It’s been more than a year and people are still trying to figure out the difference GST has brought to their budget. How good is GST? What is Income Tax Credit? How to calculate GST? Here, in this article, we have tried to answer some of these queries.
Goods and Service Tax is regarded as the biggest indirect tax reform in India. It came into effect on 1st July 2017 and replaced major indirect taxes like Service tax, VAT, Excise duty etc.
What is GST?
GST is an indirect tax which is levied on the supply of goods and services. It is a comprehensive, destination-based tax levied on sale, consumption, and manufacturing of goods or rendering of services.
GST is a value added tax where tax is levied on every point of production. It has replaced almost all indirect taxes levied by state and central government. Replacement of several indirect taxes with one tax will help mitigate double taxation, cascading effect of taxes, tax evasion, etc. and help our economy to create a national front for movement of goods and services all over India.
GST has adopted a dual GST model in which both central and state government levy tax on goods and services. There are four components of GST which are as follows :
• SGST or State GST, which is collected by the state government and is levied on an intra-state movement of goods and services.
• CGST or Central GST, which is collected by the central government and is levied on an intra-state movement of goods and services along with SGST.
Example: A dealer in Maharashtra sells goods to another dealer in Maharashtra worth INR 70,000. The rate of GST on these goods is 12%. CGST @6% and SGST @6% will be levied and the total GST will amount to INR 8,000.
• IGST or Integrated GST, which is collected by central government and is shared between central and state government. It is levied on an inter-State movement of goods and services.
Example: If the same dealer sells goods to another dealer in Gujarat. Then IGST @12% will be charged.
• UTGST or Union Territory GST, which is collected on the supply of goods and services in any of the Union Territories.
GST slabs are fixed at the rates 5%, 12%, 18% and 28%, where goods under the tax bracket of 5% contain goods of mass consumption like spices, oils etc. Goods under the tax bracket of 12% contain processed foods. Under 18% tax bracket we have FMCG goods, refrigerators etc., and under the tax bracket of 28% we have luxury items like cars etc.
Income Tax Credit
Income Tax Credit or ITC means you can avail credit of the tax paid on input while paying tax on output. Suppose you have paid INR 350 as the tax on input and your tax liability on output comes out to be INR 500. Now you can avail tax credit of INR 350 earlier paid as tax and pay INR 150 (500-350) as tax.
GST and ITC explained with an example
Particulars Dealer 1 Dealer 2 Dealer 3
Selling Price
6000
8000
12000
GST @ 18%
• CGST @ 9%
• SGST @ 9%
540
540
720
720
1080
1080
Selling Price + GST
7080
(6000 + 1080)
9440
(8000 + 1440)
14160
(12000 + 2160)
Income Tax Credit
0
1080
1440
(1080 + 360)
Total Tax Payable
1080
360
720
The total amount of tax in this whole process will be INR 2,160. This process continues until the product is finally consumed by the ultimate consumer.
Goods and Service Tax is regarded as the biggest indirect tax reform in India. It came into effect on 1st July 2017 and replaced major indirect taxes like Service tax, VAT, Excise duty etc.
What is GST?
GST is an indirect tax which is levied on the supply of goods and services. It is a comprehensive, destination-based tax levied on sale, consumption, and manufacturing of goods or rendering of services.
GST is a value added tax where tax is levied on every point of production. It has replaced almost all indirect taxes levied by state and central government. Replacement of several indirect taxes with one tax will help mitigate double taxation, cascading effect of taxes, tax evasion, etc. and help our economy to create a national front for movement of goods and services all over India.
GST has adopted a dual GST model in which both central and state government levy tax on goods and services. There are four components of GST which are as follows :
• SGST or State GST, which is collected by the state government and is levied on an intra-state movement of goods and services.
• CGST or Central GST, which is collected by the central government and is levied on an intra-state movement of goods and services along with SGST.
Example: A dealer in Maharashtra sells goods to another dealer in Maharashtra worth INR 70,000. The rate of GST on these goods is 12%. CGST @6% and SGST @6% will be levied and the total GST will amount to INR 8,000.
• IGST or Integrated GST, which is collected by central government and is shared between central and state government. It is levied on an inter-State movement of goods and services.
Example: If the same dealer sells goods to another dealer in Gujarat. Then IGST @12% will be charged.
• UTGST or Union Territory GST, which is collected on the supply of goods and services in any of the Union Territories.
GST slabs are fixed at the rates 5%, 12%, 18% and 28%, where goods under the tax bracket of 5% contain goods of mass consumption like spices, oils etc. Goods under the tax bracket of 12% contain processed foods. Under 18% tax bracket we have FMCG goods, refrigerators etc., and under the tax bracket of 28% we have luxury items like cars etc.
Income Tax Credit
Income Tax Credit or ITC means you can avail credit of the tax paid on input while paying tax on output. Suppose you have paid INR 350 as the tax on input and your tax liability on output comes out to be INR 500. Now you can avail tax credit of INR 350 earlier paid as tax and pay INR 150 (500-350) as tax.
Particulars Dealer 1 Dealer 2 Dealer 3
Selling Price
6000
8000
12000
GST @ 18%
• CGST @ 9%
• SGST @ 9%
540
540
720
720
1080
1080
Selling Price + GST
7080
(6000 + 1080)
9440
(8000 + 1440)
14160
(12000 + 2160)
Income Tax Credit
0
1080
1440
(1080 + 360)
Total Tax Payable
1080
360
720
The total amount of tax in this whole process will be INR 2,160. This process continues until the product is finally consumed by the ultimate consumer.
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