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An Ultimate Guide to Goods and Service Tax (GST)

Learn what is GST, CGST, IGST & difference between them. Read more on the implications, benefits and impact on loans and lot more https://www.bajajfinservmarkets.in/loans/business-loan.html

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An Ultimate Guide to Goods and Service Tax (GST)

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  1. An Ultimate Guide to Goods and Service Tax (GST) The Goods and Services Tax (GST) is the biggest reform in the tax regime of the country. It was introduced with an aim to simplify the tax structure in India and to ensure that there is one tax for the entire nation. The implementation of GST has had an impact on different industries across the country. With regards to the Banking and Financial Sector, earlier a 15% service tax was charged. This has s been replaced with an 18% GST slab. Here is how the impact of GST on loans will affect you in the long run. What taxes got replaced? Earlier there used to be multiple taxes such as Central Excise, Service Tax, and State VAT, etc. But under GST, here is just one tax which simplifies things. Goods and Services Tax (GST) is categorized into CGST, SGST and IGST depending on whether the transaction is Intra-State or Inter-State. Pre GST Indirect Tax Structure Under the post-independence indirect tax regime, separate Central and State laws were formulated to govern the taxation of goods and services. Therefore, both Central and State governments imposed and collected taxes on goods or services at different points of the supply chain. For instance, the Central Government had powers to levy a tax on the manufacture of goods except for alcoholic liquor, narcotics, etc. Central Excise, Customs, and Service Tax were the major taxes for the Central Government. On the other hand, the states had powers to charge tax on the sale of goods. A dual GST model was implemented in India. Both the Centre and States have defined functions and responsibilities to implement GST. Furthermore, the dual GST model incorporates two GST components. 1) One imposed by the Central Government 2) The other levied by the State Government. And, depending upon the place and nature of supply, there are four GST components:  Central GST (CGST)  State GST (SGST)  Integrated GST (IGST)  Union Territory GST (UTGST) Taxes Subsumed Under GST The main objective of GST is to consolidate multiple indirect taxes charged under the previous indirect tax structure. Thus, the essence of such a tax regime is to remove the surging effect of multiple taxes. Therefore, Goods and Services Tax (GST) is a well-designed VAT that aims to eliminate distortions existing in the previous indirect tax structure. Accordingly, the following indirect taxes have been subsumed under GST: Central Taxes  Countervailing Duty (CVD) of Customs

  2. Central Excise Duty  Special Additional Duty of Customs  Service Tax  Duties of Excise under Medicinal and Toilet Preparations Act  Additional Duties of Excise  Cesses and Surcharges State Taxes  Central Sales Tax  State VAT  Purchase Tax  Luxury Tax  Entry Tax  Taxes on Lotteries, Betting, and Gambling  Entertainment Tax  Taxes on Advertisements  State Cesses and Surcharges What is CGST, IGST, SGST, and UTGST? CGST- Central Goods and Services Tax (CGST) levy is governed by the Central Goods and Services Act, 2017. This tax is charged on the transaction value of the goods or services supplied. The transaction value is the price actually paid or payable for the supply of goods or services. IGST- Integrated GST is an indirect tax imposed and collected by the Central Government on the inter- state supply of goods or services. Such supplies do not include alcoholic liquor for human consumption. SGST- State Goods and Services Tax (SGST) is levied on the transaction value of the goods or services supplied as per section 15 of the SGST Act. The transaction value is the price actually paid or payable for the said supply of goods or services UTGST- This tax levy is governed by the Union Territory Goods and Services Act (UTGST), 2017. And such a tax is charged on the transaction value of goods or services supplied. The transaction value is the price actually paid or payable for the said supply of goods or services.

  3. Applicability of CGST, SGST, IGST There are 4 components of GST, namely, (i) CGST, (ii) SGST, (iii) IGST and (iv) UTGST. So, the kind of tax to be paid under GST depends on the nature of supply. There can be two types of supply – Inter- State and Intra-State. 1. Intra-State Supply Any supply where the place of the supplier and the place to supply are in the same State or Union Territory. In case of such a supply of goods and services, a seller has to collect both CGST and SGST. Thereafter, the CGST part gets deposited with the Central Government. And the SGST portion gets deposited with the respective State Government. 2. Inter-State Supply Any supply where the place of the supplier and the place of supply are in:  Two different States  2 Different Union Territories  A State and a Union Territory The following supplies are also treated as Inter-State supplies:  Supplies to or by Special Economic Zones (SEZs)  Goods or services imported to India  Services or goods exported outside India  Supply of goods or services to international tourists Thus, on the Inter-State supply of goods or services, only IGST is imposed and collected by the Central Government. Claim Input Tax Credit Let’s understand how Input Tax Credit is claimed under CGST, SGST and IGST, we need to consider the following example: Example Say, for instance, Manish a manufacturer in Punjab Supplies goods to Mahesh, a wholesaler in Punjab for Rs 1 Lakh at 18% GST. Mahesh further supplies these goods to Girish, a retailer in Maharashtra, for Rs 1.75 Lakhs at 18% GST. Finally, Girish sells the goods to Ashok, a consumer in Maharashtra for Rs 3 Lakhs, at 18% GST. Since Manish is selling the goods to Mahesh in Punjab itself, it is an intra-state supply. In addition, for intra-state supplies, both CGST and SGST are charged. Therefore, GST at 18% is equally divided between CGST and SGST. Where CGST imposed is 9% and SGST is 9%. Then, Mahesh after adding some value sells the goods to Girish in Maharashtra for Rs 1.75 Lakhs at 18% GST. Since this is an inter-state supply, only IGST is levied and collected by the Central

