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Due to the various problems regarding our old taxation system, like double taxation, higher burden on the consumers, and various procedural requirements at the various levels , the government of India has decided to abolish all that multiple tax requirements and has introduced a single taxation system for all the indirect taxes known as Good and Service Tax.
Goods and services tax is a tax on the supply of goods and services, or both. The few exceptions being
GST is destination based consumption tax i.e. tax would accrue to the state in which goods or services are finally consumed. GST having a dual tax structure both centre and state will have the power to levy tax on local supply of goods and services. GST is an integrated tax and has subsumed various indirect taxes in itself like VAT, Service Tax,etc.
Value Added Tax (VAT) is an indirect value added tax which was introduced into Indian taxation system on April 1, 2005. As a taxation concept, VAT replaced Sales Tax. VAT was introduced in Inida to make it a single integrated market. On June 2, 2014, VAT was implemented in all states and union territories of India, except Andaman and Nicobar Islands and Lakshadweep Islands.
The various ills of VAT taxation system which paved a way for the introduction of GST - one nation one tax are:
GST has been designed as a one comprehensive, destination-based taxation concept. It aims to streamline the process for tax levy, collection and monitoring and overcome the cascading effect of taxation. There may be also revenue gain for the Centre and states due to widening of the tax base, increase in trade volumes and improved tax compliance.
| S No | Particulars | Old VAT/ Indirect Tax System | New GST Model |
|---|---|---|---|
| 1 | Nature of Tax | Based on Origin or value addition | Destination based tax on final consumption |
| 2 | Central Taxes Subsumed | Central Excise Additional Duty of Customs Service Tax | CGST |
| 3 | State Taxes Subsumed | VAT Purchase Tax Entertainment TAx Luxury Tax Lottery Taxes State Cess and Surcharge Entry Tax | SGST |
| 4 | Custom Duties Replaced | Basic custom duty Additional Duty of Customs Special Additional Duty of Customs Cess | BCD IGST |
| 5 | Inter State Taxes Replaced | Excise Duty Central Sales Tax Service Tax | IGST |
| 6 | Intra State Taxes Replaced | Excise Duty State VAT Service Tax | CGST SGST |
| 7 | Taxation event | Tax is levied on manufacture, sale/completion of provision of services | Supply of Goods and Services |
| S No | Particulars | Old VAT/ Indirect Tax System | New GST Model |
|---|---|---|---|
| 1 | Taxation Point | Sale of Goods | Supply of Goods and Services |
| 2 | Applicability | On goods only | Both on Goods and Services |
| 3 | Registration Threshold | Compulsory if turnover exceeds Rs 10 lakhs | Compulsory of turnover exceeds Rs 40 lakhs |
| 4 | Collection of revenue | By selling state | GST is a destination or consumption based tax hence ultimate buying state |
| 5 | Interstate tax credit | Not available (CENVAT applicable) | Can be taken |
| 6 | Compliances required | Multiple compliances and registrations | Compliance procedure has been streamlined |
| 7 | Cascading effect | VAT was levied on value addition on each stage, hence resulted in double taxation in some cases. | The ill of Tax on Tax has been eradicated with the introduction of GST |
| 8 | Online Payment | Online tax payment was not mandatory | It is necessary to make online payment of GST |
A lot is talked about removal of double taxation with the introduction of GST. Let us understand how calculation under both the systems of GST and VAT are done
Example| Particulars | Tax Applicable | Tax Rate | Taxable Value | Tax Calculated | Total Amount |
|---|---|---|---|---|---|
| Tax Implications under VAT | |||||
| Price of manufactured goods | Excise Duty | 12.5% | 10,000 | 1,250 | 11,250 |
| Sale of goods | VAT | 14.5% | 11,250 | 1,631 | 12,881 |
| Total Amount Payable | 2,881 | 12,881 | |||
| Tax Implications under GST | |||||
| Consumption of goods | CGST | 9% | 10,000 | 900 | 10,900 |
| Consumption of goods | SGST | 9% | 10,000 | 900 | 10,900 |
| Total Amount Payable | 1,800 | 11,800 | |||
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Introduction of GST has subsumed major indirect taxes including VAT. But, VAT on some products like electricity and alcohol for human consumption and on petroleum products is still prevalent. These products have not yet been covered under the scope of GST.
GST was introduced in India to overcome the inherent limitations or drawbacks of the vTA taxation system. Prior to implementation of GST multiple indirect taxes were inforce for goods and services GST has came on the concept of one nation one tax. One of the major issues redressed by GST being the removal of tax on tax a.k.a cascading effect of taxation.
GST or Goods and Services Tax is a comprehensive tax levied on value addition to supply and its point of taxation being final consumption or destination.
