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Q 1. What is Goods and Service Tax (GST)?
Ans. It is a destination based tax on consumption of goods
and services. It is proposed to be levied at all stages right
from manufacture up to final consumption with credit
of taxes paid at previous stages available as setoff. In a
nutshell, only value addition will be taxed and burden of
tax is to be borne by the final consumer.
Q 2. What exactly is the concept of destination based
tax on consumption?
Ans. The tax would accrue to the taxing authority which
has jurisdiction over the place of consumption which is
also termed as place of supply.
Q 3. Which of the existing taxes are proposed to be
subsumed under GST?
Ans. The GST would replace the following taxes:
(i) taxes currently levied and collected by the Centre:
a. Central Excise duty
b. Duties of Excise (Medicinal and Toilet
Preparations)
c. Additional Duties of Excise (Goods of Special
Importance)
d. Additional Duties of Excise (Textiles and Textile
Products)
e. Additional Duties of Customs (commonly known as CVD)
f. Special Additional Duty of Customs (SAD)
g. Service Tax
h. Central Surcharges and Cesses so far as they
relate to supply of goods and services
(ii) State taxes that would be subsumed under the GST
are:
a. State VAT
b. Central Sales Tax
c. Luxury Tax
d. Entry Tax (all forms)
e. Entertainment and Amusement Tax (except when
levied by the local bodies)
f. Taxes on advertisements
g. Purchase Tax
h. Taxes on lotteries, betting and gambling
i. State Surcharges and Cesses so far as they relate to
supply of goods and services
The GST Council shall make recommendations to the Union
and States on the taxes, cesses and surcharges levied by
the Centre, the States and the local bodies which may be
subsumed in the GST.
Q 4. What principles were adopted for subsuming
the above taxes under GST?
Ans. The various Central, State and Local levies were examined to identify their possibility of being subsumed
under GST. While identifying, the following principles were
kept in mind:
(i) Taxes or levies to be subsumed should be primarily in
the nature of indirect taxes, either on the supply of goods
or on the supply of services.
(ii) Taxes or levies to be subsumed should be part of
the transaction chain which commences with import/
manufacture/ production of goods or provision of services
at one end and the consumption of goods and services at
the other.
(iii) The subsumation should result in free flow of tax
credit in intra and inter-State levels. The taxes, levies and
fees that are not specifically related to supply of goods &
services should not be subsumed under GST.
(v) Revenue fairness for both the Union and the States
individually would need to be attempted.
Q 5. Which are the commodities proposed to be kept
outside the purview of GST?
Ans. Alcohol for human consumption, Petroleum
Products viz. petroleum crude, motor spirit (petrol),
high speed diesel, natural gas and aviation turbine fuel&
Electricity.
Q 6. What will be the status in respect of taxation of
above commodities after introduction of GST?
Ans. The existing taxation system (VAT & Central Excise)
will continue in respect of the above commodities.
Q 6A. What will be status of Tobacco and Tobacco
products under the GST regime?
Ans. Tobacco and tobacco products would be subject to
GST. In addition, the Centre would have the power to levy
Central Excise duty on these products.
Q 7. What type of GST is proposed to be
implemented?
Ans. It would be a dual GST with the Centre and States
simultaneously levying it on a common tax base. The GST
to be levied by the Centre on intra-State supply of goods
and / or services would be called the Central GST (CGST)
and that to be levied by the States would be called the State
GST (SGST). Similarly Integrated GST (IGST) will be levied
and administered by Centre on every inter-state supply of
goods and services.
Q 8. Why is Dual GST required?
Ans. India is a federal country where both the Centre and
the States have been assigned the powers to levy and collect
taxes through appropriate legislation. Both the levels
of Government have distinct responsibilities to perform
according to the division of powers prescribed in the
Constitution for which they need to raise resources. A dual
GST will, therefore, be in keeping with the Constitutional
requirement of fiscal federalism.
Q 9. Which authority will levy and administer GST?
Ans. Centre will levy and administer CGST & IGST while
respective states will levy and administer SGST.
