GST or commodity and service tax: An easy explanation.
The item and service tax or GST is the new indirect tax system of the Government of India which
is being implemented from 1st July, 2017. But what is GST and how will it improve the current tax
structure? More importantly, why is India needed for a new tax system? We will answer these
questions in this detailed article.
is being implemented from 1st July, 2017. But what is GST and how will it improve the current tax
structure? More importantly, why is India needed for a new tax system? We will answer these
questions in this detailed article.
1. What is GST?
2. Why is the item and service tax so important?
3. How will GST work?
4. How will GST help India and the common man?
5. Do you need GST registration?
6. How to register for GST
7. Penalties for not being registered under GST
2. Why is the item and service tax so important?
3. How will GST work?
4. How will GST help India and the common man?
5. Do you need GST registration?
6. How to register for GST
7. Penalties for not being registered under GST
1. What is GST?
Goods and service tax or GST is a comprehensive, multi-level, destination-based tax that will be
levied on each value added.
levied on each value added.
To understand this, we have to understand the words under this definition. Let's start with the word '
multi-level'. Any object passes through many steps from construction to final consumption. The first
step is to buy raw materials. The second stage is produced or produced. Then, there is a provision for
storing goods or putting them in the warehouse. After this, the product comes to the retailer or retailer.
And in the last step, the retailer sells the final goods to you or to the final consumer.
multi-level'. Any object passes through many steps from construction to final consumption. The first
step is to buy raw materials. The second stage is produced or produced. Then, there is a provision for
storing goods or putting them in the warehouse. After this, the product comes to the retailer or retailer.
And in the last step, the retailer sells the final goods to you or to the final consumer.
If we look at an illustrated statement of various steps, then it will look like this:
GST will be imposed in these stages, and this will be a multi-level tax. how? We will see soon, but
before that, let's talk about 'Value Edition' before we come.
before that, let's talk about 'Value Edition' before we come.
Suppose the manufacturer wants to make a shirt. For this, he has to buy thread. This thread will
become a shirt after construction. So this means, when it is woven in a shirt, the value of the thread
increases. Then, the manufacturer sells it to the warehousing agent, which adds the label and tag to
each shirt. It turns into another culture of value.After this the distribution center pitches it to the retailer
who bundles each shirt independently and puts resources into the showcasing of shirts.Thus, the
cost of each shirt increases.
become a shirt after construction. So this means, when it is woven in a shirt, the value of the thread
increases. Then, the manufacturer sells it to the warehousing agent, which adds the label and tag to
each shirt. It turns into another culture of value.After this the distribution center pitches it to the retailer
who bundles each shirt independently and puts resources into the showcasing of shirts.Thus, the
cost of each shirt increases.
In this way monetary value is added in each stage which is basically value addition. GST will be
installed on this value addition.
installed on this value addition.
There is another word in the definition that we need to talk about - destination-based. GST will be
levied on all transactions occurring during the entire manufacturing chain. Earlier, when a product
was manufactured, the center used excise duty on manufacturing or excise duty In the next phase,
when the item is sold, the state adds the VAT. Then there will be a VAT at the next level of sale.
levied on all transactions occurring during the entire manufacturing chain. Earlier, when a product
was manufactured, the center used excise duty on manufacturing or excise duty In the next phase,
when the item is sold, the state adds the VAT. Then there will be a VAT at the next level of sale.
So, the nature of the first tax levy was like this:
If You are in chandigarh and Looking best Accounting Courses in chandigarh then Join Cbitss
technologies Cbitss Provides Best Accounting software training , Quickbooks Training &
Tally training in chandigarh
technologies Cbitss Provides Best Accounting software training , Quickbooks Training &
Tally training in chandigarh
2. Why is the item and service tax so important?
Now that we have understood the GST, we see that it will play an important role in changing the
current tax structure and the economy.
current tax structure and the economy.
