Summary: GST has been construed as the best tax reform in India, if you are still alien to it then take a look at this piece and enrich your knowledge.
The much debated and touted Goods and Service Tax or also known as GST has been passed in the parliament and it will take effect from July onwards. For those folks who have been still alien to the GST, it is important that they have enrolled in the GST model to smoothly run their business, or they can be severely penalized. In the GST, the taxation is applied on the value added rather than the end value of the product. It might appear fishy for layman, but when taxes are imposed on the value added, it will simplify the taxation. For example, if the cost of raw material used to make a phone cover is Rs.100. After the imposition of the GST, the cost will go up to Rs. 110 with 10% GST on value of the raw material. The manufacturer of the cover will add another Rs. 100 as his profit and give it to the retailers. The price now of the cover is Rs. 210. From here onwards, the retailer will add his profit margin of say Rs.50. The cost of the cover for the end users will be now 210+50+10 (GST). This illustration demonstrates that GST is only applied on the value added, rather than on the real value of the goods. This makes the tax computation simpler and easy to collect.
Why GST is Necessary in India?
In the Indian tax system, the cascading effect of the taxation has been ruining the prospects of the customers. When the products are taxed at multiple end, it makes the tax system non-transparent. But with the GST, the adversities with respect to the taxation has been dealt away with. As GST will bundle up all the indirect taxes into one, greater transparency can be maintained in the taxation. Even for pervious payment of the taxes will be adjusted with the present tax payment. You can easily monitor the tax structure when all the enterprises will comply with the said standards put forward by the GST system.
Taxes which will be removed after the introduction of the GST
- Central Excise Duty
- Additional Excise Duties
- Excise Duty (Medicinal and Toiletries Preparation)
- Service Tax
- Additional Customs Duty, commonly known as Countervailing Duty (CVD)
- Special Additional Duty of Customs
- VAT / Sales Tax
- Entertainment Tax (unless it is levied by the local bodies).
- Luxury Tax
- Taxes on lottery, betting, and gambling
- State Cesses and Surcharges that are related to the supply of goods and services
- Entry Tax, not in lieu of Octroi