Know GST Benefits and its components CGST/SGST/IGST by CS Ravi Shankar Periwal & CS Shefali Bharti, Founders of RSPB Corporate Solutions LLP


In our earlier Article, we had discussed over GST and its History in India. If you have missed reading it, kindly click here.

In this Article, we have compiled the GST Benefits and its important components i.e; CGST/SGST/IGST

GST Benefits for Individuals:

Elimination of Multiple Taxes
The biggest benefit of GST is an elimination of multiple indirect taxes. All taxes that currently exist will not be in picture. This means current taxes like excise, octroi, sales tax, CENVAT, Service tax, turnover tax etc will not be applicable and all that will fall under common tax called as GST.
 
Saving more Money:
For a common man, GST applicability means the elimination of double charging in the system. This will reduce the price of goods and services & help common man for saving more money. It is expected that price of FMCG products, small cars, cinema tickets, electrical wires etc is expected to reduce.
 
Ease of business:
GST will bring one country one tax concept. This will prevent unhealthy competition among states. It will be beneficial to do interstate business.
 
Easy Tax filing and Documentation:
For a businessman, GST will be a boon. No multiple taxes means compliance and documentation will be easy. Return filling, tax payment, and refund process will easy and hassle free.
 
Cascading Effect reduction:

GST will be applicable at all stages from manufacturing to consumption. GST will provide tax credit benefit at every stage in chain. Today at every stage margin is added and tax is paid on whole amount, in GST you will have tax credit benefit and tax will be paid on margin amount only. It will reduce cascading effect of tax thereby reduction cost of product.
 
Let’s take the following example to understand how removing the cascading effect will reduce taxes.

Current scenario:

A trader buys office supplies for Rs. 20,000 paying 5% as tax. It charges 15% service tax on services of Rs. 50,000. Currently, he has to pay Rs. 50,000*15% = Rs. 7,500 without getting any deduction of Rs. 1,000 VAT already paid on stationery.

Under GST (assuming GST= 18%)

GST on service of Rs. 50,000 @18%

9,000

Less: GST on office supplies (20,000*18%)

3,600

Net GST to pay

5,400


**This will be especially beneficial to industries that involve both goods and services (like 
restaurant business) and pay both VAT & Service Tax under the current regime.
 
More Employment:

As GST will reduce cost of product it is expected that demand of product will increase and to meet the demand, supply has to go up. The requirement of more supply will be addressed by only increasing employment.
 
Increased in GDP:
As demand will grow and hence it will increase gross domestic product. It is estimated that GDP will grow by 1-2% due to GST.
 
Reduction in Tax Evasion:

GST is a single tax which will include various taxes, making the system efficient with very little chances of corruption and Tax Evasion.
 
More Competitive Product:

As GST will address cascading effect of tax, inter-state tax, high logistics cost it will make manufacturing more competitive. This will bring advantages to businessman and consumer.
 
Increase in Revenue:

GST will replace all 17 indirect taxes with single tax. Increase on product demand will ultimately increase tax revenue for state and central government. GST is a boon for the Indian economy and the common man. It is a welcome step taken by the government.
 
Regulating the unorganized sector

Certain industries in India like construction and textile are largely unregulated and unorganized. GST has provisions for online compliances and payments, and availing of input credit only when the supplier has accepted the amount, thereby bringing accountability and regulation to these industries.
Models of GST:

There are three prime models of GST
  1. GST at central (union) Government level only(intra-state movement)
  2. GST at State Government level only(intra-state movement)
  3. GST at both, Union and State Government levels(inter-state movement)
  • Central GST
Central GST is the component of GST that will be levied by the central government on all items, both goods and services. It only applies to intra-state trade. A dealer can use input tax credit of CGST against CGST or IGST.
 
  • State GST
State GST is the component of GST that will be levied by the state government on all items, both goods and services. It only applies to intra-state trade. A dealer can use input tax credit of SGST against SGST or IGST.
 
  • Integrated GST
Integrated GST is the component of GST that will be levied by the central government in case of inter-state trade. It is applicable on all items, both goods and services. A dealer can use input tax credit of IGST against SGST, CGST or IGST.
 
What is the Exemption Limit?

GST is applicable to all dealers with a turnover of over Rs. 20 lakh (Rs. 10 lakh in North Eastern states) in case they are involved exclusively in intra-state trade (i.e. their supplies and sales are within a single state). In case of any inter-state activity, GST is applicable regardless of turnover.

Composition Scheme

The GST Composition Scheme is applicable only on traders operating in a single state with a supply turnover of less than Rs. 50 lakh. Supply turnover includes any freebies, discounts and even goods and services not liable to be taxed.


 

Difference between CGST/SGST/IGST:

Basis of Distinction

Central GST

State GST

Integrated GST

Meaning

It is levied by Central government to replace the existing tax like service tax, excise, etc

It is levied by State government to replace the existing tax like sales tax, luxury tax, entry tax, etc.

It is a combined form of CGST and SGST levied and collected by Central government.

Applicability

It is applicable only within the state

It is applicable only within the state

It is applicable only in the course of interstate supply.

Input Tax Credit

The credit of CGST, is available only against CGST and IGST

The credit of SGST is available only against SGST and IGST

The credit of IGST is available against CGST, SGST and IGST.

Collection of tax

It is collected by central government

It is collected by State government

It is collected by central government

Exemption limit

The exemption limit of Rs.20 Lakh is applicable

The exemption limit of Rs.20 Lakh is applicable

No exemption limit is applicable.

Composition Scheme

The dealer, can use the benefit of composition scheme up to turnover of 50 lakh.

The dealer can use the benefit of composition scheme up to turnover of 50 lakh.

Composition scheme is not applicable in the course of interstate supply.

Free Supplies

Applicable on free supplies

Applicable on free supplies

Applicable on free supplies


Registration

No registration till the turnover crosses 20 Lakh (10 Lakh in north eastern states).

No registration till the turnover crosses 20 Lakh (10 Lakh in north eastern states).

Registration mandatory if any supply is made outside the state.



To read on the Topic Regarding "GST Benefits for Individuals & its Model", kindly stay tuned as it will be explained in next Article.

Authors Details:

RSPB Corporate Solutions LLP
Partners

CS RavishankarPeriwal                              CS ShefaliBharti
Mem:A42832                                             Mem:A42905
Email:csraviperiwal@gmail.com                Email:csshefalibharti@gmail.com
Contact: 8866438401                               Contact:8960825113/9807656327


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