At present, the Indian tax structure is divided into two - direct and indirect taxes. Direct tax or direct
tax is in which the liability can not be given to anyone else. One example of this is income tax where
you earn income and only you are responsible for paying taxes on it.
tax is in which the liability can not be given to anyone else. One example of this is income tax where
you earn income and only you are responsible for paying taxes on it.
In the case of indirect taxes, tax liability can be given to any other person. This means that when the
shopkeeper gives VAT on his sale he can give his customer liability. That's why the customer pays the
price of the item and the VAT so that the shopkeeper can submit the VAT to the government. Meaning
the customer not only pays the price of the product, but also has to pay a tax liability, and therefore,
when it buys an item, it costs more.
shopkeeper gives VAT on his sale he can give his customer liability. That's why the customer pays the
price of the item and the VAT so that the shopkeeper can submit the VAT to the government. Meaning
the customer not only pays the price of the product, but also has to pay a tax liability, and therefore,
when it buys an item, it costs more.
This happens because the shopkeeper had to pay the tax when he bought the item from a wholesaler.
With the recovery of that amount, it gives the liability to its customer to compensate the government
paid VAT, which has to pay the additional amount. There is no other way to claim refunds and therefore,
there is no alternative except to pass the customer's liability.
With the recovery of that amount, it gives the liability to its customer to compensate the government
paid VAT, which has to pay the additional amount. There is no other way to claim refunds and therefore,
there is no alternative except to pass the customer's liability.
3. How will GST work?
A countrywide tax reform can not work without strict instructions and provisions. The GST Council
has prepared a method to implement this new tax system by dividing it into three categories. how does
it work? Our specialists will tell you here in detail.
has prepared a method to implement this new tax system by dividing it into three categories. how does
it work? Our specialists will tell you here in detail.
When GST will be implemented, then there will be three types of tax:
CGST: Where the income will be gathered by the Central Government
SGST: Revenue will be gathered by state governments available to be purchased in the state
IGST: Where the revenue will be collected by the central government for interstate sales
In most cases, the tax structure under the new rule will be as follows:
Examples
A trader in Maharashtra sold goods to the consumer in that state for Rs. 10,000. The GST rate is 18%
in which the CGST is 9% and the 9% SGST rate is included. In such cases, the dealer deposits
Rs 1800 and in this amount 900 rupees will go to the Central Government and Rs 900 will go to the
Maharashtra government. So now the dealer will have to charge Rs 1800 as IGST. Now CGST and
SGST will not be required to pay.
in which the CGST is 9% and the 9% SGST rate is included. In such cases, the dealer deposits
Rs 1800 and in this amount 900 rupees will go to the Central Government and Rs 900 will go to the
Maharashtra government. So now the dealer will have to charge Rs 1800 as IGST. Now CGST and
SGST will not be required to pay.
4. How will GST help India and the common man?
GST input tax credit value
The combination is based on a smooth flow of the series. In each stage of the manufacturing process,
businesses will have the option of claiming the tax already paid in the previous transaction. It is
important for businesses to understand this process. Here's a detailed explanation.
businesses will have the option of claiming the tax already paid in the previous transaction. It is
important for businesses to understand this process. Here's a detailed explanation.
To understand this, first understand what is the input tax credit. This is the credit which the producer
receives for the tax given on the input used in the manufacture of the product. After that the balance
will be deposited to the government.
receives for the tax given on the input used in the manufacture of the product. After that the balance
will be deposited to the government.
We understand this with an imaginary numerical example.
A shirt maker pays Rs 100 to buy raw materials. If the rate of tax is fixed at 10%, and there is no profit
or loss in it, then it will have to pay 10 rupees as tax. So, the final cost of the shirt now (100 + 10 =)
becomes 100 rupees.
or loss in it, then it will have to pay 10 rupees as tax. So, the final cost of the shirt now (100 + 10 =)
becomes 100 rupees.
