairmanship of Vijay Kelkar in 2002.
The Task Forces submitted their Final reports to the Government in December,
2002. The two Task Forces have made several important recommendations on
improving tax administration to make it simple and effective,
(a) low rates of taxation,
(b) few nominal rates, (c) a broad base,
(d) minimum tax exemptions and incentives,
(e) no surcharges
(f) clearly articulated exemptions.

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 Major recommendations of the Task Force on direct taxes
Tax Administration
❖ Expansion of taxpayer services both qualitatively and quantitatively. Easy
access to taxpayers through Internet and E-mail and extension of facilities
such as Tele-filing and Tele-refunds.
❖ Extension of PAN to cover all economic agents/citizens.
❖ Outsourcing of data entry work relating to clear the back Log.
❖ Processing of all returns and issue of refunds within four months.
❖ Establishment of a Tax Information Network to modernize, simplify,
rationalise tax collection, particular TDS and TCS
❖ Abolition of the requirement of obtaining a tax clearance certificate before
leaving the country.
❖ Enhance accountability of officers and staff.
❖ Empowering CBDT with appropriate administrative and financial powers.
Personal income tax

• Increase in exemption limit to Rs.1 lakh for the general categories of

taxpayers. A higher exemption limit Of Rs.1.50 lakh for widows and senior
citizens.
• Introduction of a two rate personal income tax schedule-20 percent up to an
income of Rs.4 lakh and 30 Percent for income exceeding Rs.4 lakh.
Elimination of surcharge on personal income tax.
• Elimination of standard deduction.
• Incentivise borrowings for housing by providing 2 percent interest subsidy
on all loans below Rs.5 lakh.
• Deduction under Section 80CCC for contribution to pension funds to be
increased from Rs.10,000 to Rs.20,000.
• Elimination of tax incentives u/s 88, 80L and interest income u/s 10.
Corporate tax reforms

• Reduction in corporate tax rate to 30 percent for domestic companies.

Foreign companies to be taxed At 35 percent.
• Exemption from tax on dividends and capital gains from listed equity.
• The general rate of depreciation for plant and machinery to be reduced to 15
percent from the existing Level of 25 percent.
• Elimination of minimum alternate tax
• Removal of exemption u/s 33AB, 33AC, 33B, 35, 35AC, 35CCA etc.
• Merger of tax on expenditure in hotels with service tax.
Wealth Tax
❖ Abolition of wealth tax.

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 Major recommendations of the Task Force on indirect taxes

Tax Administration

❖ Customs clearance to be based on trust and to be uniformly applied to all

importers and exporters.
❖ A system of self-assessment of bill of entry by the importer to be introduced.
❖ Inter-agency issues to be resolved by a high level inter-Ministerial
Committee.
❖ Time limit for processing an import or export document.
❖ Guidelines on determination of cost of production to be issued at the earliest.
❖ MRP based levy to be expanded.
❖ CENVAT credit rules to be amended to abolish the distinction between
capital goods and inputs.
❖ All Customs and Central Excise Commissionerates to fully automate their
processes by January,2004.

Customs Tariff

• Multiplicity of levies to be reduced to three, viz., basic customs duty,

additional duty of customs and Anti-dumping duties. Removal of SAD to be
linked to implementation of State level VAT.
• Zero percent duty on items like life saving drugs and equipment’s, sovereign
imports and imports By RBI. 10 percent duty on raw materials, inputs and
intermediate goods and 20 percent duty on Consumer goods by 2004-05.
• A duty of 8 percent on crude oil and 15 percent on petroleum products from
2003-04. A duty of 5 Percent on crude oil and 10 percent on petroleum
products from 2004-05.
• A higher duty rate up to 150 percent on specified agricultural products and
demerit goods.
• All exemptions to be removed except in the case of life saving goods, goods
of security and strategic Interest, goods for relief and charitable purposes
and international obligations including contracts.

Central Excise

• All levies to be reviewed and to be replaced by only one levy, i.e., the CENVAT.
• Separate rates for tobacco products.

