INDIAN TAX SYSTEM AND GST
- by
- Jk
INTRODUCTION
Tax
is a mandatory financial charge imposed upon a taxpayer (an individual or other
legal entity) by government, in order to fund various public expenditures. Public
expenditures include expenditures on economic infrastructure (roads, public
transportation, sanitation, legal systems, public safety, education,
health-care systems), military, scientific research, culture and the arts,
distribution, and the operation of government itself.
DIRECT
TAX
A direct
tax is paid directly by an individual or organization to an imposing entity. In
direct tax the impact and incidence fall on same person, Impact means immediate
burden and incidence means ultimate burden.
Examples
of direct tax:
Ø INCOME TAX
Ø CORPORATE TAX
Ø GIFT TAX etc.…
INCOME
TAX
Income
tax is an annual tax on income. Income of previous year is taxable in the next
following assessment year from an income tax perspective, FY is
the year in which you earn an income. AY is
the year following the financial year in which you have to
evaluate the previous year's income and pay taxes on it
HEADS
OF INCOME
- Salaries
- Income from House Property
- Profit and Gains of Business or
Profession
- Capital Gains
- Income from Another Source
INDIRECT
TAX
When the
impact and incidence fall on different person, then it is known as indirect
tax.
Examples
of indirect tax:
ü SERVICE TAX
ü SALES TAX
ü VALUE ADDED TAX
ü GST etc.…
Sales
Tax (1938)
A
sales tax is a consumption tax imposed by the government on the sale of goods
and services. Sales tax is levied at the point of sale, collected by the
retailer and passed on to the government. Sales taxes are only charged to
the end user of a good or service. Because the majority of goods in
modern economies pass through a number of stages of manufacturing, often
handled by different entities, a significant amount of documentation is
necessary to prove who is ultimately liable for sales tax.
Value
Added Tax (2005)
Value-added
tax (VAT) is a type of consumption tax that is placed on a product whenever
value is added at a stage of production and at the point of retail
sale. VAT is levied on the gross margin at each point in
the manufacturing-distribution-sales process of an item. The tax is
assessed and collected at each stage.
Goods
and Services Tax (2017)
GST
is an indirect tax levied on the supply of goods and services. “GST is
a comprehensive, multi-stage, destination-based tax that
will be levied on every value addition.”
The
main objective of incorporating the GST is to eliminate tax on tax
i.e. double taxation which cascades from the manufacturing level to the
consumption level. The Goods and Services Tax (GST) is a value-added tax levied
on most goods and services sold for domestic consumption. The GST is paid by
consumers, but it is remitted to the government by the businesses selling the
goods and services.
France
was the first country to implement the GST in 1954. Some of the countries with
GST include Canada, Vietnam, Australia, Singapore, UK, Monaco, Spain, Italy,
Nigeria, Brazil, and South Korea. India is set to join the GST group on July 1,
2017.
Destination-Based
Consider
goods manufactured in Maharashtra and are sold to the final consumer in
Karnataka. Since Goods & Service Tax (GST) is levied at the point of consumption,
in this case, Karnataka, the entire tax revenue will go to Karnataka and
not Maharashtra.
Components
of GST
There are
3 taxes applicable under GST:
ü
CGST: Collected by the Central
Government on an intra-state sale (Eg: Within Maharashtra)
ü
SGST: Collected by the State
Government on an intra-state sale (Eg: Within Maharashtra)
ü
IGST: Collected by the Central
Government for inter-state sale (Eg: Maharashtra to Tamil Nadu)
ILLUSTRATION
Let
us assume that a dealer in Gujrat had sold the goods to a dealer in Punjab
worth Rs. 50,000. The GST rate is 18% comprising of only IGST. In such case,
the dealer has to charge Rs. 9,000 as IGST. This IGST revenue will go to
the Central Government. The same dealer sells goods to a consumer in Gujrat
worth Rs. 50,000. The GST rate on the good is 12%. This rate comprises of CGST
at 6% and SGST at 6%. The dealer has to collect Rs. 6,000 as Goods and
Service Tax. Rs. 3,000 will go to the Central Government and Rs. 3,000 will go
to the Gujarat government as the sale is within the state
Advantages
of GST
Ø Removing cascading effect of tax
Ø Higher threshold for registration
Ø Defined treatment for e-commerce
Ø Increased efficiency in logistics
Disadvantages
of GST
Ø
Increased
costs due to software purchase
Ø
Increase
in operational cost
Ø
SME
will have a higher tax burden
CONCLUSION
GST will bring in transparent and corruption
free tax administration, removing the current shortcoming in indirect tax
structure. GST is business-friendly as well as consumer-friendly
 by government, in order to...){kind=link}
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