In the next phase, the wholesaler buys shirts from the manufacturer for 110 rupees, and adds the
label to it. When he's adding a label, he's adding value. Therefore, its cost increases by 40 rupees
(estimated). On top of this, he has to pay 10% tax, and the final cost is due (110 + 40 =) 150 + 10%
tax = 165 rupees.
label to it. When he's adding a label, he's adding value. Therefore, its cost increases by 40 rupees
(estimated). On top of this, he has to pay 10% tax, and the final cost is due (110 + 40 =) 150 + 10%
tax = 165 rupees.
Now, retailer or retailer pays 165 rupees to buy shirts from the wholesaler because the tax liability
came to him. She has to pack a shirt, and when she does this, she is adding value again. This time,
suppose their value is an additional 30 rupees. Now when he sells shirts, he adds this value to the
final cost (and VAT which he will have to give to the government). At the same time, he has to add
the VAT payable to the Government. So, the cost of the shirt goes up to 214.5 rupees.
Let's see a break up of this:
came to him. She has to pack a shirt, and when she does this, she is adding value again. This time,
suppose their value is an additional 30 rupees. Now when he sells shirts, he adds this value to the
final cost (and VAT which he will have to give to the government). At the same time, he has to add
the VAT payable to the Government. So, the cost of the shirt goes up to 214.5 rupees.
Let's see a break up of this:
Cost = Rs165 + value plus = Rs 30 + 10% tax = Rs 195 + 19.5 = 214.5
Therefore, the customer pays Rs 214.5 for a shirt whose price was originally only 170 rupees
(110 + 40 + 30 bucks). To do so, the tax liability was passed on every sale and the final obligation
came to the customer. It is called the widespread impact of taxes where tax is paid over the tax and
the value of the item increases every time.
(110 + 40 + 30 bucks). To do so, the tax liability was passed on every sale and the final obligation
came to the customer. It is called the widespread impact of taxes where tax is paid over the tax and
the value of the item increases every time.
In GST, there is a way of claiming credit for tax paid in getting input. In this, the person who has paid
tax can claim credit for this tax while submitting his taxes.
tax can claim credit for this tax while submitting his taxes.
In our example, when a wholesaler buys with the manufacturer, then he pays at 10% of his cost,
because liability has been given to him. Then he added a value of 40 rupees at a cost of 100 rupees
and it cost him 140 rupees. Now he will have to give 10% of the cost to the government as tax.
But he has already paid a tax to the producer. But he has already paid a tax to the producer. So,
what he does this time, instead of paying the government as tax (10% of 140% = 14), he reduces
the amount already paid. Therefore, with the new liability of his 14 rupees, he deducts 10 rupees
and only pays 4 rupees to the government. So 10 rupees his input gets credited.
because liability has been given to him. Then he added a value of 40 rupees at a cost of 100 rupees
and it cost him 140 rupees. Now he will have to give 10% of the cost to the government as tax.
But he has already paid a tax to the producer. But he has already paid a tax to the producer. So,
what he does this time, instead of paying the government as tax (10% of 140% = 14), he reduces
the amount already paid. Therefore, with the new liability of his 14 rupees, he deducts 10 rupees
and only pays 4 rupees to the government. So 10 rupees his input gets credited.
When he pays Rs 4 to the government, he can give his liability to the retailer. After this, the retailer
will pay her Rs.154 (140 + 14 =) to buy shirts. In the next phase, the retailer adds a price of 30 rupees
to the cost of the cost.
will pay her Rs.154 (140 + 14 =) to buy shirts. In the next phase, the retailer adds a price of 30 rupees
to the cost of the cost.
Given and paid the government 10% tax on it. When that value adds up, its value becomes 170 rupees.
Now, if he has to pay 10% tax on it, It passed the customer's obligation. But he has input credit
because he has paid a wholesaler for Rs 14 in tax form. Therefore, now it reduces its tax liability
(170% = 170) = 17 rupees by 14 rupees and the government only has to pay 3 rupees. And therefore,
now the customer has to pay this shirt (140 + 30 + 17 =) can be sold for Rs 187.