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 • All exemptions to be removed on the textile sector except for fabrics woven
handlooms, handloom Fabric certified as khadi, etc.
• Zero excise duty on life saving drugs and equipment’s, security items, food
items and agricultural Products, 6 percent for processed food products and
matches, 14 percent standard rate for all items Not mentioned against other
rates, 20 percent on motor vehicles, air-conditioners and aerated water.
• A uniform rate of 16 percent on all fibres and yarns, by raising duty on cotton
yarn from 8 percent to 14 percent and bringing down duty on polyester
filament yarn to 14 percent in four instalments.
• Duty exemption in respect of small scale sector to be extended to only small
units with turnover of Rs.50 lakh.
• Uniformity in all State legislations, procedures and documentation relating
to VAT.
• Extension of service tax in a comprehensive manner leaving out only few
services by including them in a negative list.
• A separate legislation on service tax to be integrated finally with the Central
Excise Law.

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 Chapter 3: Introduction to GST
Syllabus: Rationale for GST, Constitution [101st Amendment] Act 2016, GST
Meaning. Overview Taxes subsumed under GST- Territorial Jurisdiction of GST,
Multiple rates of GST Recent reforms in GST.
Rational For GST/ Need for GST
Before the introduction of GST, the indirect tax regime of India suffered from
various drawbacks and limitations. There was a burden of tax-on-tax in the pre-
GST system of central excise duty and the sales tax system of the states.
GST had to take under its wings, a profusion of indirect taxes of the states and the
centre. It has integrated taxes on goods and services to set off relief. Further, this
regime has also captured value additions in the distributive trade.
Needs for GST in India, GST is justified as it has covered almost all the services for
taxation. Major state and central indirect taxes are included under GST, the
multiplicity of taxes has been substantially reduced, reducing the operation cost of
the national tax system.
The uniformity in procedures and tax rates across the country will go a long way
in reducing the cost of compliance. GST is a comprehensive indirect levy of tax on
manufacturer, consumption and sale of goods, and services at the country level.
It is designed to give India a world-class tax regime and improve the process and
collection. It will end the long due distortions of differential treatment of the
services sector and manufacturing sector.
Seamless Flow of Credit: As GST is a destination tax, the revenue of SGST
ordinary accrues to the consuming states. The interstate supplier in the exporting
State can set off the available credit of CGST, SGST/UTGST and IGST against the
IGST payable on an inter-state supply made by him.
Boosts in Exports: Suppose the Indian marketplace is competitive in terms of
pricing. In that case, more and more foreign players will try to enter, which will
result in more numbers of exporters and ultimately benefit the nation.
Competitive Prices: GST eliminates all other taxes of indirect nature, and this will
effectively mean that the tax amount paid by end consumers will reduce. As we
study economics, the lower the prices, the more will be demand for that product,
which will result in more consumption and will benefit the entities.
Increase in Revenue: One reason behind the need for GST was also to boost the
revenue from the indirect taxes in the nation. GST is easy to understand, and a
simple tax structure will bring more taxpayers and in return, it will increase the
revenue for the Indian government.

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 Easy and Straightforward Tax Structure: Before GST, taxpayers needed to pay a
lot of taxes, but with GST, a single tax system, only one tax needs to be paid, which
is comparatively easy and convenient to understand. For accounting, business
complexities will reduce and result in less paperwork, saving both money and time.
CONSTITUTIONAL FRAMEWORK OF GST/ CONSTITUTION (101ST
Amendment) Act
Constitution (Amendment 122nd) Bill, 2014 received the assent of president of India
on 8th Sep 2016 and become the Constitution (101st Amendment) Act 2016.
Following are significant provision with respect to the Goods and Services Tax.
Important Provisions (New Articles)
1. Article 246A – (Related to Concurrent Power)
2. Article 269A – (Related to IGST Collection)
3. Article 279A – (Related to Constitution of GST Council)

1. Article 246A
This Article provides that both parliament and state legislature shall have
Concurrent power to make laws with respect to GST.
It means there is a dual control of Sate and Central authorities for all
assesse.

2. Article 269A
In case of Inter-state trade the tax will be levied and collected by the
Government of India and shared between Union and Sate as per the
recommendation of GST Council.
In case of import of Goods IGST will be levied along with basic Customs Duty.
It means IGST will be levied in replacement of CVD + Spl. CVD. In case of
import of services only IGST will be levied.

3. Article 279A
As per this article the constitution of India, the president of India is
empowered to constitute Goods and Services Tax council, within sixty
days from the act coming into force.
The President of India constituted the GST council on 15th September 2016.

Other important Amendments in Existing Articles of the constitution.