  4. Government. Therefore, the entire 18% GST is levied as IGST and is deposited with the Central Government. Utilization Input Tax Credit (ITC) is credited to a taxpayer’s electronic ledger. The taxpayer may use the ITC to pay the output tax liability. The below table describes the manner of utilization of ITC according to Section 49(5) of the CGST Act, 2017. CGST Liability SGST Liability IGST Liability First, ITC standing under CGST First, ITC standing under SGST First, ITC standing under IGST First, ITC standing under IGST Then, ITC standing under IGST Then, ITC standing under CGST Finally, ITC standing under SGST As a business owner you should always be informed about the various types of gst their uses and their implications. That’s why we at Finserv MARKETS understands a business and always strive to provide assistance in whatever way possible just like our unsecured business loan where in you don’t have to pledge any security and can avail upto 25 lakhs with minimal documentation, interesting schemes, quick approval and disbursement in one day. Impact of GST on Loans With the implementation of the GST, tax buckets are changed, also the way of doing business, as the cash outflow and timelines have been remarkably affected. One Tax concept of GST (Goods and Service Tax) has transformed the entire taxation structure of India. GST affects goods and all kinds of services. The name “Goods and Services Tax” means that all sorts of products and services come under GST. Impact on Personal Loan, Home Loan, Business Loan in GST Era Banks and other financial institutions provide a slew of loans in order to boost their credit growth. Some of the popular loans include a personal loan, home loan, business loan, etc. What’s common among these loans was the imposing of service tax, which used to be at 15%. But with the Good and Services Tax (GST) rolls out, the 15% service tax has been replaced with a standard 18% rate, which makes it an expensive affair. Since different loans can have different charge structure, it would be better to study each of them individually. GST Impact on Personal Loan With the implementation of GST, the Service Tax levied on a personal loan has increased to 18% from an earlier 15% rate. Having said that, this surely does not impact your EMI payouts but definitely affects the various charges that are levied. Some of these charges on include processing fees, prepayment charges, financial fitness report charges etc. Availing a personal loan will now cost you 3% more than what it used to before GST implementation. However there are indirect tax benefit on personal loan. Increase in Prepayment Charges

  5. Most banks tend to charge around 2% to 5% as loan prepayment charges. With the implementation of GST, the service tax on loan prepayment charges has increased by 3%. An example will help you understand it better. Jay has a loan of INR 5 lakh and the prepayment charges are between 2% to 5%, which comes to around INR 10,000 to INR 25,000. With the service rate of 15%, the tax on the same would be around INR 1,500 to INR 3,750. However, with the implementation of GST, the service tax will reach INR 1,800 to INR 4,500. This is an increase of INR 300 to INR 750. Increase in processing fees Whenever you apply for a personal loan, the financial institution will charge a processing fee of 1 to 2% on the loan in addition to the service tax. Before GST implementation, a 15% service tax was applicable on processing fee which, is now charged at 18%. This implies that there is a 3% increase in cost of availing a loan. Let us take an example here. Simran has applied for a personal loan of INR 10 lakh with a processing fee ranging between 1% to 2% of the loan amount or INR 10,000 – INR 20,000. The service tax levied would be range between INR 1,500 – INR 3,000. The same amount will now be INR 1,800 – INR 3,600 post implementation of GST. Although the cost of acquiring a loan has increased, this burden is not applicable on your regular EMI payouts as they fall outside the purview of GST and Service Tax. This is primarily the reason why a personal loan still remains a preferred form of borrowing. Hence, when you apply for a loan, you have to consider the impact of GST over the total loan amount. GST Impact on Home Loan The impact of GST on home loans is tricky to understand as a lot of things are still not clear. What’s clear though is the processing fee levy where an 18% rate will be applicable instead of 15% at the present time. Now, the processing fee is at 0.25%-1% of the loan amount along with applicable service tax. So, on a personal loan amount of say ₹25 lakhs, a processing fee of ₹6,250-25,000+S.T. of 937.50-3,750, used to be levied. The eventual amount after calculation comes as ₹7,187.50- 28,750. But with GST the same processing fee will be ₹7,375-29,500. The floating rate home loans do not hold up any charge. The fixed-rate home loan, on the other hand, used to be charged at 2%-3% of the principal outstanding plus service tax at 15%. With GST, it will be 2%-3% of the principal outstanding+18%. GST Impact on business loans Due to the GST impact on business loans, the loan became expensive because of the GST imposed at the rate of 18%. This increased the processing fees on GST business loans making it marginally expensive for borrowers. Nonetheless, the potential growth opportunities available to businesses make this small increase almost unimportant in the longer term. Let’s have a look at the impact of GST on business and working capital flows 1. Input tax credit changes: As per the taxation system, any tax paid on a business expense that is not directly related to taxable sales is not available as credit. For example, tax paid on advertising expenses will not be available as credit. 2. Claims due to inverted duty structure: Inputs are taxed higher than the outputs, also the raw material excise duty is taxed higher than that for finished goods, leading to a situation where the excess is unused and gets collected. Under the regime, this excess is non-refundable.

  6. 3. Timeliness of input tax credit: The input tax credit availed is not captured in real-time, or in line with the current tax liability of the supplier. With Good and Services Tax (GST), the input tax credit amount depends on the compliance level of the supplier. 4. Advance tax payments: Under the GST regime, tax needs to be paid in advance, it was made applicable to only service tax. If an advance tax payment is received against supply at a later date, the tax is liable to be paid on the date of advance receipt. 5. Taxation of stock transfers: The VAT rules do not treat stock transfers as “goods” or “services”. However, with the GST, change stock transfers are included under the category of goods/services and are taxable too. 6. The impact of location in offsetting credit: Under GST, different state entities need to be registered individually. There are certain restrictions to offset a Central GST tax with an Integrated GST tax, which may create difficulties in offsetting tax input credits across locations.

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