Now, if he has to pay 10% tax on it, It passed the customer's obligation. But he has input credit
because he has paid a wholesaler for Rs 14 in tax form. Therefore, now it reduces its tax liability
(170% = 170) = 17 rupees by 14 rupees and the government only has to pay 3 rupees. And therefore,
now the customer has to pay this shirt (140 + 30 + 17 =) can be sold for Rs 187.
work
|
Cost
|
10% tax
|
Real liability
|
The total
|
Buy raw materials @ 100
|
100
|
10
|
10
|
110
|
Production @ 40
|
140
|
14
|
4
|
154
|
Add Value @ 30
|
170
|
7
|
3
|
187
|
The total
|
170
|
17
|
187
|
Finally, every time a person is able to claim an input tax credit, the sale price is reduced for that.
And due to low tax liability on its product, the cost cost also decreases. The final value of the shirt
also decreased from Rs 214.5 to Rs 187, thereby reducing the tax burden on the final customer.
And due to low tax liability on its product, the cost cost also decreases. The final value of the shirt
also decreased from Rs 214.5 to Rs 187, thereby reducing the tax burden on the final customer.
Therefore, essentially, there is going to be two-way profit in goods and services tax. First, it will
reduce the wider impact of taxes and second, by allowing input tax credit, this will reduce the tax
burden and, hopefully, the prices will also be reduced.
reduce the wider impact of taxes and second, by allowing input tax credit, this will reduce the tax
burden and, hopefully, the prices will also be reduced.
5. Do you need GST registration?
GST will be applicable to all businesses.
Businesses include - business, commerce, construction, profession, business or any other similar
action, despite its spread or probability. It includes the supply of goods / services to start or stop
business.
action, despite its spread or probability. It includes the supply of goods / services to start or stop
business.
Services means nothing other than the object. It is likely that services and goods will have a different
GST rate.
GST rate.
GST will be applicable to all individuals.
Individuals include - Individuals, HUF (Hindu Undivided Family), Company, Firm, LLP
(Limited Liability Partnership), AOP, Cooperative Society, Society, Trust etc. However, GST will not be
applicable to farmer experts.
(Limited Liability Partnership), AOP, Cooperative Society, Society, Trust etc. However, GST will not be
applicable to farmer experts.
Agriculture includes cultivation of flowers, horticulture, silk production, crops, grass or garden.
But dairy farming is not included in poultry, stock reproduction (animal-rearing zone), fruit or marble or
plant adherence.
But dairy farming is not included in poultry, stock reproduction (animal-rearing zone), fruit or marble or
plant adherence.
When will the need for GST registration
Pan is mandatory to get GST registration. However, non-resident can obtain GST registration on the
basis of other documents mandated by the government
basis of other documents mandated by the government
A registration will be required for each state. Taxpayers can get separate registrations for their different
business verticals (business vertical) in the state.
business verticals (business vertical) in the state.
GST registration is mandatory in the following cases -
Turnover basis
GST will be collected and paid for your business limit exceeding Rs 20 lakh in the financial year.
[The limit for some special category states is 10 lakh] This limit is applicable for GST payment.
[The limit for some special category states is 10 lakh] This limit is applicable for GST payment.
"Total turnover" means to make all-the-cost supply, supply of freedoms, the export of goods and / or
services and the inter-state supply of the person with the same pan, on all India basis and to include
taxes ( If any) will be payable under CGS Act, SGST Act and IGST Act.
services and the inter-state supply of the person with the same pan, on all India basis and to include
taxes ( If any) will be payable under CGS Act, SGST Act and IGST Act.
More information join CBitss Technologies . Cbitss Is best tally training institute in chandigarh and
provides best tally training in chandigarh sector 34A
provides best tally training in chandigarh sector 34A
Subscribe by Email
Follow Updates Articles from This Blog via Email
1 Comments
thanks for your help
Reply Delete