How the Launch of Goods and Services Tax (GST) is a Game Changer in Indian Taxation

1. How the Launch of Goods and Services Tax (GST) is a Game Changer in Indian Taxation The Goods and Services Tax (GST) is an indirect tax system set to be introduced in India starting July 1, 2017. GST, the overall aim of which is to reform indirect taxation in India, will replace the traditional taxation exercised by the central and state governments. The idea behind GST is to amalgamate several central and state taxes into a single tax. WHAT GST MEANS FOR THE CONSUMER To a consumer, GST promises a reduction in the overall tax burden on goods, currently estimated to be at 25%-30%. The new regime also implies free inter-state movement of goods, free of state-level tax or entry tax. GST accounting is also expected to reduce paperwork involved in goods transfer. PROS AND CONS OF GST Advocates of the tax regime point out that the GST model will minimize crusading or double taxation. GST is planned to make taxation a simpler online procedure, making it easier to administer and enforce. Another aspect of GST is that it will regulate the unorganized sector. On the other hand, critics of the tax model say that it will imply higher tax burden for manufacturing SMEs and lead to an expansion of operating costs. For businesses, complying to GST may call for an overhaul of the existing software systems. It will also imply registration in multiple states. Moreover, unlike traditional systems, GST levy will fall in the middle of the year. RATES UNDER COMPOSITION SCHEME A registered taxpayer opting for the composition scheme must pay tax at a rate which is not more than 1% for manufacturer and traders and 5% for restaurants. WHAT KIND OF TRANSACTIONS WILL GST TOUCH? GST will cover all kinds of trade ranging from the sale, transfer, purchase, barter, lease, as well as import of goods and/or services. The taxation, administered through a dual model, will be applied both at the Union and State government levels. Since GST is a consumption-based tax, the levy will be in the state where the goods or services are consumed and not the state where they are produced.

2. THE COMPOSITION SCHEME The composition scheme was conceived to help small traders with annual turnover less than INR 1.5 crore. This scheme is strictly for businesses that deal with goods. While services providers are out of its purview, restaurant sector taxpayers can opt for the scheme. A dealer who opts for composition scheme are not eligible for input credit and cannot issue tax invoice.