➢ New clause 12A was inserted in article 366 to define “Goods and Services
Tax” to mean that it is tax on supply of Goods or Services or both except the
tax on supply of alcoholic liquor for human consumption.
➢ Article 249 has been changed, so that 2/3rd majority of resolution is passed
by Raja sabha, the parliament will have power to make laws related to make
necessary with respect to GST.

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 ➢ Article 250 has been amended so that Parliament will have power to make
laws related to GST during emergency period.
➢ Article 268A has been replaced so that now Services tax is subsumed in
GST.
➢ Article 269 would empower the parliament to make GST related laws for
inter sate trade/ commerce.
➢ Provision also made in the Constitution the parliament may on the
recommendations of the GST Council provide compensation to the states for
the loss arising because of implementation of GST for a maximum period of
5 years.
➢ The power to impose tax on sale of the following products is still provided to
the state Government:
a. Petroleum crude;
b. High speed diesel;
c. Motor spirit (commonly known as petrol);
d. Natural gas
e. Aviation turbine fuel; and
f. Alcoholic liquor for human consumption.

However, once GST council is recommended the date from which GST is imposed
on these products (except alcoholic liquor for human consumption), and no
sales tax will be imposed on these products.
➢ The central government notified 1st July, 2017 as the date from which the
much-awaited indirect tax reform in India, i.e. Goods and services tax (GST)
will be implemented.
➢ Accordingly, Goods and services tax (GST) had been implemented in India
with effect from 1st July, 2017

Meaning Of GST
GST, or Goods and Services Tax, is an indirect tax imposed on the supply of goods
and services. It is a multi-stage, destination-oriented tax imposed on every value
addition, replacing multiple indirect taxes.

Definition of GST
Article 366 Clause (12A) of Constitution of India defines, Goods and Services tax
means, a tax on supply of goods or services, or both, except taxes on supply of
alcoholic liquor for human consumption.
According to Goods and Services Tax (CGST) Act, 2017, "GST is a tax on goods and
services with value addition at each stage having comprehensive and continuous
chain of set of benefits from the producer's/service provider's point upto the
retailer's level where only the final consumer should bear the tax.”

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 Objectives Of GST
1.To achieve the ideology of ‘One Nation, One Tax’:
GST has replaced multiple indirect taxes, The advantage of having one single tax
means every state follows the same rate for a particular product or service. Tax
administration is easier with the Government deciding the rates and policies.
2. To subsume a majority of the indirect taxes in India
Under GST, all the major indirect taxes were subsumed into one. It has greatly
reduced the compliance burden on taxpayers and eased tax administration for the
government.
3.To eliminate the cascading effect of taxes
Under GST, the tax levy is only on the net value added at each stage of the supply
chain. This has helped eliminate the cascading effect of taxes and contributed to
the seamless flow of input tax credits across both goods and services.
4.To curb tax evasion
Under GST, taxpayers can claim an input tax credit only on invoices uploaded by
their respective suppliers. This way, the chances of claiming input tax credits on
fake invoices are minimal. Hence, GST has curbed tax evasion and minimised tax
fraud from taking place to a large extent.
5.To increase the taxpayer base
GST has helped in widening the tax base in India. GST is a consolidated tax levied
on both goods and services both, it has increased tax-registered businesses.
6.Online procedures for ease of doing business
GST procedures are carried out almost entirely online. Everything is done with a
click of a button, from registration to return filing to refunds to e-way bill
generation. It has contributed to the overall ease of doing business in India and
simplified taxpayer compliance to a massive extent.
7.An improved logistics and distribution system
A single indirect tax system reduces the need for multiple documentation for the
supply of goods. With the e-way bill system under GST, the removal of interstate
checkpoints is most beneficial to the sector in improving transit and destination
efficiency. Ultimately, it helps in cutting down the high logistics and warehousing
costs.
8.To promote competitive pricing and increase consumption
Having uniform GST rates have contributed to overall competitive pricing across
India and on the global front. This has hence increased consumption and led to
higher revenues, which has been another important objective achieved.

CHETHANKUMAR S 16 | P a g e
M.Com, NET, KSET
ASSISTANT PROFESSOR
JYOTHY INSTITUTE OF COMMERCE AND MANAGEMENT
 Advantages of GST

1. Termination of Multiple types of Taxes

2. Removal of Cascading Effect
3. Ease of Doing Business at National and International Level
4. Regulation of Unorganised Industries
5. Complete online process
6. Boost to ‘Make in India’ Initiative
7. Contributing to the Economical Growth of the Nation.