Q 10. Why was the Constitution of India amended
recently in the context of GST?
Currently, the fiscal powers between the Centre and the
States are clearly demarcated in the Constitution with
almost no overlap between the respective domains. The
Centre has the powers to levy tax on the manufacture of
goods (except alcoholic liquor for human consumption,
opium, narcotics etc.) while the States have the powers
to levy tax on the sale of goods. In the case of inter-State
sales, the Centre has the power to levy a tax (the Central
Sales Tax) but, the tax is collected and retained entirely
by the States. As for services, it is the Centre alone that
is empowered to levy service tax.
Introduction of the GST required amendments in the
Constitution so as to simultaneously empower the Centre
and the States to levy and collect this tax. The Constitution
of India has been amended by the Constitution (one hundred
and first amendment) Act, 2016 recently for this purpose.
Article 246A of the Constitution empowers the Centre and
the States to levy and collect the GST.
Q 11. How a particular transaction of goods and
services would be taxed simultaneously under
Central GST (CGST) and State GST (SGST)?
Ans. The Central GST and the State GST would be levied
simultaneously on every transaction of supply of goods and
services except the exempted goods and services, goods
which are outside the purview of GST and the transactions
which are below the prescribed threshold limits. Further, both would be levied on the same price or value unlike
State VAT which is levied on the value of the goods inclusive
of CENVAT. While the location of the supplier and the
recipient within the country is immaterial for the purpose
of CGST, SGST would be chargeable only when the supplier
and the recipient are both located within the State.
Illustration I: Suppose hypothetically that the rate of CGST
is 10% and that of SGST is 10%. When a wholesale dealer
of steel in Uttar Pradesh supplies steel bars and rods to
a construction company which is also located within the
same State for, say Rs. 100, the dealer would charge CGST
of Rs. 10 and SGST of Rs. 10 in addition to the basic price
of the goods. He would be required to deposit the CGST
component into a Central Government account while
the SGST portion into the account of the concerned State
Government. Of course, he need not actually pay Rs. 20 (Rs.
10 + Rs. 10 ) in cash as he would be entitled to set-off this
liability against the CGST or SGST paid on his purchases
(say, inputs). But for paying CGST he would be allowed to
use only the credit of CGST paid on his purchases while
for SGST he can utilize the credit of SGST alone. In other
words, CGST credit cannot, in general, be used for payment
of SGST. Nor can SGST credit be used for payment of CGST.
Illustration II: Suppose, again hypothetically, that the
rate of CGST is 10% and that of SGST is 10%. When
an advertising company located in Mumbai supplies
advertising services to a company manufacturing soap
also located within the State of Maharashtra for, let
us say Rs. 100, the ad company would charge CGST of Rs. 10 as well as SGST of Rs. 10 to the basic value of
the service. He would be required to deposit the CGST
component into a Central Government account while
the SGST portion into the account of the concerned State
Government. Of course, he need not again actually pay
Rs. 20 (Rs. 10+Rs. 10) in cash as it would be entitled to
set-off this liability against the CGST or SGST paid on
his purchase (say, of inputs such as stationery, office
equipment, services of an artist etc). But for paying
CGST he would be allowed to use only the credit of CGST
paid on its purchase while for SGST he can utilise the
credit of SGST alone. In other words, CGST credit cannot,
in general, be used for payment of SGST. Nor can SGST
credit be used for payment of CGST.
Q 12. What are the benefits which the Country will
accrue from GST?
Ans. Introduction of GST would be a very significant step in
the field of indirect tax reforms in India. By amalgamating
a large number of Central and State taxes into a single tax
and allowing set-off of prior-stage taxes, it would mitigate
the ill effects of cascading and pave the way for a common
national market. For the consumers, the biggest gain would
be in terms of a reduction in the overall tax burden on goods,
which is currently estimated at 25%-30%. Introduction
of GST would also make our products competitive in the
domestic and international markets. Studies show that this
would instantly spur economic growth. There may also be
revenue gain for the Centre and the States due to widening
of the tax base, increase in trade volumes and improved tax compliance. Last but not the least, this tax, because of
its transparent character, would be easier to administer.
