Goods and Services Tax (GST) is India’s biggest indirect tax reform in decades.
GST will integrate India into one common market by removing the various tax and fiscal barriers between the states. Goods and Services Tax (GST), as the name suggests will be tax levied on goods and services during the point of sale or rendering of service. GST will be applicable for all goods and services, expect the exempted class of goods and service. Having passed various stages, the GST regime in India is now set to roll out from 1st July, 2017.
Goods under GST
Section 2(49) of the model law on GST defines goods as every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under the contract of supply. Hence, as per the definition, goods would include movable property, actionable claim, growing crops/grass, things attached to land or forming part of land, materials, commodities and articles. Goods as defined by GST Model Law does not however include money, securities, immovable property and land.
Services under GST
According to the Model Law on GST, Section 2(92) defines services as “anything other than goods”. Hence, anything or any activity would fall under the GST tax coverage, and anything not defined as a goods will be defined as a service. Further, as per GST Law, service is defined as any activity relating to use of money or its conversion by cash or any other mode, from one form, currency or denomination to another form, currency or denomination, for which a separate consideration is charged. However, though services include transactions in money, it does not include money and securities.
GST is backed by a robust Information Technology (IT) infrastructure for registration of taxpayers, processing of GST returns, managing GST remittances, refunds, auditing and levy of penalty. The Information Technology infrastructure behind GST, is controlled by the GSTN or GST Network, a Section 8 Company (not-for-profit company) promoted by Central Government, State Governments and other non-Government Institutions. The Government of India holds 24.5% stake in the GSTN, while state Governments combined hold 24.5% state and the balance 51% is held by Non-Government Institutions. Thus, GSTN will act like a clearing house that is self-sustaining through levey of charges on taxpayers and tax authorities using the GST Network.
Levy of GST
Both the Central Government and State Governments would simultaneously levy GST across the value chain. GST levied and collected by the Central Government would be Integrated Goods and Services Tax (IGST) and the State Governments would levy and collect (SGST) on transactions within the State.
Under GST, both the IGST and CGST would become payable at the “time of supply”, as defined in the GST Law. In terms of goods, time of supply would be on removal of goods or receipt of payment or issuance of invoice or date on which the buyer shows receipt of goods. For services, time of supply is on issuance of invoice or receipt of payment or date on which recipient shows receipt of services.
Integrated Goods and Services Tax (IGST)
Integrated Goods and Services Tax is a tax levied on the supply of any goods or services in the course of inter-state trade or commerce. IGST would be applicable to all of India.
State Goods and Services Tax(SGST)
SGST is tax levied under the GST regime on intra-state supplies of goods and services. SGST will be administered by the respective State Government.
Guide to CGST, SGST and IGST
GST is a destination tax, meaning the tax base will shift from origin to consumption. Hence, the imports or end-use will be liable to tax and exports or production will be relieved of the burden of tax. Under the present regulation, on a taxable event, there could be multiple tax liabilities like central excise, in case of manufacturing, service tax in case of sale of service and State VAT in case of sale of goods. Under GST, there would be a shift from multiple taxes to a single taxable event.
Inter-State vs Intra-State
To understand the concepts of CGST, SGST and IGST, it is first important to understand the concept of inter-state vs intra state supply of goods and service, under GST. As in every taxable transaction, it is important to distinguish between inter-state vs intra-state supply to determine if CGST or SGST or IGST would be applicable.
To determine if a supply is inter-state or intra-state, the location of the supplier and the place of supply must first be determined.
An intra-state supply of goods or service is when the place of supply is in the same state as the location of the supplier. Intra-state supply does not include supply of goods/service to SEZ units or developers, imports or exports.
How GST is Levied?
GST would be levied by both, the Central Government and the State Government, on supply of goods and/or services. The power to tax on supply of goods and services would also be vested in the hands of both, the State and Central Government. However, in case of inter-state supply, the power to tax would be vested with the Central Government, while the revenue of the final transaction would be transferred to the State and the Union similar to intra-state transaction. The following model shows how GST is levied in India broadly:
Meaning of CGST or Central GST
Central GST or CGST would be levied under the CGST Act on the intra-state supplies of goods and services. Hence in case of intra-state supplies of goods and services, both the Central and State government would combine their levies with an appropriate revenue sharing agreement between them. The power to levy CGST and SGST has been provided for in Section 8 of the GST Act, where it has been mentioned that:
The following taxes shall be levied on all intra-state supplies of goods, or services or both, at such rates specified in the Schedule to the said Act on the recommendation of the Council, but not exceeding 14%, each. Such CGST and SGST is to be paid by a taxable person.
Highlights of CGST
Ø CGST is applicable on both, goods and services.
Ø CGST is levied by the Central Government through a separate statute on all transactions of goods and services made for a consideration.
Ø Proceeds would be shared between the Central and State Government.
An inter-state supply of goods or service is one where the location of supplier of goods/service and place of supply are in different states. In addition, supply of goods or service to or by an SEZ developer or SEZ unit, supply in the course of import of goods or service, supply when supplier is located in India and the place of supply is located outside India (export) and any other supply not covered under intra-state is treated as inter-state supply.
Meaning of SGST or State GST
State GST or SGST is a tax levied under the SGST Act on intra-state supplies of goods and services, that is administered by the respective State Government. SGST lability can be set off against SGST or IGST input tax credit only.
Highlights of SGST
Ø SGST is levied by the State Governments through a statute on all transactions of supply of goods and services.
Ø SGST would be paid to the accounts of the respective State Government.
Highlights of IGST
Ø Central Government would levy and collect IGST instead of CGST or SGST.
Ø Levied on inter-state supply of goods and/or services.
Ø Includes import of goods and/or services.
Ø Exports would be zero rated.
Ø IGST would be shared between the Central and State Government.
Calculating CGST, SGST and IGST
The following illustrations shows the methodology for calculating CGST and SGST in case of intra-state supply:
Let’s assume that an almond trader in Mumbai, Maharashtra supplies almonds worth Rs.1 lakh to a shop in Pune, Maharashtra and the rate of CGST is 6% and SGST is 6%. In such a case, the almond trader would charge a CGST of Rs.6000 and SGST of Rs.6000 on the basic value of the product. The trader would then be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government.
The following illustrations shows the methodology for calculating IGST in case of inter-state supply:
Let’s assume that an almond trader in Mumbai, Maharashtra supplies almonds worth Rs.1 lakh to a shop in Chennai, Tamil Nadu and the rate of IGST is 12%. In such a case, the almond trader would charge a IGST of Rs.12000 on the basic value of the product. The trader would then be required to deposit the IGST component into a Central Government account.