Meaning of Subsumation
Subsumation refers to the process of including or encompassing something within
a larger or more comprehensive category or concept.
PRINCIPLES OF TAX SUBSUMATION
• Taxes or levies to be subsumed should be primarily in the nature of indirect
taxes, either on the supply of goods or on the supply of services.
• Taxes or levies to be subsumed should be part of the transaction chain which
commences with import/ manufacture/ production of goods or provision of
services at one end and the consumption of goods and services at the other.
• The subsumation should result in free flow of tax credit in intra and inter-
State levels.
• The taxes, levies and fees that are not specifically related to supply of goods
& services should not be subsumed under GST.
• Revenue fairness for both the Union and the States individually would need
to be attempted.
CENTRAL TAXES SUBSUMED IN GST
• Central Excise Duty (CENVAT)
• Additional Excise Duties
• The Excise Duty levied under the Medicinal and Toiletries Preparations
(Excise Duties) Act 1955
• Service Tax
• Additional Customs Duty, commonly known as Countervailing Duty (CVD)
Special Additional Duty of Customs – 4% (SAD)
• Surcharges and Cesses levied by Centre are also likely to be subsumed
wherever they are in the nature of taxes on goods or services. This may
include cess on rubber, tea, coffee, national calamity contingent duty etc.

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M.Com, NET, KSET
ASSISTANT PROFESSOR
JYOTHY INSTITUTE OF COMMERCE AND MANAGEMENT
 STATE TAXES SUBSUMED IN GST:
• VAT / Sales tax
• Entertainment tax (unless it is levied by the local bodies)
• Luxury tax
• Taxes on lottery, betting and gambling
• State Cesses and Surcharges in so far as they relate to supply of goods and
services
• Octroi and Entry Tax
• Purchase Tax
Taxes not Covered Under the Purview of GST
• Customs Duty: The GST will include the Countervailing Duty (CVD) and
Special Additional Duty (SAD), while the Basic Customs Duty (BCD) will be
charged according to existing Law only, not GST.
• Stamp Duty: The buyer must pay stamp duty to register the property, and
GST will not cover tamp duty, instead, it will be subsumed into the
government’s tax
• Vehicle Tax: Because the GST does not extend to road taxes, the Vehicle Tax
will not be levied under the GST and will continue to be governed by the
Motor Vehicle Act
• Excise on Liquor:. The liquor has been kept out of the GST for the time being.
To be Included in the GST, alcohol requires a constitutional amendment.
• Entertainment Tax (Levied by Local Bodies): The extra tax imposed by local
governments covered by the GST. As a result, in addition to the 28% GST,
the local body’s extra tax Could result in Double Taxation, Indirectly, this
would result in a significant rise in ticket prices.
• Road Tax: This tax is not covered by the GST because toll taxes, road taxes,
environmental taxes, and other taxes are paid directly by users and imposed
by States

Meaning of GST Rates

GST rates refer to the percentage rates of tax imposed on the sale of goods or
services under the CGST, SGST and IGST Acts. A business registered under the
GST law must issue invoices with GST amounts charged on the value of supply.
The GST rates in CGST and SGST (For intra-state transactions) are approximately
the same. Whereas, the GST rate in the case of IGST (For inter-state transactions)
is approximately the sum total of CGST and SGST rate.

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M.Com, NET, KSET
ASSISTANT PROFESSOR
JYOTHY INSTITUTE OF COMMERCE AND MANAGEMENT
 Types of GST Rates and GST Rate structure in India
The primary GST slabs for any regular taxpayers are presently pegged at 0% (nil-
rated), 5%, 12%, 18% & 28%. There are a few lesser-used GST rates such as 3%
and 0.25%.
Also, the composition taxable persons must pay GST at lower or nominal rates
such as 1% or 5% or 6% on their turnover. There is a concept of TDS and TCS
under GST as well, whose rates are 2% and 1% respectively.
Further, the GST law levies cess in addition to the above GST rates on the sale of
some items such as cigarettes, tobacco, aerated water, petrol, and motor vehicles,
rates widely varying from 1% to 204%.