Q 13. What is IGST?
Ans. Under the GST regime, an Integrated GST (IGST)
would be levied and collected by the Centre on inter-State
supply of goods and services. Under Article 269A of the
Constitution, the GST on supplies in the course of inter-
State trade or commerce shall be levied and collected by
the Government of India and such tax shall be apportioned
between the Union and the States in the manner as may be
provided by Parliament by law on the recommendations of
the Goods and Services Tax Council.
Q 14. Who will decide rates for levy of GST?
Ans. The CGST and SGST would be levied at rates to be
jointly decided by the Centre and States. The rates would
be notified on the recommendations of the GST Council.
Q 15. What would be the role of GST Council?
Ans. A GST Council would be constituted comprising the
Union Finance Minister (who will be the Chairman of the
Council), the Minister of State (Revenue) and the State
Finance/Taxation Ministers to make recommendations to the
Union and the States on
(i) the taxes, cesses and surcharges levied by the
Centre, the States and the local bodies which
may be subsumed under GST;
(ii) the goods and services that may be subjected to
or exempted from the GST;
(iii) the date on which the GST shall be levied on
petroleum crude, high speed diesel, motor sprit
(commonly known as petrol), natural gas and
aviation turbine fuel;
(iv) model GST laws, principles of levy, apportionment
of IGST and the principles that govern the place
of supply;
(v) the threshold limit of turnover below which the
goods and services may be exempted from GST;
(vi) the rates including floor rates with bands of
GST;
(vii) any special rate or rates for a specified period
to raise additional resources during any natural
calamity or disaster;
(viii) special provision with respect to the North-
East States, J&K, Himachal Pradesh and Uttarakhand; and
(ix) any other matter relating to the GST, as the
Council may decide.
Q 16. What is the guiding principle of GST Council?
Ans. The mechanism of GST Council would ensure
harmonization on different aspects of GST between the
Centre and the States as well as among States. It has
been provided in the Constitution (one hundred and
first amendment) Act, 2016 that the GST Council, in its
discharge of various functions, shall be guided by the need
for a harmonized structure of GST and for the development
of a harmonized national market for goods and services.
Q 17. How will decisions be taken by GST Council?
Ans. The Constitution (one hundred and first amendment)
Act, 2016 provides that every decision of the GST Council
shall be taken at a meeting by a majority of not less than
3/4th of the weighted votes of the Members present and
voting. The vote of the Central Government shall have a weightage of 1/3rd of the votes cast and the votes of all the
State Governments taken together shall have a weightage
of 2/3rd of the total votes cast in that meeting. One half
of the total number of members of the GST Council shall
constitute the quorum at its meetings.
Q 18. Who is liable to pay GST under the proposed
GST regime?
Ans. Under the GST regime, tax is payable by the taxable
person on the supply of goods and/or services. Liability to
pay tax arises when the taxable person crosses the threshold
exemption, i.e. Rs.10 lakhs (Rs. 5 lakhs for NE States) except
in certain specified cases where the taxable person is liable
to pay GST even though he has not crossed the threshold
limit. The CGST / SGST is payable on all intra-State supply
of goods and/or services and IGST is payable on all inter-
State supply of goods and/or services. The CGST /SGST and
IGST are payable at the rates specified in the Schedules to
the respective Acts.
Q 19. What are the benefits available to small tax
payers under the GST regime?
Ans. Tax payers with an aggregate turnover in a financial
year up to [Rs.10 lakhs] would be exempt from tax. [Aggregate turnover shall include the aggregate value of
all taxable and non-taxable supplies, exempt supplies and
exports of goods and/or services and exclude taxes viz.
GST.] Aggregate turnover shall be computed on all India
basis. For NE States and Sikkim, the exemption threshold
shall be [Rs. 5 lakhs]. All taxpayers eligible for threshold
exemption will have the option of paying tax with input
tax credit (ITC) benefits. Tax payers making inter-State
supplies or paying tax on reverse charge basis shall not be
eligible for threshold exemption.
