Taxability under GST

GST is a destination-based tax that will replace the current Central taxes and duties such as Excise Duty, Service Tax, Counter Vailing Duty (CVD), Special Additional Duty of Customs (SAD), Central Sales Tax (CST), central charges and cesses and local state taxes, i.e., Value Added Tax (VAT), Octroi, Entry Tax, Purchase Tax, Luxury Tax, Taxes on lottery, betting and gambling, state cesses and surcharges and Entertainment tax (other than the tax levied by the local bodies).

It will be a dual levy with SGST/UTGST and CGST for intra-state supplies of goods or services. Moreover, inter–state supplies would attract an Integrated GST, which would be the total of CGST and SGST/UTGST.

For the purposes of GST, the expression “supply” includes––

a) All forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

b) Import of services for a consideration whether or not in the course or furtherance of business;

c) Activities to be treated as supply even if made without consideration:

· Permanent transfer or disposal of business assets where input tax credit has been availed on such assets

· Gift exceeding Rs. 50,000 provided by an employer to employee per year

· Supply of goods or services or both between related persons or between distinct persons, when made in the course or furtherance of business

· Supply of goods by the principal to his agent or vice versa

· Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

 

d) There are certain activities that are to be treated as supply of goods or supply of services as specified in the GST Act. These are as follows:

· Any transfer of the title in goods is a supply of goods

· Any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services.

· Any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods.

· Any lease, tenancy, easement, license to occupy land is a supply of services

· Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.

· Any treatment or process which is applied to another person's goods is a supply of services.

· Renting of immovable property will be treated as supply of services

· Works contract will be treated as supply of services

· Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration

 

e) Activities that are neither supply of goods nor supply of services:

· Services by an employee to the employer in the course of or in relation to his employment.

· Services by any court or Tribunal established under any law for the time being in force.

· (a) the functions performed by the Members of Parliament, Members of State

Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;

(b) the duties performed by any person who holds any post in pursuance of the

provisions of the Constitution in that capacity; or

(c) the duties performed by any person as a Chairperson or a Member or a

Director in a body established by the Central Government or a State Government or

local authority and who is not deemed as an employee before the commencement of this clause.

· Services of funeral, burial, crematorium or mortuary including transportation of the

deceased.

· Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

· Actionable claims, other than lottery, betting and gambling.

How is GST Levied: GST will be levied on the place of consumption of Goods and Services. It can be levied on:

· Inter-state supply and consumption of goods & services (IGST)

· Intra-state movement of goods (CGST + SGST/ UTGST)

· Import/ Export of Goods & Services (IGST)

Applicability of GST: The CGST and SGST/ UTGST would be levied simultaneously in every intra-state transactions of supply of goods and services except on exempted goods and services, goods which are outside the purview of GST and goods which are supplied by an unregistered person. Both CGST & SGST would be levied on the same price or value unlike the present scenario where state VAT which is levied on the value of goods inclusive of Central Excise Duty.

In case of inter-state transactions, the Center would levy and collect Integrated Goods and Services Tax (IGST) on all inter-state supplies of goods and services. The IGST tax would be equal to the sum of CGST + SGST. The inter-state supplier would pay IGST on the supply of goods or services to the government after adjusting the input tax credit of IGST, CGST and SGST (in that order).  The importing dealer will claim credit of IGST paid while discharging his output liability in its own state.

For Import Activities:  The Countervailing Duty (CVD) and the Special Additional Duty (SAD), which compensates Excise and VAT, presently being levied on imports will also be subsumed by GST. The law has stated that IGST will be levied on all imports into the territory of India. Unlike the present regime, the states where imported goods are consumed will now get their share from its IGST paid on Imported Goods.

 Conclusion: GST in India is expected to simplify and rationalize the current indirect tax regime, eliminate tax cascading and put the Indian economy on high-growth trajectory. The proposed GST levy may potentially impact both manufacturing and services sector for the entire value chain of operations, namely procurement, manufacturing, distribution, warehousing, sales, and pricing. It will also stimulate the need to relook at internal organization and IT systems.

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