Composition Scheme applicable GST RATE

Businesses with an annual aggregate turnover up to Rs.1.5 crore can opt into the
composition scheme.
Type of Business CGST SGST TOTAL
Manufacturers and Traders (Goods) 0.5% 0.5% 1%
Restaurants not serving Alcohol 2.5% 2.5% 5%
Service Providers 3% 3% 6%
Manufacturers of bricks (including 3% 3% 6%
building bricks. Bricks of fossil meals or
similar siliceous earths, earthen or roofing
tiles, and fly ash bricks and blocks)

CHETHANKUMAR S 19 | P a g e
M.Com, NET, KSET
ASSISTANT PROFESSOR
JYOTHY INSTITUTE OF COMMERCE AND MANAGEMENT
 GST Rates and Structure in India
Tax Rate Category of Goods
0% Tax Rate • Fresh Milk and Cream
• Curd, Lassi, Butter Milk
• Chena or Paneer
• Eggs
• Natural Honey
• Fruits and Vegetables
• Handloom
• Rice, wheat, maize and other grains
5% Tax Rate • Natural gums
• Mehndi paste in cones
• Natural rubber
• Natural graphite
• Silk yarn
• Edible Oil
• Building stone
12% Tax Rate • Granite blocks
• Surgical rubber gloves
• Idols of wood
• Bicycles
• Umbrellas
• Contact Lenses, Spectacle lenses and Frames
• Ghee
• Instant Food mix
18% Tax Rate • Cocoa butter, fat and oil.
• Chocolates and other food preparations
• Cakes, biscuits, Ice cream and other edible ice
• Non-alcoholic beverage
• Polishes and creams
• Electronic Toys
• Mineral Water
• Washing machine
• Detergent
28% Tax Rate • Caffeinated Beverages
• Carbonated Beverages
• Air-conditioning machines
• Smoking pipes
• Aircrafts for personal use
• Tobacco, bidis, cigarette, panasala
• Automobiles

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M.Com, NET, KSET
ASSISTANT PROFESSOR
JYOTHY INSTITUTE OF COMMERCE AND MANAGEMENT
 Recent Reforms in GST
The provisions relating to various taxes continue to be changed and updated by
the government. Any number of reasons could be given, but most often,
adjustments are made to make it easier for taxpayers.
• The Government has given the clarification that GST would not be applicable
to Residential units if they are rented out to private persons for personal use.
• GST rate on application fee, registration fee, a penalty in relation to food
businesses/FSSAI license, etc. shall be @18% w.e.f 18/7/2022
• GST on rent in relation to residential property to registered persons is
leviable with effect from 18.07.2022 under the reverse charge mechanism.
• It has been brought to the notice of the Board that in certain instances,
summons under Section 70 of the Central Goods and Services Tax Act, 2017
(the CGST Act) have been issued by the field formations to the top senior
officials of the companies in a routine manner to call for material
evidence/documents.
• Section 29 of the CGST Act was amended for the cancellation of a GSTIN by
an officer If a composition taxpayer fails to file an annual return for three
months beyond the 30th April deadline of the following year, their
registration can get cancelled. For other taxpayers, a six months consecutive
default in return filing is now replaced with a consecutive tax period default
as may be prescribed.
• In Section 37, a new sub-section states that taxpayers will be disallowed from
furnishing their details of outward supplies for a tax period if the same is
pending for any previous tax period.
• The due date to file GSTR-5 is revised from the 20th of the succeeding month
to the 13th.
• From January 1, 2023, online sellers with an annual turnover of Rs 40 lakh
or Rs 20 lakh (in case of small and select states) will be exempt from
mandatory registration under GST.
• Currently, small offline sellers are exempted from compulsory registration.
• There could be a 28% GST on online gaming, casinos and horse racing,
treating them on par with gambling, the council decided to further deliberate
on the tax rate and the method of valuation of taxation on such services.
• The Centre’s decision to compensate the states for any loss of revenue from
the new tax for five years ends on June 30.
• Several states have been demanding extension of GST compensation, two
years of pandemic but the GST Council did not take any call on it.
• On whether to bring movement of gold and precious Stones under the e-way
bill regime, the council has allowed states to decide
• On the threshold above which e-way bill can be generated.
• The GST council has also decided to set up a ministerial panel to address
various concerns raised by the states on the GST appellate Tribunal

CHETHANKUMAR S 21 | P a g e
M.Com, NET, KSET
ASSISTANT PROFESSOR
JYOTHY INSTITUTE OF COMMERCE AND MANAGEMENT