Q 20. How will the goods and services be classified
under GST regime?
Ans. HSN (Harmonised System of Nomenclature) code
shall be used for classifying the goods under the GST regime.
Taxpayers whose turnover is above Rs. 1.5 crores but below
Rs. 5 crores shall use 2 digit code and the taxpayers whose
turnover is Rs. 5 crores and above shall use 4 digit code.
Taxpayers whose turnover is below Rs. 1.5 crores are not
required to mention HSN Code in their invoices.
Services will be classified as per the Services Accounting
Code (SAC)
Q 21. How will imports be taxed under GST?
Ans. Imports of Goods and Services will be treated as
inter-state supplies and IGST will be levied on import of
goods and services into the country. The incidence of tax
will follow the destination principle and the tax revenue in
case of SGST will accrue to the State where the imported
goods and services are consumed. Full and complete set-off will be available on the GST paid on import on goods and
services.
Q 22. How will Exports be treated under GST?
Ans. Exports will be treated as zero rated supplies. No tax
will be payable on exports of goods or services, however
credit of input tax credit will be available and same will be
available as refund to the exporters.
Q 23. What is the scope of composition scheme under
GST?
Ans. Small taxpayers with an aggregate turnover in
a financial year up to [Rs. 50 lakhs] shall be eligible for
composition levy. Under the scheme, a taxpayer shall
pay tax as a percentage of his turnover during the year
without the benefit of ITC. The floor rate of tax for CGST
and SGST shall not be less than [1%]. A tax payer opting
for composition levy shall not collect any tax from his
customers. Tax payers making inter- state supplies or
paying tax on reverse charge basis shall not be eligible for
composition scheme.
Q 24. Whether the composition scheme will be
optional or compulsory?
Ans. Optional.
Q 25. What is GSTN and its role in the GST regime?
Ans. GSTN stands for Goods and Service Tax Network
(GSTN). A Special Purpose Vehicle called the GSTN has
been set up to cater to the needs of GST. The GSTN shall
provide a shared IT infrastructure and services to Central and State Governments, tax payers and other stakeholders
for implementation of GST. The functions of the GSTN
would, inter alia, include: (i) facilitating registration; (ii)
forwarding the returns to Central and State authorities;
(iii) computation and settlement of IGST; (iv) matching
of tax payment details with banking network; (v)
providing various MIS reports to the Central and the State
Governments based on the tax payer return information;
(vi) providing analysis of tax payers’ profile; and (vii)
running the matching engine for matching, reversal and
reclaim of input tax credit.
The GSTN is developing a common GST portal and
applications for registration, payment, return and MIS/
reports.
The GSTN would also be integrating the common
GST portal with the existing tax administration IT systems
and would be building interfaces for tax payers. Further,
the GSTN is developing back-end modules like assessment,
audit, refund, appeal etc. for 19 States and UTs (Model
II States). The CBEC and Model I States (15 States) are
themselves developing their GST back-end systems.
Integration of GST front-end system with back-end systems
will have to be completed and tested well in advance for
making the transition smooth.
Q 26. How are the disputes going to be resolved
under the GST regime?
Ans. The Constitution (one hundred and first amendment)
Act, 2016 provides that the Goods and Services Tax Council
shall establish a mechanism to adjudicate any dispute (a) between the Government of India and one or more
States; or
(b) between the Government of India and any State or
States on one side and one or more other Sates on the other
side; or
(c) between two or more States,
arising out of the recommendations of the Council or
implementation thereof.
Q 27. What are the other legislative requirements
for introduction of the GST?
Ans. Suitable legislation for the levy of GST (Central GST
Bill, Integrated GST Bill and State GST Bills) drawing
powers from the Constitution would need to be passed
by the Parliament and the State Legislatures. Unlike the
Constitutional Amendment which requires 2/3rd majority,
the GST Bills would need to be passed by a simple majority.
Obviously, the levy of the tax can commence only after the
GST law has been enacted by the Parliament and respective
Legislatures
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